What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-05 · 134 added, 235 removed, 372 unchanged (50% of the section changed)

4 unchanged sentences

(Amounts in Thousands, Except Share and Per Share Amounts)

September 30,

Current assets:

10 unchanged sentences

Accrued expenses

Current portion of long-term debt

Deferred revenue and customer deposits

7 unchanged sentences

$ 0.001 par value— 100,000 shares authorized;

0 shares issued and outstanding at September 30, 2021 and December 31, 2020

0 shares issued and outstanding at March 31, 2022 and December 31, 2021

Stockholders’ deficit:

1 unchanged sentence

$ 0.001 par value— 100,000,000 shares authorized;

11,238,994 and 11,230,482 shares issued and outstanding at September 30, 2021 and December 31, 2020

11,255,466 shares issued and outstanding at March 31, 2022 and December 31, 2021

Capital deficiency

7 unchanged sentences

(Amounts in Thousands, Except Share and Per Share Amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Total net sales

14 unchanged sentences

Total other expense, net

Income from continuing operations before income taxes

Income tax (expense) benefit

Net income from continuing operations

Net loss from discontinued operations, net of tax (Note 1)

Income before income taxes

Income tax expense

Basic and diluted earnings per share:

Basic earnings per share from continuing operations:

Diluted earnings per share from continuing operations:

Basic earnings per share:

10 unchanged sentences

earnings (loss)

June 30, 2021

Stock-based compensation

Stock option exercises

Components of comprehensive income:

September 30, 2021

earnings (loss)

December 31, 2021

2 unchanged sentences

Components of comprehensive income:

September 30, 2021

earnings (loss)

June 30, 2020

Shares issued under stock-based compensation plans

Stock-based compensation

Components of comprehensive income:

September 30, 2020

March 31, 2022

earnings (loss)

December 31, 2020

Shares issued under stock-based compensation plans

Stock-based compensation

Components of comprehensive income:

September 30, 2020

March 31, 2021

See accompanying notes to condensed consolidated financial statements

3 unchanged sentences

(Amounts in Thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

Loss from discontinued operations

Depreciation and amortization expense

11 unchanged sentences

Other liabilities

Cash provided by operating activities - continuing operations

Cash used in operating activities - discontinued operations

Cash (used in) provided by operating activities

Investing activities

4 unchanged sentences

Principal payments on Senior Credit Facility

Principal payments on ABL Revolver

Principal payments on Senior Notes

Proceeds from Senior Notes

Proceeds from ABL Revolver, net of discount

Proceeds from Senior Credit Facility, net of discount

Proceeds from exercises of stock options

Taxes withheld and paid on stock compensation

Debt issuance costs

Payments on debt extinguishment

Payments on debt extinguishment and other

Proceeds from finance lease financing

Payments on finance lease obligations

Cash (used in) provided by financing activities

Cash provided by (used in) financing activities

Effect of exchange rates on cash

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

1 unchanged sentence

Supplemental disclosures of cash flow information

Cash paid (refunded) during the period for:

Cash paid during the period for:

Income taxes paid

Income taxes (refunded)

Right-to-use assets obtained in exchange for lease obligations:

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

10 unchanged sentences

(which, together with its subsidiary companies, is referred to herein as “CPI” or the “Company”) is a payment technology company and leading provider of comprehensive Financial Payment Card solutions in the United States.

CPI is engaged in the design, production, data personalization, packaging and fulfillment of “Financial Payment Cards,” which the Company defines as credit, debit and Prepaid Debit Cards issued on the networks of the “Payment Card Brands” (Visa, Mastercard ® , American Express ® and Discover ® in the United States and Interac in Canada).

The Company defines “Prepaid Debit Cards” as debit cards issued on the networks of the Payment Card Brands but not linked to a traditional bank account.

CPI also offers an instant card issuance solution, which provides banks the ability to issue a personalized debit or credit card within the bank branch to individual cardholders.

CPI serves its customers through a network of high-security production and card services facilities in the United States, each of which is audited for compliance with the standards of the Payment Card Industry Security Standards Council (the “PCI Security Standards Council”) by one or more of the Payment Card Brands.

CPI’s leading network of high-security production facilities allows the Company to optimize its solutions offerings and effectively meet customers’ needs.

CPI is engaged in the design, production, data personalization, packaging and fulfillment of Financial Payment Cards, which the Company defines as credit, debit and Prepaid Debit Cards issued on the networks of the Payment Card Brands (Visa, Mastercard, American Express and Discover).

CPI also offers an instant card issuance solution, which provides card issuing bank customers the ability to issue a personalized debit or credit card within the bank branch to individual cardholders.

CPI serves its customers through a network of high-security production and card services facilities in the United States, each of which is audited for compliance with the standards of the PCI Security Standards Council by one or more of the Payment Card Brands.

CPI’s leading network of high-security production facilities allows the Company to optimize its solutions offerings and to serve its customers .

COVID-19 Update

The COVID-19 pandemic has impacted economies and societies globally.

The long-term implications of COVID-19 on the Company’s results of operations and overall financial performance remain uncertain.

The health and safety of CPI employees remain paramount, and the Company continues to follow response protocols based on precautions and other appropriate measures recommended by the Centers for Disease Control and Prevention, as well as various state and local executive orders, health orders and guidelines.

