What changed in this filing

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Item 1. Financial Statements

2023-08-08 compared with 2023-05-09 · 108 added, 51 removed, 351 unchanged (31% of the section changed)

25 unchanged sentences

$ 0.001 par value— 100,000 shares authorized;

0 shares issued and outstanding at March 31, 2023 and December 31, 2022

0 shares issued and outstanding at June 30, 2023 and December 31, 2022

Stockholders’ deficit:

1 unchanged sentence

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

11,424,628 and 11,390,355 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

11,430,245 and 11,390,355 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Capital deficiency

7 unchanged sentences

(in thousands, except share and per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Total net sales

27 unchanged sentences

(in thousands, except per share amounts)

March 31, 2023

Shares issued under stock-based compensation plans

Stock-based compensation

Components of comprehensive income:

June 30, 2023

December 31, 2022

2 unchanged sentences

Components of comprehensive income:

June 30, 2023

earnings (loss)

March 31, 2022

Shares issued under stock-based compensation plans

Stock-based compensation

Components of comprehensive income:

June 30, 2022

earnings (loss)

3 unchanged sentences

Components of comprehensive income:

March 31, 2022

June 30, 2022

See accompanying notes to condensed consolidated financial statements

3 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities

19 unchanged sentences

Principal payments on Senior Notes

Principal payments on ABL Revolver

Proceeds from ABL Revolver

8 unchanged sentences

Supplemental disclosures of cash flow information

Cash paid during the period for:

Cash paid (refunded) during the period for:

Income taxes paid

Income taxes refunded

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

37 unchanged sentences

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

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

(dollars in thousands)

2 unchanged sentences

Intersegment eliminations

Three Months Ended March 31, 2022

Six Months Ended June 30, 2023

(dollars in thousands)

2 unchanged sentences

Intersegment eliminations

Three Months Ended June 30, 2022

(dollars in thousands)

Debit and Credit

Prepaid Debit

Intersegment eliminations

Six Months Ended June 30, 2022

(dollars in thousands)

Debit and Credit

Prepaid Debit

Intersegment eliminations

Products Net Sales

47 unchanged sentences

Fair Value as of

Fair Value Measurement at March 31, 2023

Fair Value Measurement at June 30, 2023

(Using Fair Value Hierarchy)

5 unchanged sentences

The aggregate fair value of the Company’s Senior Notes (as defined in Note 8, “Long-Term Debt”) was based on bank quotes.

The fair value measurement associated with the ABL Revolver (as defined in Note 8, “Long-Term Debt”) approximates its carrying value as of March 31, 2023, given the applicable variable interest rates and nature of the security interest in Company assets.

The fair value measurement associated with the ABL Revolver (as defined in Note 8, “Long-Term Debt”) approximates its carrying value as of June 30, 2023, 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.

10 unchanged sentences

Total accrued expenses

Other accrued expenses as of March 31, 2023 and December 31, 2022 consisted primarily of sales and income tax accruals, miscellaneous accruals for invoices not yet received, and other items such as self-insurance claims that have yet to be reported and accrued royalties.

Other accrued expenses as of June 30, 2023, and December 31, 2022, consisted primarily of miscellaneous accruals for invoices not yet received, self-insurance claims that have yet to be reported, and accrued royalties.

Long-Term Debt

At March 31, 2023 and December 31, 2022, long-term debt consisted of the following:

As of June 30, 2023, and December 31, 2022, long-term debt consisted of the following:

(dollars in thousands)

11 unchanged sentences

No such payment is required to be made in 2023 based on the Company’s operating results for the year ended December 31, 2022.

During the three months ended March 31, 2023, the Company used cash on hand and available borrowing capacity under the ABL Revolver (defined below) to retire a portion of the Senior Notes totaling $ 8.0 million of the principal amount thereof plus accrued and unpaid interest thereon to the retirement dates.

During the six months ended June 30, 2023, the Company used cash on hand and available borrowing capacity under the ABL Revolver (defined below) to retire a portion of the Senior Notes totaling $ 15.0 million of the principal amount thereof plus accrued and unpaid interest thereon to the retirement dates.

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 asset-based, senior secured revolving credit facility of up to $ 50.0 million (the “ABL Revolver”).

9 unchanged sentences

The Company may select a one, three or six month term SOFR, 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 excess availability of the facility for the most recently completed quarter.

The unused portion of the ABL Revolver commitment accrues a monthly unused line fee, 0.50 % per annum through March 31, 2023, multiplied by the aggregate amount of Revolver commitments less the average Revolver usage during the immediately preceding month.

The interest rate

margin and unused line fee percentage changed, effective April 1, 2023, to between 1.25 % and 1.75 % (interest rate margin) and 0.375 % and 0.50 % (unused line fee).

Through March 31, 2023, the applicable interest rate margin ranged from 1.50 % to 1.75 % depending on the average excess availability of the facility for the most recently completed quarter.

