CPI Card Group Inc. 10-Q

Item 1 . Financial Statements ​ CPI Card Group Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except share and per share amounts) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2023 ​ 2022 Assets ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ Cash and cash equivalents $ 10,473 ​ $ 11,037 Accounts receivable, net ​ 67,546 ​ ​ 80,583 Inventories, net ​ 74,080 ​ ​ 68,399 Prepaid expenses and other current assets ​ 8,747 ​ ​ 7,551 Total current assets ​ 160,846 ​ ​ 167,570 Plant, equipment, leasehold improvements and operating lease right-of-use assets, net of accumulated depreciation of $ 66,437 and $ 61,922 , respectively ​ 62,643 ​ ​ 57,178 Intangible assets, net of accumulated amortization of $ 50,797 and $ 47,897 , respectively ​ 15,088 ​ ​ 17,988 Goodwill ​ 47,150 ​ ​ 47,150 Other assets ​ 6,388 ​ ​ 6,780 Total assets $ 292,115 ​ $ 296,666 Liabilities and stockholders’ deficit ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ Accounts payable $ 16,876 ​ $ 24,371 Accrued expenses ​ 27,967 ​ ​ 40,070 Deferred revenue and customer deposits ​ 787 ​ ​ 3,571 Total current liabilities ​ 45,630 ​ ​ 68,012 Long-term debt ​ 272,669 ​ ​ 285,522 Deferred income taxes ​ 7,920 ​ ​ 6,808 Other long-term liabilities ​ 22,616 ​ ​ 18,401 Total liabilities ​ 348,835 ​ ​ 378,743 Commitments and contingencies (Note 11) ​ ​ ​ ​ ​ Series A Preferred Stock; $ 0.001 par value— 100,000 shares authorized; 0 shares issued and outstanding at September 30, 2023 and December 31, 2022 ​ — ​ ​ — Stockholders’ deficit: ​ ​ ​ ​ ​ Common stock; $ 0.001 par value— 100,000,000 shares authorized; 11,453,549 and 11,390,355 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively ​ 11 ​ ​ 11 Capital deficiency ​ ( 104,275 ) ​ ​ ( 108,379 ) Accumulated earnings ​ 47,544 ​ ​ 26,291 Total stockholders’ deficit ​ ( 56,720 ) ​ ​ ( 82,077 ) Total liabilities and stockholders’ deficit $ 292,115 ​ $ 296,666 ​ See accompanying notes to condensed consolidated financial statements ​ ​ ​ 3 Table of Contents CPI Card Group Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income (in thousands, except share and per share amounts) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ 2023 2022 2023 2022 Net sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products $ 55,689 ​ $ 71,606 ​ $ 195,425 ​ $ 208,867 Services ​ 50,174 ​ ​ 52,971 ​ ​ 146,250 ​ ​ 140,442 Total net sales ​ 105,863 ​ ​ 124,577 ​ ​ 341,675 ​ ​ 349,309 Cost of sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products (exclusive of depreciation and amortization shown below) ​ 37,540 ​ ​ 42,702 ​ ​ 124,828 ​ ​ 128,851 Services (exclusive of depreciation and amortization shown below) ​ 29,574 ​ ​ 31,190 ​ ​ 89,192 ​ ​ 85,625 Depreciation and amortization ​ 2,597 ​ ​ 2,245 ​ ​ 7,584 ​ ​ 6,564 Total cost of sales ​ 69,711 ​ ​ 76,137 ​ ​ 221,604 ​ ​ 221,040 Gross profit ​ 36,152 ​ ​ 48,440 ​ ​ 120,071 ​ ​ 128,269 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general and administrative (exclusive of depreciation and amortization shown below) ​ 21,783 ​ ​ 23,403 ​ ​ 64,734 ​ ​ 67,335 Depreciation and amortization ​ 1,408 ​ ​ 1,592 ​ ​ 4,286 ​ ​ 4,454 Total operating expenses ​ 23,191 ​ ​ 24,995 ​ ​ 69,020 ​ ​ 71,789 Income from operations ​ 12,961 ​ ​ 23,445 ​ ​ 51,051 ​ ​ 56,480 Other expense, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest, net ​ ( 6,714 ) ​ ​ ( 7,323 ) ​ ​ ( 20,235 ) ​ ​ ( 22,334 ) Other expense, net ​ ( 53 ) ​ ​ ( 63 ) ​ ​ ( 245 ) ​ ​ ( 474 ) Total other expense, net ​ ( 6,767 ) ​ ​ ( 7,386 ) ​ ​ ( 20,480 ) ​ ​ ( 22,808 ) Income before income taxes ​ 6,194 ​ ​ 16,059 ​ ​ 30,571 ​ ​ 33,672 Income tax expense ​ ( 2,337 ) ​ ​ ( 4,149 ) ​ ​ ( 9,318 ) ​ ​ ( 9,609 ) Net income $ 3,857 ​ $ 11,910 ​ $ 21,253 ​ $ 24,063 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic and diluted earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share $ 0.34 ​ $ 1.06 ​ $ 1.86 ​ $ 2.14 Diluted earnings per share $ 0.33 ​ $ 1.01 ​ $ 1.79 ​ $ 2.05 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic weighted-average shares outstanding ​ 11,432,794 ​ ​ 11,265,767 ​ ​ 11,418,372 ​ ​ 11,259,655 Diluted weighted-average shares outstanding ​ 11,827,816 ​ ​ 11,788,921 ​ ​ 11,861,868 ​ ​ 11,730,668 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income $ 3,857 ​ $ 11,910 ​ $ 21,253 ​ $ 24,063 Total comprehensive income $ 3,857 ​ $ 11,910 ​ $ 21,253 ​ $ 24,063 See accompanying notes to condensed consolidated financial statements ​ ​ ​ 4 Table of Contents CPI Card Group Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (in thousands, except per share amounts) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Capital ​ Accumulated ​ ​ ​ Shares ​ Amount ​ deficiency ​ earnings ​ Total June 30, 2023 11,430,245 ​ $ 11 ​ $ ( 106,668 ) ​ $ 43,687 ​ $ ( 62,970 ) Shares issued under stock-based compensation plans 23,304 ​ ​ — ​ ​ ( 207 ) ​ ​ — ​ ​ ( 207 ) Stock-based compensation — ​ ​ — ​ ​ 2,600 ​ ​ — ​ ​ 2,600 Components of comprehensive income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income — ​ ​ — ​ ​ — ​ ​ 3,857 ​ ​ 3,857 September 30, 2023 11,453,549 ​ $ 11 ​ $ ( 104,275 ) ​ $ 47,544 ​ $ ( 56,720 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Capital ​ Accumulated ​ ​ ​ Shares ​ Amount ​ deficiency ​ earnings ​ Total December 31, 2022 11,390,355 ​ $ 11 ​ $ ( 108,379 ) ​ $ 26,291 ​ $ ( 82,077 ) Shares issued under stock-based compensation plans 63,194 ​ ​ — ​ ​ ( 327 ) ​ ​ — ​ ​ ( 327 ) Stock-based compensation — ​ ​ — ​ ​ 4,431 ​ ​ — ​ ​ 4,431 Components of comprehensive income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income — ​ ​ — ​ ​ — ​ ​ 21,253 ​ ​ 21,253 September 30, 2023 11,453,549 ​ $ 11 ​ $ ( 104,275 ) ​ $ 47,544 ​ $ ( 56,720 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Capital ​ Accumulated ​ ​ ​ Shares ​ Amount ​ deficiency ​ earnings ​ Total June 30, 2022 11,262,688 ​ $ 11 ​ $ ( 108,880 ) ​ $ 1,904 ​ $ ( 106,965 ) Shares issued under stock-based compensation plans 25,221 ​ ​ — ​ ​ ( 171 ) ​ ​ — ​ ​ ( 171 ) Stock-based compensation — ​ ​ — ​ ​ 966 ​ ​ — ​ ​ 966 Components of comprehensive income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income — ​ ​ — ​ ​ — ​ ​ 11,910 ​ ​ 11,910 September 30, 2022 11,287,909 ​ $ 11 ​ $ ( 108,085 ) ​ $ 13,814 ​ $ ( 94,260 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Capital ​ Accumulated ​ ​ ​ Shares ​ Amount ​ deficiency ​ earnings (loss) ​ Total December 31, 2021 11,255,466 ​ $ 11 ​ $ ( 110,782 ) ​ $ ( 10,249 ) ​ $ ( 121,020 ) Shares issued under stock-based compensation plans 32,443 ​ ​ — ​ ​ ( 231 ) ​ ​ — ​ ​ ( 231 ) Stock-based compensation — ​ ​ — ​ ​ 2,928 ​ ​ — ​ ​ 2,928 Components of comprehensive income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income — ​ ​ — ​ ​ — ​ ​ 24,063 ​ ​ 24,063 September 30, 2022 11,287,909 ​ $ 11 ​ $ ( 108,085 ) ​ $ 13,814 ​ $ ( 94,260 ) ​ See accompanying notes to condensed consolidated financial statements ​ ​ 5 Table of Contents CPI Card Group Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ 2023 2022 Operating activities ​ ​ ​ ​ ​ Net income $ 21,253 ​ $ 24,063 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ Depreciation expense ​ 8,970 ​ ​ 8,118 Amortization expense ​ 2,900 ​ ​ 2,900 Stock-based compensation expense ​ 4,431 ​ ​ 2,928 Amortization of debt issuance costs and debt discount ​ 1,397 ​ ​ 1,449 Loss on debt extinguishment ​ 243 ​ ​ 395 Deferred income taxes ​ 1,112 ​ ​ 1,192 Other, net ​ ( 156 ) ​ ​ 437 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ Accounts receivable ​ 12,988 ​ ​ ( 14,862 ) Inventories ​ ( 5,806 ) ​ ​ ( 13,916 ) Prepaid expenses and other assets ​ 422 ​ ​ 1,501 Income taxes, net ​ ( 1,616 ) ​ ​ ( 1,577 ) Accounts payable ​ ( 7,805 ) ​ ​ ( 440 ) Accrued expenses and other liabilities ​ ( 13,283 ) ​ ​ ( 3,208 ) Deferred revenue and customer deposits ​ ( 2,784 ) ​ ​ 2,733 Cash provided by operating activities ​ 22,266 ​ ​ 11,713 Investing activities ​ ​ ​ ​ ​ Capital expenditures for plant, equipment and leasehold improvements, net ​ ( 6,076 ) ​ ​ ( 14,440 ) Other ​ 183 ​ ​ 95 Cash used in investing activities ​ ( 5,893 ) ​ ​ ( 14,345 ) Financing activities ​ ​ ​ ​ ​ Principal payments on Senior Notes ​ ( 16,954 ) ​ ​ ( 20,000 ) Principal payments on ABL Revolver ​ ( 10,000 ) ​ ​ ( 10,000 ) Proceeds from ABL Revolver ​ 13,000 ​ ​ 35,000 Payments on debt extinguishment and other ​ ( 327 ) ​ ​ ( 1,093 ) Proceeds from finance lease financing ​ — ​ ​ 2,074 Payments on finance lease obligations ​ ( 2,655 ) ​ ​ ( 2,457 ) Cash (used in) provided by financing activities ​ ( 16,936 ) ​ ​ 3,524 Effect of exchange rates on cash ​ ( 1 ) ​ ​ ( 68 ) Net (decrease) increase in cash and cash equivalents ​ ( 564 ) ​ ​ 824 Cash and cash equivalents, beginning of period ​ 11,037 ​ ​ 20,683 Cash and cash equivalents, end of period $ 10,473 ​ $ 21,507 Supplemental disclosures of cash flow information ​ ​ ​ ​ ​ Cash paid (refunded) during the period for: ​ ​ ​ ​ ​ Interest $ 25,307 ​ $ 27,026 Income taxes paid $ 9,994 ​ $ 10,859 Income taxes refunded $ ( 25 ) ​ $ ( 449 ) Right-of-use assets obtained in exchange for lease obligations: ​ ​ ​ ​ ​ Operating leases $ 2,641 ​ $ 816 Financing leases $ 6,989 ​ $ 7,783 Accounts payable and accrued expenses for capital expenditures for plant, equipment and leasehold improvements $ 977 ​ $ 1,781 See accompanying notes to condensed consolidated financial statements ​ 6 Table of Contents CPI Card Group Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) ​ 1. Business Overview and Summary of Significant Accounting Policies ​ Business Overview ​ CPI Card Group Inc. (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 (defined below) issued on the networks of the Payment Card Brands (Visa, Mastercard ® , American Express ® and Discover ® ). CPI 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 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 Payment Card Industry Security Standards Council (the “PCI Security Standards Council”) by one or more of the Payment Card Brands. CPI’s network of high-security production facilities allows the Company to optimize its solutions offerings and serve its customers. The Company’s business consists of the following reportable segments: Debit and Credit, Prepaid Debit and Other. The Debit and Credit segment primarily produces Financial Payment Cards and provides integrated card services for card-issuing financial institutions primarily in the United States. The Prepaid Debit segment primarily provides integrated card services to Prepaid Debit Card program managers primarily in the United States. The Company’s “Other” segment includes corporate expenses. Basis of Presentation ​ Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to Form 10-Q and Article 8 of Regulation S-X. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the results of the interim periods presented. The condensed consolidated balance sheet as of December 31, 2022 is derived from the audited financial statements as of that date. 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, 2022. ​ Use of Estimates ​ Management uses estimates and assumptions relating to the reporting of assets and liabilities at the date of the financial statements, the reported revenues and expenses recognized during the reporting period, and certain financial statement disclosures in the preparation of the condensed consolidated financial statements. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and intangible assets, leases, valuation allowances for inventories and deferred taxes, revenue recognized for work performed but not completed and uncertain tax positions. Actual results could differ from those estimates. Recent Accounting Pronouncements ​ Recently Adopted Accounting Pronouncements ​ In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ ASU”) 2016 - 13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which changes the criteria under which credit losses on financial instruments (such as the Company’s trade receivables) are measured. The ASU introduces a new credit reserve model known as the Current Expected Credit Loss (“CECL”) model, which replaces the incurred loss impairment methodology previously used under GAAP with an expected loss 7 Table of Contents methodology. Effective January 1, 2023, the Company adopted the CECL model. The adoption of the model did not have a material impact on the Company’s consolidated financial position or results of operations. ​ ​ 2. Net Sales ​ The Company disaggregates its net sales by major source as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2023 ​ Products ​ Services ​ Total ​ (dollars in thousands) Debit and Credit $ 55,934 ​ $ 27,846 ​ $ 83,780 Prepaid Debit ​ — ​ ​ 22,335 ​ ​ 22,335 Intersegment eliminations ​ ( 245 ) ​ ( 7 ) ​ ( 252 ) Total $ 55,689 ​ $ 50,174 ​ $ 105,863 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2023 ​ Products ​ Services ​ Total ​ (dollars in thousands) Debit and Credit $ 195,967 ​ $ 82,992 ​ $ 278,959 Prepaid Debit ​ — ​ ​ 63,286 ​ ​ 63,286 Intersegment eliminations ​ ( 542 ) ​ ( 28 ) ​ ( 570 ) Total $ 195,425 ​ $ 146,250 ​ $ 341,675 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2022 ​ Products ​ Services ​ Total ​ (dollars in thousands) Debit and Credit $ 71,857 ​ $ 27,655 ​ $ 99,512 Prepaid Debit ​ — ​ ​ 25,335 ​ ​ 25,335 Intersegment eliminations ​ ( 251 ) ​ ( 19 ) ​ ( 270 ) Total $ 71,606 ​ $ 52,971 ​ $ 124,577 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2022 ​ Products ​ Services ​ Total ​ (dollars in thousands) Debit and Credit $ 209,236 ​ $ 76,472 ​ $ 285,708 Prepaid Debit ​ — ​ ​ 64,010 ​ ​ 64,010 Intersegment eliminations ​ ( 369 ) ​ ( 40 ) ​ ( 409 ) Total $ 208,867 ​ $ 140,442 ​ $ 349,309 ​ Products Net Sales “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 produced for specific customers and have no alternative use and the Company has an enforceable right to payment for work performed. For unbilled work performed but not completed, 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 the design and production of Financial Payment Cards, including contact-EMV ® , contactless dual-interface EMV, contactless and magnetic stripe cards, CPI’s eco-focused solutions, including Second Wave ® and Earthwise ® 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. The Company includes gross shipping and handling revenue in net sales, and shipping and handling costs in cost of sales. EMV ® is a registered trademark in the U.S. and other countries and an unregistered trademark elsewhere. The EMV trademark is owned by EMV Co, LLC . ​ 8 Table of Contents Services Net Sales ​ 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, 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 unbilled work performed but not completed, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts. ​ Customer Contracts The Company often enters into Master Services Agreements (“MSAs”) with its customers. Generally, enforceable rights and obligations for goods and services occur only when a customer places a purchase order or statement of work to obtain goods or services under an MSA. The contract term as defined by ASC 606, Revenue from Contracts with Customers, is the length of time it takes to deliver the goods or services promised under the purchase order or statement of work. As such, the Company's contracts are generally short term in nature. ​ 3. Accounts Receivable ​ Accounts receivable consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ December 31, ​ ​ 2023 ​ ​ 2022 ​ (dollars in thousands) Trade accounts receivable $ 58,402 $ 68,886 Unbilled accounts receivable ​ 9,375 ​ 11,915 ​ ​ 67,777 ​ 80,801 Less allowance ​ ( 231 ) ​ ​ ( 218 ) ​ $ 67,546 ​ $ 80,583 ​ ​ 4 . Inventories ​ Inventories consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ December 31, ​ ​ 2023 ​ ​ 2022 ​ (dollars in thousands) Raw materials $ 67,742 $ 61,434 Finished goods ​ 9,799 ​ 10,300 Inventory reserve ​ ( 3,461 ) ​ ​ ( 3,335 ) ​ $ 74,080 $ 68,399 ​ ​ 5 ​ 5. Plant, Equipment, Leasehold Improvements and Operating Lease Right-of-Use Assets ​ Plant, equipment, leasehold improvements and operating lease right-of-use assets consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ December 31, ​ ​ 2023 ​ ​ 2022 ​ (dollars in thousands) Machinery and equipment $ 65,846 $ 64,786 Machinery and equipment under financing leases ​ 21,205 ​ ​ 15,717 Furniture, fixtures and computer equipment ​ 2,357 ​ 3,072 Leasehold improvements ​ 15,480 ​ 14,703 Construction in progress ​ 4,511 ​ 3,304 Operating lease right-of-use assets ​ 19,681 ​ ​ 17,518 ​ ​ 129,080 ​ ​ 119,100 Less accumulated depreciation and amortization ​ ( 66,437 ) ​ ( 61,922 ) ​ $ 62,643 $ 57,178 ​ 9 Table of Contents ​ ​ ​ 6. Fair Value of Financial Instruments ​ Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In determining fair value, the Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: ​ ● Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. ​ ● Level 2— Observable inputs other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term for the assets or liabilities. ​ ● Level 3— Valuations based on unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. ​ The Company’s financial assets and liabilities that are not required to be re-measured at fair value in the condensed consolidated balance sheets were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Carrying ​ Estimated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Value as of ​ Fair Value as of ​ Fair Value Measurement at September 30, 2023 ​ September 30, ​ September 30, ​ (Using Fair Value Hierarchy) ​ 2023 ​ 2023 ​ Level 1 ​ Level 2 ​ Level 3 ​ (dollars in thousands) Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Senior Notes $ 267,897 ​ $ 264,548 ​ $ — ​ $ 264,548 ​ $ — ABL Revolver $ 8,000 ​ $ 8,000 ​ $ — ​ $ 8,000 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Carrying ​ Estimated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Value as of ​ Fair Value as of ​ Fair Value Measurement at December 31, 2022 ​ December 31, ​ December 31, ​ (Using Fair Value Hierarchy) ​ 2022 ​ 2022 ​ Level 1 ​ Level 2 ​ Level 3 ​ (dollars in thousands) Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Senior Notes $ 285,000 $ 281,438 ​ $ — $ 281,438 ​ $ — ABL Revolver $ 5,000 ​ $ 5,000 ​ $ — ​ $ 5,000 ​ $ — ​ 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 September 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 Table of Contents 7. Accrued Expenses ​ Accrued expenses consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ 2023 ​ 2022 ​ (dollars in thousands) Accrued payroll and related employee expenses $ 10,098 $ 7,727 Accrued employee performance bonuses ​ 1,038 ​ 8,576 Employer payroll taxes ​ 913 ​ 1,092 Accrued rebates ​ 3,977 ​ ​ 2,668 Estimated sales tax liability ​ 458 ​ ​ 622 Accrued interest ​ 970 ​ ​ 7,275 Current operating and financing lease liabilities ​ 6,652 ​ ​ 5,697 Other ​ 3,861 ​ ​ 6,413 Total accrued expenses $ 27,967 ​ $ 40,070 ​ Other accrued expenses as of September 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 property taxes. ​ ​ 8. Long-Term Debt As of September 30, 2023, and December 31, 2022, long-term debt consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest ​ September 30, December 31, ​ Rate (1) ​ ​ 2023 ​ 2022 ​ ​ ​ ​ (dollars in thousands) Senior Notes 8.625 % ​ $ 267,897 ​ $ 285,000 ABL Revolver 6.674 % ​ ​ 8,000 ​ ​ 5,000 Unamortized deferred financing costs ​ ​ ​ ( 3,228 ) ​ ( 4,478 ) Total long-term debt ​ ​ ​ ​ 272,669 ​ ​ 285,522 Less current maturities ​ ​ ​ ​ — ​ ​ — Long-term debt, net of current maturities ​ ​ ​ $ 272,669 ​ $ 285,522 (1) The Senior Notes bear interest at a fixed rate and the ABL Revolver bears interest at a variable rate. Senior Notes On March 15, 2021, the Company completed a private offering by its wholly-owned subsidiary, CPI CG Inc., of $ 310.0 million aggregate principal amount of 8.625 % Senior Secured Notes due 2026 (the “Senior Notes”) 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. 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 CPI CG Inc., 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. 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 nine months ended September 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 $ 17.1 million of the principal amount thereof plus accrued and unpaid interest thereon to the retirement dates. 11 Table of Contents ABL 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”). 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. 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 $ 75.0 million, increased the uncommitted accordion feature to $ 25.0 million from $ 15.0 million, and revised the interest rate provisions to replace the prior LIBOR benchmark with updated benchmark provisions using the secured overnight financing rate (“SOFR”) as administered by the Federal Reserve Bank of New York. On October 11, 2022, the Company and CPI CG Inc. entered into Amendment No. 2 to the Credit Agreement, which amended the ABL Revolver to adjust certain monthly document delivery terms and to clarify the treatment of certain inventory. ​ Borrowings under the amended ABL Revolver bear interest at a rate per annum equal to the applicable term SOFR adjusted for a credit spread, plus an applicable interest rate margin. 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 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 ​ 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 remaining unamortized debt issuance costs recorded on the Senior Notes were $ 3.2 million and are reported as a reduction to the long-term debt balance as of September 30, 2023. The remaining unamortized net discount and debt issuance costs on the ABL Revolver and related Amendment were $ 1.1 million and are recorded as other assets (current and long-term) on the condensed consolidated balance sheet as of September 30, 2023. ​ 9. Income Taxes ​ The Company’s effective tax rate on pre-tax income was 37.7 % and 25.8 % for the three months ended September 30, 2023, and 2022, respectively, and 30.5 % and 28.5 % for the nine months ended September 30, 2023, and 2022, respectively. The increase in the effective tax rate for the three and nine months ended September 30, 2023, was due to tax deduction limitations on executive compensation. The effective tax rate for the three months ended September 30, 2023, also increased due to the reduction of the federal valuation allowance recorded in the third quarter of 2022 as a result of increased deductibility of interest costs due to a tax election made by the Company in the third quarter of 2022. ​ For the nine months ended September 30, 2023, and 2022, the effective tax rate differs from the U.S. federal statutory income tax rate as follows: ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ ​ 2023 ​ 2022 ​ Tax at federal statutory rate 21.0 % ​ 21.0 % State taxes, net 5.3 ​ ​ 5.5 ​ Valuation allowance ( 1.1 ) ​ ​ — ​ Permanent items 2.0 ​ ​ 1.3 ​ Deductibility limitations on excess compensation 4.0 ​ ​ 0.7 ​ Other ( 0.7 ) ​ ​ — ​ Effective income tax rate 30.5 % ​ 28.5 % ​ ​ ​ 12 Table of Contents 10. Earnings per Share ​ Basic and diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Shares excluded from the calculation of diluted earnings per share because their inclusion would be anti-dilutive were 160,384 and 5,425 for the three months ended September 30, 2023, and 2022, respectively, and 210,457 and 12,841 for the nine months ended September 30, 2023, and 2022, respectively. ​ The following table sets forth the computation of basic and diluted earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ 2023 2022 2023 ​ 2022 ​ (dollars in thousands) Numerator: ​ ​ ​ ​ ​ ​ ​ ​ Net income $ 3,857 ​ $ 11,910 ​ $ 21,253 ​ $ 24,063 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic weighted-average common shares outstanding 11,432,794 ​ 11,265,767 ​ 11,418,372 ​ 11,259,655 Dilutive shares ​ 395,022 ​ ​ 523,154 ​ ​ 443,496 ​ ​ 471,013 Diluted weighted-average common shares outstanding ​ 11,827,816 ​ ​ 11,788,921 ​ ​ 11,861,868 ​ ​ 11,730,668 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per share $ 0.34 ​ $ 1.06 ​ $ 1.86 ​ $ 2.14 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per share $ 0.33 ​ $ 1.01 ​ $ 1.79 ​ $ 2.05 ​ ​ 11 . Commitments and Contingencies ​ Commitments 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. Land and facility leases expire at various dates between 2024 and 2029 and contain various provisions for rental adjustments and renewals. 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 2023 and 2028 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 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 expense and record a corresponding amount of expense. The Company expenses professional fees associated with litigation claims and assessments as incurred. Smart Packaging Solutions SA v. CPI Card Group Inc. On April 20, 2021, Smart Packaging Solutions, SA (“SPS”) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware seeking an unspecified amount of damages and equitable relief. In the complaint, SPS alleges that the Company infringed four patents that SPS has exclusively licensed from Feinics AmaTech Teoranta. The patents all relate to antenna technology. SPS alleges that the Company incorporates the patented technology into its products that use contactless communication. The Company does not produce antennas; it purchases certain antenna-related components from SPS and a number of other suppliers. The Company’s motion to dismiss the complaint is currently pending. 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 and three of the patents have been invalidated in the IPR proceedings and one remains under review. The remaining proceedings in the patent office are scheduled to run through November 2023. Should the remaining patent survive review by the United States Patent Office, the Company intends to defend the suit 13 Table of Contents 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, 2023. In addition to the matter described above, the Company may be subject to routine legal proceedings in the ordinary course of business. The Company believes that the ultimate resolution of any such matters will not have a material adverse effect on its business, financial condition or results of operations. Voluntary Disclosure Program The Company is subject to unclaimed or abandoned property (escheat) laws which require it to turn over to state governmental authorities the property of others held by the Company that has been unclaimed for specified periods of time. Property subject to escheat laws generally relates to uncashed checks, trade accounts receivable credits and unpaid payable balances. During the second quarter of 2022, the Company received a letter from the Delaware Secretary of State inviting the Company to participate in the Delaware Secretary of State’s Abandoned or Unclaimed Property Voluntary Disclosure Agreement Program to avoid being sent an audit notice by the Delaware Department of Finance. On August 31, 2022, the Company entered into Delaware’s Voluntary Disclosure Agreement Program in order to voluntarily comply with Delaware’s abandoned property law in exchange for certain protections and benefits. The Company intends to work in good faith to complete a review of its books and records related to unclaimed or abandoned property during the periods required under the program. Any potential loss, or range of loss, that may result from this matter is not currently reasonably estimable. 12. Stock-Based Compensation 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, consultants, and directors. 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, resulting in a total of 2,200,000 shares of Common Stock issuable under the Omnibus Plan. 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 consist of 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 the second tranche was awarded in August 2023. The third and final tranche will be awarded in November 2023, subject to continued employment at that date. 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, the second one-third was granted in August 2023, and the remainder will be granted 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 his awards granted in 2023 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 is measured at fair value and expensed on a straight-line basis over the requisite service period for each tranche of the award. 14 Table of Contents ​ During the nine months ended September 30, 2023, the Company granted 92,655 options at a weighted average exercise price of $ 24.48 . As of September 30, 2023, there were 865,834 options outstanding at a weighted average exercise price of $ 18.82 . During the nine months ended September 30, 2023, the Company granted 429,655 restricted stock units at a weighted average grant date fair value of $ 23.65 , and as of September 30, 2023, there were 450,747 outstanding restricted stock units at a weighted average grant date fair value of $ 23.39 . ​ 13. Segment Reporting ​ The Company has identified reportable segments that represent 10% or more of its net sales, EBITDA (as defined below) or total assets, or when the Company believes information about the segment would be useful to the readers of the financial statements. The Company’s chief operating decision maker is its Chief Executive Officer, who is charged with management of the Company and is responsible for the evaluation of operating performance and decision making about the allocation of resources to operating segments based on measures, such as net sales and EBITDA. ​ EBITDA is the primary measure used by the Company’s chief operating decision maker to evaluate segment operating performance. As the Company uses the term, “EBITDA” is defined as income before interest expense, income taxes, depreciation and amortization. The Company’s chief operating decision maker believes EBITDA is a meaningful measure and is useful as a supplement to GAAP measures as it represents a transparent view of the Company’s operating performance that is unaffected by fluctuations in property, equipment and leasehold improvement additions. 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, 2023, the Company’s reportable segments were as follows: ​ ● Debit and Credit ● Prepaid Debit ● Othe r ​ Debit and Credit Segment The Debit and Credit segment primarily produces Financial Payment Cards and provides integrated card services for card-issuing financial institutions 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 Card Brands. The Company provides print-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 facilities and operations are audited for compliance with the standards of the PCI Security Standards Council by multiple Payment Card Brands. Prepaid Debit Segment 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. 