All of CPI’s operations have remained open and continue to provide direct and essential support to the financial services industry.

The Company believes the global impacts from COVID-19 have contributed to certain adverse effects on its supply chain, including increased lead times for, and higher costs for, certain raw materials and components, as well as a global chip shortage, which are expected to continue in the future.

CPI closely monitors its supply chain and has purchased and may continue to purchase additional inventory to help mitigate supply chain constraints.

The COVID-19 pandemic has impacted, and continues to impact, economies and societies globally, including the locations where we, our customers and our suppliers conduct business.

The long-term implications of COVID-19 on the Company’s results of operations and overall financial performance remain uncertain, though the health and safety of CPI employees remains paramount.

The Company believes the global impacts from COVID-19, along with other factors, have contributed to certain adverse effects on its supply chain, including increased lead times for, and higher costs of, certain raw materials and components, such as microchips, which are expected to continue in the future.

CPI closely monitors its supply chain and has and may continue to purchase additional inventory, compile buffer stock and place orders in advance to help mitigate supply chain constraints.

The current environment has also affected the available labor pool in the areas in which the Company operates, which has resulted in increased labor cost and turnover in our facilities, challenges hiring production employees and shipping delays.

On November 4, 2021, the Occupational Safety and Health Administration (“OSHA”) filed an Emergency Temporary Standard (“ETS”) with the Office of the Federal Register that will require employers with 100 or more employees to require their employees to be fully vaccinated with a COVID-19 vaccine or to produce a negative COVID-19 test result on at least a weekly basis, along with certain other requirements.

Based on the pre-publication version of the ETS, the Company believes the proposed rule would apply to the Company.

Compliance with the ETS could result in increased costs as well as labor disruptions, employee attrition and/or difficulty recruiting new employees which could compound the labor shortage already impacting the Company.

The Company expects the labor and supply chain challenges described above, and the associated costs, to continue to increase through the fourth quarter of 2021 and beyond.

CPI continues to actively recruit additional employees and offer market competitive salaries to mitigate labor shortages.

Though the Company has implemented measures to mitigate the impacts of the labor and supply chain challenges described above, the Company believes that such impacts, and the associated costs, may continue to increase throughout 2022 and possibly beyond.

The Company may not be able to pass all of these costs through to its customers.

The Company has also experienced increased demand for its products and services.

The Company is experiencing increased production lead times, which it believes is likely to continue in the fourth quarter of 2021 and beyond, depending on the duration of the staffing and supply chain challenges and the level of demand from its customers.

The Company is experiencing increased production lead times, which it believes are likely to continue throughout 2022 and possibly beyond, depending on the duration of the staffing and supply chain challenges and the level of demand from its customers.

The Company will continue to monitor and respond as the situation evolves.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, changes in net operating loss carryback periods, alternative minimum tax credit

refunds, modifications to the net interest deduction limitation and technical corrections to tax depreciation methods for qualified improvement property.

Refer to Note 11, Income Taxes for a discussion of the CARES Act income tax impacts on the Company.

In addition, CPI deferred employer social security payments in 2020 in accordance with the CARES Act, which are allowed to be paid in two installments in 2021 and 2022.

While the Company is participating in certain programs under the CARES Act, the CARES Act and its guidance are subject to change.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law.

The CARES Act, among other things, included provisions relating to refundable payroll tax credits, deferment of employer social security payments, changes in net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitation and technical corrections to tax depreciation methods for qualified improvement property.

The company deferred employer social security payments in 2020 in accordance with the CARES Act, and the first installment repayment was made in the fourth quarter of 2021.

The second installment payment is permitted to be paid no later than the fourth quarter of 2022.

Refer to Note 8, “Accrued Expenses” for additional discussion.

Basis of Presentation

3 unchanged sentences

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Discontinued Operations

On August 3, 2018, the Company completed the sale of its three facilities in the United Kingdom that produced retail cards, such as gift and loyalty cards, for customers in the United Kingdom and continental Europe, and provided personalization, packaging and fulfillment services.

The facilities sold included Colchester, Liverpool and Derby locations.

The Company reported the U.K.

Limited reporting segment as discontinued operations in accordance with GAAP.

The Company did not retain significant continuing involvement with the discontinued operations subsequent to the disposal.

The impact of the discontinued operations was insignificant to the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2021 and 2020.

Use of Estimates

8 unchanged sentences

Since CPI is a smaller reporting company, adoption of this accounting standard is effective for the Company for fiscal years beginning after December 15, 2022, and interim periods therein, with early adoption permitted.

The Company has elected not to early adopt this accounting standard in the current fiscal year 2021.

The Company has elected not to early adopt this accounting standard.

The Company is evaluating the impact of adoption of this standard and does not anticipate the application of ASU 2016-13 will have a material impact on the Company’s consolidated financial position and results of operations.

Adjustment of Prior Period Financial Statements for Immaterial Items

In accordance with Securities and Exchange Commission Staff Accounting Bulletin 99, Materiality, codified in Accounting Standards Codification (“ASC”) 250, Presentation of Financial Statements , during the year ended December 31, 2020, the Company corrected two immaterial items relating to estimated sales tax expense and depreciation expense that related to prior periods.

The condensed consolidated financial statements and other financial information for the

prior year period reflect the corrected balances which included sales tax expense in Selling, General and Administrative expenses (“SG&A”) of $ 293 and depreciation expense of $ 124 for the nine months ended September 30, 2020.

