Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2018 | Oct. 26, 2018 | |
Document and Entity Information | ||
Entity Registrant Name | CPI Card Group Inc. | |
Entity Central Index Key | 1,641,614 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 11,160,377 | |
Entity Small Business | true | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | true | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q3 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 12,818 | $ 23,205 |
Accounts receivable, net | 51,373 | 32,531 |
Inventories | 10,481 | 13,799 |
Prepaid expenses and other current assets | 2,922 | 3,681 |
Income taxes receivable | 6,736 | 8,208 |
Assets of discontinued operation | 20,651 | |
Total current assets | 84,330 | 102,075 |
Plant, equipment and leasehold improvements, net | 38,773 | 44,436 |
Intangible assets, net | 36,601 | 40,093 |
Goodwill | 47,150 | 47,150 |
Other assets | 294 | 251 |
Total assets | 207,148 | 234,005 |
Current liabilities: | ||
Accounts payable | 15,328 | 13,239 |
Accrued expenses | 17,933 | 12,789 |
Income taxes payable | 678 | |
Deferred revenue and customer deposits | 515 | 3,342 |
Liabilities of discontinued operation | 5,669 | |
Total current liabilities | 34,454 | 35,039 |
Long-term debt | 305,330 | 303,869 |
Deferred income taxes | 6,540 | 12,168 |
Other long-term liabilities | 3,163 | 2,503 |
Total liabilities | 349,487 | 353,579 |
Commitments and contingencies (Note 13) | ||
Stockholders' deficit: | ||
Common stock; $0.001 par value—100,000,000 shares authorized; 11,160,377 and 11,134,714 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 11 | 11 |
Capital deficiency | (112,422) | (113,081) |
Accumulated loss | (28,686) | (1,366) |
Accumulated other comprehensive loss | (1,242) | (5,138) |
Total stockholders' deficit | (142,339) | (119,574) |
Total liabilities and stockholders' deficit | $ 207,148 | $ 234,005 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Sep. 30, 2018 | Dec. 31, 2017 |
Condensed Consolidated Balance Sheets | ||
Common shares, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common shares, authorized shares (in shares) | 100,000,000 | 100,000,000 |
Common shares, issued shares (in shares) | 11,160,377 | 11,134,714 |
Common shares, outstanding shares (in shares) | 11,160,377 | 11,134,714 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Net sales: | ||||
Total net sales | $ 70,987 | $ 60,997 | $ 187,298 | $ 166,255 |
Cost of sales: | ||||
Depreciation and amortization | 2,669 | 2,639 | 9,620 | 8,063 |
Total cost of sales | 47,679 | 41,553 | 129,687 | 115,497 |
Gross Profit | 23,308 | 19,444 | 57,611 | 50,758 |
Operating expenses: | ||||
Selling, general and administrative (exclusive of depreciation and amortization shown below) | 17,033 | 14,541 | 48,119 | 43,801 |
Depreciation and amortization | 1,588 | 1,533 | 4,513 | 4,779 |
Total operating expenses | 18,621 | 16,074 | 52,632 | 48,580 |
Income from operations | 4,687 | 3,370 | 4,979 | 2,178 |
Other expense, net | ||||
Interest, net | (6,151) | (5,304) | (17,243) | (15,532) |
Foreign currency gain (loss) | 16 | 348 | (248) | 520 |
Other income, net | 8 | 5 | 15 | 11 |
Total other expense, net | (6,127) | (4,951) | (17,476) | (15,001) |
Loss from continuing operations before income taxes | (1,440) | (1,581) | (12,497) | (12,823) |
Income tax benefit | 355 | 783 | 4,933 | 4,154 |
Net loss from continuing operations | (1,085) | (798) | (7,564) | (8,669) |
Net (loss) income from a discontinued operation, net of taxes (Note 3) | (5,030) | 63 | (22,551) | 1,266 |
Net loss | $ (6,115) | $ (735) | $ (30,115) | $ (7,403) |
Basic and diluted loss per share: | ||||
Continuing operations (in dollars per share) | $ (0.10) | $ (0.07) | $ (0.68) | $ (0.78) |
Discontinued operation (in dollars per share) | (0.45) | 0.01 | (2.02) | 0.11 |
Net loss per share (in dollars per share) | $ (0.55) | $ (0.06) | $ (2.70) | $ (0.67) |
Basic and diluted weighted-average shares outstanding (in shares) | 11,159,984 | 11,127,873 | 11,145,946 | 11,111,728 |
Dividends declared per common share | $ 0.45 | |||
Comprehensive loss | ||||
Net loss | $ (6,115) | $ (735) | $ (30,115) | $ (7,403) |
Other comprehensive loss from discontinued operations | 3,983 | 3,983 | ||
Currency translation adjustment | 98 | 434 | (87) | 1,221 |
Total comprehensive loss | (2,034) | (301) | (26,219) | (6,182) |
Products | ||||
Net sales: | ||||
Total net sales | 34,673 | 26,777 | 90,911 | 79,644 |
Cost of sales: | ||||
Products (exclusive of depreciation and amortization shown below) | 23,796 | 18,617 | 59,076 | 53,724 |
Services | ||||
Net sales: | ||||
Total net sales | 36,314 | 34,220 | 96,387 | 86,611 |
Cost of sales: | ||||
Services (exclusive of depreciation and amortization shown below) | $ 21,214 | $ 20,297 | $ 60,991 | $ 53,710 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Operating activities | ||
Net loss | $ (30,115) | $ (7,403) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Loss (income) from discontinued operation | 22,551 | (1,266) |
Depreciation and amortization expense | 14,133 | 12,842 |
Stock-based compensation expense | 741 | 1,367 |
Amortization of debt issuance costs and debt discount | 1,461 | 1,461 |
Deferred income tax | (6,169) | (863) |
Other, net | 165 | (209) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (13,016) | (10,309) |
Inventories | (2,628) | 1,498 |
Prepaid expenses and other assets | 711 | 746 |
Income taxes | 2,207 | (4,470) |
Accounts payable | 2,108 | 2,460 |
Accrued expenses | 4,725 | (1,574) |
Deferred revenue and customer deposits | 230 | 1,188 |
Other liabilities | 1,052 | 438 |
Cash used in operating activities - continuing operations | (1,844) | (4,094) |
Cash used in operating activities - discontinued operations | (2,914) | (2,834) |
Investing activities | ||
Acquisitions of plant, equipment and leasehold improvements | (5,028) | (6,289) |
Cash used in investing activities - continuing operations | (5,028) | (6,289) |
Cash used in investing activities - discontinued operation | (220) | (1,519) |
Financing activities | ||
Payments on capital lease obligations | (388) | |
Dividends paid on common stock | (7,537) | |
Taxes withheld and paid on stock-based compensation awards | (341) | |
Cash used in financing activities | (388) | (7,878) |
Effect of exchange rates on cash | 7 | 474 |
Net decrease in cash and cash equivalents | (10,387) | (22,140) |
Cash and cash equivalents, beginning of period | 23,205 | 36,955 |
Cash and cash equivalents, end of period | 12,818 | 14,815 |
Supplemental disclosures of cash flow information | ||
Cash paid during the period for: Interest | 14,703 | 13,719 |
Cash paid during the period for: Income taxes, net (refunds) payments | (1,299) | 1,437 |
Capital lease obligations incurred for certain machinery and equipment leases | 821 | |
Accounts payable for acquisitions of plant, equipment and leasehold improvements | $ 171 | $ 385 |
Business Overview and Summary o
Business Overview and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2018 | |
Business Overview and Summary of Significant Accounting Policies | |
Business Overview and Summary of Significant Accounting Policies | CPI Card Group Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Dollars in Thousands, Except Share and Per Share Amounts or as Otherwise Indicated) (Unaudited) 1. Business Overview and Summary of Significant Accounting Policies Business Overview CPI Card Group Inc. (which, together with its subsidiaries, is referred to herein as “CPI” or the “Company”) is engaged in the design, production, data personalization, packaging and fulfillment of Financial Payment Cards, which the Company defines as credit cards, debit cards and prepaid debit cards issued on the networks of the Payment Card Brands (Visa, MasterCard, American Express, Discover and Interac (in Canada)) in the United States and Canada. The Company also is engaged in the design, production, data personalization, packaging and fulfillment of retail gift and loyalty cards (primarily in Canada). As a producer and provider of services for Financial Payment Cards, each of the Company’s secure facilities must be certified by one or more of the Payment Card Brands and is therefore subject to specific requirements and conditions. Noncompliance with these requirements would prohibit the individual facilities of the Company from producing Financial Payment Cards for these entities’ payment card issuers. During February 2018, the Company made the decision to consolidate three personalization operations in the United States into two facilities to better enable the Company to optimize operations and achieve market-leading quality and service with a cost-competitive business model. In conjunction with this decision, the Company accelerated the depreciation of certain related assets, which totaled $266 for the three months ended September 30, 2018 and $2,398 for the nine months ended September 30, 2018. The Company recorded severance charges of $552 and recorded lease termination charges of $432 in the nine months ended September 30, 2018. The charges were recorded in the U.S. Debit and Credit segment and primarily included in “Cost of sales” on the Condensed Consolidated Statement of Operations. Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the results of the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, 2017 is derived from the audited financial statements as of that date. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. On August 3, 2018, the Company completed the sale of its three facilities in the United Kingdom that produce retail cards, such as gift and loyalty cards, for customers in the United Kingdom and continental Europe, and provide personalization, packaging and fulfillment services. The facilities sold included Colchester, Liverpool and Derby locations. The transaction was structured as a sale of all of the outstanding shares of CPI Card Group – UK Limited, for total consideration of approximately $4,500, to an affiliate of SEA Equity Limited, a private investment firm focused on investments in companies in the United Kingdom and Europe. The Company received net cash proceeds of $315 after the repayment of liabilities associated with the United Kingdom facilities, excluding tax benefits related to the structure of the sale. The Company has reported the U.K. Limited reporting segment as discontinued operations and restated the comparative financial information for all periods presented in conformity with GAAP. Unless otherwise indicated, information in these notes to the unaudited condensed consolidated financial statements relate to continuing operations. See Note 3 “Discontinued Operation” for further information. On December 20, 2017, the Company effected a one-for-five reverse stock split of its common stock, whereby each lot of five shares of common stock issued and outstanding immediately prior to the reverse stock split was converted into and became one share of common stock. Share and per share amounts reflect the one-for-five reverse stock split for all periods presented. Use of Estimates Management uses estimates and assumptions relating to the reporting of assets and liabilities in its preparation of the condensed consolidated financial statements. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and intangible assets, valuation allowances for inventories and deferred tax assets, debt, discontinued operations, revenue recognized for period-end work in process and stock-based compensation expense. Actual results could differ from those estimates. Machinery and Equipment Financing The Company leases certain machinery and equipment under capital leases. The assets and liabilities under these capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. Once ready for their intended use, the assets are depreciated over the lower of their related lease term or their estimated productive lives. Foreign Currency Translation The change in the balance of "accumulated other comprehensive loss" on the balance sheet was comprised of the following: Foreign Currency Translation Balance at December 31, 2017 (5,138) Amount released to loss from discontinued operations 3,983 Change in foreign currency translation (87) Balance at September 30, 2018 (1,242) Adoption of New Accounting Standard As of January 1, 2018, the Company adopted Accounting Standards Update Codification ASC 606, Revenue from Contracts with Customers , which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 also requires an entity to disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company applied ASC 606 as of January 1, 2018 to all its contracts using the modified retrospective method and recognized the cumulative effect of adoption as an adjustment to the opening balance of “Accumulated loss” on the Condensed Consolidated Balance Sheet. Under the new guidance, the Company recognizes certain performance obligations over time as the goods are produced, since those products provide value to only a specified customer, have no alternative use and the Company has the right to payment for work completed on such items. This accelerates the timing of revenue recognition for these arrangements, as revenue is recognized as goods are produced rather than upon shipment or delivery of goods. In addition, as a result of adopting the new guidance, the Company has recorded decreases to deferred revenue, and work in process and finished goods inventories, and an increase to accounts receivable. These changes are reflected in the adoption adjustments table below. The comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 2 “Revenue” for revenue recognition timing and methodology under ASC 606. The cumulative effects of the adjustments made to the Company’s January 1, 2018 Condensed Consolidated Balance Sheet upon adoption of ASC 606 were as follows: December 31, Adoption