Market Overview

CPI Card Group Inc. Reports Second Quarter 2018 Results

Share:

Net Sales of $61.5 million, up 12% year-over-year

Continuing Operations - GAAP Net Loss of $0.8 million; Adjusted Net
Income of $1.1 million

Adjusted EBITDA of $8.9 million

Q2 Ending Cash of $17.8 million, Available Revolver of $20.0 million,
Available Liquidity of $37.8 million

Call scheduled for Thursday, August 9, 2018 at 9:00 a.m. Eastern Time

CPI Card Group Inc. (NASDAQ:PMTS, TSX:PMTS) ("CPI Card Group" or the
"Company") today reported financial results for the second quarter ended
June 30, 2018.

Scott Scheirman, President and Chief Executive Officer of CPI, stated,
"We are pleased with our second quarter results, which include 12%
year-over-year revenue growth driven by strong performance in Prepaid
and growth of our emerging products and solutions. We are tracking in
line with our business plan through the first half of 2018. During the
second quarter, we continued to expand relationships with new and
existing customers by executing on our strategic priorities of deep
customer focus, providing market-leading quality products and customer
service, a market competitive business model and continuous innovation.
At the same time, we made an important strategic move to sharpen our
focus on our core customers, markets, products and solutions by selling
our U.K. business."

Second Quarter 2018 – Continuing Operations Consolidated Financial
Highlights

Financial results included in this press release for all periods
reflect continuing operations. The sale of CPI U.K., which had
historically been reported as the U.K. Limited segment, has been
accounted for as a discontinued operation, and comparative financial
information has been restated in accordance with U.S. GAAP ("GAAP")
requirements.

Net sales were $61.5 million in the second quarter of 2018, representing
an increase of 12% from the second quarter of 2017. Income from
operations was $2.7 million in the second quarter of 2018, up from $0.7
million in the second quarter of 2017. GAAP net loss from continuing
operations in the second quarter of 2018 was $0.8 million, or a loss
from continuing operations of $0.07 per diluted share, compared to a net
loss from continuing operations of $3.3 million, or a loss from
continuing operations of $0.30 per diluted share, in the second quarter
of 2017.

Adjusted EBITDA for the second quarter of 2018 was $8.9 million,
compared with $7.2 million in the prior year period, primarily
reflecting revenue growth from more profitable emerging products and
solutions. Adjusted Net Income from continuing operations in the second
quarter of 2018 was $1.1 million, or an adjusted income from continuing
operations of $0.10 per diluted share, compared with Adjusted Net Loss
from continuing operations of $1.1 million in the second quarter of 2017.

All earnings per share amounts reflect the one-for-five reverse stock
split, which occurred in December 2017.

Second Quarter 2018 – Continuing Operations Segment Information

U.S. Debit and Credit:

Net sales were $43.8 million in the second quarter of 2018, representing
an increase of 3.5% from the second quarter of 2017. The increase in
U.S. Debit and Credit segment net sales was driven predominantly by an
increase in revenue from our emerging products and solutions, including
Card@Once® and metal cards, partially offset by decreases in Non-EMV and
other sales, card personalization and fulfillment and EMV® card revenues
due to lower EMV® card average selling prices. Sales volumes of EMV®
cards increased in the second quarter of 2018 compared to first quarter
of 2018 and the second quarter of 2017.

U.S. Prepaid Debit:

Net sales were $15.4 million in the second quarter of 2018, representing
an increase of 25.9% from the second quarter of 2017. The year-over-year
increase in U.S. Prepaid Debit segment net sales was driven primarily by
additional sales volumes from a new portfolio win with an existing
customer.

Balance Sheet, Cash Flow, Liquidity

Cash used in operating activities for the first half of 2018 was $1.4
million, and capital expenditures totaled $2.1 million. Free cash flow
for the first half of 2018 was a use of $3.5 million, on a continuing
operations basis.

At June 30, 2018, the Company had $17.8 million of cash and cash
equivalents and a $40.0 million revolving credit facility, of which
$20.0 million was available for borrowing.