Refer to Note 14, Commitments and Contingencies for additional discussion of the estimated sales tax liability recorded in “Accrued expenses” on the condensed consolidated balance sheet.

The Company disaggregates its net sales by major source as follows:

Three Months Ended September 30, 2021

Debit and Credit

Prepaid Debit

Intersegment eliminations

Nine Months Ended September 30, 2021

Debit and Credit

Prepaid Debit

Intersegment eliminations

Three Months Ended September 30, 2020

Three Months Ended March 31, 2022

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Debit and Credit

3 unchanged sentences

“Products” net sales are recognized when obligations under the terms of a contract with a customer are satisfied.

In most instances, this occurs over time as cards are manufactured for specific customers and have no alternative use and the Company has an enforceable right to payment for work performed.

In most instances, this occurs over time as cards are produced for specific customers and have no alternative use and the Company has an enforceable right to payment for work performed.

For work performed but not completed and unbilled, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts.

Items included in “Products” net sales are manufactured Financial Payment Cards, including contact-EMV ® , contactless dual-interface EMV, contactless and magnetic stripe cards, our eco-focused solutions, including Second Wave ® and Earthwise TM cards made with upcycled plastic , metal cards, private label credit cards and retail gift cards.

Items included in “Products” net sales are produced Financial Payment Cards, including contact-EMV ® , contactless dual-interface EMV, contactless and magnetic stripe cards, our eco-focused solutions, including Second Wave ® and Earthwise TM cards made with upcycled plastic, metal cards, private label credit cards and retail gift cards.

Card@Once ® printers and consumables are also included in “Products” net sales, and their associated revenues are recognized at the time of shipping.

5 unchanged sentences

Net sales are recognized for “Services” as the services are performed.

Items included in “Services” net sales include the personalization and fulfillment of Financial Payment Cards, including CPI On-Demand ® personalization, providing tamper-evident secure packaging and fulfillment services to Prepaid Debit Card program managers and software-as-a-service personalization of instant issuance debit and credit cards.

The Company also generates “Services” net sales from usage-fees generated from the Company’s patented card design software, known as MYCA TM , which provides customers and cardholders the ability to design cards on the internet and customize cards with individualized digital images.

Items included in “Services” net sales include the personalization and fulfillment of Financial Payment Cards, providing tamper-evident secure packaging and fulfillment services to Prepaid Debit Card program managers, and software as a service personalization of instant issuance debit cards.

As applicable, for work performed but not completed and unbilled, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts.

6 unchanged sentences

Accounts receivable consisted of the following:

September 30, 2021

March 31, 2022

December 31, 2021

3 unchanged sentences

Inventories consisted of the following:

September 30, 2021

March 31, 2022

December 31, 2021

4 unchanged sentences

Plant, equipment, leasehold improvements and operating lease right-of-use assets consisted of the following:

September 30, 2021

March 31, 2022

December 31, 2021

6 unchanged sentences

Operating lease right-of-use assets, net of accumulated amortization

Depreciation expense of plant, equipment and leasehold improvements, including depreciation of assets under financing leases, was $ 2,482 and $ 2,831 for the three months ended September 30, 2021 and 2020, respectively, and $ 8,223 and $ 8,989 for the nine months ended September 30, 2021 and 2020, respectively.

Depreciation expense of plant, equipment and leasehold improvements, including depreciation of assets under financing leases, was $ 2,643 and $ 3,073 for the three months ended March 31, 2022 and 2021, respectively.

Operating lease right-of-use assets, net of accumulated amortization, are further described in Note 9, “Financing and Operating Leases.”

Goodwill and Other Intangible Assets

The Company reports all of its goodwill in the Debit and Credit segment at September 30, 2021 and December 31, 2020.

The Company reports all of its goodwill in the Debit and Credit segment at March 31, 2022 and December 31, 2021.

Goodwill is tested for impairment at least annually on October 1 or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable.

The Company did not identify a triggering event requiring a quantitative test for impairment as of September 30 , 2021.

The Company did not identify a triggering event requiring a quantitative test for impairment as of March 31, 2022.

Intangible assets consist of customer relationships, technology and software, and trademarks.

Intangible amortization expense was $ 1,088 and $ 1,149 for the three months ended September 30, 2021 and 2020, respectively, and $ 3,386 and $ 3,447 for the nine months ended September 30, 2021 and 2020, respectively.

At September 30, 2021 and December 31, 2020, intangible assets, excluding goodwill, were comprised of the following:

September 30, 2021

Intangible amortization expense was $ 967 and $ 1,149 for the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022 and December 31, 2021, intangible assets, excluding goodwill, were comprised of the following:

March 31, 2022

December 31, 2021

3 unchanged sentences

Intangible assets subject to amortization

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of September 30, 2021 was as follows:

2021 (excluding the nine months ended September 30, 2021)

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of March 31, 2022 was as follows:

2022 (excluding the three months ended March 31, 2022)

Fair Value of Financial Instruments

7 unchanged sentences

Fair Value as of

Fair Value Measurement at September 30, 2021

September 30,

Fair Value Measurement at March 31, 2022

(Using Fair Value Hierarchy)

2 unchanged sentences

(Using Fair Value Hierarchy)

First Lien Term Loan

Senior Credit Facility

The aggregate fair value of the Company’s Senior Notes (as defined in Note 10, “Long-Term Debt”) was based on bank quotes.