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. Other The Other segment includes corporate expenses. 15 Table of Contents 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 and nine months ended September 30, 2023 and 2022, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2023 ​ Debit and Credit ​ Prepaid Debit ​ Other ​ Intersegment Eliminations ​ Total ​ (dollars in thousands) Net sales $ 83,780 ​ $ 22,335 ​ $ — ​ $ ( 252 ) ​ $ 105,863 Cost of sales ​ 55,399 ​ ​ 14,564 ​ ​ — ​ ​ ( 252 ) ​ ​ 69,711 Gross profit ​ 28,381 ​ ​ 7,771 ​ ​ — ​ ​ — ​ ​ 36,152 Operating expenses ​ 7,590 ​ ​ 1,140 ​ ​ 14,461 ​ ​ — ​ ​ 23,191 Income (loss) from operations $ 20,791 ​ $ 6,631 ​ $ ( 14,461 ) ​ $ — ​ $ 12,961 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ EBITDA by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (loss) from operations $ 20,791 ​ $ 6,631 ​ $ ( 14,461 ) ​ $ — ​ $ 12,961 Depreciation and amortization ​ 2,322 ​ ​ 675 ​ ​ 1,008 ​ ​ — ​ ​ 4,005 Other expense, net ​ ( 27 ) ​ ​ ( 2 ) ​ ​ ( 24 ) ​ ​ — ​ ​ ( 53 ) EBITDA $ 23,086 ​ $ 7,304 ​ $ ( 13,477 ) ​ $ — ​ $ 16,913 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2023 ​ Debit and Credit ​ Prepaid Debit ​ Other ​ Intersegment Eliminations ​ Total ​ (dollars in thousands) Net sales $ 278,959 ​ $ 63,286 ​ $ — ​ $ ( 570 ) ​ $ 341,675 Cost of sales ​ 179,356 ​ ​ 42,818 ​ ​ — ​ ​ ( 570 ) ​ ​ 221,604 Gross profit ​ 99,603 ​ ​ 20,468 ​ ​ — ​ ​ — ​ ​ 120,071 Operating expenses ​ 23,705 ​ ​ 2,532 ​ ​ 42,783 ​ ​ — ​ ​ 69,020 Income (loss) from operations $ 75,898 ​ $ 17,936 ​ $ ( 42,783 ) ​ $ — ​ $ 51,051 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ EBITDA by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (loss) from operations $ 75,898 ​ $ 17,936 ​ $ ( 42,783 ) ​ $ — ​ $ 51,051 Depreciation and amortization ​ 6,836 ​ ​ 2,003 ​ ​ 3,031 ​ ​ — ​ ​ 11,870 Other expense, net ​ ( 1 ) ​ ​ ( 1 ) ​ ​ ( 243 ) ​ ​ — ​ ​ ( 245 ) EBITDA $ 82,733 ​ $ 19,938 ​ $ ( 39,995 ) ​ $ — ​ $ 62,676 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, 2022 ​ Debit and Credit ​ Prepaid Debit ​ Other ​ Intersegment Eliminations ​ Total ​ (dollars in thousands) Net sales $ 99,512 ​ $ 25,335 ​ $ — ​ $ ( 270 ) ​ $ 124,577 Cost of sales ​ 61,441 ​ ​ 14,966 ​ ​ — ​ ​ ( 270 ) ​ ​ 76,137 Gross profit ​ 38,071 ​ ​ 10,369 ​ ​ — ​ ​ — ​ ​ 48,440 Operating expenses ​ 8,653 ​ ​ 1,260 ​ ​ 15,082 ​ ​ — ​ ​ 24,995 Income (loss) from operations $ 29,418 ​ $ 9,109 ​ $ ( 15,082 ) ​ $ — ​ $ 23,445 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ EBITDA by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (loss) from operations $ 29,418 ​ $ 9,109 ​ $ ( 15,082 ) ​ $ — ​ $ 23,445 Depreciation and amortization ​ 2,271 ​ ​ 529 ​ ​ 1,037 ​ ​ — ​ ​ 3,837 Other expense, net ​ ( 14 ) ​ ​ — ​ ​ ( 49 ) ​ ​ — ​ ​ ( 63 ) EBITDA $ 31,675 ​ $ 9,638 ​ $ ( 14,094 ) ​ $ — ​ $ 27,219 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 16 Table of Contents ​ Nine Months Ended September 30, 2022 ​ Debit and Credit ​ Prepaid Debit ​ Other ​ Intersegment Eliminations ​ Total ​ (dollars in thousands) Net sales $ 285,708 ​ $ 64,010 ​ $ — ​ $ ( 409 ) ​ $ 349,309 Cost of sales ​ 181,319 ​ ​ 40,130 ​ ​ — ​ ​ ( 409 ) ​ ​ 221,040 Gross profit ​ 104,389 ​ ​ 23,880 ​ ​ — ​ ​ — ​ ​ 128,269 Operating expenses ​ 25,542 ​ ​ 3,487 ​ ​ 42,760 ​ ​ — ​ ​ 71,789 Income (loss) from operations $ 78,847 ​ $ 20,393 ​ $ ( 42,760 ) ​ $ — ​ $ 56,480 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ EBITDA by segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (loss) from operations $ 78,847 ​ $ 20,393 ​ $ ( 42,760 ) ​ $ — ​ $ 56,480 Depreciation and amortization ​ 6,202 ​ ​ 1,711 ​ ​ 3,105 ​ ​ — ​ ​ 11,018 Other expense, net ​ ( 7 ) ​ ​ ( 3 ) ​ ​ ( 464 ) ​ ​ — ​ ​ ( 474 ) EBITDA $ 85,042 ​ $ 22,101 ​ $ ( 40,119 ) ​ $ — ​ $ 67,024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ 2023 2022 2023 2022 ​ (dollars in thousands) Total segment EBITDA $ 16,913 ​ $ 27,219 ​ $ 62,676 ​ $ 67,024 Interest, net ​ ( 6,714 ) ​ ​ ( 7,323 ) ​ ​ ( 20,235 ) ​ ​ ( 22,334 ) Income tax expense ( 2,337 ) ​ ( 4,149 ) ​ ( 9,318 ) ​ ( 9,609 ) Depreciation and amortization ( 4,005 ) ​ ( 3,837 ) ​ ( 11,870 ) ​ ( 11,018 ) Net income $ 3,857 ​ $ 11,910 ​ $ 21,253 ​ $ 24,063 ​ ​ ​ ​ ​ ​ ​ 17 Table of Contents