Total debt principal outstanding, comprised of the Company's First Lien
Term Loan, was $312.5 million at June 30, 2018, unchanged from December
31, 2017. Net of debt issuance costs and discount, recorded debt was
$304.8 million as of June 30, 2018. The Company's First Lien Term Loan
matures on August 17, 2022 and includes no financial covenants.

John Lowe, Chief Financial Officer, stated, "I am thrilled to be part of
the CPI Card Group team. When deciding to join CPI, I was attracted to
its strong position in our market space, its talented and dedicated team
and history as an innovator in the industry. My past eight weeks with
the Company have served to further solidify the reasons why I joined
CPI, and I look forward to partnering with Scott and the entire CPI team
to advance our long-term strategy for growth and profitability. Our
second quarter financial and operating performance is reflective of the
solid progress we are making against our key strategic priorities, and
we believe we have adequate cash and liquidity to support our business
plan moving forward."

EMV® is a registered trademark or trademark of EMVCo LLC in the
United States and other countries.

Non-GAAP Financial Measures

In addition to financial results reported in accordance with U.S.
generally accepted accounting principles (GAAP), we have provided the
following non-GAAP financial measures in this release, all reported on a
continuing operations basis: Adjusted Net Income (Loss), Adjusted
Diluted Earnings (Loss) per Share, EBITDA, Adjusted EBITDA and Free Cash
Flow. These non-GAAP financial measures are utilized by management in
comparing our operating performance on a consistent basis between fiscal
periods. We believe that these financial measures are appropriate to
enhance an overall understanding of our underlying operating performance
trends compared to historical and prospective periods and our peers.
Management also believes that these measures are useful to investors in
their analysis of our results of operations and provide improved
comparability between fiscal periods. Non-GAAP financial measures should
not be considered in isolation from, or as a substitute for, financial
information calculated in accordance with GAAP. Our non-GAAP measures
may be different from similarly titled measures of other companies.
Investors are encouraged to review the reconciliation of these
historical non-GAAP measures to their most directly comparable GAAP
financial measures included in Exhibit E to this press release.

Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per
Share – Continuing Operations

Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) per
Share – Continuing Operations exclude the impact of amortization of
intangible assets; litigation and related charges incurred in connection
with certain patent and shareholder litigation; stock-based compensation
expense; restructuring and other charges; and other non-operational,
non-cash or non-recurring items, net of their income tax impact.
Beginning in the first quarter of 2018, a 21% tax rate is used to
calculate Adjusted Net Income (Loss) and Adjusted Diluted Earnings
(Loss) per Share - Continuing Operations. We believe that Adjusted Net
Income (Loss) and Adjusted Diluted Earnings (Loss) per Share -
Continuing Operations are useful in assessing our financial performance
by excluding items that are not indicative of our core operating
performance or that may obscure trends useful in evaluating our results
of operations.

EBITDA

EBITDA represents earnings before interest, taxes, depreciation and
amortization, on a continuing operations basis. EBITDA is presented
because it is an important supplemental measure of performance, and it
is frequently used by analysts, investors and other interested parties
in the evaluation of companies in our industry. EBITDA is also presented
and compared by analysts and investors in evaluating our ability to meet
debt service obligations. Other companies in our industry may calculate
EBITDA differently. EBITDA is not a measurement of financial performance
under GAAP and should not be considered as an alternative to cash flow
from operating activities or as a measure of liquidity or an alternative
to net (loss) income as indicators of operating performance or any other
measures of performance derived in accordance with GAAP. Because EBITDA
is calculated before recurring cash charges, including interest expense
and taxes, and is not adjusted for capital expenditures or other
recurring cash requirements of the business, it should not be considered
as a measure of discretionary cash available to invest in the growth of
the business.