The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable each approximate fair value.

The fair value measurement associated with the ABL Revolver (as defined in Note 10, “Long-Term Debt”) approximates its carrying value as of March 31, 2022, given the applicable variable interest rates and nature of the security interest in Company assets.

The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable each approximate fair value due to their short-term nature.

Accrued Expenses

Accrued expenses consisted of the following:

September 30, 2021

March 31, 2022

December 31, 2021

3 unchanged sentences

Accrued rebates

Sales tax liability

Estimated sales tax liability

Accrued Interest

Operating and financing lease liability (current portion)

Income taxes payable

Total accrued expenses

8 unchanged sentences

Three Months Ended

September 30, 2021

September 30, 2020

Operating lease costs

Variable lease costs

Short-term operating lease costs

Total expense from operating leases

Finance lease cost:

Right-of-use amortization expense

Interest on lease liabilities

Total financing lease costs

Nine Months Ended

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Operating lease costs

7 unchanged sentences

The following table reflects balances for operating and financing leases:

September 30, 2021

March 31, 2022

December 31, 2021

7 unchanged sentences

Accumulated depreciation

Total property, equipment and leasehold improvements, net

Total financing leases in property, equipment and leasehold improvements, net

Financing lease liability (current)

2 unchanged sentences

Finance and operating lease ROU assets are recorded in “Plant, equipment, leasehold improvements and operating lease right-of-use assets, net.” Financing and operating lease liabilities are recorded in “Accrued expenses” and “Other long-term liabilities.”

Future cash payment with respect to lease obligations as of September 30, 2021 were as follows:

2021 (excluding the nine months ended September 30, 2021)

Future cash payment with respect to lease obligations as of March 31, 2022 were as follows:

2022 (excluding the three months ended March 31, 2022)

Total lease payments

1 unchanged sentence

Long-Term Debt

At September 30, 2021 and December 31, 2020, long-term debt consisted of the following:

September 30,

First Lien Term Loan

Senior Credit Facility

At March 31, 2022 and December 31, 2021, long-term debt consisted of the following:

Unamortized deferred financing costs

Unamortized discount

Total long-term debt

1 unchanged sentence

Long-term debt, net of current maturities

(1) The Senior Notes bear interest at a fixed rate.

The variable interest rate on the First Lien Term Loan and Senior Credit Facility was 5.5 % and 9.5 % , respec tively, as of December 31, 2020.

On March 15, 2021, the Company completed a private offering by its wholly-owned subsidiary, CPI CG Inc.

(the “Issuer”), of $ 310,000 aggregate principal amount of 8.625 % senior secured notes due 2026 (the “Senior Notes”) and related guarantees.

The notes and related guarantees were offered and sold in a private transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States to certain non-U.S.

persons in compliance with Regulation S under the Securities Act.

In addition, the Company and CPI CG Inc.

as borrower entered into a credit agreement with Wells Fargo Bank, National Association, as lender, administrative agent and collateral agent, providing for an asset-based, senior secured revolving credit facility of up to $ 50,000 (the “ABL Revolver”).

In connection with the issuance of the Senior Notes and entry into the ABL Revolver, the Company terminated its existing credit facilities consisting of a $ 30,000 senior credit agreement, dated as of March 6, 2020, among the Company, CPI CG Inc., as borrower, the lenders party thereto and Guggenheim Credit Services, LLC as administrative agent and collateral agent (the “Senior Credit Facility”), and a $ 435,000 first lien term loan, dated as of August 17, 2015 as amended, among the Company, the borrower, the lenders party thereto, GLAS USA LLC, as administrative agent and GLAS Americas LLC, as collateral agent (the “First Lien Term Loan”) .

Net proceeds from the Senior Notes, together with cash on hand and initial borrowings of $ 15,000 under the ABL Revolver, were used to pay in full and terminate the Senior Credit Facility and First Lien Term Loan on March 15, 2021, and to pay related fees and expenses.

As of March 15, 2021, the Company had outstanding borrowings of $ 30,000 , plus accrued and unpa id interest, under the Senior Credit Facility, and $ 304,746 , plus accrued and unpaid interest, under the First Lien Term Loan.

In addition, early termination of the Senior Credit Facility required payment of a “make-whole” premium of $ 2,635 as an early termination penalty, which was paid on March 15, 2021, and recorded as interest expense on the condensed consolidated statement of comprehensive income for the nine months ended September 30, 2021.

During the second quarter of 2021, the Company used $ 15,000 of cash on hand to pay down the ABL Revolver to zero and had no borrowings outstanding thereunder as of September 30, 2021.

(the “Issuer”), of $ 310,000 aggregate principal amount of 8.625 % Senior Notes due 2026 and related guarantees.

The Senior Notes bear interest at a rate of 8.625 % per annum and mature on March 15, 2026.

Interest is payable on the Senior Notes on March 15 and September 15 of each year, beginning on September 15, 2021.

The ABL Revolver matures on the earliest to occur of March 15, 2026 and the date that is 90 days prior to the maturity of the Senior Notes.