January 1, 2017 Adjustments 2018 Assets: Accounts receivable, net $ 32,531 $ 5,991 $ 38,522 Inventories 13,799 (5,929) 7,870 Assets of discontinued operation 20,651 (357) 20,294 Liabilities: Deferred revenue and customer deposits 3,342 (3,063) 279 Liabilities of discontinued operation 5,669 (535) 5,134 Deferred income taxes 12,168 479 12,647 Stockholders' deficit: Accumulated (loss) earnings (1,366) 2,824 1,458 In accordance with ASC 606, the impact on the Company’s Condensed Consolidated Balance Sheet and Statement of Operations and Comprehensive Loss was as follows: Balances As Reported Without September 30, Adoption of Balance Sheet 2018 Adjustments ASC 606 Assets: Accounts receivable, net $ 51,373 $ (7,726) $ 43,647 Inventories 10,481 8,735 19,216 Liabilities: Deferred revenue and customer deposits 515 2,258 2,773 Deferred income taxes 6,540 (479) 6,061 Stockholders' deficit: Accumulated loss (28,686) (770) (29,456) Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 Balances Balances As Reported Without As Reported Without Statement of Operations and September 30, Adoption of September 30, Adoption of Comprehensive Loss 2018 Adjustments ASU 2014-09 2018 Adjustments ASC 606 Net sales: Products $ 34,673 $ (2,219) $ 32,454 $ 90,911 $ (2,874) $ 88,037 Services 36,314 1,517 37,831 96,387 1,152 97,539 Cost of sales: Products (exclusive of depreciation and amortization) 23,796 (2,139) 21,657 59,076 (3,056) 56,020 Services (exclusive of depreciation and amortization) 21,214 789 22,003 60,991 720 61,711 Gross profit 23,308 648 23,956 57,611 614 58,225 Income tax benefit (expense) 355 (136) 219 4,933 (129) 4,804 Net loss from continuing operations (1,085) 512 (573) (7,564) 485 (7,079) Net loss from discontinued operation, net of tax (5,030) 176 (4,854) (22,551) 157 (22,394) During 2017, the Company early adopted ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) in conjunction with its annual impairment testing effective October 1, 2017. In accordance with ASU 2017-04, an entity is required to perform its goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value. Recently Issued Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (“ASU 2016-02”), which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018 (the Company’s fiscal year 2019) with early adoption permitted. The new guidance requires the recognition and measurement of leases at the beginning of the earliest comparative period presented in the financial statements. The guidance required a modified retrospective approach, with an option to apply the transition provisions of the new guidance at the adoption date without adjusting the comparative periods presented. In July 2018, t he FASB issued additional accounting standard updates clarifying certain provisions, as well as providing for a second transition method allowing entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. The Company is considering the method of transition upon adoption of this guidance. The Company is in the process of assessing the impact of ASU 2016-02 on its results of operations, financial position and consolidated financial statements. |
Revenue
Revenue | 9 Months Ended |
Sep. 30, 2018 | |
Revenue | |
Revenue | 2. Revenue The Company disaggregates its revenue by major source as follows: Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 Products Services Total Products Services Total U.S. Debit and Credit $ 34,176 $ 13,826 $ 48,002 $ 88,340 $ 40,652 $ 128,992 U.S. Prepaid Debit — 21,190 21,190 — 52,128 52,128 Other 549 1,371 1,920 3,549 4,050 7,599 Intersegment eliminations (52) (73) (125) (978) (443) (1,421) Total $ 34,673 $ 36,314 $ 70,987 $ 90,911 $ 96,387 $ 187,298 For periods after January 1, 2018, the Company accounts for its revenue as follows: Products Revenue “ Products” revenue is recognized when obligations under the terms of a contract with a customer are satisfied. In most instances, this occurs over time as cards are manufactured for specific customers and have no alternative use and the Company has an enforceable right to payment for work performed. 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” revenue are manufactured Financial Payment Cards, including in contact-EMV, Dual-Interface EMV®, contactless and magnetic stripe cards, private label credit cards and retail gift cards. Card Once® printers and consumables are also included in “Products” revenue, and their associated revenues are recognized at the time of shipping. Services Revenue Revenue is recognized for “Services” as the services are performed. Items included in “Services” revenue 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. 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. Customer Contracts The Company often enters into Master Services Agreements (“MSAs”) with its customers. Generally, enforceable rights and obligations for goods and services occur only when a customer places a purchase order or statement of work to obtain goods or services under an MSA. The contract term as defined by ASU 2014-09 is the length of time it takes to deliver the goods or services promised under the purchase order or statement of work. As such, the Company's contracts are generally short term in nature. |
Discontinued Operation
Discontinued Operation | 9 Months Ended |
Sep. 30, 2018 | |
Discontinued Operation | |
Discontinued Operation | 3. Discontinued Operation On August 3, 2018, the Company completed the sale of its United Kingdom facilities that comprised the U.K. Limited reporting segment. The Company did not retain significant continuing involvement with the discontinued operation subsequent to the disposal. In connection with the sale, the Company performed a goodwill impairment test and recorded a charge of $6,366 in the second quarter of 2018. The impairment was a result of continued market softness in the U.K. Limited segment, resulting in lower sales and margins and an expected sales price below the carrying value of the segment. The Company also recorded an impairment charge of $1,249 to customer relationship intangible assets related to the U.K. Limited segment in the second quarter of 2018. The Company recorded a $7,248 loss on sale of U.K Limited for the nine months ended September 30, 2018. In connection with the substantial liquidation of the foreign entity, the Company released the related cumulative translation adjustment from accumulated other comprehensive loss into loss from discontinued operations. This adjustment was $3,983 and is included in other expense (income), net in the schedule below. As of December 31, 2017, the carrying amounts of the major classes of assets and liabilities of the discontinued operation were as follows: December 31, 2017 Assets: Accounts receivable $ 5,006 Inventories 2,438 Other assets 506 Plant, equipment and leasehold improvements 4,864 Intangible assets 1,379 Goodwill 6,458 Total assets of discontinued operation 20,651 Liabilities: Accounts payable 3,307 Other current liabilities 1,866 Other long-term liabilities 496 Total liabilities of discontinued operation $ 5,669 The major line items constituting the (loss) income of the discontinued operation for the three and nine months ended September 30, 2018 and 2017 were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Total net sales $ 1,943 $ 7,047 $ 10,741 $ 23,644 Total cost of sales 1,721 5,514 10,221 18,045 Selling, general and administrative 1,238 1,406 4,303 4,122 Impairments - — 7,615 Other expense (income), net 4,009 35 4,038 (50) Pretax (loss) income from discontinued operation (5,025) 92 (15,436) 1,527 Pretax loss on sale of discontinued operation (5) — (7,248) — Total pretax (loss) income on discontinued operation (5,030) 92 (22,684) 1,527 Income tax benefit (expense) - (29) 133 (261) Net (loss) income from discontinued operation $ (5,030) $ 63 $ (22,551) $ 1,266 |
Accounts Receivable
Accounts Receivable | 9 Months Ended |
Sep. 30, 2018 | |
Accounts Receivable | |
Accounts Receivable | 4. Accounts Receivable Accounts receivable consisted of the following: September 30, 2018 December 31, 2017 Trade accounts receivable $ 43,862 $ 32,579 Unbilled accounts receivable 7,747 — 51,609 32,579 Less allowance for doubtful accounts (236) (48) $ 51,373 $ 32,531 |
Inventories
Inventories | 9 Months Ended |
Sep. 30, 2018 | |
Inventories | |
Inventories | 5 . Inventories Inventories are summarized below: September 30, 2018 December 31, 2017 Raw materials $ 8,453 $ 5,718 Work-in-process — 5,107 Finished goods 2,028 2,974 $ 10,481 $ 13,799 |
Plant, Equipment and Leasehold
Plant, Equipment and Leasehold Improvements | 9 Months Ended |
Sep. 30, 2018 | |
Plant, Equipment and Leasehold Improvements | |
Plant, Equipment and Leasehold Improvements | 6. Plant, Equipment and Leasehold Improvements Plant, equipment and leasehold improvements consisted of the following: September 30, 2018 December 31, 2017 Machinery and equipment $ 59,589 $ 58,595 Machinery and equipment under capital leases 821 — Furniture, fixtures and computer equipment 6,936 6,288 Leasehold improvements 19,372 19,601 Construction in progress 3,320 1,512 90,038 85,996 Less accumulated depreciation (51,265) (41,560) $ 38,773 $ 44,436 Depreciation of plant, equipment and leasehold improvements, including depreciation of assets under capital leases, was $3,093 and $3,000 for the three months ended September 30, 2018 and 2017, respectively, and $10,641 and $9,327 for the nine months ended September 30, 2018 and 2017, respectively. |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | 9 Months Ended |
Sep. 30, 2018 | |
Goodwill and Other Intangible Assets | |
Goodwill and Other Intangible Assets | 7. Goodwill and Other Intangible Assets The Company reports all of its goodwill in its U.S. Debit and Credit segment at September 30, 2018 and December 31, 2017. Intangible assets consist of customer relationships, technology and software, non-compete agreements and trademarks. Intangible amortization expense was $1,164 and $1,172 for the three months ended September 30, 2018 and 2017, respectively, and $3,492 and $3,515 for the nine months ended September 30, 2018 and 2017, respectively. At September 30, 2018 and December 31, 2017, intangible assets, excluding goodwill, were comprised of the following: September 30, 2018 December 31, 2017 Average Life Accumulated Net Book Accumulated Net Book (Years) Cost Amortization Value Cost Amortization Value Customer relationships 12 to 20 $ 55,454 $ (24,768) $ 30,686 $ 55,454 $ (22,311) $ 33,143 Technology and software 7 to 10 7,101 (3,793) 3,308 7,101 (3,095) 4,006 Trademarks 7.5 to 10 3,330 (779) 2,551 3,330 (487) 2,843 Non-compete agreements 5 to 8 491 (435) 56 491 (390) 101 Intangible assets subject to amortization $ 66,376 $ (29,775) $ 36,601 $ 66,376 $ (26,283) $ 40,093 The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of September 30, 2018 was as follows: 2018 (remaining 3 months) $ 1,164 2019 4,635 2020 4,595 2021 4,352 2022 3,867 Thereafter 17,988 $ 36,601 |
Fair Value of Financial Instrum
Fair Value of Financial Instruments | 9 Months Ended |
Sep. 30, 2018 | |
Fair Value of Financial Instruments | |
Fair Value of Financial Instruments | 8. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In determining fair value, the Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. Level 2— Observable inputs other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term for the assets or liabilities. Level 3— Valuations based on unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The Company’s financial assets and liabilities that are not required to be remeasured at fair value in the Condensed Consolidated Balance Sheets were as follows: Carrying Value as of Fair Value as of Fair Value Measurement at September 30, 2018 September 30, September 30, (Using Fair Value Hierarchy) 2018 2018 Level 1 Level 2 Level 3 Liabilities: First Lien Term Loan $ 312,500 $ 196,875 $ — $ 196,875 $ — Carrying Value as of Fair Value as of Fair Value Measurement at December 31, 2017 December 31, December 31, (Using Fair Value Hierarchy) 2017 2017 Level 1 Level 2 Level 3 Liabilities: First Lien Term Loan $ 312,500 $ 228,125 $ — $ 228,125 $ — The aggregate fair value of the Company’s First Lien Term Loan, as defined in Note 9 “Long-Term Debt and Credit Facility,” was based on bank quotes. The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable each approximate fair value. Nonrecurring fair value measurements include the Company’s goodwill and intangible asset impairments recognized during the second quarter of 2018 as determined based on unobservable Level 3 inputs. Refer to Note 3 “Discontinued Operation.” |
Long-Term Debt and Credit Facil
Long-Term Debt and Credit Facility | 9 Months Ended |
Sep. 30, 2018 | |
Long-Term Debt and Credit Facility | |