Adjusted EBITDA

Adjusted EBITDA, on a continuing operations basis, is defined as EBITDA
adjusted for litigation and related charges incurred in connection with
certain patent and shareholder litigation; stock-based compensation
expense; restructuring and other charges; foreign currency gain or loss;
and other items that are unusual in nature, infrequently occurring or
not considered part of our core operations, as set forth in the
reconciliation on Exhibit E. Adjusted EBITDA is also a defined term in
our existing credit agreement, which generally conforms to the
definition above, and impacts certain credit measures and compliance
targets within the credit agreement. Adjusted EBITDA is intended to show
our unleveraged, pre-tax operating results and therefore reflects our
financial performance based on operational factors, excluding
non-operational, non-cash or non-recurring losses or gains. Adjusted
EBITDA has important limitations as an analytical tool, and you should
not consider it in isolation, or as a substitute for, analysis of our
results as reported under GAAP. For example, Adjusted EBITDA does not
reflect: (a) our capital expenditures, future requirements for capital
expenditures or contractual commitments; (b) changes in, or cash
requirements for, our working capital needs; (c) the significant
interest expenses or the cash requirements necessary to service interest
or principal payments on our debt; (d) tax payments that represent a
reduction in cash available to us; (e) any cash requirements for the
assets being depreciated and amortized that may have to be replaced in
the future; or (f) the impact of earnings or charges resulting from
matters that we and the lenders under our credit agreement may not
consider indicative of our ongoing operations. In particular, our
definition of Adjusted EBITDA allows us to add back certain non-cash,
non-operating or non-recurring charges that are deducted in calculating
net (loss) income, even though these are expenses that may recur, vary
greatly and are difficult to predict and can represent the effect of
long-term strategies as opposed to short-term results.

In addition, certain of these expenses can represent the reduction of
cash that could be used for other corporate purposes. Further, although
not included in the calculation of Adjusted EBITDA, the measure may at
times allow us to add estimated cost savings and operating synergies
related to operational changes ranging from acquisitions to dispositions
to restructurings and/or exclude one-time transition expenditures that
we anticipate we will need to incur to realize cost savings before such
savings have occurred. Further, management and various investors use the
ratio of total debt less cash to Adjusted EBITDA, or "net debt
leverage", as a measure of our financial strength and ability to incur
incremental indebtedness when making key investment decisions and
evaluating us against peers.

Free Cash Flow

We define Free Cash Flow - Continuing Operations as cash flow from
continuing operations less capital expenditures, and we use this metric
in analyzing our ability to service and repay our debt. However, this
measure does not represent funds available for investment or other
discretionary uses since it does not deduct cash used to service our
debt.

About CPI Card Group Inc.

CPI Card Group is a leading provider in payment card production and
related services, offering a single source for credit, debit and prepaid
debit cards, including EMV® chip, personalization, instant issuance,
fulfillment and mobile payment services. With more than 20 years of
experience in the payments market and as a trusted partner to financial
institutions, CPI's solid reputation of product consistency, quality and
outstanding customer service supports our position as a leader in the
market. Serving our customers from locations throughout the United
States and Canada, we have a leading network of high security facilities
in the United States and Canada, each of which is certified by one or
more of the payment brands: Visa, MasterCard, American Express, Discover
and Interac in Canada. Learn more at www.cpicardgroup.com.

Conference Call and Webcast

CPI Card Group Inc. will host a conference call on August 9, 2018 at
9:00 a.m. ET to discuss its second quarter 2018 results. To participate
in the Company's live conference call via telephone or online:

Participant Toll-Free Dial-In Number: (800) 860-2442

Participant International Dial-In Number: (412) 858-4600

Conference ID: CPI Call

Webcast Link: https://services.choruscall.com/links/pmts180807.html

Participants are advised to login for the live webcast 10 minutes prior
to the scheduled start time. A webcast replay and transcript of the
conference call will be available on CPI Card Group Inc.'s Investor
Relations web site: http://investor.cpicardgroup.com/

Following the completion of the conference call, a replay of the
conference call will be available from 7:00 p.m. ET on August 9, 2018
until 8.00 p.m. ET on August 16, 2018. To access the replay, please dial
(877) 344-7529 or (412) 317-0088; Conference ID: 10122210.