Borrowings under the ABL Revolver bear interest at a rate per annum that ranges from the LIBOR Rate plus 1.25 % to the LIBOR Rate plus 1.75 % , or the Base Rate plus 0.25 % to the Base Rate plus 0.75 % , based on the average daily borrowing capacity under the ABL Revolver over the most recently completed month.

The Base Rate as defined in the ABL Revolver is the greater of the Federal Funds Rate plus 0.5 % , the LIBOR Rate for a one month interest period plus 1.0 % , or the Wells Fargo Bank, National Association “prime rate”.

The Company may elect to apply either the LIBOR Rate or Base Rate interest to borrowings at its discretion.

Interest is payable on the Senior Notes on March 15 and September 15 of each year.

On March 15, 2021, the Company and CPI CG Inc., as borrower, entered into a Credit Agreement with Wells Fargo Bank, National Association, as lender, administrative agent and collateral agent, providing for an ABL Revolver of up to $ 50,000 (the “ABL Revolver”).

On March 3, 2022, the Company and CPI CG Inc.

entered into Amendment No.

1 to the Credit Agreement (the “Amendment”), which amended the ABL Revolver.

The Amendment, among other things, increased the available borrowing capacity under the ABL Revolver to $ 75,000 , increased the uncommitted accordion feature to $ 25,000 from $ 15,000 , and revised the interest rate provisions to replace the ABL Revolver’s prior LIBOR interest benchmark with updated benchmark provisions using the secured overnight financing rate (“SOFR”) administered by the Federal Reserve Bank of New York.

Borrowings under the amended ABL Revolver bear interest at a rate per annum equal to the applicable term SOFR rate selected and adjusted for a credit spread, plus an applicable interest rate margin based on the average unused capacity of the facility.

The Company may select a one, three or six month term SOFR rate, which is adjusted for a credit spread of 0.10 % to 0.30 % depending on the term selected.

Through March 31, 2023, the applicable interest rate margin ranges from 1.50 % to 1.75 % depending on the average unused capacity of the facility for the previous quarter.

The unused portion of the ABL Revolver commitment accrues a commitment fee, which ranges from 0.375 % to 0.50 % per annum, based on the average daily borrowing capacity under the ABL Revolver over the immediately preceding month.

Unused commitment fee expense was $ 62 and $ 8 for the three months ended March 31, 2022 and 2021, respectively.

The fee percentage and calculation of the unused commitment fee changes, effective April 1, 2023, to between 0.375 % and 0.50 % (determined based on the average revolver usage over a specified period of time) of the unused portion of the facility.

The ABL Revolver includes limitations on the Company’s ability to borrow in certain situations, including limitations based on the calculation of a borrowing capacity and during periods in which the amount available to borrow under the ABL Revolver is less than $ 7,500 .

The borrowing capacity represents the net availability under the ABL

Revolver and is calculated as the lesser of a) the total of certain eligible assets, including cash, accounts receivable and inventories, further reduced by stated contribution percentages and adjustments or b) the $ 75,000 of available borrowing capacity under the ABL Revolver (“Borrowing Base”).

The Borrowing Base is further reduced by credit line reserves, letters of credit, as well as the loan ledger balance outstanding on the ABL Revolver.

Additionally, commencing with the month immediately following a date on which borrowing availability is below $ 7,500 and until such time that borrowing availability equals or exceeds $ 7,500 for 30 consecutive days, the Company must maintain a fixed charge coverage ratio (as defined in the credit agreement for the ABL Revolver) greater than 1.00 , calculated for the trailing 12 months in order to borrow under the ABL Revolver.

On March 15, 2021, the Company used net proceeds from the Senior Notes, together with cash on hand and initial borrowings of $ 15,000 under the ABL Revolver, to pay in full and terminate a previous Senior Credit Facility and a previous First Lien Term Loan on March 15, 2021, and to pay related fees and expenses.

Early termination of the Senior Credit Facility required payment of a “make-whole” premium of $ 2,635 as an early termination penalty, which was paid on March 15, 2021, and recorded as interest expense on the condensed consolidated statement of comprehensive income for the year ended December 31, 2021.

On March 11, 2022, the Issuer used the available borrowing capacity under the ABL Revolver to fund the redemption of $ 20,000 aggregate principal amount of the Senior Notes at a redemption price equal to 103 % of the principal amount thereof plus accrued and unpaid interest thereon to the redemption date.

The Senior Notes are guaranteed by the Company and certain of its current and future wholly-owned domestic subsidiaries (other than the Issuer) that guarantee the ABL Revolver, and are secured by substantially all of the assets of the Issuer and the guarantors, subject to customary exceptions.

8 unchanged sentences

and enter into certain transactions with affiliates, subject to a number of important exceptions and qualifications as set forth in the respective agreements.

The Company may have obligations to make an offer to repay the Senior Notes, requiring prepayment in advance of the maturity date, upon the occurrence of certain events including a change of control, certain asset sales and based on an annual excess cash flow calculation.

The Company has obligations to make an offer to repay the Senior Notes, requiring prepayment in advance of the maturity date, upon the occurrence of certain events including a change of control, certain asset sales and based on an annual excess cash flow calculation.

The annual excess cash flow calculation is determined pursuant to the terms of that certain Indenture, dated as of March 15, 2021, by and among Issuer, the Company, the subsidiary guarantors and U.S.

Bank National Association, as trustee, with any required prepayments to be made after the issuance of the Company’s annual financial statements.