The unused portion of the ABL Revolver commitment accrued a monthly unused line fee, 0.50 % per annum through March 31, 2023, multiplied by the aggregate amount of Revolver commitments less the average Revolver usage during the immediately preceding month.

The interest rate margin and unused line fee percentage changed, effective April 1, 2023, to between 1.25 % and 1.75 % (interest rate margin) and 0.375 % and 0.50 % (unused line fee).

Deferred Financing Costs and Discount

1 unchanged sentence

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

The remaining unamortized debt issuance costs recorded on the Senior Notes were $ 4.0 million and are reported as a reduction to the long-term debt balance as of March 31, 2023.

The remaining unamortized net discount and debt issuance costs on the ABL Revolver and related Amendment were $ 1.4 million and are recorded as other assets (current and long-term) on the condensed consolidated balance sheet as of March 31, 2023.

The Company’s effective tax rate on pre-tax income was 20.7 % and 38.2 % for the three months ended March 31, 2023 and 2022 respectively.

The Company’s effective tax rate decreased as a result of increased deductibility of interest costs due to a tax election made by the Company in the third quarter of 2022 and the reduction of a valuation allowance in the first quarter of 2023 related to state taxes.

For the three months ended March 31, 2023 and 2022, the effective tax rate differs from the U.S.

The remaining unamortized debt issuance costs recorded on the Senior Notes were $ 3.6 million and are reported as a reduction to the long-term debt balance as of June 30, 2023.

The remaining unamortized net discount and debt issuance costs on the ABL Revolver and related Amendment were $ 1.3 million and are recorded as other assets (current and long-term) on the condensed consolidated balance sheet as of June 30, 2023.

The Company’s effective tax rate on pre-tax income was 38.9 % and 22.1 % for the three months ended June 30, 2023, and 2022, respectively, and 28.6 % and 31.0 % for the six months ended June 30, 2023, and 2022, respectively.

The increase in the effective tax rate for the three months ended June 30, 2023, was primarily due to tax deduction limitations on executive compensation.

The decrease in the effective tax rate for the six months ended June 30, 2023, was a result of increased deductibility of interest costs due to a tax election made by the Company in the third quarter of 2022 and the reduction of a valuation allowance in the first quarter of 2023 related to a state tax law change.

For the six months ended June 30, 2023, and 2022, the effective tax rate differs from the U.S.

federal statutory income tax rate as follows:

3 unchanged sentences

Permanent items

Deductibility limitations on excess compensation

Effective income tax rate

1 unchanged sentence

Basic and diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period.

For the three months ended March 31, 2023 and 2022, 28,831 and 54,050 potentially dilutive securities, respectively, are excluded from the calculation of diluted earnings per share because their inclusion would be anti-dilutive.

Shares excluded from the calculation of diluted earnings per share because their inclusion would be anti-dilutive were 105,884 and 14,732 for the three months ended June 30, 2023, and 2022, respectively, and 132,594 and 40,874 for the six months ended June 30, 2023, and 2022, respectively.

The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

6 unchanged sentences

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.

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

Land and facility leases expire at various dates between 2023 and 2029 and contain various provisions for rental adjustments and renewals.

16 unchanged sentences

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

Additionally, a third party, Infineon, has filed requests for Inter Parties Review (“IPR”) proceedings concerning each of the four patents.

Additionally, a third party, Infineon, filed requests for Inter Parties Review (“IPR”) proceedings concerning each of the four patents.

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

The United States Patent Office has instituted proceedings with respect to all of the IPR requests.

The current proceedings in the patent office are scheduled to run through September 2023.

Should the patents survive review by the United States Patent Office, the Company intends to defend the suit vigorously.

The United States Patent Office has instituted proceedings with respect to all of the IPR requests and two of the patents have been invalidated in the IPR proceedings and two remain under review.

The remaining proceedings in the patent office are scheduled to run through September 2023.

Should any of the patents survive review 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 March 31, 2023.

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 June 30, 2023.

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

9 unchanged sentences

In October 2015, the Company adopted the CPI Card Group Inc.

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

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

On May 27, 2021, the Company’s stockholders approved an amendment and restate 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, resulting in a total of 2,200,000 shares of Common Stock issuable under the Omnibus Plan.

Beginning in the first quarter of 2023, certain of the Company’s employees are eligible to receive a quarterly grant comprising one-fourth of the annual equity-based incentive component of their total compensation.

These awards will be in the form of a mix of restricted stock units and stock options granted under the Omnibus Plan.

The number of shares awarded will be determined based on the grant-date fair value for options and on a value tied to the monthly average closing price of the Company’s common stock for restricted stock awards.

All equity awards are contingent and issued only upon quarterly approval by the compensation committee of the Company’s board of directors.

Beginning in the first quarter of 2023, the Company’s employees that participate in the Company’s long-term incentive program will receive a quarterly grant comprising one-fourth of the annual equity-based incentive component of their total compensation.