Forward-Looking Statements

Statements in this press release that are not statements of historical
fact are "forward -looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward looking
statements may be identified by terms such as statements about our
plans, objectives, expectations, assumptions or future events. Words
such as "may," "will," "should," "could," "expect," "anticipate,"
"believe," "estimate," "intend," "continue," "project," "plan,"
"foresee," and other similar expressions are intended to identify
forward-looking statements, which are generally not historical in
nature. These statements involve risks and uncertainties that could
cause actual results to differ materially from those described in such
statements. These risks and uncertainties include, but are not limited
to: system security risks, data protection breaches and
cyber-attacks; interruptions in our operations, including our IT
systems; defects in our software; failure to identify and attract new
customers or to retain our existing customers; problems in production
quality and process; failure to meet our customers' demands in a timely
manner; a loss of market share or a decline in profitability resulting
from competition; developing technologies that make our existing
technology solutions and products less relevant or a failure to
introduce new products and services in a timely manner; disruptions
relating to the development and execution of our strategy, or a failure
to realize the anticipated benefits of such strategy; our inability to
sell, exit, reconfigure or consolidate businesses or facilities that no
longer meet with our strategy; our inability to develop, introduce and
commercialize new products; our substantial indebtedness, including
inability to make debt service payments or refinance such indebtedness;
the restrictive terms of our credit facility and covenants of future
agreements governing indebtedness; our limited ability to raise capital
in the future; our inability to adequately protect our trade secrets and
intellectual property rights from misappropriation or infringement; our
dependence on the timely supply of materials, products and specialized
equipment from third-party suppliers; a competitive disadvantage
resulting from chip operating systems developed by our competitors;
price erosion in the financial payment card industry; failure to
accurately predict demand for our products and services; quarterly
variation in our operating results; the effect of legal and regulatory
proceedings; infringement of our intellectual property rights, or claims
that our technology is infringing on third-party intellectual property;
our inability to realize the full value of our long-lived assets; the
impact of U.S. tax reform legislation; our failure to operate our
business in accordance with data privacy laws, the PCI Security
Standards Council ("PCI") security standards or other industry
standards, such as Payment Card Brand certification standards; costs
relating to product defects; a decline in U.S. and global market and
economic conditions; potential imposition of tariffs and/or trade
restrictions on goods imported into the United States; economic
conditions and regulatory changes leading up to and following the United
Kingdom's exit from the European Union; our dependence on licensing
arrangements; inability to renew leases for our facilities or renew
leases at existing terms; dependence on our senior leadership team;
inability to recruit, retain and develop qualified personnel; the
continued viability of the Payment Card Brands; non-compliance with, and
changes in, laws in the United States and in foreign jurisdictions in
which we operate and sell our products; failure to maintain our listing
on the NASDAQ and other risks and other risk factors or uncertainties
identified from time to time in our filings with the Securities and
Exchange Commission. Although we believe that the expectations reflected
in such forward-looking statements are reasonable, we can give no
assurance that such expectations will prove to have been correct.
Reference is made to a more complete discussion of forward-looking
statements and applicable risks contained under the captions "Cautionary
Statement Regarding Forward-Looking Information" and "Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2017
filed with the SEC on March 13, 2018. CPI Card Group Inc. undertakes no
obligation to update or revise any of its forward-looking statements,
whether as a result of new information, future events or otherwise.

####

For more information:

CPI encourages investors to use its investor relations website as a way
of easily finding information about the company. CPI promptly makes
available on this website, free of charge, the reports that the company
files or furnishes with the SEC, corporate governance information and
press releases. CPI uses its investor relations site (http://investor.cpicardgroup.com)
as a means of disclosing material information and for complying with its
disclosure obligations under Regulation FD.

CPI Card Group Inc.