As of December 31, 2020, $ 8,027 of debt principal was classified as a current liability as a result of an excess free cash flow calculation for 2020 pursuant to the terms of the Senior Credit Facility and the First Lien Term Loan.

The Company offered to prepay the balance, pursuant to the terms of the Senior Credit Facility and the First Lien Term Loan, which resulted in a required principal prepayment of $ 7,754 to the First Lien Term Loan lenders on March 4, 2021, plus accrued interest thereon.

No such payment was required to be made in 2022 based on the Company’s operating results for the year ended December 31, 2021.

Deferred Financing Costs and Discount

Certain costs and discounts incurred with borrowings or the establishment or modification of credit facilities are reflected as a reduction to the long-term debt balance.

Certain costs and discounts incurred with borrowings are reflected as a reduction to the long-term debt balance.

These costs are amortized as an adjustment to interest expense over the life of the borrowing using the effective-interest rate method.

The debt issuance costs recorded on the Senior Notes were $ 7,558 and are reported as a reduction to the long-term debt balance as of September 30, 2021.

The net discount and debt issuance costs on the ABL Revolver were $ 2,144 and are recorded as other assets (current and long term) on the condensed consolidated balance sheet as of September 30, 2021.

During the nine months ended September 30, 2021, the Company recorded a $ 5,048 loss on debt extinguishment relating to the unamortized deferred financing costs and debt discount in connection with the termination of the Senior Credit Facility and First Lien Term Loan.

During the three months ended September 30, 2021, the Company recognized an income tax expense of $ 2,887 on pre-tax income of $ 9,513 , compared to income tax expense of $ 1,402 on pre-tax income of $ 7,211 for the prior year period.

During the nine months ended September 30, 2021, the Company recognized income tax expense of $ 6,769 on pre-tax income of $ 22,037 , representing an effective income tax rate of 30.7 %.

For the nine months ended September 30, 2020, the Company recognized an income tax benefit of $ 2,178 on pre-tax income from continuing operations of $ 6,696 , representing an effective income tax rate of ( 32.5 %).

For the nine months ended September 30, 2021 and 2020, the effective tax rate differs from the U.S.

The remaining unamortized debt issuance costs recorded on the Senior Notes were $ 5,612 and is reported as a reduction to the long-term debt balance as of March 31, 2022.

The remaining unamortized net discount and debt issuance costs on the ABL Revolver and related Amendment were $ 1,930 and is recorded as other assets (current and long term) on the condensed consolidated balance sheet as of March 31, 2022.

During the three months ended March 31, 2021, the Company recorded a $ 5,048 loss on debt extinguishment relating to the unamortized deferred financing costs and debt discount in connection with the termination of the Senior Credit Facility and First Lien Term Loan, as described earlier.

During the three months ended March 31, 2022, the Company recognized an income tax expense of $ 3,718 on pre-tax income of $ 9,720 , compared to income tax expense of $ 1,360 on pre-tax income of $ 3,770 for the prior year period.

For the three months ended March 31, 2022 and 2021, the effective tax rate differs from the U.S.

federal statutory income tax rate as follows:

September 30,

Tax at federal statutory rate

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Permanent items

Tax benefit CARES Act

Effective income tax rate

During the nine months ended September 30, 2021, the Company received cash income tax refunds of $ 9,846 related primarily to U.S.

federal income taxes for prior tax years, including net operating loss (“NOL”) carrybacks relating to the CARES Act.

In March 2020, the CARES Act was signed into law.

The CARES Act allowed companies with NOLs originating in 2018, 2019, or 2020 to carry back those losses for five years and temporarily eliminated the tax law provision that limits the use of NOLs to 80% of taxable income.

The CARES Act increased the Internal Revenue Code Section 163(j) interest deduction limit for 2019 and 2020, and allowed for the acceleration of refunds of alternative

minimum tax credits.

For the nine months ended September 30, 2020, the Company recorded an estimated tax benefit for certain provisions in the CARES Act including the carryback of losses and the increase to the interest deduction limitation, resulting in a tax rate benefit of 54.7 % .

The Company believes that it is reasonably possible that approximately $ 208 of its unrecognized tax benefits may be recognized within a year as a result of settlement with the taxing authorities.

As such, this balance is reflected in “Accrued Expenses” in the Company’s consolidated balance sheet as of September 30, 2021.

The net change in the valuation allowance during the three months ended March 31, 2022 was an increase of $ 611 .

The change was fully comprised of an increase due to the more restrictive interest deduction limitation in Section 163(j) of the Internal Revenue Code that took effect in 2022.

Stockholders’ Deficit

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Three Months Ended

Nine Months Ended

September 30,

Net income from continuing operations

Net loss from discontinued operations

Basic weighted-average common shares outstanding

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Diluted weighted-average common shares outstanding

Basic earnings per share from continuing operations:

Basic earnings per share from discontinued operations:

Basic earnings per share

Diluted earnings per share from continuing operations:

Diluted earnings per share from discontinued operations:

Diluted earnings per share

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Refer to Note 9, “Financing and Operating Leases” for details on the Company’s future cash payments with respect to financing and operating leases.

During the normal course of business, the Company enters into non-

cancellable agreements to purchase goods and services, including production equipment and information technology systems.

During the normal course of business, the Company enters into non-cancellable agreements to purchase goods and services, including production equipment and information technology systems.