Long-Term Debt and Credit Facility | 9. Long-Term Debt and Credit Facility At September 30, 2018 and December 31, 2017, long-term debt and credit facilities consisted of the following: Interest September 30, December 31, Rate (1) 2018 2017 First Lien Term Loan (1) 7.02 % $ 312,500 $ 312,500 Unamortized discount (2,616) (3,122) Unamortized deferred financing costs (4,554) (5,509) Long-term debt $ 305,330 $ 303,869 (1 ) Interest rate at September 30, 2018. Interest rate at December 31, 2017 was 5.96%. First Lien Credit Facility On August 17, 2015, the Company entered into a first lien credit facility (the “First Lien Credit Facility”) with a syndicate of lenders providing for a $435,000 first lien term loan (the “First Lien Term Loan”) and a $40,000 revolving credit facility (the “Revolving Credit Facility”). The First Lien Term Loan and the Revolving Credit Facility have maturity dates of August 17, 2022 and August 17, 2020, respectively. The First Lien Credit Facility is secured by a first-priority security interest in substantially all of the Company’s assets constituting equipment, inventory, receivables, cash and other tangible and intangible property. Interest rates under the First Lien Credit Facility are based, at the Company’s election, on a Eurodollar rate, subject to an interest rate floor of 1.0%, plus a margin of 4.50%, or a base rate plus a margin of 3.50%. The First Lien Credit Facility contains customary nonfinancial covenants, including among other things, restrictions on indebtedness, issuance of liens, investments, dividends, redemptions and other distributions to equity holders, asset sales, certain mergers or consolidations, sales, transfers, leases or dispositions of substantially all of the Company’s assets and affiliate transactions. The First Lien Credit Facility also contains a requirement that, as of the last day of any fiscal quarter, if the amount the Company has drawn under the Revolving Credit Facility is greater than 50% of the aggregate principal amount of all commitments of the lenders thereunder, the Company maintain a first lien net leverage ratio not in excess of 7.0 times trailing twelve month Adjusted EBITDA, as defined in the agreement. As of September 30, 2018, the Company was in compliance with all covenants under the First Lien Credit Facility. The First Lien Credit Facility also requires prepayment in advance of the maturity date upon the occurrence of certain customary events, including based on an annual excess cash flow calculation, pursuant to the terms of the agreement, with any required payments to be made after the issuance of the Company’s annual financial statements. As of September 30, 2018, the Company did not expect to have a required excess cash flow payment related to 2018. At September 30, 2018, the Company did not have any outstanding amounts under the Revolving Credit Facility and has $19,950 available for borrowing. Additional amounts may be available for borrowing under the term of the Revolving Credit Facility, up to the full $40,000, to the extent the Company’s net leverage ratio does not exceed 7.0 times Adjusted EBITDA, as defined in the agreement. The Company has one outstanding letter of credit for $50 relating to the security deposit on a real property lease agreement. The Company pays a fee on outstanding letters of credit at the applicable margin, which was 4.50% as of September 30, 2018 and December 31, 2017, in addition to a fronting fee of 0.125% per annum. In addition, the Company is required to pay an unused commitment fee ranging from 0.375% per annum to 0.50% per annum of the average unused portion of the revolving commitments. The unused commitment fee is determined on the basis of a grid that results in a lower unused commitment fee as the Company’s total net leverage ratio declines. The Company recorded accrued interest of $5,058 and $4,296 within “Accrued expenses” on the Condensed Consolidated Balance Sheets at September 30, 2018 and December 31, 2017, respectively. Deferred Financing Costs Certain costs incurred with borrowings or the establishment or modification of credit facilities are reflected as a reduction to the long-term debt balance. These costs are amortized as an adjustment to interest expense over the life of the borrowing using the effective-interest rate method. |
Income Taxes - Continuing Opera
Income Taxes - Continuing Operations | 9 Months Ended |
Sep. 30, 2018 | |
Income Taxes - Continuing Operations | |
Income Taxes - Continuing Operations | 10. Income Taxes – Continuing Operations During the three months ended September 30, 2018, the Company recognized an income tax benefit of $355 on a pre-tax loss of $1,440, representing an effective income tax rate of 24.7%, compared to an income tax benefit of $783 on a pre-tax loss of $1,581, representing an effective tax rate of 49.5% during the three months ended September 30, 2017. During the nine months ended September 30, 2018, the Company recognized an income tax benefit of $4,933 on a pre-tax loss of $12,497, representing an effective income tax rate of 39.5%, compared to an income tax benefit of $4,154 on a pre-tax loss of $12,823, representing an effective tax rate of 32.4% during the nine months ended September 30, 2017. On December 22, 2017, the U.S. government enacted comprehensive tax reform legislation ( the “Tax Act”). In conjunction with the Tax Act, the U.S. federal tax rate reduced from 35.0% in 2017 to 21.0% in 2018. The effective tax rate differs from the federal U.S. statutory rate primarily due to the impact of a tax benefit of $3,465 recorded in connection with the U.K. Limited sale in 2018. Partially offsetting the increased tax benefit was the establishment of a partial valuation allowance on certain U.S. deferred tax assets due to the limitation on the deductibility of business interest expense, and an unrecognized tax benefit of $729 related to state income tax matters, which is recorded as a long term payable in the Condensed Consolidated Balance Sheet. The Company received a proposed determination regarding a previously unrecognized tax benefit related to state income tax matters. Based on this proposal, during the first quarter of 2018, the Company reclassed the $678 balance to “Income taxes payable,” in the Condensed Consolidated Balance Sheet, as the Company expects to pay the balance within the next 12 months. 2017 Tax Reform The Tax Act includes significant changes to taxation of business entities. These changes include, among others, (i) a permanent reduction to the corporate income tax rate, (ii) a partial limitation on the deductibility of business interest expense, (iii) elimination of deduction for income attributable to domestic production activities and (iv) a partial shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with a transitional rule that taxes certain historic foreign accumulated earnings and certain rules that aim to prevent erosion of U.S. income tax base). In conjunction with the Tax Act’s reduction of the U.S. federal tax rate from 35.0% to 21.0%, the Company accrued a $7,057 tax benefit during the year ended December 31, 2017 related to the net change in deferred tax liabilities. Due to the complexities involved in accounting for the recently enacted Tax Act, the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 118 requires that the Company include in its financial statements the reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. The Company has determined there is no tax liability on foreign unremitted earnings due to a net earnings and profits (“E&P”) deficit on accumulated post-1986 deferred foreign income. Therefore, as of September 30, 2018, the Company has not accrued any amount of tax expense for the Tax Act’s one-time transition tax on the foreign subsidiaries’ accumulated, unremitted earnings going back to 1986. |
Stockholders' Deficit
Stockholders' Deficit | 9 Months Ended |
Sep. 30, 2018 | |
Stockholders’ Deficit | |
Stockholders’ Deficit | 11. Stockholders’ Deficit During the nine months ended September 30, 2017, the Company paid dividends of $7,537, representing $0.45 per share. During August 2017, the Company discontinued its quarterly dividend of $0.225 per share. |
Loss per Share
Loss per Share | 9 Months Ended |
Sep. 30, 2018 | |
Loss per Share | |
Loss per Share | 12. Loss per Share Basic and diluted loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. The following table sets forth the computation of basic and diluted loss per share: Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Numerator: Net loss from continuing operations $ (1,085) $ (798) $ (7,564) $ (8,669) Net (loss) income from discontinued operation (5,030) 63 (22,551) 1,266 Net loss $ (6,115) $ (735) $ (30,115) $ (7,403) Denominator: Basic and diluted weighted-average common shares outstanding 11,159,984 11,127,873 11,145,946 11,111,728 Basic and diluted loss per share: Continuing operations $ (0.10) $ (0.07) $ (0.68) $ (0.78) Discontinued operation (0.45) 0.01 (2.02) 0.11 Net loss per share $ (0.55) $ (0.06) $ (2.70) $ (0.67) The Company reported a net loss for the three and nine months ended September 30, 2018 and 2017. Accordingly, the potentially dilutive effect of 666,101 and 953,042 stock options and 68,811 and 52,664 restricted stock units were excluded from the computation of diluted earnings per share as of September 30, 2018 and 2017, respectively, as their inclusion would be anti-dilutive. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2018 | |
Commitments and Contingencies. | |
Commitments and Contingencies | 13. Commitments and Contingencies Commitments The Company incurred rent expense under non-cancellable operating leases of $887 and $896 for the three months ended September 30, 2018 and 2017, respectively, and $2,663 and $2,666 for the nine months ended September 30, 2018 and 2017, respectively. During the first quarter of 2018, the Company leased certain machinery and equipment under capital lease obligations, which consisted of the following at September 30, 2018: September 30, 2018 Machinery and equipment $ 711 Less current portion of capital lease obligations (147) Total long-term capital lease obligations $ 564 In its Condensed Consolidated Balance Sheet at September 30, 2018, the Company has recorded the current portion of capital lease obligations in “Accrued expenses” and the long-term capital lease obligations in “Other long-term liabilities”. Contingencies In accordance with applicable accounting guidance, the Company establishes an accrued liability when loss contingencies are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. As a matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. Once the loss contingency is deemed to be both probable and estimable, the Company will establish an accrued liability and record a corresponding amount of litigation-related expense. The Company expenses professional fees associated with litigation claims and assessments as incurred. In Re CPI Card Group Inc. Securities Litigation, Case No. 1:16-CV-04531 (S.D.N.Y.) (the “Class Action”) On June 15, 2016, two purported CPI stockholders filed putative class action lawsuits captioned Vance, et al. v. CPI Card Group Inc., et al. and Chipman, et al. v. CPI Card Group Inc. in the United States District Court for the Southern District of New York (the “Court”) against CPI, certain of its former officers and current and former directors, along with the sponsors of and the financial institutions who served as underwriters for CPI’s October 2015 initial public offering (“IPO”). The complaints, purportedly brought on behalf of all purchasers of CPI common stock pursuant to the October 8, 2015 Registration Statement filed in connection with the IPO, assert claims under §§11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”) and seek, among other things, damages and costs. In particular, the complaints allege that the Registration Statement contained false or misleading statements or omissions regarding CPI’s customers’ (i) purchases of Europay, MasterCard and VISA chip cards (collectively, “EMV® cards”) during the first half of fiscal year 2015 and resulting EMV® card inventory levels; and (ii) capacity to purchase additional EMV® cards in the fourth quarter of fiscal year 2015, and the remainder of the fiscal year ended December 31, 2015. The complaints allege that these actions artificially inflated the price of CPI common stock issued pursuant to the IPO. On August 30, 2016, the Court consolidated the Vance and Chipman actions and appointed lead plaintiff and lead counsel pursuant to the Private Securities Litigation Reform Act. On October 17, 2016, lead plaintiff filed a consolidated amended complaint, asserting the same claims for violations of §§11 and 15 of the Securities Act. The amended complaint is based principally on the same theories as the original complaints, but adds allegations that the Registration Statement contained inadequate risk disclosures and failed to disclose (i) small and mid-size issuers’ slower-than-anticipated conversion to EMV® technology and (ii) increased pricing pressure and competition CPI faced in the EMV® market. On November 16, 2016, the Company filed a motion to dismiss the amended complaint, which was denied by the Court on October 30, 2017. On January 12, 2018, the Company filed an answer to the amended complaint. On March 23, 2018, lead plaintiff filed his motion for class certification. On June 11, 2018, the Company filed an opposition to lead plaintiff’s motion for class certification. On July 31, 2018, the parties notified the Court that they had reached an agreement in principle to settle the Class Action. On September 21, 2018, the parties executed a stipulation and agreement of settlement (“Stipulation”) and lead plaintiff filed with the Court his unopposed motion for authorization to notify the settlement class of the proposed settlement. On October 1, 2018, the Court provisionally denied lead plaintiff’s motion without prejudice to renew subject to certain revisions to the proposed form of class notice. On October 15, 2018, lead plaintiff filed a renewed unopposed motion for authorization to notify the class of the proposed settlement and to schedule a hearing, with an amended proposed form of notice. On October 22, 2018, the Court granted lead plaintiff’s renewed motion and approved amended form of notice to the class of the proposed settlement. The Court scheduled the settlement hearing for February 5, 2019. The Company had a liability recorded as of September 30, 2018, which is not material to the financial statements, and reflects the Company’s estimate of the probable loss pursuant to an allocation of the total agreed settlement amount. There was no liability recorded as of December 31, 2017. Heckermann v. Montross et al. , Case No. 1:17-CV-01673 (D. Del.) (the “Derivative Suit”) On November 20, 2017, a purported CPI stockholder filed a stockholder derivative complaint in the United States District Court for the District of Delaware (the “Court”) against certain of CPI’s former officers and current and former directors, along with the sponsors of the IPO. CPI is also named as a nominal defendant. The derivative complaint asserts claims under §§10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 and seeks, among other things, injunctive relief, damages and costs. It alleges false or misleading statements and omissions in the Registration Statement filed by CPI in connection with its IPO and subsequent public filings and statements. The derivative complaint also asserts claims for purported breaches of fiduciary duties, unjust enrichment, mismanagement and waste of corporate assets. On March 28, 2018, the Court entered the parties’ stipulated order staying the Derivative Suit pending final determination of the Class Action. The Company believes these claims are without merit and is defending the Derivative Suit vigorously. Given the current stage of these matters, the range of any potential loss is not probable or estimable and no liability has been recorded as of September 30, 2018 or December 31, 2017. In addition to the matters described above, the Company is subject to routine legal proceedings in the ordinary course of business. The Company believes that the ultimate resolution of these matters will not have a material adverse effect on its business, financial condition or results of operations. |
Stock-Based Compensation
Stock-Based Compensation | 9 Months Ended |
Sep. 30, 2018 | |
Stock-Based Compensation | |
Stock-Based Compensation | 14. Stock-Based Compensation CPI Card Group Inc. Omnibus Incentive Plan On December 20, 2017, the Company effected a one-for-five reverse stock split of its common stock, whereby each lot of five shares of common stock issued and outstanding immediately prior to the reverse stock split was converted into and became one share of common stock. Share and per share amounts below reflect the one-for-five reverse stock split for all periods presented. During October 2015, the Company adopted the CPI Card Group Inc. Omnibus Incentive Plan (the “Omnibus Plan”) pursuant to which cash and equity based incentives may be granted to participating employees, advisors and directors. The Company had reserved 800,000 shares of common stock for issuance under the Omnibus Plan. Effective September 25, 2017, the Omnibus Plan was amended and restated, providing for an increase in the number of shares of common stock authorized for issuance thereunder by 400,000. The increase was made effective in the fourth quarter of 2017 by stockholder approval in accordance with applicable law, after which the Company had reserved 1,200,000 shares of common stock for issuance. As of September 30, 2018, there were 131,498 shares available for grant under the Omnibus Plan. During the nine months ended September 30, 2018, the Company granted awards of non-qualified stock options for 159,755 shares of common stock. All stock option grants have a 10-year term and will generally vest ratably over a three-year period beginning on the first anniversary of the grant date. The following is a summary of the activity in outstanding stock options under the Omnibus Plan: Weighted- Weighted- Average Average Remaining Exercise Contractual Term Options Price (in Years) Outstanding as of December 31, 2017 937,310 $ Granted 159,755 Forfeited (161,181) Outstanding as of September 30, 2018 935,884 $ 8.62 Options vested and exercisable as of September 30, 2018 276,383 8.40 Options vested and expected to vest as of September 30, 2018 933,834 8.62 The following is a summary of the activity in non-vested stock options under the Omnibus Plan: Weighted-Average Number Grant-Date Fair Value Non-vested as of December 31, 2017 876,903 $ 4.08 Granted 159,755 1.20 Forfeited (148,972) 3.47 Vested (228,185) 2.76 Non-vested as of September 30, 2018 659,501 $ 3.98 Unvested options as of September 30, 2018 will vest as follows: 2018 50,879 2019 302,695 2020 251,654 2021 54,273 Total unvested options as of September 30, 2018 659,501 The fair value of the stock option awards granted during the nine months ended September 30, 2018 was determined at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions: Three Months Ended September 30, 2018 Expected term in years (1) 6.0 Volatility (2) 48.0 % Risk-free interest rate (3) 2.7 % Dividend yield (4) — % (1) The Company estimated the expected term based on the average of the weighted-average vesting period and the contractual term of the stock option awards by utilizing the “simplified method”, as the Company does not have sufficient available historical data to estimate the expected term of these stock option awards. (2) During the first nine months of 2018, the Company considered the volatility of its own common stock in determining the fair value of stock option awards, in addition to a peer group average historical volatility over the expected option term. The peer group was based on financial technology companies that completed an initial public offering of common stock within the last 10 years. (3) The risk-free interest rate was determined by using the United States Treasury rate for the period that coincided with the expected option term. (4) The Company discontinued its quarterly dividend program during August 2017. The weighted-average grant-date fair value of options granted was as follows: Three Months Ended September 30, 2018 2017 Weighted-average grant-date fair value of options granted $ 1.20 $ 4.31 The following table summarizes the changes in the number of outstanding restricted stock units for the nine-month period ended September 30, 2018: Weighted- Average Weighted- Remaining Average Amortization Grant-Date Period Units Fair Value (in Years) Outstanding as of December 31, 2017 49,677 $ 16.20 Granted 75,188 2.66 Vested (25,928) 10.63 Forfeited (30,126) 9.85 Outstanding as of September 30, 2018 68,811 $ 6.28 1.14 During the nine months ended September 30, 2018, the Company granted awards of restricted stock units for 75,188 shares of common stock. The restricted stock units contain conditions associated with continued employment or service and generally vest one year from the date of grant. On the vesting dates, shares of common stock will be issued to the award recipients. Unvested restricted stock units as of September 30, 2018 will vest as follows: 2018 — 2019 57,563 2020 11,005 2021 243 Total unvested restricted stock units as of September 30, 2018 68,811 The following table summarizes the changes in the number of outstanding cash performance units for the nine-month period ended September 30, 2018: Units Outstanding as of December 31, 2017 822,915 Granted — Vested (274,854) Forfeited (115,907) Outstanding as of September 30, 2018 432,154 There were no awards of cash performance units during the nine months ended September 30, 2018. These awards will settle in cash in three annual payments on the first, second and third anniversaries of the date of grant. The cash performance units are based on the performance of the Company’s stock, measured based on the Company’s stock price at each of the first, second and third anniversaries of the grant date compared to the Company’s stock price on the date of grant. During the first nine months of 2018, the first tranche of the cash performance units vested. Accordingly, the Company made a cash payment of $137 to the award recipients. The Company recognizes compensation expense on a straight-line basis for each annual performance period. The cash performance units are accounted for as a liability and remeasured to fair value at the end of each reporting period. As of September 30, 2018, the Company recognized a liability of $83 in “Accrued expenses” and $56 in “Other long-term liabilities” in the Condensed Consolidated Balance Sheet for unsettled cash performance units. Compensation expense for the Omnibus Plan for the three months ended September 30, 2018 and 2017 was $(42) and $507, respectively, and $741 and $1,738 for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, the total unrecognized compensation expense related to unvested options, restricted stock units and cash performance unit awards under the Omnibus Plan was $1,246, which the Company expects to recognize over an estimated weighted-average period of 1.4 years. CPI Holdings I, Inc. Amended and Restated 2007 Stock Option Plan In 2007, the Company’s Board of Directors adopted the CPI Holdings I, Inc. Amended and Restated 2007 Stock Option Plan (the “Option Plan”). Under the provisions of the Option Plan, stock options may be granted to employees, directors and consultants at an exercise price greater than or equal to (and not less than) the fair market value of a share on the date the option is granted. As a result of the Company’s adoption of the Omnibus Plan, as further described above, no further awards will be made under the Option Plan. The outstanding stock options under the Option Plan are non-qualified, have a 10-year life and are fully vested as of September 30, 2018. During the nine months ended September 30, 2018, there was no activity under the Option Plan. As such, total shares outstanding and exercisable were 6,600 shares with a weighted-average exercise price of $0.002 per share and a weighted-average remaining contract term of 4.7 years at September 30, 2018. Compensation expense and unrecorded compensation expense related to options previously granted under the Option Plan, for the three and nine months ended September 30, 2018 and 2017, were de minimis. Other Stock-Based Compensation Awards During June 2015, the Company issued 38,332 restricted shares of common stock to certain executives of the Company at a weighted-average grant-date fair value of $47.40. There were no outstanding unvested restricted shares of common stock as of September 30, 2018. There was no compensation expense recorded for these awards during the three or nine months ended September 30, 2018. During the first quarter of 2017, the executive holding the restricted shares changed employment status to a consultant and the Company remeasured the awards and reduced stock-based compensation expense by $143. There was no compensation expense recorded for these awards during the three months ended September 30, 2017. Compensation expense recorded for these awards for the nine months ended September 30, 2017 was $(371). |
Segment Reporting
Segment Reporting | 9 Months Ended |
Sep. 30, 2018 | |
Segment Reporting | |
Segment Reporting | 15. Segment Reporting The Company has identified reportable segments as those consolidated subsidiaries that represent 10% or more of its revenue, EBITDA (as defined below) or total assets, or when the Company believes information about the segment would be useful to the readers of the financial statements. The Company’s chief operating decision maker is its Chief Executive Officer who is charged with management of the Company and is responsible for the evaluation of operating performance and decision making about the allocation of resources to operating segments based on measures, such as revenue and EBITDA. EBITDA is the primary measure used by the Company’s chief operating decision maker to evaluate segment operating performance. As the Company uses the term, EBITDA is defined as income before interest expense, income taxes, depreciation and amortization. The Company’s chief operating decision maker believes EBITDA is a meaningful measure and is superior to available 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 identify strategies to improve the allocation of resources amongst segments. On August 3, 2018, the Company completed the sale of the U.K. Limited segment. See Note 3 “Discontinued Operation” for further information. The Company has restated all historical periods presented within these financial statements and has not included U.K. Limited as a reportable segment. During the first quarter of 2018, the Company reorganized its United States business operations and realigned its United States reporting segments to correspond with the manner with which the Company’s chief operating decision maker evaluates operating performance and makes decisions as to the allocation of resources. As a result of this realignment, the Company’s CPI on Demand business operations have been moved from the U.S. Prepaid Debit segment 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 the segment information for the three and nine-month periods ended September 30, 2017 was not material. As of September 30, 2018, the Company’s reportable segments were as follows: U.S. Debit and Credit, U.S. Prepaid Debit, and Other. The Other category includes the Company’s corporate headquarters and a less significant operating segment that derives its revenue from the production of Financial Payment Cards and retail gift cards in Canada. Performance Measures of Reportable Segments Revenue and EBITDA of the Company’s reportable segments for the three and nine months ended September 30, 2018 and 2017 were as follows: Revenue Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 U.S. Debit and Credit $ 48,002 $ 40,055 $ 128,992 $ 122,174 U.S. Prepaid Debit 21,190 19,144 52,128 40,901 Other 1,920 2,661 7,599 8,390 Intersegment eliminations (125) (863) (1,421) (5,210) Total $ 70,987 $ 60,997 $ 187,298 $ 166,255 EBITDA Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 U.S. Debit and Credit $ 9,136 $ 6,528 $ 24,788 $ 21,873 U.S. Prepaid Debit 8,831 7,607 18,337 13,255 Other (8,999) (6,240) (24,246) (19,577) Total $ 8,968 $ 7,895 $ 18,879 $ 15,551 The following table provides a reconciliation of total segment EBITDA from continuing operations to net loss for the three and nine months ended September 30, 2018 and 2017: Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Total segment EBITDA from continuing operations $ 8,968 $ 7,895 $ 18,879 $ 15,551 Interest, net (6,151) (5,304) (17,243) (15,532) Income tax benefit 355 783 4,933 4,154 Depreciation and amortization (4,257) (4,172) (14,133) (12,842) Net loss from continuing operations $ (1,085) $ (798) $ (7,564) $ (8,669) Balance Sheet Data of Reportable Segments Total assets of the Company’s reportable segments at September 30, 2018 and December 31, 2017 were as follows: September 30, 2018 December 31, 2017 U.S. Debit and Credit $ 153,905 $ 164,397 U.S. Prepaid Debit 38,375 33,130 Other 14,868 15,827 Total assets - reportable segments 207,148 213,354 Assets of discontinued operation — 20,651 Total assets $ 207,148 $ 234,005 Plant, Equipment and Leasehold Improvement Additions of Geographic Locations Plant, equipment and leasehold improvement additions of the Company’s geographical locations for the three and nine months ended September 30, 2018 and 2017 were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 U.S. $ 1,652 $ 1,081 $ 5,425 $ 6,131 Canada — 38 46 161 Total plant, equipment and leasehold improvement additions $ 1,652 $ 1,119 $ 5,471 $ 6,292 Net Sales to Geographic Locations Subsequent to the sale of the Company’s U.K segment and reclassification to discontinued operations, the majority of the Company’s sales are to customers in the United States of America. Long-Lived Assets of Geographic Segments Long-lived assets of the Company’s geographic segments at September 30, 2018 and December 31, 2017 were as follows: September 30, 2018 December 31, 2017 U.S. $ 121,778 $ 130,768 Canada 746 911 Total long-lived assets $ 122,524 $ 131,679 Net Sales by Products and Services Net sales from products and services sold by the Company for the three and nine months ended September 30, 2018 and 2017 were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Products net sales (a) $ 34,673 $ 26,777 $ 90,911 $ 79,644 Services net sales (b) 36,314 34,220 96,387 86,611 Total net sales $ 70,987 $ 60,997 $ 187,298 $ 166,255 (a) “ Products” net sales include the design and production of Financial Payment Cards in contact-EMV ® , Dual-Interface EMV, metal, contactless and magnetic stripe card formats. The Company also generates “Products” revenue from the sale of Card Once ® instant issuance systems, private label credit cards and retail gift cards. (b) “ Services” net sales include revenue from the personalization and fulfillment of Financial Payment Cards, providing tamper-evident security packaging and fulfillment services to Prepaid Debit Card program managers and software as a service personalization of instant issuance debit cards. The Company also generates “Services” revenue from personalizing retail gift cards (primarily in Canada) and from click-fees generated from the Company’s patented card design software, known as MYCA, which provides customers and cardholders the ability to design cards on the internet and customize cards with individualized digital images. |
Business Overview and Summary_2
Business Overview and Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2018 | |
Business Overview and Summary of Significant Accounting Policies | |
Basis of Presentation | Basis of Presentation Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the results of the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, 2017 is derived from the audited financial statements as of that date. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. On August 3, 2018, the Company completed the sale of its three facilities in the United Kingdom that produce retail cards, such as gift and loyalty cards, for customers in the United Kingdom and continental Europe, and provide personalization, packaging and fulfillment services. The facilities sold included Colchester, Liverpool and Derby locations. The transaction was structured as a sale of all of the outstanding shares of CPI Card Group – UK Limited, for total consideration of approximately $4,500, to an affiliate of SEA Equity Limited, a private investment firm focused on investments in companies in the United Kingdom and Europe. The Company received net cash proceeds of $315 after the repayment of liabilities associated with the United Kingdom facilities, excluding tax benefits related to the structure of the sale. The Company has reported the U.K. Limited reporting segment as discontinued operations and restated the comparative financial information for all periods presented in conformity with GAAP. Unless otherwise indicated, information in these notes to the unaudited condensed consolidated financial statements relate to continuing operations. See Note 3 “Discontinued Operation” for further information. On December 20, 2017, the Company effected a one-for-five reverse stock split of its common stock, whereby each lot of five shares of common stock issued and outstanding immediately prior to the reverse stock split was converted into and became one share of common stock. Share and per share amounts reflect the one-for-five reverse stock split for all periods presented. |
Use of Estimates | Use of Estimates Management uses estimates and assumptions relating to the reporting of assets and liabilities in its preparation of the condensed consolidated financial statements. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and intangible assets, valuation allowances for inventories and deferred tax assets, debt, discontinued operations, revenue recognized for period-end work in process and stock-based compensation expense. Actual results could differ from those estimates. |
Machinery and Equipment Financing | Machinery and Equipment Financing The Company leases certain machinery and equipment under capital leases. The assets and liabilities under these capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. Once ready for their intended use, the assets are depreciated over the lower of their related lease term or their estimated productive lives. |
Foreign Currency Translation | Foreign Currency Translation The change in the balance of "accumulated other comprehensive loss" on the balance sheet was comprised of the following: Foreign Currency Translation Balance at December 31, 2017 (5,138) Amount released to loss from discontinued operations 3,983 Change in foreign currency translation (87) Balance at September 30, 2018 (1,242) |
Adoption of and Recently Issued Accounting Pronouncements | Adoption of New Accounting Standard As of January 1, 2018, the Company adopted Accounting Standards Update Codification ASC 606, Revenue from Contracts with Customers , which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 also requires an entity to disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company applied ASC 606 as of January 1, 2018 to all its contracts using the modified retrospective method and recognized the cumulative effect of adoption as an adjustment to the opening balance of “Accumulated loss” on the Condensed Consolidated Balance Sheet. Under the new guidance, the Company recognizes certain performance obligations over time as the goods are produced, since those products provide value to only a specified customer, have no alternative use and the Company has the right to payment for work completed on such items. This accelerates the timing of revenue recognition for these arrangements, as revenue is recognized as goods are produced rather than upon shipment or delivery of goods. In addition, as a result of adopting the new guidance, the Company has recorded decreases to deferred revenue, and work in process and finished goods inventories, and an increase to accounts receivable. These changes are reflected in the adoption adjustments table below. The comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 2 “Revenue” for revenue recognition timing and methodology under ASC 606. The cumulative effects of the adjustments made to the Company’s January 1, 2018 Condensed Consolidated Balance Sheet upon adoption of ASC 606 were as follows: December 31, Adoption January 1, 2017 Adjustments 2018 Assets: Accounts receivable, net $ 32,531 $ 5,991 $ 38,522 Inventories 13,799 (5,929) 7,870 Assets of discontinued operation 20,651 (357) 20,294 Liabilities: Deferred revenue and customer deposits 3,342 (3,063) 279 Liabilities of discontinued operation 5,669 (535) 5,134 Deferred income taxes 12,168 479 12,647 Stockholders' deficit: Accumulated (loss) earnings (1,366) 2,824 1,458 In accordance with ASC 606, the impact on the Company’s Condensed Consolidated Balance Sheet and Statement of Operations and Comprehensive Loss was as follows: Balances As Reported Without September 30, Adoption of Balance Sheet 2018 Adjustments ASC 606 Assets: Accounts receivable, net $ 51,373 $ (7,726) $ 43,647 Inventories 10,481 8,735 19,216 Liabilities: Deferred revenue and customer deposits 515 2,258 2,773 Deferred income taxes 6,540 (479) 6,061 Stockholders' deficit: Accumulated loss (28,686) (770) (29,456) Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 Balances Balances As Reported Without As Reported Without Statement of Operations and September 30, Adoption of September 30, Adoption of Comprehensive Loss 2018 Adjustments ASU 2014-09 2018 Adjustments ASC 606 Net sales: Products $ 34,673 $ (2,219) $ 32,454 $ 90,911 $ (2,874) $ 88,037 Services 36,314 1,517 37,831 96,387 1,152 97,539 Cost of sales: Products (exclusive of depreciation and amortization) 23,796 (2,139) 21,657 59,076 (3,056) 56,020 Services (exclusive of depreciation and amortization) 21,214 789 22,003 60,991 720 61,711 Gross profit 23,308 648 23,956 57,611 614 58,225 Income tax benefit (expense) 355 (136) 219 4,933 (129) 4,804 Net loss from continuing operations (1,085) 512 (573) (7,564) 485 (7,079) Net loss from discontinued operation, net of tax (5,030) 176 (4,854) (22,551) 157 (22,394) During 2017, the Company early adopted ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) in conjunction with its annual impairment testing effective October 1, 2017. In accordance with ASU 2017-04, an entity is required to perform its goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value. Recently Issued Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (“ASU 2016-02”), which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018 (the Company’s fiscal year 2019) with early adoption permitted. The new guidance requires the recognition and measurement of leases at the beginning of the earliest comparative period presented in the financial statements. The guidance required a modified retrospective approach, with an option to apply the transition provisions of the new guidance at the adoption date without adjusting the comparative periods presented. In July 2018, t he FASB issued additional accounting standard updates clarifying certain provisions, as well as providing for a second transition method allowing entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. The Company is considering the method of transition upon adoption of this guidance. The Company is in the process of assessing the impact of ASU 2016-02 on its results of operations, financial position and consolidated financial statements. |
Business Overview and Summary_3
Business Overview and Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Adoption of New Accounting Standards | |
Schedule of accumulated other comprehensive loss | The change in the balance of "accumulated other comprehensive loss" on the balance sheet was comprised of the following: Foreign Currency Translation Balance at December 31, 2017 (5,138) Amount released to loss from discontinued operations 3,983 Change in foreign currency translation (87) Balance at September 30, 2018 (1,242) |
ASU 2014-09, Revenue from Contracts with Customers | |
Adoption of New Accounting Standards | |
Schedule of adoption of new accounting standards | December 31, Adoption January 1, 2017 Adjustments 2018 Assets: Accounts receivable, net $ 32,531 $ 5,991 $ 38,522 Inventories 13,799 (5,929) 7,870 Assets of discontinued operation 20,651 (357) 20,294 Liabilities: Deferred revenue and customer deposits 3,342 (3,063) 279 Liabilities of discontinued operation 5,669 (535) 5,134 Deferred income taxes 12,168 479 12,647 Stockholders' deficit: Accumulated (loss) earnings (1,366) 2,824 1,458 In accordance with ASC 606, the impact on the Company’s Condensed Consolidated Balance Sheet and Statement of Operations and Comprehensive Loss was as follows: Balances As Reported Without September 30, Adoption of Balance Sheet 2018 Adjustments ASC 606 Assets: Accounts receivable, net $ 51,373 $ (7,726) $ 43,647 Inventories 10,481 8,735 19,216 Liabilities: Deferred revenue and customer deposits 515 2,258 2,773 Deferred income taxes 6,540 (479) 6,061 Stockholders' deficit: Accumulated loss (28,686) (770) (29,456) Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 Balances Balances As Reported Without As Reported Without Statement of Operations and September 30, Adoption of September 30, Adoption of Comprehensive Loss 2018 Adjustments ASU 2014-09 2018 Adjustments ASC 606 Net sales: Products $ 34,673 $ (2,219) $ 32,454 $ 90,911 $ (2,874) $ 88,037 Services 36,314 1,517 37,831 96,387 1,152 97,539 Cost of sales: Products (exclusive of depreciation and amortization) 23,796 (2,139) 21,657 59,076 (3,056) 56,020 Services (exclusive of depreciation and amortization) 21,214 789 22,003 60,991 720 61,711 Gross profit 23,308 648 23,956 57,611 614 58,225 Income tax benefit (expense) 355 (136) 219 4,933 (129) 4,804 Net loss from continuing operations (1,085) 512 (573) (7,564) 485 (7,079) Net loss from discontinued operation, net of tax (5,030) 176 (4,854) (22,551) 157 (22,394) |
Revenue (Tables)
Revenue (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Revenue | |
Schedule of disaggregation of revenue by major source | Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 Products Services Total Products Services Total U.S. Debit and Credit $ 34,176 $ 13,826 $ 48,002 $ 88,340 $ 40,652 $ 128,992 U.S. Prepaid Debit — 21,190 21,190 — 52,128 52,128 Other 549 1,371 1,920 3,549 4,050 7,599 Intersegment eliminations (52) (73) (125) (978) (443) (1,421) Total $ 34,673 $ 36,314 $ 70,987 $ 90,911 $ 96,387 $ 187,298 |
Discontinued Operation (Tables)
Discontinued Operation (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Discontinued Operation | |
Schedule of assets, liabilities and operations of discontinued operations | December 31, 2017 Assets: Accounts receivable $ 5,006 Inventories 2,438 Other assets 506 Plant, equipment and leasehold improvements 4,864 Intangible assets 1,379 Goodwill 6,458 Total assets of discontinued operation 20,651 Liabilities: Accounts payable 3,307 Other current liabilities 1,866 Other long-term liabilities 496 Total liabilities of discontinued operation $ 5,669 The major line items constituting the (loss) income of the discontinued operation for the three and nine months ended September 30, 2018 and 2017 were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Total net sales $ 1,943 $ 7,047 $ 10,741 $ 23,644 Total cost of sales 1,721 5,514 10,221 18,045 Selling, general and administrative 1,238 1,406 4,303 4,122 Impairments - — 7,615 Other expense (income), net 4,009 35 4,038 (50) Pretax (loss) income from discontinued operation (5,025) 92 (15,436) 1,527 Pretax loss on sale of discontinued operation (5) — (7,248) — Total pretax (loss) income on discontinued operation (5,030) 92 (22,684) 1,527 Income tax benefit (expense) - (29) 133 (261) Net (loss) income from discontinued operation $ (5,030) $ 63 $ (22,551) $ 1,266 |
Accounts Receivable (Tables)
Accounts Receivable (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Accounts Receivable | |
Schedule of accounts receivable | September 30, 2018 December 31, 2017 Trade accounts receivable $ 43,862 $ 32,579 Unbilled accounts receivable 7,747 — 51,609 32,579 Less allowance for doubtful accounts (236) (48) $ 51,373 $ 32,531 |
Inventories (Tables)
Inventories (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Inventories | |
Schedule of inventories | September 30, 2018 December 31, 2017 Raw materials $ 8,453 $ 5,718 Work-in-process — 5,107 Finished goods 2,028 2,974 $ 10,481 $ 13,799 |
Plant, Equipment and Leasehol_2
Plant, Equipment and Leasehold Improvements (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Plant, Equipment and Leasehold Improvements | |
Schedule of plant, equipment and leasehold improvements | September 30, 2018 December 31, 2017 Machinery and equipment $ 59,589 $ 58,595 Machinery and equipment under capital leases 821 — Furniture, fixtures and computer equipment 6,936 6,288 Leasehold improvements 19,372 19,601 Construction in progress 3,320 1,512 90,038 85,996 Less accumulated depreciation (51,265) (41,560) $ 38,773 $ 44,436 |
Goodwill and Other Intangible_2
Goodwill and Other Intangible Assets (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Goodwill and Other Intangible Assets | |
Schedule of intangible assets excluding goodwill | September 30, 2018 December 31, 2017 Average Life Accumulated Net Book Accumulated Net Book (Years) Cost Amortization Value Cost Amortization Value Customer relationships 12 to 20 $ 55,454 $ (24,768) $ 30,686 $ 55,454 $ (22,311) $ 33,143 Technology and software 7 to 10 7,101 (3,793) 3,308 7,101 (3,095) 4,006 Trademarks 7.5 to 10 3,330 (779) 2,551 3,330 (487) 2,843 Non-compete agreements 5 to 8 491 (435) 56 491 (390) 101 Intangible assets subject to amortization $ 66,376 $ (29,775) $ 36,601 $ 66,376 $ (26,283) $ 40,093 |
Schedule of future aggregate amortization expense for identified amortizable intangibles | 2018 (remaining 3 months) $ 1,164 2019 4,635 2020 4,595 2021 4,352 2022 3,867 Thereafter 17,988 $ 36,601 |
Fair Value of Financial Instr_2
Fair Value of Financial Instruments (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Fair Value of Financial Instruments | |
Schedule of financial assets and liabilities subject to fair value measurements | Carrying Value as of Fair Value as of Fair Value Measurement at September 30, 2018 September 30, September 30, (Using Fair Value Hierarchy) 2018 2018 Level 1 Level 2 Level 3 Liabilities: First Lien Term Loan $ 312,500 $ 196,875 $ — $ 196,875 $ — Carrying Value as of Fair Value as of Fair Value Measurement at December 31, 2017 December 31, December 31, (Using Fair Value Hierarchy) 2017 2017 Level 1 Level 2 Level 3 Liabilities: First Lien Term Loan $ 312,500 $ 228,125 $ — $ 228,125 $ — |
Long-Term Debt and Credit Fac_2
Long-Term Debt and Credit Facility (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Long-Term Debt and Credit Facility | |
Schedule of long-term debt | Interest September 30, December 31, Rate (1) 2018 2017 First Lien Term Loan (1) 7.02 % $ 312,500 $ 312,500 Unamortized discount (2,616) (3,122) Unamortized deferred financing costs (4,554) (5,509) Long-term debt $ 305,330 $ 303,869 (1 ) Interest rate at September 30, 2018. Interest rate at December 31, 2017 was 5.96%. |
Loss per Share (Tables)
Loss per Share (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Loss per Share | |
Computation of basic and diluted (loss) EPS | Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Numerator: Net loss from continuing operations $ (1,085) $ (798) $ (7,564) $ (8,669) Net (loss) income from discontinued operation (5,030) 63 (22,551) 1,266 Net loss $ (6,115) $ (735) $ (30,115) $ (7,403) Denominator: Basic and diluted weighted-average common shares outstanding 11,159,984 11,127,873 11,145,946 11,111,728 Basic and diluted loss per share: Continuing operations $ (0.10) $ (0.07) $ (0.68) $ (0.78) Discontinued operation (0.45) 0.01 (2.02) 0.11 Net loss per share $ (0.55) $ (0.06) $ (2.70) $ (0.67) |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Commitments and Contingencies. | |
Schedule of equipment under capital leases | September 30, 2018 Machinery and equipment $ 711 Less current portion of capital lease obligations (147) Total long-term capital lease obligations $ 564 |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Summary of changes in outstanding restricted stock units | Weighted- Average Weighted- Remaining Average Amortization Grant-Date Period Units Fair Value (in Years) Outstanding as of December 31, 2017 49,677 $ 16.20 Granted 75,188 2.66 Vested (25,928) 10.63 Forfeited (30,126) 9.85 Outstanding as of September 30, 2018 68,811 $ 6.28 1.14 |
Schedule of vesting for unvested restricted stock units | 2018 — 2019 57,563 2020 11,005 2021 243 Total unvested restricted stock units as of September 30, 2018 68,811 |
Summary of changes in number of outstanding cash performance units | Units Outstanding as of December 31, 2017 822,915 Granted — Vested (274,854) Forfeited (115,907) Outstanding as of September 30, 2018 432,154 |
Omnibus Plan | |
Summary of outstanding and exercisable stock options | Weighted- Weighted- Average Average Remaining Exercise Contractual Term Options Price (in Years) Outstanding as of December 31, 2017 937,310 $ Granted 159,755 Forfeited (161,181) Outstanding as of September 30, 2018 935,884 $ 8.62 Options vested and exercisable as of September 30, 2018 276,383 8.40 Options vested and expected to vest as of September 30, 2018 933,834 8.62 |
Summary of activity in non-vested stock options | Weighted-Average Number Grant-Date Fair Value Non-vested as of December 31, 2017 876,903 $ 4.08 Granted 159,755 1.20 Forfeited (148,972) 3.47 Vested (228,185) 2.76 Non-vested as of September 30, 2018 659,501 $ 3.98 |
Schedule of vesting for unvested options | 2018 50,879 2019 302,695 2020 251,654 2021 54,273 Total unvested options as of September 30, 2018 659,501 |
Schedule of valuation assumptions | Three Months Ended September 30, 2018 Expected term in years (1) 6.0 Volatility (2) 48.0 % Risk-free interest rate (3) 2.7 % Dividend yield (4) — % (1) The Company estimated the expected term based on the average of the weighted-average vesting period and the contractual term of the stock option awards by utilizing the “simplified method”, as the Company does not have sufficient available historical data to estimate the expected term of these stock option awards. (2) During the first nine months of 2018, the Company considered the volatility of its own common stock in determining the fair value of stock option awards, in addition to a peer group average historical volatility over the expected option term. The peer group was based on financial technology companies that completed an initial public offering of common stock within the last 10 years. (3) The risk-free interest rate was determined by using the United States Treasury rate for the period that coincided with the expected option term. (4) The Company discontinued its quarterly dividend program during August 2017. |
Weighted average grant date fair value of options granted | Three Months Ended September 30, 2018 2017 Weighted-average grant-date fair value of options granted $ 1.20 $ 4.31 |
Segment Reporting (Tables)
Segment Reporting (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Segment Reporting | |
Schedule of revenue and EBITDA of the company's reportable segments | Revenue Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 U.S. Debit and Credit $ 48,002 $ 40,055 $ 128,992 $ 122,174 U.S. Prepaid Debit 21,190 19,144 52,128 40,901 Other 1,920 2,661 7,599 8,390 Intersegment eliminations (125) (863) (1,421) (5,210) Total $ 70,987 $ 60,997 $ 187,298 $ 166,255 EBITDA Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 U.S. Debit and Credit $ 9,136 $ 6,528 $ 24,788 $ 21,873 U.S. Prepaid Debit 8,831 7,607 18,337 13,255 Other (8,999) (6,240) (24,246) (19,577) Total $ 8,968 $ 7,895 $ 18,879 $ 15,551 |
Schedule of reconciliation of total segment EBITDA to income before taxes | Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Total segment EBITDA from continuing operations $ 8,968 $ 7,895 $ 18,879 $ 15,551 Interest, net (6,151) (5,304) (17,243) (15,532) Income tax benefit 355 783 4,933 4,154 Depreciation and amortization (4,257) (4,172) (14,133) (12,842) Net loss from continuing operations $ (1,085) $ (798) $ (7,564) $ (8,669) |
Schedule of total assets of the company's reportable segments | September 30, 2018 December 31, 2017 U.S. Debit and Credit $ 153,905 $ 164,397 U.S. Prepaid Debit 38,375 33,130 Other 14,868 15,827 Total assets - reportable segments 207,148 213,354 Assets of discontinued operation — 20,651 Total assets $ 207,148 $ 234,005 |
Schedule of plant, equipment and leasehold improvement additions of geographic locations | Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 U.S. $ 1,652 $ 1,081 $ 5,425 $ 6,131 Canada — 38 46 161 Total plant, equipment and leasehold improvement additions $ 1,652 $ 1,119 $ 5,471 $ 6,292 |
Schedule of Long lived assets of the company's geographic segments | September 30, 2018 December 31, 2017 U.S. $ 121,778 $ 130,768 Canada 746 911 Total long-lived assets $ 122,524 $ 131,679 |
Schedule of net sales from product and services sold by the company | Three Months Ended Nine Months Ended September 30, September 30, 2018 2017 2018 2017 Products net sales (a) $ 34,673 $ 26,777 $ 90,911 $ 79,644 Services net sales (b) 36,314 34,220 96,387 86,611 Total net sales $ 70,987 $ 60,997 $ 187,298 $ 166,255 (a) “ Products” net sales include the design and production of Financial Payment Cards in contact-EMV ® , Dual-Interface EMV, metal, contactless and magnetic stripe card formats. The Company also generates “Products” revenue from the sale of Card Once ® instant issuance systems, private label credit cards and retail gift cards. (b) “ Services” net sales include revenue from the personalization and fulfillment of Financial Payment Cards, providing tamper-evident security packaging and fulfillment services to Prepaid Debit Card program managers and software as a service personalization of instant issuance debit cards. The Company also generates “Services” revenue from personalizing retail gift cards (primarily in Canada) and from click-fees generated from the Company’s patented card design software, known as MYCA, which provides customers and cardholders the ability to design cards on the internet and customize cards with individualized digital images. |
Business Overview and Summary_4
Business Overview and Summary of Significant Accounting Policies - Business Overview and Basis of Presentation (Details) $ in Thousands | Aug. 03, 2018USD ($)facility | Dec. 20, 2017 | Feb. 28, 2018item | Sep. 30, 2018USD ($) | Sep. 30, 2018USD ($)item |
Business Overview and Summary of Significant Accounting Policies | |||||
Minimum number of payment card brands which certify card services | item | 1 | ||||
Number of personalization operations consolidated | item | 3 | ||||
Number of facilities personalization operations were consolidated into | item | 2 | ||||
Accelerated depreciation | $ 266 | $ 2,398 | |||
Severance charge | 552 | ||||
Termination charge | $ 432 | ||||
Reverse stock split | 0.20 | ||||
U.K. Limited | Sold | |||||
Business Overview and Summary of Significant Accounting Policies | |||||
Number of facilities sold | facility | 3 | ||||
Total consideration for sale | $ 4,500 | ||||
Proceeds from sale of asset | $ 315 |
Business Overview and Summary_5
Business Overview and Summary of Significant Accounting Policies - Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Accumulated other comprehensive loss | ||||
Beginning balance | $ (119,574) | |||
Amount released to loss from discontinued operations | $ (3,983) | (3,983) | ||
Change in foreign currency translation | (98) | $ (434) | 87 | $ (1,221) |
Ending balance | (142,339) | (142,339) | ||
Foreign Currency Translation | ||||
Accumulated other comprehensive loss | ||||
Beginning balance | (5,138) | |||
Amount released to loss from discontinued operations | 3,983 | |||
Change in foreign currency translation | (87) | |||
Ending balance | $ (1,242) | $ (1,242) |
Business Overview and Summary_6
Business Overview and Summary of Significant Accounting Policies - Adoption of New Accounting Standard (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Jan. 02, 2018 | Dec. 31, 2017 | |
Assets | ||||||
Accounts receivable, net | $ 51,373 | $ 51,373 | $ 38,522 | $ 32,531 | ||
Inventories | 10,481 | 10,481 | 7,870 | 13,799 | ||
Assets of discontinued operation | 20,294 | 20,651 | ||||
Liabilities | ||||||
Deferred revenue and customer deposits | 515 | 515 | 279 | 3,342 | ||
Liabilities of discontinued operation | 5,134 | 5,669 | ||||
Deferred income taxes | 6,540 | 6,540 | 12,647 | 12,168 | ||
Stockholders' deficit: | ||||||
Accumulated (loss) earnings | (28,686) | (28,686) | 1,458 | $ (1,366) | ||
Net sales: | ||||||
Revenue | 70,987 | $ 60,997 | 187,298 | $ 166,255 | ||
Cost of sales: | ||||||
Gross profit | 23,308 | 19,444 | 57,611 | 50,758 | ||
Income tax benefit (expense) | 355 | 783 | 4,933 | 4,154 | ||
Net loss from continuing operations | (1,085) | (798) | (7,564) | (8,669) | ||
Net (loss) income from a discontinued operation, net of taxes (Note 3) | (5,030) | 63 | (22,551) | 1,266 | ||
Balance without adoption of ASU 2014-09 | ASU 2014-09, Revenue from Contracts with Customers | ||||||
Assets | ||||||
Accounts receivable, net | 43,647 | 43,647 | ||||
Inventories | 19,216 | 19,216 | ||||
Liabilities | ||||||
Deferred revenue and customer deposits | 2,773 | 2,773 | ||||
Deferred income taxes | 6,061 | 6,061 | ||||
Stockholders' deficit: | ||||||
Accumulated (loss) earnings | (29,456) | (29,456) | ||||
Cost of sales: | ||||||
Gross profit | 23,956 | 58,225 | ||||
Income tax benefit (expense) | 219 | 4,804 | ||||
Net loss from continuing operations | (573) | (7,079) | ||||
Net (loss) income from a discontinued operation, net of taxes (Note 3) | (4,854) | (22,394) | ||||
Adjustment | ASU 2014-09, Revenue from Contracts with Customers | ||||||
Assets | ||||||
Accounts receivable, net | 7,726 | 7,726 | 5,991 | |||
Inventories | (8,735) | (8,735) | (5,929) | |||
Assets of discontinued operation | (357) | |||||
Liabilities | ||||||
Deferred revenue and customer deposits | 2,258 | 2,258 | (3,063) | |||
Liabilities of discontinued operation | (535) | |||||
Deferred income taxes | 479 | 479 | 479 | |||
Stockholders' deficit: | ||||||
Accumulated (loss) earnings | 770 | 770 | $ 2,824 | |||
Cost of sales: | ||||||
Gross profit | 648 | 614 | ||||
Income tax benefit (expense) | (136) | (129) | ||||
Net loss from continuing operations | 512 | 485 | ||||
Net (loss) income from a discontinued operation, net of taxes (Note 3) | 176 | 157 | ||||
Products | ||||||
Net sales: | ||||||
Revenue | 34,673 | 26,777 | 90,911 | 79,644 | ||
Cost of sales: | ||||||
Products (exclusive of depreciation and amortization shown below) | 23,796 | 18,617 | 59,076 | 53,724 | ||
Products | Balance without adoption of ASU 2014-09 | ASU 2014-09, Revenue from Contracts with Customers | ||||||
Net sales: | ||||||
Revenue | 32,454 | 88,037 | ||||
Cost of sales: | ||||||
Products (exclusive of depreciation and amortization shown below) | 21,657 | 56,020 | ||||
Products | Adjustment | ASU 2014-09, Revenue from Contracts with Customers | ||||||
Net sales: | ||||||
Revenue | (2,219) | (2,874) | ||||
Cost of sales: | ||||||
Products (exclusive of depreciation and amortization shown below) | (2,139) | (3,056) | ||||
Services | ||||||
Net sales: | ||||||
Revenue | 36,314 | 34,220 | 96,387 | 86,611 | ||
Cost of sales: | ||||||
Services (exclusive of depreciation and amortization shown below) | 21,214 | $ 20,297 | 60,991 | $ 53,710 | ||
Services | Balance without adoption of ASU 2014-09 | ASU 2014-09, Revenue from Contracts with Customers | ||||||
Net sales: | ||||||
Revenue | 37,831 | 97,539 | ||||
Cost of sales: | ||||||
Services (exclusive of depreciation and amortization shown below) | 22,003 | 61,711 | ||||
Services | Adjustment | ASU 2014-09, Revenue from Contracts with Customers | ||||||
Net sales: | ||||||
Revenue | 1,517 | 1,152 | ||||
Cost of sales: | ||||||
Services (exclusive of depreciation and amortization shown below) | $ 789 | $ 720 |
Revenue (Details)
Revenue (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended |
Sep. 30, 2018 | Sep. 30, 2018 | |
Disaggregation of Revenue | ||
Revenue | $ 70,987 | $ 187,298 |
Operating Segments | U.S. Debit and Credit | ||
Disaggregation of Revenue | ||
Revenue | 48,002 | 128,992 |
Operating Segments | U.S. Prepaid Debit | ||
Disaggregation of Revenue | ||
Revenue | 21,190 | 52,128 |
Operating Segments | Other | ||
Disaggregation of Revenue | ||
Revenue | 1,920 | 7,599 |
Intersegment eliminations | ||
Disaggregation of Revenue | ||
Revenue | (125) | (1,421) |
Products | ||
Disaggregation of Revenue | ||
Revenue | 34,673 | 90,911 |
Products | Operating Segments | U.S. Debit and Credit | ||
Disaggregation of Revenue | ||
Revenue | 34,176 | 88,340 |
Products | Operating Segments | Other | ||
Disaggregation of Revenue | ||
Revenue | 549 | 3,549 |
Products | Intersegment eliminations | ||
Disaggregation of Revenue | ||
Revenue | (52) | (978) |
Services | ||
Disaggregation of Revenue | ||
Revenue | 36,314 | 96,387 |
Services | Operating Segments | U.S. Debit and Credit | ||
Disaggregation of Revenue | ||
Revenue | 13,826 | 40,652 |
Services | Operating Segments | U.S. Prepaid Debit | ||
Disaggregation of Revenue | ||
Revenue | 21,190 | 52,128 |
Services | Operating Segments | Other | ||
Disaggregation of Revenue | ||
Revenue | 1,371 | 4,050 |
Services | Intersegment eliminations | ||
Disaggregation of Revenue | ||
Revenue | $ (73) | $ (443) |
Discontinued Operation (Details
Discontinued Operation (Details) - USD ($) $ in Thousands | Aug. 03, 2018 | Sep. 30, 2018 | Jun. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Jan. 02, 2018 | Dec. 31, 2017 |
Discontinued Operation and Disposition | ||||||||
Reclassification adjustment to loss from discontinued operations | $ 3,983 | $ 3,983 | ||||||
Assets | ||||||||
Total assets of discontinued operation | $ 20,294 | $ 20,651 | ||||||
Liabilities | ||||||||
Total liabilities of discontinued operation | $ 5,134 | 5,669 | ||||||
Major line items constituting the (loss) income of the discontinued operation | ||||||||
Net (loss) income from discontinued operation | (5,030) | $ 63 | (22,551) | $ 1,266 | ||||
U.K. Limited | Sold | ||||||||
Discontinued Operation and Disposition | ||||||||
Impairment of goodwill | $ 6,366 | |||||||
Impairment of intangible assets | $ 1,249 | |||||||
Proceeds from sale of asset | $ 315 | |||||||
Reclassification adjustment to loss from discontinued operations | 3,983 | |||||||
Assets | ||||||||
Accounts receivable | 5,006 | |||||||
Inventories | 2,438 | |||||||
Other assets | 506 | |||||||
Plant, equipment and leasehold improvements | 4,864 | |||||||
Intangible assets | 1,379 | |||||||
Goodwill | 6,458 | |||||||
Total assets of discontinued operation | 20,651 | |||||||
Liabilities | ||||||||
Accounts payable | 3,307 | |||||||
Other current liabilities | 1,866 | |||||||
Other long-term liabilities | 496 | |||||||
Total liabilities of discontinued operation | $ 5,669 | |||||||
Major line items constituting the (loss) income of the discontinued operation | ||||||||
Total net sales | 1,943 | 7,047 | 10,741 | 23,644 | ||||
Total cost of sales | 1,721 | 5,514 | 10,221 | 18,045 | ||||
Selling general and administrative | 1,238 | 1,406 | 4,303 | 4,122 | ||||
Impairment | 7,615 | |||||||
Other expense (income), net | 4,009 | 35 | 4,038 | (50) | ||||
Pretax (loss) income from discontinued operation | (5,025) | 92 | (15,436) | 1,527 | ||||
Pre-tax loss on sale of discontinued operation | (5) | (7,248) | ||||||
Total pretax (loss) income on discontinued operation | (5,030) | 92 | (22,684) | 1,527 | ||||
Income tax benefit (expense) | (29) | 133 | (261) | |||||
Net (loss) income from discontinued operation | $ (5,030) | $ 63 | $ (22,551) | $ 1,266 |
Accounts Receivable (Details)
Accounts Receivable (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Jan. 02, 2018 | Dec. 31, 2017 |
Accounts Receivable | |||
Trade accounts receivable | $ 43,862 | $ 32,579 | |
Unbilled accounts receivable | 7,747 | ||
Accounts receivable, gross | 51,609 | 32,579 | |
Less allowance for doubtful accounts | (236) | (48) | |
Accounts receivable, net | $ 51,373 | $ 38,522 | $ 32,531 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Jan. 02, 2018 | Dec. 31, 2017 |
Inventories | |||
Raw materials | $ 8,453 | $ 5,718 | |
Work-in-process | 5,107 | ||
Finished goods | 2,028 | 2,974 | |
Inventory | $ 10,481 | $ 7,870 | $ 13,799 |
Plant, Equipment and Leasehol_3
Plant, Equipment and Leasehold Improvements (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Plant, Equipment and Leasehold Improvements | |||||
Plant, equipment and leasehold improvements, gross | $ 90,038 | $ 90,038 | $ 85,996 | ||
Less accumulated depreciation and amortization | (51,265) | (51,265) | (41,560) | ||
Plant, equipment and leasehold improvements, net | 38,773 | 38,773 | 44,436 | ||
Depreciation | 3,093 | $ 3,000 | 10,641 | $ 9,327 | |
Machinery and equipment | |||||
Plant, Equipment and Leasehold Improvements | |||||
Plant, equipment and leasehold improvements, gross | 59,589 | 59,589 | 58,595 | ||
Machinery and equipment under capital leases | |||||
Plant, Equipment and Leasehold Improvements | |||||
Plant, equipment and leasehold improvements, gross | 821 | 821 | |||
Furniture, fixtures and computer equipment | |||||
Plant, Equipment and Leasehold Improvements | |||||
Plant, equipment and leasehold improvements, gross | 6,936 | 6,936 | 6,288 | ||
Leasehold improvements | |||||
Plant, Equipment and Leasehold Improvements | |||||
Plant, equipment and leasehold improvements, gross | 19,372 | 19,372 | 19,601 | ||
Construction in progress | |||||
Plant, Equipment and Leasehold Improvements | |||||
Plant, equipment and leasehold improvements, gross | $ 3,320 | $ 3,320 | $ 1,512 |
Goodwill and Other Intangible_3
Goodwill and Other Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Intangible Assets [Line Items] | |||||
Intangible amortization expense | $ 1,164 | $ 1,172 | $ 3,492 | $ 3,515 | |
Intangible assets subject to amortization, Cost | 66,376 | 66,376 | $ 66,376 | ||
Intangible assets subject to amortization, Accumulated Amortization | (29,775) | (29,775) | (26,283) | ||
Intangible assets subject to amortization, Net Book Value | 36,601 | 36,601 | 40,093 | ||
Customer relationships | |||||
Intangible Assets [Line Items] | |||||
Intangible assets subject to amortization, Cost | 55,454 | 55,454 | 55,454 | ||
Intangible assets subject to amortization, Accumulated Amortization | (24,768) | (24,768) | (22,311) | ||
Intangible assets subject to amortization, Net Book Value | 30,686 | $ 30,686 | $ 33,143 | ||
Customer relationships | Minimum | |||||
Intangible Assets [Line Items] | |||||
Average Life (Years) | 12 years | 12 years | |||
Customer relationships | Maximum | |||||
Intangible Assets [Line Items] | |||||
Average Life (Years) | 20 years | 20 years | |||
Technology and software | |||||
Intangible Assets [Line Items] | |||||
Intangible assets subject to amortization, Cost | 7,101 | $ 7,101 | $ 7,101 | ||
Intangible assets subject to amortization, Accumulated Amortization | (3,793) | (3,793) | (3,095) | ||
Intangible assets subject to amortization, Net Book Value | 3,308 | $ 3,308 | $ 4,006 | ||
Technology and software | Minimum | |||||
Intangible Assets [Line Items] | |||||
Average Life (Years) | 7 years | 7 years | |||
Technology and software | Maximum | |||||
Intangible Assets [Line Items] | |||||
Average Life (Years) | 10 years | 10 years | |||
Trademarks | |||||
Intangible Assets [Line Items] | |||||
Intangible assets subject to amortization, Cost | 3,330 | $ 3,330 | $ 3,330 | ||
Intangible assets subject to amortization, Accumulated Amortization | (779) | (779) | (487) | ||
Intangible assets subject to amortization, Net Book Value | 2,551 | $ 2,551 | $ 2,843 | ||
Trademarks | Minimum | |||||
Intangible Assets [Line Items] | |||||
Average Life (Years) | 7 years 6 months | 7 years 6 months | |||
Trademarks | Maximum | |||||
Intangible Assets [Line Items] | |||||
Average Life (Years) | 10 years | 10 years | |||
Non-compete agreements | |||||
Intangible Assets [Line Items] | |||||
Intangible assets subject to amortization, Cost | 491 | $ 491 | $ 491 | ||
Intangible assets subject to amortization, Accumulated Amortization | (435) | (435) | (390) | ||
Intangible assets subject to amortization, Net Book Value | $ 56 | $ 56 | $ 101 | ||
Non-compete agreements | Minimum | |||||
Intangible Assets [Line Items] | |||||
Average Life (Years) | 5 years | 5 years | |||
Non-compete agreements | Maximum | |||||
Intangible Assets [Line Items] | |||||
Average Life (Years) | 8 years | 8 years |
Goodwill and Other Intangible_4
Goodwill and Other Intangible Assets - Future Aggregate Amortization Expense (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Estimated future aggregate amortization expense | ||
2018 (remaining 3 months) | $ 1,164 | |
2,019 | 4,635 | |
2,020 | 4,595 | |
2,021 | 4,352 | |
2,022 | 3,867 | |
Thereafter | 17,988 | |
Intangible assets subject to amortization, Net Book Value | $ 36,601 | $ 40,093 |
Fair Value of Financial Instr_3
Fair Value of Financial Instruments (Details) - First Lien Credit Facility - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Liabilities: | ||
Carrying amount | $ 312,500 | $ 312,500 |
Term Loan | ||
Liabilities: | ||
Carrying amount | 312,500 | 312,500 |
Long-term debt | 196,875 | 228,125 |
Level 2 | Term Loan | ||
Liabilities: | ||
Long-term debt | $ 196,875 | $ 228,125 |
Long-Term Debt and Credit Fac_3
Long-Term Debt and Credit Facility - Long-Term Debt (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Long-term Debt | ||
Unamortized discount | $ (2,616) | $ (3,122) |
Unamortized deferred financing costs | (4,554) | (5,509) |