Executive awards will be awarded as a mix of restricted stock units and nonqualified stock options, and other employee awards will be comprised solely of restricted stock units.

The number of shares awarded will be determined based on the grant-date fair value for nonqualified stock options and on a value tied to the monthly average closing price of the Company’s common stock for restricted stock units.

In June 2023, the Company implemented an additional long-term incentive program under the Omnibus Plan, independent of the quarterly awards described above, designed to retain and incentivize executive officers and certain key employees, excluding the Company’s President and Chief Executive Officer (“CEO”), comprised of restricted stock units.

The first tranche was awarded in June 2023 and additional tranches will be awarded in August 2023 and November 2023, subject to continued employment on those dates.

The awards vest ratably over a three-year period, subject to continued employment.

In June 2023, the Company also announced an award comprised of 25 % nonqualified stock options and 75 % restricted stock units to its CEO as an incentive to remain employed by the Company through February 28, 2024.

The first one-third of the awards was granted in June 2023 with another one-third to be granted in August 2023 and the remainder in November 2023.

All of these awards will vest ratably over a two-year period irrespective of employment status with expense related to these awards to be recognized by the Company through February 28, 2024.

As part of the CEO’s incentive package, the requisite service and exercise periods for all of his outstanding awards granted prior to June 2023 were also modified with expense related to the modification being recognized in June 2023 through February 2024.

All equity awards are contingent and issued only upon approval by the compensation committee of the Company’s board of directors, or as otherwise permitted under the Omnibus Plan.

The Company accounts for stock-based compensation pursuant to ASC 718, Share-Based Payments.

All stock-based compensation to employees is measured at fair value and expensed on a straight-line basis over the requisite service period for each tranche of the award.

During the three months ended March 31, 2023, the Company granted 8,307 options at a weighted average exercise price of $ 45.01 .

As of March 31, 2023, there were 783,769 options outstanding at a weighted average exercise price of $ 18.40 .

During the three months ended March 31, 2023, the Company granted 24,003 restricted stock units at a weighted average grant date fair value of $ 45.01 , and as of March 31, 2023 there were 88,576 outstanding restricted stock units at a weighted average grant date fair value of $ 29.54 .

All stock-based compensation is measured at fair value and expensed on a straight-line basis over the requisite service period for each tranche of the award.

During the six months ended June 30, 2023, the Company granted 49,929 options at a weighted average exercise price of $ 27.73 .

As of June 30, 2023, there were 823,108 options outstanding at a weighted average exercise price of $ 18.73 .

During the six months ended June 30, 2023, the Company granted 219,381 restricted stock units at a weighted average grant date fair value of $ 26.50 , and as of June 30, 2023, there were 274,641 outstanding restricted stock units at a weighted average grant date fair value of $ 26.07 .

Segment Reporting

5 unchanged sentences

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 March 31, 2023, the Company’s reportable segments were as follows:

As of June 30, 2023, the Company’s reportable segments were as follows:

● Debit and Credit;

9 unchanged sentences

The Prepaid Debit segment primarily provides integrated prepaid card services to Prepaid Debit Card program managers primarily 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.

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 and operations are audited for compliance with the standards of the PCI Security Standards Council by multiple Payment Card Brands.

1 unchanged sentence

Performance Measures of Reportable Segments

Net sales and EBITDA of the Company’s reportable segments, as well as a reconciliation of total segment EBITDA to income from operations and net income for the three months ended March 31, 2023 and 2022, were as follows:

Three Months Ended March 31, 2023

Net sales and EBITDA of the Company’s reportable segments, as well as a reconciliation of total segment EBITDA to income from operations and net income for the three and six months ended June 30, 2023 and 2022, were as follows:

Three Months Ended June 30, 2023

Debit and Credit

4 unchanged sentences

Operating expenses

Income from operations

Income (loss) from operations

EBITDA by segment:

Income from operations

Income (loss) from operations

Depreciation and amortization

Other income (expenses)

Three Months Ended March 31, 2022

Six Months Ended June 30, 2023

Debit and Credit

4 unchanged sentences

Operating expenses

Income from operations

Income (loss) from operations

EBITDA by segment:

Income from operations

Income (loss) from operations

Depreciation and amortization

Other income (expenses)

Three Months Ended March 31,

Three Months Ended June 30, 2022

Debit and Credit

Prepaid Debit

Intersegment Eliminations

(dollars in thousands)

Cost of sales

Operating expenses

Income (loss) from operations

EBITDA by segment:

Income (loss) from operations

Depreciation and amortization

Other income (expenses)

Six Months Ended June 30, 2022

Debit and Credit

Prepaid Debit

Intersegment Eliminations

(dollars in thousands)

Cost of sales

Operating expenses

Income (loss) from operations

EBITDA by segment:

Income (loss) from operations

Depreciation and amortization

Other income (expenses)

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

Total segment EBITDA

3 unchanged sentences

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