The Company leases real property for its facilities under non-cancellable operating lease agreements.

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The leases typically require the Company to pay property taxes, insurance and normal maintenance costs.

The Company’s financing leases expire at various dates between 2022 and 2026 and contain purchase options which the Company may exercise to keep the machinery in use.

Contingencies

In accordance with applicable accounting guidance, the Company establishes an accrued liability when loss contingencies are both probable and estimable.

In accordance with applicable accounting guidance, the Company establishes an accrued expense when loss contingencies are both probable and estimable.

In such cases, there may be an exposure to loss in excess of any amounts accrued.

As a matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable.

Once the loss contingency is deemed to be both probable and estimable, the Company will establish an accrued liability and record a corresponding amount of expense.

Once the loss contingency is deemed to be both probable and estimable, the Company will establish an accrued expense and record a corresponding amount of expense.

The Company expenses professional fees associated with litigation claims and assessments as incurred.

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it purchases certain antenna-related components from SPS and a number of other suppliers.

The Company was served with the complaint and is in the process of preparing an answer.

The Company intends to investigate and pursue its rights relating to the claims and to defend the suit vigorously.

The Company’s motion to dismiss the Complaint is currently pending.

Additionally, a third party, Infineon, has filed requests for Inter Parties Reexamination proceedings concerning each of the four patents.

As a result, the Delaware District Court stayed the case pending resolution of the requests for reexamination.

Should the reexamination requests be denied or should the patents survive reexamination by the United States Patent Office, the Company intends to defend the suit vigorously.

However, no assurance can be given that this matter will be resolved favorably.

Due to the stage of this matter, the Company is unable to predict the outcome or the possible loss or range of loss, if any, associated with this matter, and no liability has been recorded as of September 30, 2021.

In addition to the matter described above, the Company may be subject to routine legal proceedings in the ordinary course of business.

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It is probable that the Company will be subject to sales tax liabilities plus interest and penalties relating to historical activity in certain states.

The estimated liability for sales tax as of September 30, 2021 and December 31, 2020 was $ 1,228 and $ 1,696 , respectively, and is recorded in a ccrued expenses in the condensed consolidated balance sheets.

The estimated liability for sales tax as of March 31, 2022 and December 31, 2021 was $ 1,004 and $ 1,019 , respectively, and is recorded in a ccrued expenses in the condensed consolidated balance sheets.

The liability decreased from the estimate recorded in the prior period primarily due to the Company remitting cash to the applicable state tax authorities for historical sales tax and interest.

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Sales tax recovered from customers reduces the estimated expense when it is received or probable of collection .

Future changes to the liability that impact the condensed consolidated statements of operations will be recorded within SG&A.

During the nine months ended September 30, 2021, the Company recorded a sales tax benefit of $ 465 within SG&A for current activity relating to sales tax recovered from customers and net changes to the estimated liability.

Future changes to the liability that impact the condensed consolidated statements of operations will be recorded within Selling, general & administrative (“SG&A”).

During the three months ended March 31, 2022 and 2021,

the Company recorded a sales tax benefit of $ 12 and $ 80 , respectively, within SG&A for current activity relating to updates to the estimated liability.

Stock-Based Compensation

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Omnibus Incentive Plan (the “Omnibus Plan”) pursuant to which cash and equity-based incentives may be granted to participating employees, advisors and directors.

thereunder by 1,000,000 shares resulting in a total of 2,200,000 shares of Common Stock issuable under the Omnibus Plan.

As of September 30, 2021, there were 970,832 shares of Common Stock available for grant under the Omnibus Plan.

During the nine months ended September 30, 2021, the Company granted 115,659 awards of non-qualified stock options, and during the fiscal year ended December 31, 2020, the Company did no t grant any awards of non-qualified stock options.

On May 27, 2021, the Company’s stockholders approved an amendment and restatement of the Omnibus Plan to, among other things, increase the total number of shares of the Company’s Common Stock reserved and available for issuance thereunder by 1,000,000 shares resulting in a total of 2,200,000 shares of Common Stock issuable under the Omnibus Plan.

As of March 31, 2022, there were 940,221 shares of Common Stock available for grant under the Omnibus Plan.

During the three months ended March 31, 2022, the Company granted 10,888 awards of non-qualified stock options.

The following is a summary of the activity in outstanding stock options under the Omnibus Plan:

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Outstanding as of December 31, 2021

Outstanding as of September 30, 2021

Options vested and exercisable as of September 30, 2021

Options vested and expected to vest as of September 30, 2021

Outstanding as of March 31, 2022

Options vested and exercisable as of March 31, 2022

Options vested and expected to vest as of March 31, 2022

The following is a summary of the activity in unvested stock options under the Omnibus Plan:

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Unvested as of December 31, 2021

Unvested as of September 30, 2021

Unvested stock options of 115,659 as of September 30, 2021 have a seven year term and are expected to vest ratably over a two-year period on each anniversary of the grant date.

The fair value of the stock option awards granted during the nine months ended September 30, 2021, was

Unvested as of March 31, 2022

Unvested stock options of 134,375 as of March 31, 2022 have a seven year term and are expected to vest ratably over a two-year period on each anniversary of the grant date.