Earnings Release Supplemental Financial Information

 
Exhibit A Condensed Consolidated Statements of Operations and Comprehensive
Loss - Unaudited for the three and six months ended June 30, 2018
and 2017
 
Exhibit B Condensed Consolidated Balance Sheets – Unaudited as of June 30,
2018 and December 31, 2017
 
Exhibit C Condensed Consolidated Statements of Cash Flows - Unaudited for the
six months ended June 30, 2018 and 2017
 
Exhibit D Segment Summary Information – Unaudited for the three and six months
ended June 30, 2018 and 2017
 
Exhibit E Supplemental GAAP to Non-GAAP Reconciliations - Unaudited for the
three and six months ended June 30, 2018 and 2017
EXHIBIT A
 
CPI Card Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive
Loss
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
  Three Months Ended June 30,   Six Months Ended June 30,
2018   2017 2018   2017
Net sales:
Products $ 31,494 $ 26,640 $ 56,238 $ 52,866
Services   29,960     28,196     60,073     52,391  
Total net sales   61,454     54,836     116,311     105,257  
Cost of sales:

Products (exclusive of depreciation and amortization shown
below)

18,962 17,943 35,280 35,106

Services (exclusive of depreciation and amortization shown
below)

19,116 17,533 39,780 33,444
Depreciation and amortization   3,501     2,694     6,949     5,393  
Total cost of sales   41,579     38,170     82,009     73,943  
Gross profit 19,875 16,666 34,302 31,314
Operating expenses:

Selling, general and administrative (exclusive of depreciation
and
amortization shown below)

15,756 14,304 31,084 29,228
Depreciation and amortization   1,465     1,641     2,927     3,277  
Total operating expenses   17,221     15,945     34,011     32,505  
Income (loss) from operations 2,654 721 291 (1,191 )
Other expense, net:
Interest, net (5,586 ) (5,165 ) (11,092 ) (10,228 )
Foreign currency (loss) gain (466 ) 153 (264 ) 172
Other income, net   3     4     7     6  
Total other expense, net   (6,049 )   (5,008 )   (11,349 )   (10,050 )
Loss from continuing operations before income taxes (3,395 ) (4,287 ) (11,058 ) (11,241 )
Income tax benefit   2,593     1,014     4,578     3,371  
Net loss from continuing operations (802 ) (3,273 ) (6,480 ) (7,870 )
Net (loss) income from discontinued operation   (15,907 )   1,112     (17,521 )   1,202  
Net loss $ (16,709 ) $ (2,161 ) $ (24,001 ) $ (6,668 )
Basic and diluted loss per share:
Continuing operations $ (0.07 ) $ (0.30 ) $ (0.58 ) $ (0.71 )
Discontinued operation   (1.43 )   0.10     (1.57 )   0.11  
Net loss per share $ (1.50 ) $ (0.20 ) $ (2.15 ) $ (0.60 )
Weighted-average shares outstanding:
Basic and diluted 11,143,230 11,122,436 11,138,972 11,103,655
Dividends declared per common share $ $ 0.225 $ $ 0.45
Comprehensive loss:
Net loss $ (16,709 ) $ (2,161 ) $ (24,001 ) $ (6,668 )
Currency translation adjustment   (495 )   586     (185 )   787  
Total comprehensive loss $ (17,204 ) $ (1,575 ) $ (24,186 ) $ (5,881 )
   
EXHIBIT B
CPI Card Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Share and Per Share Amounts)
 
June 30, December 31,
2018 2017
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 17,750 $ 23,205
Accounts receivable, net 43,601 32,531
Inventories 10,455 13,799
Prepaid expenses and other current assets 3,901 3,681
Income taxes receivable 6,718 8,208
Assets of discontinued operation   8,016     20,651  
Total current assets 90,441 102,075
Plant, equipment and leasehold improvements, net 40,038 44,436
Intangible assets, net 37,765 40,093
Goodwill 47,150 47,150
Other assets   205     251  
Total assets $ 215,599   $ 234,005  
 
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable $ 15,678 $ 13,239
Accrued expenses 15,705 12,789
Income taxes payable 678
Deferred revenue and customer deposits 509 3,342
Liabilities of discontinued operation   7,807     5,669  
Total current liabilities 40,377 35,039
Long-term debt 304,841 303,869
Deferred income taxes 7,925 12,168
Other long-term liabilities   2,716     2,503  
Total liabilities   355,859     353,579  
Commitments and contingencies
Stockholders' deficit:

Common stock; $0.001 par value—100,000,000 shares authorized;
11,159,714 and
11,134,714 shares issued and outstanding as of
June 30, 2018 and December 31, 2017,
respectively

11 11
Capital deficiency (112,377 ) (113,081 )
Accumulated loss (22,571 ) (1,366 )
Accumulated other comprehensive loss   (5,323 )   (5,138 )
Total stockholders' deficit   (140,260 )   (119,574 )
Total liabilities and stockholders' deficit $ 215,599   $ 234,005  
 
   
EXHIBIT C
CPI Card Group Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
 
Six Months Ended June 30,
2018 2017
Operating activities
Net loss $ (24,001 ) $ (6,668 )
Adjustments to reconcile net loss to net cash used in operating
activities:
Loss (income) from discontinued operation 17,521 (1,202 )
Depreciation and amortization expense 9,876 8,670
Stock-based compensation expense 784 860
Amortization of debt issuance costs and debt discount 972 975
Deferred income taxes (4,782 ) (540 )
Other, net 158 94
Changes in operating assets and liabilities:
Accounts receivable (6,577 ) (6,964 )
Inventories (2,466 ) (1,776 )
Prepaid expenses and other assets (299 ) (31 )
Income taxes 2,284 (3,987 )
Accounts payable 2,271 3,399
Accrued expenses 3,093 (1,228 )
Deferred revenue and customer deposits 25 555
Other liabilities   (212 )   422  
Cash used in operating activities - continuing operations   (1,353 )   (7,421 )
Cash used in operating activities - discontinued operation   (1,152 )   (841 )
Investing activities
Acquisitions of plant, equipment and leasehold improvements   (2,109 )   (4,343 )
Cash used in investing activities - continuing operations   (2,109 )   (4,343 )
Cash used in investing activities - discontinued operation   (536 )   (1,440 )
Financing activities
Payments on capital lease obligations (306 )
Dividends paid on common stock (5,026 )
Taxes withheld and paid on stock-based compensation awards       (339 )

Cash used in financing activities

(306 ) (5,365 )
Effect of exchange rates on cash   1     386  
Net decrease in cash and cash equivalents (5,455 ) (19,024 )
Cash and cash equivalents, beginning of period   23,205     36,955  
Cash and cash equivalents, end of period $ 17,750   $ 17,931  
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 9,783   $ 9,096  
Income taxes, net (refunds) payments $ (1,504 ) $ 1,068  
Capital lease obligations incurred for certain machinery and
equipment leases
$ 821   $  
Accounts payable for acquisitions of plant, equipment and leasehold
improvements
$ 970   $ 1,233  
 
   
EXHIBIT D
CPI Card Group Inc. and Subsidiaries
Segment Summary Information
For the Three and Six Months Ended June 30, 2018 and 2017
(Dollars in Thousands)
(Unaudited)
           
 
 
Net Sales (1) and (2)
Three Months Ended June 30,
2018 2017 $ Change % Change
Net sales by segment:
U.S Debit and Credit $ 43,843 $ 42,369 $ 1,474 3.5 %
U.S. Prepaid Debit 15,427 12,258 3,169 25.9 %
Other 2,980 3,226 (246 ) (7.6 ) %
Eliminations   (796 )   (3,017 )   2,221   * %
Total $ 61,454   $ 54,836   $ 6,618   12.1 %

* Calculation not meaningful

 
Six Months Ended June 30,
2018 2017 $ Change % Change
Net sales by segment:
U.S Debit and Credit $ 80,991 $ 82,120 $ (1,129 ) (1.4 ) %
U.S. Prepaid Debit 30,938 21,757 9,181 42.2 %
Other 5,679 5,729 (50 ) (0.9 ) %
Eliminations   (1,297 )   (4,349 )   3,052   * %
Total $ 116,311   $ 105,257   $ 11,054   10.5 %

* Calculation not meaningful

 
 
Gross Profit (1) and (2)
Three Months Ended June 30,
2018

% of Net

Sales

2017

% of Net

Sales

$ Change % Change
Gross profit by segment:
U.S Debit and Credit $ 13,856 31.6 % $ 12,089 28.5 % $   1,767 14.6 %
U.S. Prepaid Debit 5,305 34.4 % 4,012 32.7 % 1,293 32.2 %
Other   714   24.0 %   565   17.5 %     149   * %
Total $ 19,875   32.3 % $ 16,666   30.4 % $   3,209   19.3 %

* Calculation not meaningful

 
Six Months Ended June 30,
2018

% of Net

Sales

2017

% of Net

Sales

$ Change % Change
Gross profit by segment:
U.S Debit and Credit $ 22,340 27.6 % $ 23,599 28.7 % $ (1,259 ) (5.3 ) %
U.S. Prepaid Debit 10,673 34.5 % 6,555 30.1 % 4,118 62.8 %
Other   1,289   22.7 %   1,160   20.2 %     129   * %
Total $ 34,302   29.5 % $ 31,314   29.8 % $   2,988   9.5 %

* Calculation not meaningful

 
 
Income from Operations (1) and (2)
Three Months Ended June 30,
2018

% of Net

Sales

2017

% of Net

Sales

$Change % Change
Income from operations by segment:
U.S Debit and Credit $ 6,636 15.1 % $ 5,554 13.1 % $ 1,082 19.5 %
U.S. Prepaid Debit 4,218 27.3 % 3,057 24.9 % 1,161 38.0 %
Other   (8,200 ) * %   (7,890 ) * %     (310 ) * %
Total $ 2,654   4.3 % $ 721   1.3 % $   1,933   268.1 %

* Calculation not meaningful

 
Six Months Ended June 30,
2018

% of Net

Sales

2017

% of Net

Sales

$Change % Change
Income (loss) from operations by segment:
U.S Debit and Credit $ 9,158 11.3 % $ 10,574 12.9 % $ (1,416 ) (13.4 ) %
U.S. Prepaid Debit 8,543 27.6 % 4,492 20.6 % 4,051 90.2 %
Other   (17,410 ) * %   (16,257 ) * %     (1,153 ) * %
Total $ 291   0.3 % $ (1,191 ) (1.1 ) % $   1,482   (124.4 ) %

* Calculation not meaningful

 
 

EBITDA (1), (2) and (3)

Three Months Ended June 30,
2018

% of Net

Sales

2017

% of Net

Sales

$ Change % Change
EBITDA by segment:
U.S Debit and Credit $ 9,933 22.7 % $ 7,943 18.7 % $ 1,990 25.1 %
U.S. Prepaid Debit 4,687 30.4 % 3,636 29.7 % 1,051 28.9 %
Other   (7,463 ) * %   (6,366 ) * %     (1,097 ) * %
Total $ 7,157   11.6 % $ 5,213   9.5 % $   1,944   37.3 %

* Calculation not meaningful

 

Six Months Ended June 30,
2018

% of Net

Sales

2017

% of Net

Sales

$ Change % Change
EBITDA by segment:
U.S Debit and Credit $ 15,651 19.3 % $ 15,346 18.7 % $ 305 2.0 %
U.S. Prepaid Debit 9,506 30.7 % 5,649 26.0 % 3,857 68.3 %
Other   (15,247 ) * %   (13,338 ) * %     (1,909 ) * %
Total $ 9,910   8.5 % $ 7,657   7.3 % $   2,253   29.4 %

* Calculation not meaningful

(1) During the second quarter of 2018, the Company met
the criteria to report the U.K. Limited segment as a discontinued
operation. The financial position, results of operations and cash
flows have been restated for all periods to conform with
discontinued operations presentation.

(2) During the first quarter of 2018, we reorganized
our United States business operations and realigned our United
States reporting segments to correspond with the manner with which
our chief decision maker evaluates operating performance and makes
decisions as to the allocation of resources. As a result of this
realignment, our CPI on Demand business operations have been moved
from U.S. Prepaid Debit into the U.S. Debit and Credit reporting
segment, consistent with the other related personalization
operations. Segment information for previous periods has been
restated to conform with this realignment and current period
presentation. The restatement of 2017 segment information was not
material.

