What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-06 compared with 2026-05-05 · 93 added, 50 removed, 155 unchanged (48% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operation s

Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to the “Company,” “our,” “us” or “we” refer to CPI Card Group Inc.

and its subsidiaries.

For an understanding of the significant factors that influenced our results, the following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2026.

Management’s Discussion and Analysis should also be read in conjunction with the management’s discussion and analysis and consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission (“SEC”).

Cautionary Statement Regarding Forward-Looking Information

Certain statements and information in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2026 (as well as information included in other written or oral statements we make from time to time) may contain or constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Certain statements and information in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2026 (as well as information included in other written or oral statements we make from time to time) may contain or constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The words “believe,” “estimate,” “project,” “expect,” “anticipate,” “affirm,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “continue,” “committed,” “attempt,” “aim,” “target,” “objective,” “guides,” “seek,” “focus,” “provides guidance,” “provides outlook” or other similar expressions are intended to identify forward-looking statements, which are not historical in nature.

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damage to our reputation or brand image;

our inability to adequately protect our trade secrets and

intellectual property rights from misappropriation, infringement claims brought against us and risks related to open source software;

our inability to adequately protect our trade secrets and intellectual property rights from misappropriation, infringement claims brought against us and risks related to open source software;

our inability to renew licenses with key technology licensors;

our limited ability to raise capital, which may lead to delays in innovation or the abandonment of our strategic initiatives;

costs and impacts related to additional tax collection efforts by states, unclaimed property laws, or future increases in U.S.

costs and impacts related to additional tax collection efforts

by states, unclaimed property laws, or future increases in U.S.

federal or state income taxes, resulting in additional expenses which we may be unable to pass along to our customers;

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We are a leader in several areas of the U.S.

payment card solutions market, including debit and credit card production, personalization, and Software-as-a-Service-based (“SaaS-based”) instant issuance solutions.

payment card solutions market, including debit and credit card production, personalization, and a cloud-based instant issuance solution.

We are also a market leader in the production of “Prepaid Debit Cards,” defined as debit cards issued on the networks of the “Payment Card Brands” (Visa, Mastercard ® , American Express ® and Discover ® ) but not linked to a traditional bank account, and related secure packaging solutions.

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Segment Overview

In connection with our increased strategic focus on expanding and developing additional proprietary integrated technological solutions for its customer base and to reflect the manner in which the Company’s Chief Operating Decision Maker (“CODM”), the Chief Executive Officer (“CEO”) manages our business, we implemented a revised segment structure to assess performance and allocate resources, beginning in the first quarter of 2026.

In connection with our increased strategic focus on expanding and developing additional proprietary integrated technological solutions for our customer base and to reflect the manner in which the Company’s Chief Operating Decision Maker (“CODM”), the Chief Executive Officer (“CEO”), manages our business, we implemented a revised segment structure to assess performance and allocate resources, beginning in the first quarter of 2026.

The changes in our segment structure primarily relate to the separation of the results of our proprietary integrated technological related operations into a separate segment from the former Debit and Credit segment.

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• Integrated Paytech:

primarily provides a SaaS-based instant issuance solution, which gives customers the ability to issue an instant personalized debit or credit card within a customer location;

primarily provides cloud-based and on-premise solutions, which give customers the ability to issue an instant personalized debit or credit card within a customer location;

and other digital payment solutions such as push provisioning for mobile wallets.

On June 23, 2026, we entered into an asset purchase agreement to acquire an on-premise instant issuance solution, which includes the development, marketing, sale, licensing, and servicing of on-premise instant payment card issuance software solutions.

The financial results of the acquired business are included in our Integrated Paytech segment.

Operating results for prior periods have been recast to conform to the current period presentation.

information reflects only reclassification of prior period segment data and does not represent a restatement of previously

issued financial statements.

The updated information reflects only reclassification of prior period segment data and does not represent a restatement of previously issued financial statements.

Results of Operations

The following table presents the components of our condensed consolidated statements of operations and comprehensive income for each of the periods presented:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 $ Change % Change 2026 2025 $ Change % Change

(dollars in thousands)

$ 149,181 $ 129,753 $ 19,428 15.0 % $ 296,289 $ 252,514 $ 43,775 17.3 %

Cost of goods sold (1)

100,695 89,633 11,062 12.3 % 203,679 171,698 31,981 18.6 %

Gross profit 48,486 40,120 8,366 20.9 % 92,610 80,816 11,794 14.6 %

Selling, general and administrative expenses 36,622 30,697 5,925 19.3 % 69,752 57,289 12,463 21.8 %

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Interest, net (7,405) (8,069) 664 8.2 % (15,061) (15,754) 693 4.4 %

Other income, net

Other (expense) income, net (35) (13) (22) * (3) 5 (8) *

Income before taxes and equity in losses of unconsolidated affiliates 4,424 1,341 3,083 * 7,794 7,778 16 0.2 %

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Equity in losses of unconsolidated affiliates (247) — (247) * (403) — (403) *

Net income $ 2,040 $ 518 $ 1,522 293.8 % $ 4,096 $ 5,292 $ (1,196) (22.6) %

Gross profit margin 32.5 % 30.9 % 31.3 % 32.0 %

________________________________________________________

* Calculation not meaningful.