The fair value of the stock option awards granted during the three months ended March 31, 2022, was

determined using a Black-Scholes option-pricing model with the following weighted-average assumptions:

Three Months Ended

March 31, 2022

Expected term in years (1)

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Outstanding as of December 31, 2021

Outstanding as of September 30, 2021

The Company granted 98,622 restricted stock units to employees and directors on September 21, 2021, and granted 180,001 restricted stock units to employees on October 2, 2020.

Outstanding as of March 31, 2022

The restricted stock unit awards contain conditions associated with continued employment or service.

The restricted stock units granted in 2021 are expected to either vest ratably over a two-year period on each anniversary of the grant date or vest entirely on the year-and-a-half anniversary of the grant date .

The restricted stock units granted in 2020 are expected to vest on the two-year anniversary of the date of grant.

Restricted stock units granted in 2022 are expected to vest ratably over a two-year period on each anniversary of the grant date.

On the vesting date, shares of Common Stock will be issued to the award recipients.

Compensation expense for the Omnibus Plan for the three months ended September 30, 2021 and 2020 was $ 116 and $ 25 , respectively.

Compensation expense for the Omnibus Plan for the nine months ended September 30, 2021 and 2020 was $ 214 and $ 84 , respectively.

As of September 30, 2021, the total unrecognized compensation expense related to unvested options and restricted stock units is $ 5,015 , which the Company expects to recognize over an estimated weighted-average period of approximately 1.9 years.

Compensation expense for the Omnibus Plan for the three months ended March 31, 2022 and 2021 was $ 961 and $ 51 , respectively.

As of March 31, 2022, the total unrecognized compensation expense related to unvested options and restricted stock units is $ 3,459 , which the Company expects to recognize over an estimated weighted-average period of approximately 1.4 years.

Segment Reporting

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The Company’s chief operating decision maker uses EBITDA to perform periodic reviews and comparison of operating trends and to identify strategies to improve the allocation of resources amongst segments.

As of September 30, 2021, the Company’s reportable segments were as follows:

As of March 31, 2022, the Company’s reportable segments were as follows:

● Debit and Credit;

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Debit and Credit Segment

The Debit and Credit segment primarily produces Financial Payment Cards and provides integrated card services, including card personalization and fulfilment services, to card-issuing banks primarily in the United States.

Products manufactured by this segment primarily include EMV and non-EMV Financial Payment Cards, including contact and contactless dual-interface cards, and plastic and encased metal cards, and our eco-focused solutions including Second Wave payment cards featuring a core made with recovered ocean bound plastic and Earthwise cards made with upcycled plastic .

The Debit and Credit segment primarily produces Financial Payment Cards and provides integrated card services to card-issuing banks primarily in the United States.

Products produced by this segment primarily include EMV and non-EMV Financial Payment Cards, including contact and contactless cards, and Earth Elements TM Eco-Focused Cards.

The Company also sells Card@Once instant card issuance solutions, and private label credit cards that are not issued on the networks of the Payment Cards Brands.

The Company provides CPI On-Demand

services, where images, personalized payment cards, and related collateral are produced on a one-by-one, on-demand basis for customers.

The Debit and Credit segment facilities are audited for compliance with the standards of the PCI Security Standards Council by multiple Payment Card Brands.

The Company provides CPI On-Demand ® services, where images, personalized payment cards, and related collateral are produced on a one-by-one, on demand basis for customers.

This segment also provides a variety of integrated card services, including card personalization and fulfillment services and

instant issuance services.

The Debit and Credit segment operations are each audited for compliance by multiple Payment Card Brands.

Prepaid Debit Segment

The Prepaid Debit segment primarily provides integrated card services to Prepaid Debit Card providers in the United States, including tamper-evident security packaging.

The Prepaid Debit segment primarily provides integrated prepaid card services to Prepaid Debit Card providers in the United States, including tamper-evident security packaging.

This segment also produces Financial Payment Cards issued on the networks of the Payment Card Brands that are included in the tamper-evident security packages.

The Prepaid Debit segment facilities are audited for compliance with the standards of the PCI Security Standards Council by multiple Payment Card Brands.

The Other segment includes corporate expenses and the loss on debt extinguishment.

The Prepaid Debit segment operation is audited for compliance by multiple Payment Card Brands.

The Other segment includes corporate expenses.

Performance Measures of Reportable Segments

Net Sales and EBITDA of the Company’s reportable segments for the three and nine months ended September 30, 2021 and 2020, were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Net Sales and EBITDA of the Company’s reportable segments for the three months ended March 31, 2022 and 2021, were as follows:

Three Months Ended March 31,

Debit and Credit

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Intersegment eliminations

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Debit and Credit

Prepaid Debit

The following table provides a reconciliation of total segment EBITDA to net income for the three and nine months ended September 30, 2021 and 2020:

The following table provides a reconciliation of total segment EBITDA to net income for the three months ended March 31, 2022 and 2021:

Three Months Ended

Nine Months Ended

September 30,

Total segment EBITDA

Interest, net

Income tax (expense) benefit

Income tax expense

Depreciation and amortization

Net loss from discontinued operations

Balance Sheet Data of Reportable Segments

Total assets of the Company’s reportable segments at September 30, 2021 and December 31, 2020, were as follows:

September 30, 2021

December 31, 2020

Debit and Credit

Prepaid Debit

Net Sales to Geographic Locations, Property, Equipment and Leasehold Improvements and Long-Lived Assets

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements