What changed in this filing

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Item 1. Financial Statements

2024-08-05 compared with 2024-05-07 · 121 added, 56 removed, 358 unchanged (33% of the section changed)

25 unchanged sentences

$ 0.001 par value— 100,000 shares authorized;

0 shares issued and outstanding at March 31, 2024 and December 31, 2023

0 shares issued and outstanding at June 30, 2024 and December 31, 2023

Stockholders’ deficit:

1 unchanged sentence

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

11,391,476 and 11,446,155 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

11,186,596 and 11,446,155 shares issued and outstanding at June 30, 2024 and December 31, 2023, 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, 2024

Shares issued under stock-based compensation plans

Stock-based compensation

Repurchase and retirement of common shares

Components of comprehensive income:

June 30, 2024

December 31, 2023

3 unchanged sentences

Components of comprehensive income:

June 30, 2024

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:

March 31, 2023

June 30, 2023

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

24 unchanged sentences

Effect of exchange rates on cash

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

42 unchanged sentences

Adoption of this accounting standard is effective for the Company for fiscal years beginning after December 15, 2023.

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 that the application of ASU 2023-07 will have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

2 unchanged sentences

Adoption of this accounting standard is effective for the Company for fiscal years beginning after December 15, 2024.

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 that the application of ASU 2023-09 will have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

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

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Three Months Ended March 31, 2023

Six Months Ended June 30, 2024

Debit and Credit

1 unchanged sentence

Intersegment eliminations

Three Months Ended June 30, 2023

Debit and Credit

Prepaid Debit

Intersegment eliminations

Six Months Ended June 30, 2023

Debit and Credit

Prepaid Debit

Intersegment eliminations

Products Net Sales

2 unchanged sentences

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 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.

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.

6 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, 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.

37 unchanged sentences

Fair Value as of

Fair Value Measurement at March 31, 2024

Fair Value Measurement at June 30, 2024

(Using Fair Value Hierarchy)

2026 Senior Notes

2026 ABL Revolver

Fair Value as of

1 unchanged sentence

(Using Fair Value Hierarchy)

2026 Senior Notes

2026 ABL Revolver

The aggregate fair value of the Company’s 2026 Senior Notes (as defined in Note 8, “Long-Term Debt”) was based on bank quotes.

The fair value measurement associated with the 2026 ABL Revolver (as defined in Note 8, “Long-Term Debt”) approximates its carrying value as of June 30, 2024, given the applicable variable interest rates.

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, 2024, and December 31, 2023, consisted primarily of federal income and sales tax accruals, as well as self-insurance claims that have yet to be reported.

Other accrued expenses as of June 30, 2024, and December 31, 2023, consisted primarily of miscellaneous accruals for invoices not yet received, executive retention and severance, and self-insurance claims that have yet to be reported.

Long-Term Debt

As of March 31, 2024, and December 31, 2023, long-term debt consisted of the following:

As of June 30, 2024, and December 31, 2023, long-term debt consisted of the following:

2026 Senior Notes (1)

2026 ABL Revolver (2)

Unamortized deferred financing costs

3 unchanged sentences

(1) The 2026 Senior Notes bear interest at a fixed rate of 8.625 % .

On March 15, 2021, the Company completed an 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.

(2) The 2026 ABL Revolver bears interest at a variable rate of 6.679 % as of June 30, 2024.

2026 Senior Notes

related guarantees.

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

Interest is payable on the 2026 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 Company had obligations to make an offer to repay the 2026 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.

1 unchanged sentence

No such payment is required to be made in 2024 and was not required to be made in 2023 based on the Company’s operating results for the years ended December 31, 2023 and 2022, respectively.

Refer to Note 15, “Subsequent Events” for information on the refinancing of the 2026 Senior Notes that occurred in July 2024.

2026 ABL Revolver

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 (the “2026 ABL Revolver”).

3 unchanged sentences

1 to the Credit Agreement (the “Amendment”), which amended the 2026 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.

The Amendment, among other things, increased the available borrowing capacity under the 2026 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.

6 unchanged sentences

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).

Refer to Note 15, “Subsequent Events” for information on the refinancing of the 2026 ABL Revolver that occurred in July 2024.

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 $ 2.6 million and are reported as a reduction to the long-term debt balance as of March 31, 2024.

The remaining unamortized net discount and debt issuance costs on the ABL Revolver and related Amendment were $ 0.9 million and are recorded as other assets (current and long-term) on the consolidated balance sheet as of March 31, 2024.

The Company’s effective tax rates on pre-tax income were 28.7 % and 20.7 % for the three months ended March 31, 2024 and 2023, respectively.

The increase in the effective tax rate for the three months ended March 31, 2024 compared to the corresponding period in the prior year primarily was due to the reduction of a valuation allowance in the first quarter of 2023 related to a state’s law change.

For the three months ended March 31, 2024 and 2023, the effective tax rate differs from the U.S.

The remaining unamortized debt issuance costs recorded on the 2026 Senior Notes were $ 2.2 million and are reported as a reduction to the long-term debt balance as of June 30, 2024.

The remaining unamortized net discount and debt issuance costs on the 2026 ABL Revolver and related Amendment were $ 0.8 million and are recorded as other assets (current and long-term) on the consolidated balance sheet as of June 30, 2024.

The Company’s effective tax rates on pre-tax income were 27.7 % and 38.9 % for the three months ended June 30, 2024 and 2023, respectively, and 28.2 % and 28.6 % for the six months ended June 30, 2024 and 2023, respectively.

The decrease in the effective tax rate for the three months ended June 30, 2024, compared to the corresponding period in the prior year was primarily due to limitation of executive compensation deductibility related to the former CEO’s retention agreement recognized in the second quarter of 2023.

The effective tax rate for the six months

ended June 30, 2024 was consistent with the rate in the comparable period in the prior year as the limitation of executive compensation deductibility recognized in the second quarter of 2023 was offset by a reduction in a valuation allowance related to interest deductibility due to a state tax law change recognized in the first quarter of 2023.

For the six months ended June 30, 2024 and 2023, the effective tax rate differs from the U.S.

federal statutory income tax rate as follows:

3 unchanged sentences

Permanent items (1)

Deductibility limitations on excess compensation

Effective income tax rate

(1) Includes the deductibility limitations on excess compensation .

Stockholders’ Deficit

2 unchanged sentences

This authorization expires on December 31, 2024.

During the three months ended March 31, 2024, the Company repurchased 68,258 shares of its common stock at an average price of $ 18.29 per share, excluding commissions, or $ 1.2 million in aggregate, on a trade date basis.

In accordance with the Stock Repurchase Agreement entered into on December 6, 2023, the Company is obligated to purchase 244,314 shares from Tricor Pacific Capital Partners (Fund IV) US, LP, which is one of the Company’s majority stockholders and affiliated with Parallel49 Equity, at an average price of $ 18.03 per share, as of March 31, 2024.

obligation is based on a multiple of the number of shares the Company purchased in the open market from the date of the agreement through March 31, 2024, payment for which is due in the second quarter of 2024.

As of March 31, 2024, the Company had an authorized amount of $ 14.1 million remaining under the share repurchase plan.

During the six months ended June 30, 2024, the Company repurchased 352,750 shares of its common stock at an average price of $ 18.14 per share, excluding commissions, or $ 6.4 million in aggregate, on a trade date basis.

This amount includes 244,314 shares purchased from a stockholder that is part of our majority stockholder group at an average price of $ 18.03 per share, in accordance with the Stock Repurchase Agreements entered into with Tricor Pacific Capital Partners (Fund IV) US, LP (“Parallel49”).

As of June 30, 2024, the Company is obligated to repurchase an additional 120,534 shares at an average price of $ 18.23 per share from Parallel49.

This obligation is based on a multiple of the number of shares the Company purchased in the open market between April 1, 2024 and June 30, 2024, payment for which is due in the third quarter of 2024.

As of June 30, 2024, the Company had an authorized amount of $ 11.2 million remaining under the share repurchase plan.

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.

The Company's calculation of weighted-average shares outstanding has been reduced by 244,314 shares that the Company is obligated to repurchase from Parallel49 in April 2024.

Shares excluded from the calculation of diluted earnings per share because their inclusion would be anti-dilutive were 39,933 and 28,831 for the three months ended March 31, 2024 and 2023, respectively.

The Company's calculation of weighted-average shares outstanding has been reduced by 120,534 shares that the Company repurchased from Parallel49 in July 2024.

Shares excluded from the calculation of diluted earnings per share because their inclusion would be anti-dilutive were 15,185 and 105,884 for the three months ended June 30, 2024 and 2023, respectively, and 24,298 and 132,594 for the six months ended June 30, 2024 and 2023, 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,

Basic weighted-average common shares outstanding

13 unchanged sentences

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.

In the complaint, SPS alleged 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;

three of the patents have been invalidated in the IPR proceedings and any remaining claims in the fourth patent that are relevant to the Company have also been invalidated.

While no assurance can be given that this matter will be resolved favorably, the patent owner has dismissed its appeals related to the three previously invalidated patents and the Company expects the pending litigation will be dismissed as a result of these developments.

SPS alleged that the Company incorporates the patented technology into its products that use contactless communication.

On June 3, 2024 the Delaware District Court entered an order dismissing the litigation against the Company.

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

11 unchanged sentences

Effective January 30, 2024, the Company’s stockholders approved an amendment to the Omnibus Plan to 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 3,200,000 shares issuable under the Omnibus Plan.

As of March 31, 2024, there were 962,285 shares of Common Stock available for grant under the Omnibus Plan.

As of June 30, 2024, there were 957,803 shares of Common Stock available for grant under the Omnibus Plan.

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

2 unchanged sentences

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.

During 2024, executives will receive a quarterly restricted stock unit grant comprising one-fourth of the annual equity-based incentive component of their total compensation.

During 2024, executives receive a quarterly restricted stock unit grant comprising one-fourth of the annual equity-based incentive component of their total compensation.

The number of shares awarded will be determined based on a value tied to the monthly average closing price of the Company’s common stock.

As of March 31, 2024, there were 904,438 options outstanding at a weighted average exercise price of $ 18.87 .

No options were granted during the three months ended March 31, 2024.

As of June 30, 2024, there were 858,855 options outstanding at a weighted average exercise price of $ 19.54 .

No options were granted during the six months ended June 30, 2024.

Options have 7-year terms and are issued with exercise prices equal to the fair market value of the Company’s common stock on the grant date.

During the three months ended March 31, 2024, the Company granted 89,452 restricted stock units at a weighted average grant date fair value of $ 18.25 , and as of March 31, 2024, there were 786,673 outstanding restricted stock units at a weighted average grant date fair value of $ 20.55 .

During the six months ended June 30, 2024, the Company granted 125,879 restricted stock units at a weighted average grant date fair value of $ 20.55 , and as of June 30, 2024, there were 701,264 outstanding restricted stock units at a weighted average grant date fair value of $ 20.43 .

In January 2024, the Company granted 60,000 performance stock units (PSU) in connection with the appointment of its CEO, with a grant date fair value of $ 0.9 million using a Monte Carlo simulation model.

2 unchanged sentences

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

All stock-based compensation is required to be

measured at fair value and expensed over the requisite service period, generally defined as the applicable vesting period.

All stock-based compensation is required to be measured at fair value and expensed over the requisite service period, generally defined as the applicable vesting period.

The Company accounts for forfeitures as they occur and reverses previously recognized expense for the unvested portion of the forfeited shares.

6 unchanged sentences

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 March 31, 2024, the Company’s reportable segments were as follows:

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 June 30, 2024, the Company’s reportable segments were as follows:

● Debit and Credit

13 unchanged sentences

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, 2024 and 2023, were as follows:

Three Months Ended March 31, 2024

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, 2024 and 2023, were as follows:

Three Months Ended June 30, 2024

Debit and Credit

8 unchanged sentences

Other income (expense)

Three Months Ended March 31, 2023

Six Months Ended June 30, 2024

Debit and Credit

8 unchanged sentences

Other income (expense)

Three Months Ended March 31,

Three Months Ended June 30, 2023

Debit and Credit

Prepaid Debit

Intersegment Eliminations

Cost of sales

Operating expenses

Income (loss) from operations

EBITDA by segment:

Income (loss) from operations

Depreciation and amortization

Other income (expense)

Six Months Ended June 30, 2023

Debit and Credit

Prepaid Debit

Intersegment Eliminations

Cost of sales

Operating expenses

Income (loss) from operations

EBITDA by segment:

Income (loss) from operations

Depreciation and amortization

Other income (expense)

Three Months Ended June 30,

Six Months Ended June 30,

Interest, net

1 unchanged sentence

Depreciation and amortization

Subsequent Events

On July 11, 2024 (the “Closing Date”), the Company completed a private offering by its wholly-owned subsidiary, CPI CG Inc., of $ 285.0 million aggregate principal amount of 10.000 % senior secured notes due 2029 (the “2029 Senior Notes”) and related guarantees at an issue price of 100 %.

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, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A.

Net proceeds from the 2029 Senior Notes, together with cash on hand, were used to redeem the entire principal balance of $ 267.9 million of 2026 Senior Notes as of the Closing Date, and to pay related fees, the early redemption premium of 102.156 % , and expenses.

As part of the redemption, the Company expensed the remaining unamortized debt issuance costs related to the 2026 Senior Notes of $ 2.2 M as of the Closing Date.

The 2029 Senior Notes bear interest at a rate of 10.000 % per annum and mature on July 15, 2029.

Interest is payable on the 2029 Senior Notes on January 15 and July 15 of each year, beginning on January 15, 2025.

In addition, on the Closing Date, the Company and CPI CG Inc.

as borrower, entered into a credit agreement (the “2029 ABL Revolver”) with JPMorgan Chase Bank, N.A., as lender, administrative agent and collateral agent, providing for an asset-based, senior secured revolving credit facility of up to $ 75.0 million, consisting of revolving loans, letters of credit and swing line loans provided by lenders, with a sublimit on letters of credit outstanding at any time of $ 10.0 million.

The 2029 ABL Revolver also includes an uncommitted accordion feature whereby the borrower may increase the 2029 ABL Revolver commitment by an aggregate amount not to exceed $ 25.0 million, subject to certain conditions.

The 2029 ABL Revolver matures on the earliest to occur of July 11, 2029 and the date that is 91 days prior to the maturity of the 2029 Senior Notes.

As of the Closing Date, the Company had $ 4.0 million of outstanding borrowings under the 2026 ABL Revolver.

The Company used initial borrowings under the 2029 ABL Revolver, together with cash on hand and proceeds under the notes, to repay in full and terminate the existing credit facilities evidenced by the 2026 ABL Revolver.

Borrowings under the 2029 ABL Revolver bear interest at a rate per annum that ranges from Adjusted Term SOFR plus 1.50 % to 1.75 %, based on the average daily borrowing capacity under the 2029 ABL Revolver over the most recently completed month.

The unused portion of the 2029 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 2029 ABL Revolver over the immediately preceding month.

The 2029 Senior Notes and 2029 ABL Revolver are guaranteed by the Company and essentially secured by substantially all of the assets of the Company and its subsidiaries.

In connection with both the 2029 Senior Notes and the 2029 ABL Revolver, as of June 30, 2024, the Company recorded $ 1.3 million of accrued debt issuance costs included in “Prepaid expenses and other assets”, “Accounts payable” and “Accrued expenses and other liabilities” in the Condensed Consolidated Statements of Cash Flows which will be paid in the third quarter of 2024.

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