(1) For the three months ended March 31, 2026 and 2025, revenue and cost of goods sold each include $4.2 million and $4.8 million of intersegment eliminations, respectively.

The following discussion of our condensed consolidated results of operations and segment results refers to the three months ended March 31, 2026, compared to the corresponding prior year period.

(1) For the three months ended June 30, 2026 and 2025, revenue and cost of goods sold each include $4.5 million and $3.5 million of intersegment eliminations, respectively.

For the six months ended June 30, 2026 and 2025, revenue and cost of goods sold each include $8.6 million and $8.3 million of intersegment eliminations, respectively.

The following discussion of our condensed consolidated results of operations and segment results refers to the three and six months ended June 30, 2026, compared to the corresponding prior year period.

The results of operations should be read in conjunction with the discussion of our segment results of operations, which provide more detailed discussions concerning certain components of the condensed consolidated statements of operations and comprehensive income.

Revenue increased for the three months ended March 31, 2026, primarily due to increased revenue in our Secure Card Solutions segment, driven by contributions of $16.1 million from the acquisition of Arroweye, increased volumes of contactless cards, including metal cards, and higher personalization services;

partially offset by lower revenue in our Prepaid Solutions segment.

Revenue increased for the three months ended June 30, 2026, primarily due to increased revenue in our Secure Card Solutions segment excluding contributions from Arroweye, driven by increased volumes of contactless cards and higher personalization services;

as well as higher revenue in our Prepaid Solutions segment.

Additionally, revenue partially increased in our Secure Card Solutions segment due to contributions from the acquisition of Arroweye.

Revenue increased for the six months ended June 30, 2026, primarily due to increased revenue in our Secure Card Solutions segment excluding contributions from Arroweye, driven by increased volumes of contactless cards and higher personalization services.

Additionally, revenue partially increased in our Secure Card Solutions segment due to contributions from the acquisition of Arroweye.

Gross Profit and Gross Profit Margin:

Gross profit increased for the three months ended March 31, 2026, primarily due to increased revenue, partially offset by negative sales mix and increased production costs, including increased depreciation expenses and tariffs totaling $3.0 million.

Gross profit increased for the three and six months ended June 30, 2026, primarily due to the factors discussed above and net tariff refunds totaling approximately $3.5 million and $2.5 million, respectively, partially offset by unfavorable changes in sales mix between segments and increased depreciation expenses.

Additional changes in tariff rates could further impact our results of operations during 2026.

Gross profit margin decreased for the three months ended March 31, 2026, primarily due to negative sales mix and increased production costs, including increased depreciation expenses and tariffs, partially offset by operating leverage from increased revenue.

Gross profit margin increased for the three months ended June 30, 2026, primarily due to increased revenue and tariff refunds, partially offset by unfavorable changes in sales mix between segments and increased depreciation expenses.

Gross profit margin decreased for the six months ended June 30, 2026, primarily due to unfavorable changes in sales mix between segments and increased depreciation expenses, partially offset by increased revenue and tariff refunds.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses increased for the three months ended March 31, 2026, primarily due to increased costs of $2.4 million associated with the integration of Arroweye and increased compensation-related expenses resulting from increased headcount, including increased executive severance and employee performance-based incentive compensation.

Selling, general and administrative expenses increased for the three and six months ended June 30, 2026, primarily due to higher compensation and related expenses, non-recurring acquisition and integration costs, and increased investments in technology.

The increase in compensation and related expenses was primarily attributable to employee-related costs associated with the Arroweye acquisition and the development of our Integrated Paytech segment.

The increase in Arroweye costs reflects the addition of personnel to our workforce and is expected to continue as part of ongoing operations.

Investments in technology increased primarily due to the development of our Integrated Paytech segment and our acquisition of Arroweye.

Interest, net :

Interest expense was relatively consistent for the three months ended March 31, 2026.

Interest expense was relatively consistent for the three and six months ended June 30, 2026.

Other Income, net:

Other income, net, was relatively consistent for the three months ended March 31, 2026.

Other income, net, was relatively consistent for the three and six months ended June 30, 2026.

Income Tax Expense:

Our effective tax rates on pre-tax income were 34.4% and 25.8% for the three months ended March 31, 2026 and 2025, respectively.

The increase in the Company’s effective tax rate for the three months ended March 31, 2026, compared to the prior year related to deductibility of stock-based compensation realized upon certain stock option exercises and restricted stock unit vesting and an increase in the valuation allowance related to states decoupling from recent favorable tax legislation changes.

Our effective tax rates on pre-tax income were 48.3% and 61.4% for the three months ended June 30, 2026 and 2025, respectively, and 42.3% and 32.0% for the six months ended June 30, 2026 and 2025, respectively.

The decrease in our effective tax rate for the three months ended June 30, 2026, compared to the prior year was primarily due to deferred state tax expense recognized as part of the Arroweye Solutions, Inc.

acquisition in the prior-year period.

The increase in our effective tax rate for the six months ended June 30, 2026, compared to the prior year was primarily attributable to the write off of a deferred tax asset associated with vested stock options that expired unexercised, as well as an increase in the valuation allowance related to a certain state decoupling from various favorable federal tax provisions.

Segment Discussion

Secure Card Solutions:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 $ Change % Change 2026 2025 $ Change % Change

(dollars in thousands)

Revenue $ 110,867 $ 94,673 $ 16,194 17.1 % $ 220,718 $ 176,315 $ 44,403 25.2 %

Gross profit $ 30,869 $ 23,918 $ 6,951 29.1 % $ 58,571 $ 44,737 $ 13,834 30.9 %

Income from operations $ 21,020 $ 15,636 $ 5,384 34.4 % $ 38,288 $ 29,946 $ 8,342 27.9 %

Gross profit margin 27.8 % 25.3 % 26.5 % 25.4 %

Revenue for Secure Card Solutions increased for the three months ended March 31, 2026, primarily due to contributions from the acquisition of Arroweye, increased volumes of contactless cards, including metal cards, and higher personalization services.

Revenue for Secure Card Solutions increased for the three and six months ended June 30, 2026, primarily due to contributions from the acquisition of Arroweye as described above, increased volumes of contactless cards and higher personalization services.

Gross Profit and Gross Profit Margin:

Gross profit for Secure Card Solutions increased for the three months ended March 31, 2026, primarily due to increased revenue, partially offset by increased production costs, including increased depreciation expenses and tariffs.

Gross profit margin was relatively consistent for Secure Card Solutions for the three months ended March 31, 2026 .

Gross profit and gross profit margin for Secure Card Solutions increased for the three and six months ended June 30, 2026, primarily due to increased revenue and tariff refunds, partially offset by increased depreciation expenses.

Income from Operations:

Income from operations for Secure Card Solutions increased for the three months ended March 31, 2026, primarily due to increased gross profit, partially offset by increased selling, general and administrative expenses driven by increased compensation-related expenses resulting from increased headcount and other costs due to the Arroweye acquisition.

Income from operations for Secure Card Solutions increased for the three and six months ended June 30, 2026, primarily due to increased gross profit, partially offset by increased selling, general and administrative expenses driven by higher compensation and related expenses and investments in technology primarily due to the acquisition of Arroweye.

Prepaid Solutions:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 $ Change % Change 2026 2025 $ Change % Change

(dollars in thousands)

Revenue $ 22,645 $ 19,222 $ 3,423 17.8 % $ 44,694 $ 45,935 $ (1,241) (2.7) %

Gross profit $ 6,419 $ 5,471 $ 948 17.3 % $ 12,085 $ 14,913 $ (2,828) (19.0) %

Income from operations $ 4,982 $ 4,171 $ 811 19.4 % $ 9,075 $ 12,170 $ (3,095) (25.4) %

Gross profit margin 28.3 % 28.5 % 27.0 % 32.5 %

Revenue for Prepaid Solutions decreased for the three months ended March 31, 2026, primarily due to comparisons with strong sales of higher-value packaging solutions in the prior year period, partially offset by sales of closed loop payment cards.

Revenue for Prepaid Solutions increased for th e three months ended June 30, 2026 , primarily due to the change in accounting that was implemented in the second quarter of 2025 resulting in reduced revenue recognition for work-in-process orders, partially offset by comparisons with strong sales of higher-value packaging solutions in the prior year period.

Excluding the change in accounting, revenue would have decreased $1.6 m illion , or 6.7% .

Revenue for Prepaid Solutions decreased for t he six months ended June 30, 2026 , primarily due to comparisons with strong sales of higher-value packaging solutions in the prior year period, partially offset by the change in accounting that was implemented in the second quarter of 2025 resulting in reduced revenue recognition for work-in-process orders.

Excluding the change in accounting, the decrease in revenue would have been $6.6 million, or 12.9% .

Gross Profit and Gross Profit Margin:

Gross profit and gross profit margin for Prepaid Solutions decreased for the three months ended March 31, 2026, primarily due to lower operating leverage from decreased revenue and unfavorable sales mix.

Gross profit for Prepaid Solutions increased for the three months ended June 30, 2026, primarily due to increased revenue, including the change in accounting that was implemented in the second quarter of 2025 resulting in reduced revenue recognition for work-in-process orders;

partially offset by unfavorable sales mix.

Gross profit margin was relatively consistent for Prepaid Solutions for the three months ended June 30, 2026 .

Gross profit and gross profit margin for Prepaid Solutions decreased for the six months ended June 30, 2026, primarily due to decreased revenue and unfavorable sales mix, partially offset by the change in accounting that was implemented in the second quarter of 2025 resulting in reduced revenue recognition for work-in-process orders .

Income from Operations:

Income from operations for Prepaid Solutions decreased for the three months ended March 31, 2026, primarily due to the factors discussed in “Gross Profit and Gross Profit Margin” above.

Income from operations for Prepaid Solutions increased for the three months ended June 30, 2026 and decreased for the six months ended June 30, 2026, primarily due to the factors discussed in “Gross Profit and Gross Profit Margin” above.

Integrated Paytech:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 $ Change % Change 2026 2025 $ Change % Change

(dollars in thousands)

Revenue $ 20,141 $ 19,326 $ 815 4.2 % $ 39,523 $ 38,579 $ 944 2.4 %

Gross profit $ 11,198 $ 10,731 $ 467 4.4 % $ 21,954 $ 21,166 $ 788 3.7 %

Income from operations $ 6,576 $ 7,417 $ (841) (11.3) % $ 13,441 $ 14,810 $ (1,369) (9.2) %

Gross profit margin 55.6 % 55.5 % 55.5 % 54.9 %

Revenue for Integrated Paytech was relatively consistent for the three months ended March 31, 2026.

Revenue for Integrated Paytech was relatively consistent for the three and six months ended June 30, 2026.

Gross Profit and Gross Profit Margin:

Gross profit and gross profit margin for Integrated Paytech were relatively consistent for the three months ended March 31, 2026.

Gross profit and gross profit margin for Integrated Paytech were relatively consistent for the three and six months ended June 30, 2026.

Income from Operations:

Income from operations for Integrated Paytech decreased for the three months ended March 31, 2026, primarily due to increased selling, general and administrative expenses driven by increased compensation-related expenses resulting from increased headcount.

Income from operations for Integrated Paytech decreased for the three and six months ended June 30, 2026, primarily due to increased selling, general and administrative expenses driven by increased compensation-related expenses and technology costs.

Liquidity and Capital Resources

At March 31, 2026, we had $19.3 million of cash and cash equivalents.

At June 30, 2026, we had $21.4 million of cash and cash equivalents.

Our primary source of liquidity has been cash generated from our operating activities, which has been driven by net income and fluctuations in working capital.

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Our ability to make investments in and grow our business, service our debt, and improve our debt leverage ratios, while maintaining strong liquidity, depends on our ability to generate excess operating cash flows.

Although we can provide no assurances, we believe that our cash flows from operations, combined with our current cash levels and our senior secured revolving credit facility (the “ABL Revolver”) with available borrowing capacity of $81.8 million as of March 31, 2026, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations and working capital needs.

Although we can provide no assurances, we believe that our cash flows from operations, combined with our current cash levels and our senior secured revolving credit facility (the “ABL Revolver”) with available borrowing capacity of $92.3 million as of June 30, 2026, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations and working capital needs.

Our future cash flows could be impacted by a variety of factors, some of which are beyond our control.

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Cash Flows from Operating Activities

Cash provided by operating activities for the three months ended March 31, 2026, increased to $13.6 million from $5.6 million for the three months ended March 31, 2025, primarily due to reduced working capital usage.

Working capital benefited from decreased incentive payments related to a customer contract originally entered into in the first quarter of 2024, decreased employee performance-based incentive compensation and severance payments in 2026, and lower inventory purchases.

These benefits were partially offset by timing of collections in accounts receivable and payments on accounts payable and prepaid expense balances.

Cash provided by operating activities for the six months ended June 30, 2026, increased to $42.1 million from $9.9 million for the six months ended June 30, 2025, primarily due to reduced working capital usage.

Working capital benefited from decreased incentive payments related to a customer contract originally entered into in the first quarter of 2024, lower inventory purchases, decreased employee performance-based incentive compensation and severance payments, and decreased tax payments.

These benefits were partially offset by timing of payments on accounts payable and prepaid expense balances.

Cash Flows from Investing Activities

Acquisition of an On-Premise Instant Issuance Solution

On June 23, 2026, we acquired an on-premise instant issuance solution for a purchase price of $6.3 million.

The acquisition was funded through cash on hand.

Refer to Note 1, “Business Overview and Summary of Significant Accounting Policies” of the condensed consolidated financial statements in this report for information regarding the acquisition.

Capital Expenditures

During the three months ended March 31, 2026, capital expenditures, including investments to support the business, such as machinery and information technology equipment, totaled $3.5 million.

During the six months ended June 30, 2026, capital expenditures, including investments to support the business, such as machinery and information technology equipment, totaled $6.1 million.

Cash Flows from Financing Activities

As of March 31, 2026, and December 31, 2025, we had the following outstanding borrowings:

As of June 30, 2026, and December 31, 2025, we had the following outstanding borrowings:

2026 December 31,

(dollars in thousands)

Senior Notes $ 265,000 $ 265,000

ABL Revolver — 25,000

Unamortized deferred financing costs (2,861) (3,332)

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

During the six months ended June 30, 2026, we made principal payments of $25.0 million on the ABL Revolver.

On July 15, 2026, we borrowed $30.0 million under the ABL Revolver and redeemed $26.5 million of the outstanding $265.0 million aggregate principal amount Senior Notes.

Amounts borrowed and outstanding under the ABL Revolver and Senior Notes are required to be repaid in full, together with any accrued and unpaid interest, no later than July 15, 2029 and may be subject to earlier mandatory prepayment upon certain events.

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Debt Service Requirements

As of March 31, 2026, the total projected principal and interest payments on our borrowings are $368.4 million, primarily related to the Senior Notes, of which $26.8 million of interest is expected to be paid in the next 12 months.

T he remaining interest payments are expected to be paid over the remaining term of the Senior Notes, which mature in 2029, and the principal is due upon maturity.

We have estimated our future interest payments assuming no additional borrowings under the ABL Revolver, no early redemptions of principal on the Senior Notes, and no debt issuances or renewals upon the maturity dates of our notes.

As of June 30, 2026, the total projected principal and interest payments on our borrowings are $355.3 million, primarily related to the Senior Notes, of which $26.1 million of interest is expected to be paid in the next 12 months.

The remaining interest payments are expected to be paid over the remaining term of the Senior Notes, which mature in 2029, and the principal is due upon maturity.

We have estimated our future interest payments including an additional $30.0 million of borrowings under the ABL Revolver and early redemptions of principal of $26.5 million on the Senior Notes, both of which occurred on July 15, 2026.

This also assumes no debt issuances or renewals upon the maturity dates of our notes.

However, we may borrow additional amounts under the ABL Revolver, redeem principal on the Senior Notes early, or refinance all or a portion of our borrowings in future periods.

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Refer to Part II, Item 8, Financial Statements and Supplementary Data , Note 9, “Financing and Operating Leases,” in our Annual Report on Form 10-K for the year ended December 31, 2025, for details on our leasing arrangements, including future maturities of our operating lease liabilities.

In February 2024, we entered into a build-to-suit lease agreement to relocate and modernize our operations at our Fort Wayne, Indiana production facility, which commenced in the first quarter of 2025, and payments beginning in 2026.

Under this lease agreement, we will pay an annual base rent of $0.9 million, subject to an annual rent increase of 2.0% .

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A purchase obligation is an agreement to purchase goods or services that is enforceable, legally binding, and specifies all significant terms.

As of March 31, 2026, there have not been any material changes to the purchase obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

As of June 30, 2026, there have not been any material changes to the purchase obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Critical Accounting Policies and Estimates

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Actual results could differ from those estimates.

Our Critical Accounting Policies and Estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025, for which there were no material changes as of March 31, 2026, included:

Our Critical Accounting Policies and Estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025, for which there were no material changes as of June 30, 2026, included:

• Revenue recognition, including estimates of work performed but not completed ,

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• Business combinations.

Quantitative and Qualitative Disclosures about Market Risk

Not required due to smaller reporting company status.

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 2. Management’s Discussion and Analysis