(3) EBITDA is the primary measure used by management to
evaluate segment operating performance. The principal difference
between (Loss) income from operations and EBITDA is that EBITDA is
adjusted to exclude Depreciation and amortization expense of
$3,294 and $2,385 in U.S. Debit and Credit; $468 and $577 in U.S.
Prepaid Debit and $1,204 and $1,373 in Other for the three months
ended June 30, 2018 and 2017, respectively, and $6,498 and $4,772
in U.S. Debit and Credit; $962 and $1,157 in U.S. Prepaid Debit
and $2,416 and $2,741 in Other for the six months ended June 30,
2018 and 2017, respectively.

 
       
EXHIBIT E
CPI Card Group Inc. and Subsidiaries
Supplemental GAAP to Non-GAAP Reconciliation
(Dollars in Thousands, Except Shares and Per Share Amounts)
(Unaudited)
 
 
 
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
EBITDA and Adjusted EBITDA:
Net loss from continuing operations $ (802 ) $ (3,273 ) $ (6,480 ) $ (7,870 )
Interest expense, net 5,586 5,165 11,092 10,228
Income tax benefit (2,593 ) (1,014 ) (4,578 ) (3,371 )
Depreciation and amortization   4,966     4,335     9,876     8,670  
EBITDA $ 7,157 $ 5,213 $ 9,910 $ 7,657
 
Adjustments to EBITDA:
Stock-based compensation expense 389 314 784 860
Litigation and related charges (1) 135 1,806 831 2,386
Restructuring (2) 766 1,095
Foreign currency loss (gain)   466     (153 )   264     (172 )
Subtotal of adjustments to EBITDA   1,756     1,967     2,974     3,074  
Adjusted EBITDA $ 8,913   $ 7,180   $ 12,884   $ 10,731  
 
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017

Adjusted net income (loss) from continuing operations

and loss per share - continuing operations:

Net loss from continuing operations $ (802 ) $ (3,273 ) $ (6,480 ) $ (7,870 )
Amortization of intangible assets 1,164 1,172 2,328 2,343
Stock-based compensation expense 389 314 784 860
Litigation and related charges (1) 135 1,806 831 2,386
Restructuring (2) 766 1,095
Tax effect of above items   (515 )   (1,152 )   (1,058 )   (1,956 )
Adjusted net income (loss) from continuing operations $ 1,137   $ (1,133 ) $ (2,500 ) $ (4,237 )
 

(1)

  Represents legal costs incurred in connection with certain patent
and shareholder litigation.

(2)

Represents primarily employee and lease termination costs incurred
in connection with the decision to consolidate three personalization
operations in the United States into two facilities.
 
   
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
Weighted-average number of shares outstanding:
Basic 11,143,230 11,122,436 11,138,972 11,103,655
Effect of dilutive equity awards   29,240            
Weighted-average diluted shares outstanding   11,172,470     11,122,436   11,138,972     11,103,655  
 
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017

Reconciliation of diluted loss per share - continuing operations

(GAAP) to adjusted diluted earnings (loss) per share -


continuing operations:

Diluted loss per share - continuing operations (GAAP) $ (0.07 ) $ (0.30 ) $ (0.58 ) $ (0.71 )
Impact of net income adjustments - continuing operations   0.17     0.19     0.36     0.33  
Adjusted diluted earnings (loss) per share - continuing operations $ 0.10   $ (0.11 ) $ (0.22 ) $ (0.38 )
 
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017

Reconciliation of cash provided by (used in) operating
activities -

continuing operations (GAAP) to free
cash flow:

Cash provided by (used in) operating activities - continuing
operations

$ 216 $ (980 ) $ (1,353 ) $ (7,421 )
Acquisitions of plant, equipment and leasehold improvements   (1,419 )   (2,092 )   (2,109 )   (4,343 )
Free cash flow - continuing operations $ (1,203 ) $ (3,072 ) $ (3,462 ) $ (11,764 )
 
 

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