Total long-term debt | $ 305,330 | $ 303,869 |
First Lien Credit Facility | ||
Long-term Debt | ||
Interest rate (as a percent) | 7.02% | 5.96% |
Long-term debt | $ 312,500 | $ 312,500 |
Long-Term Debt and Credit Fac_4
Long-Term Debt and Credit Facility - First Lien Credit Facility (Details) $ in Thousands | Aug. 17, 2015USD ($) | Sep. 30, 2018USD ($)letter | Dec. 31, 2017USD ($) |
Long-term Debt | |||
Fee on outstanding letters of credit (as a percent) | 4.50% | 4.50% | |
Fronting fee for letters of credit (as a percent) | 0.125% | 0.125% | |
Number of outstanding letters of credit | letter | 1 | ||
Letters of credit outstanding | $ 50 | ||
Accrued expenses | |||
Long-term Debt | |||
Accrued interest | $ 5,058 | $ 4,296 | |
First Lien Credit Facility | |||
Long-term Debt | |||
Maximum net leverage ratio | 7 | ||
Eurodollar rate | First Lien Credit Facility | |||
Long-term Debt | |||
Applicable margin over reference rate (as a percent) | 4.50% | ||
Eurodollar rate | First Lien Credit Facility | Minimum | |||
Long-term Debt | |||
Interest rate (as a percent) | 1.00% | ||
Base rate | First Lien Credit Facility | |||
Long-term Debt | |||
Applicable margin over reference rate (as a percent) | 3.50% | ||
Term Loan | First Lien Credit Facility | |||
Long-term Debt | |||
Maximum borrowing capacity | $ 435,000 | ||
Revolving Credit Facility | |||
Long-term Debt | |||
Amount outstanding | $ 0 | ||
Remaining borrowing capacity | $ 19,950 | ||
Revolving Credit Facility | Minimum | |||
Long-term Debt | |||
Unused commitment fee (as a percent) | 0.375% | 0.375% | |
Revolving Credit Facility | Maximum | |||
Long-term Debt | |||
Unused commitment fee (as a percent) | 0.50% | 0.50% | |
Revolving Credit Facility | First Lien Credit Facility | |||
Long-term Debt | |||
Maximum borrowing capacity | $ 40,000 | ||
Amount drawn to trigger net leverage requirement (as a percent) | 50.00% |
Income Taxes - Continuing Ope_2
Income Taxes - Continuing Operations (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | Mar. 31, 2018 | |
Income Taxes - Continuing Operations | ||||||
Income tax benefit | $ 355,000 | $ 783,000 | $ 4,933,000 | $ 4,154,000 | ||
Loss before income taxes | ||||||
Loss before income taxes | $ 1,440,000 | $ 1,581,000 | $ 12,497,000 | $ 12,823,000 | ||
Effective income tax rate (as a percent) | 24.70% | 49.50% | 39.50% | 32.40% | ||
Federal statutory rate (as a percent) | 21.00% | 35.00% | ||||
Impact of tax benefit of disposal | $ 3,465,000 | |||||
Unrecognized tax benefit in long-term payable. | 729,000 | $ 729,000 | ||||
Tax benefit related to the net change in deferred tax liabilities | $ 7,057,000 | |||||
Tax liability from final determination | $ 678,000 | |||||
Liability on foreign unremitted earnings | $ 0 | $ 0 |
Stockholders' Deficit (Details)
Stockholders' Deficit (Details) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 9 Months Ended |
Aug. 31, 2017 | Sep. 30, 2017 | |
Dividends, Common Stock [Abstract] | ||
Dividends paid on common stock | $ 7,537 | |
Cash dividend paid per common share | $ 0.45 | |
Amount of discontinued quarterly dividends | $ 0.225 |
Loss per Share (Details)
Loss per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Numerator: | ||||
Net loss from continuing operations | $ (1,085) | $ (798) | $ (7,564) | $ (8,669) |
Net (loss) income from a discontinued operation, net of taxes (Note 3) | (5,030) | 63 | (22,551) | 1,266 |
Net loss | $ (6,115) | $ (735) | $ (30,115) | $ (7,403) |
Denominator: | ||||
Basic and diluted weighted-average shares outstanding (in shares) | 11,159,984 | 11,127,873 | 11,145,946 | 11,111,728 |
Basic and diluted loss per share: | ||||
Continuing operations (in dollars per share) | $ (0.10) | $ (0.07) | $ (0.68) | $ (0.78) |
Discontinued operation (in dollars per share) | (0.45) | 0.01 | (2.02) | 0.11 |
Net loss (in dollars per share) | $ (0.55) | $ (0.06) | $ (2.70) | $ (0.67) |
Stock Options | ||||
Outstanding stock based awards | ||||
Potential dilutive effect of share-based compensation excluded (in shares) | 666,101 | 953,042 | ||
Restricted stock units | ||||
Outstanding stock based awards | ||||
Potential dilutive effect of share-based compensation excluded (in shares) | 68,811 | 52,664 |
Commitments and Contingencies -
Commitments and Contingencies - Capital Lease (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Commitments and Contingencies. | ||||
Operating leases, rent expense | $ 887 | $ 896 | $ 2,663 | $ 2,666 |
Machinery and equipment capital lease obligations | 711 | 711 | ||
Less current portion of capital lease obligations | (147) | (147) | ||
Total long-term capital lease obligations | $ 564 | $ 564 |
Commitments and Contingencies_2
Commitments and Contingencies - Contingencies (Details) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Heckermann Montross Suit | Pending Litigation | ||
Commitments and Contingencies | ||
Loss contingency accrual | $ 0 | $ 0 |
Stock Based Compensation - Omni
Stock Based Compensation - Omnibus Incentive Plan (Details) $ / shares in Units, $ in Thousands | Dec. 20, 2017 | Sep. 25, 2017shares | Sep. 30, 2018USD ($)$ / sharesshares | Sep. 30, 2017USD ($)$ / shares | Sep. 30, 2018USD ($)$ / sharesshares | Sep. 30, 2017USD ($) | Oct. 31, 2015shares |
Stock-based compensation | |||||||
Reverse stock split | 0.20 | ||||||
Omnibus Plan | |||||||
Valuation Assumptions: | |||||||
Compensation expense | $ | $ (42) | $ 507 | $ 741 | $ 1,738 | |||
Omnibus Plan | Stock Options | |||||||
Stock-based compensation | |||||||
Number of shares authorized | 1,200,000 | 800,000 | |||||
Number of additional shares authorized | 400,000 | ||||||
Number of shares available for grant | 131,498 | 131,498 | |||||
Stock options granted (in shares) | 159,755 | ||||||
Stock option life (in years) | 10 years | ||||||
Number of shares | |||||||
Balance at beginning of year (in shares) | 937,310 | ||||||
Granted (in shares) | 159,755 | ||||||
Forfeited (in shares) | (161,181) | ||||||
Balance at end of year (in shares) | 935,884 | 935,884 | |||||
Options: Options vested and exercisable | 276,383 | 276,383 | |||||
Options: Options vested and expected to vest | 933,834 | 933,834 | |||||
Weighted-Average Exercise Price | |||||||
Balance at beginning of year (in dollars per share) | $ / shares | $ 17.11 | ||||||
Granted (in dollars per share) | $ / shares | 2.74 | ||||||
Forfeited (in dollars per share) | $ / shares | 14.21 | ||||||
Balance at end of year (in dollars per share) | $ / shares | $ 15.16 | 15.16 | |||||
Weighted-Average Exercise Price: Options vested and exercisable | $ / shares | 18.09 | 18.09 | |||||
Weighted-Average Exercise Price: Options vested and expected to vest | $ / shares | $ 15.19 | $ 15.19 | |||||
Weighted- Average Remaining Contractual Term (in Years) | |||||||
Balance (in years) | 8 years 7 months 13 days | ||||||
Weighted-Average Remaining Contractual Term (in Years): Options vested and exercisable | 8 years 4 months 24 days | ||||||
Weighted-Average Remaining Contractual Term (in Years): Options vested and expected to vest | 8 years 7 months 13 days | ||||||
Number of unvested options scheduled to vest | |||||||
Non-Vested Options as of beginning of period | 876,903 | ||||||
Granted (in shares) | 159,755 | ||||||
Forfeited (in shares) | (148,972) | ||||||
Vested (in shares) | (228,185) | ||||||
Non-Vested Options as of end of period | 659,501 | 659,501 | |||||
Weighted-Average Grant Date Fair Value | |||||||
Non-Vested, beginning balance | $ / shares | $ 4.08 | ||||||
Granted: Weighted-Average Grant Date Fair Value | $ / shares | $ 1.20 | $ 4.31 | 1.20 | ||||
Forfeited: Weighted-Average Grant Date Fair Value | $ / shares | 3.47 | ||||||
Vested: Weighted-Average Grant Date Fair Value | $ / shares | 2.76 | ||||||
Non-Vested, ending balance | $ / shares | $ 3.98 | $ 3.98 | |||||
Valuation Assumptions: | |||||||
Expected term in years | 6 years | ||||||
Volatility (as a percent) | 48.00% | ||||||
Risk-free interest rate | 2.70% | ||||||
Period of initial public offering of common stock used for volatility rate | 10 years | ||||||
Awards vesting beginning the first anniversary of the grant date | Stock Options | |||||||
Stock-based compensation | |||||||
Vesting period | 3 years | ||||||
2018 | Omnibus Plan | Stock Options | |||||||
Number of unvested options scheduled to vest | |||||||
Non-Vested Options as of end of period | 50,879 | 50,879 | |||||
2019 | Omnibus Plan | Stock Options | |||||||
Number of unvested options scheduled to vest | |||||||
Non-Vested Options as of end of period | 302,695 | 302,695 | |||||
2020 | Omnibus Plan | Stock Options | |||||||
Number of unvested options scheduled to vest | |||||||
Non-Vested Options as of end of period | 251,654 | 251,654 | |||||
2021 | Omnibus Plan | Stock Options | |||||||
Number of unvested options scheduled to vest | |||||||
Non-Vested Options as of end of period | 54,273 | 54,273 |
Stock Based Compensation - Rest
Stock Based Compensation - Restricted Stock Units (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | |
Restricted stock units | |||||
Weighted Average Grant Date Fair Value | |||||
Period over which compensation expense expected to recognize | 1 year 4 months 24 days | ||||
Omnibus Plan | |||||
Weighted Average Grant Date Fair Value | |||||
Compensation expense | $ (42) | $ 507 | $ 741 | $ 1,738 | |
Omnibus Plan | Restricted stock units | |||||
Number of Restricted Stock Units | |||||
Units outstanding at the beginning of the period (in shares) | 49,677 | ||||
Granted (in shares) | 75,188 | ||||
Vested (in shares) | (25,928) | ||||
Forfeited (in shares) | (30,126) | ||||
Units outstanding at the end of the period (in shares) | 68,811 | 68,811 | |||
Weighted Average Grant Date Fair Value | |||||
Units outstanding at the beginning of the period (in dollars per shares) | $ 16.20 | ||||
Granted (in dollars per share) | 2.66 | ||||
Vested (in dollars per share) | 10.63 | ||||
Forfeited (in dollars per share) | 9.85 | ||||
Units outstanding at the end of the period (in dollars per shares) | $ 6.28 | $ 6.28 | |||
Unrecognized compensation expense | $ 1,246 | ||||
Period over which compensation expense expected to recognize | 1 year 1 month 21 days | ||||
Unvested restricted stock (in units) | 68,811 | 49,677 | 68,811 | ||
Omnibus Plan | Restricted stock units | 2019 | |||||
Number of Restricted Stock Units | |||||
Units outstanding at the end of the period (in shares) | 57,563 | 57,563 | |||
Weighted Average Grant Date Fair Value | |||||
Unvested restricted stock (in units) | 57,563 | 57,563 | 57,563 | ||
Omnibus Plan | Restricted stock units | 2020 | |||||
Number of Restricted Stock Units | |||||
Units outstanding at the end of the period (in shares) | 11,005 | 11,005 | |||
Weighted Average Grant Date Fair Value | |||||
Unvested restricted stock (in units) | 11,005 | 11,005 | 11,005 | ||
Omnibus Plan | Restricted stock units | 2021 | |||||
Number of Restricted Stock Units | |||||
Units outstanding at the end of the period (in shares) | 243 | 243 | |||
Weighted Average Grant Date Fair Value | |||||
Unvested restricted stock (in units) | 243 | 243 | 243 |
Stock Based Compensation - Cash
Stock Based Compensation - Cash Performance Units (Details) - Cash Performance - USD ($) $ in Thousands | 9 Months Ended |
Sep. 30, 2018 | |
Stock-based compensation | |
Period over which compensation expense expected to recognize | 3 years |
Cash payments made | $ 137 |
Number of Cash Performance Units | |
Units outstanding at the beginning of the period (in shares) | 822,915 |
Granted (in shares) | 0 |
Vested (in shares) | (274,854) |
Forfeited (in shares) | (115,907) |
Units outstanding at the end of the period (in shares) | 432,154 |
Accrued expenses | |
Stock-based compensation | |
Cash performance liability | $ 83 |
Other Long Term Liabilities | |
Stock-based compensation | |
Cash performance liability | $ 56 |
Stock Based Compensation - Opti
Stock Based Compensation - Option Plan (Details) - Stock Options - Option Plan - $ / shares | 9 Months Ended |
Sep. 30, 2018 | |
Stock-based compensation | |
Stock option life (in years) | 10 years |
Number of shares | |
Balance at end of year (in shares) | 6,600 |
Weighted-Average Exercise Price | |
Exercisable at end of year (in dollars per share) | $ 0.002 |
Weighted- Average Remaining Contractual Term (in Years) | |
Balance (in years) | 4 years 8 months 12 days |
Stock Based Compensation - Re_2
Stock Based Compensation - Restricted Shares (Details) - Restricted shares - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | |||
Jun. 30, 2015 | Sep. 30, 2018 | Sep. 30, 2017 | Mar. 31, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Weighted Average Grant Date Fair Value | ||||||
Compensation expense | $ 0 | $ 0 | $ (143,000) | $ 0 | $ (371,000) | |
Common Stock | ||||||
Number of Restricted Stock Units | ||||||
Granted (in shares) | 38,332 | |||||
Units outstanding at the end of the period (in shares) | 0 | 0 | ||||
Weighted Average Grant Date Fair Value | ||||||
Granted (in dollars per share) | $ 47.40 |
Segment Reporting - Revenue and
Segment Reporting - Revenue and EBITDA from Continuing Operations (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Segment Reporting | ||||
Revenue | $ 70,987 | $ 60,997 | $ 187,298 | $ 166,255 |
EBITDA | 8,968 | 7,895 | 18,879 | 15,551 |
U.S. Debit and Credit | ||||
Segment Reporting | ||||
EBITDA | 9,136 | 6,528 | 24,788 | 21,873 |
U.S. Prepaid Debit | ||||
Segment Reporting | ||||
EBITDA | 8,831 | 7,607 | 18,337 | 13,255 |
Other | ||||
Segment Reporting | ||||
EBITDA | (8,999) | (6,240) | (24,246) | (19,577) |
Operating Segments | U.S. Debit and Credit | ||||
Segment Reporting | ||||
Revenue | 48,002 | 40,055 | 128,992 | 122,174 |
Operating Segments | U.S. Prepaid Debit | ||||
Segment Reporting | ||||
Revenue | 21,190 | 19,144 | 52,128 | 40,901 |
Operating Segments | Other | ||||
Segment Reporting | ||||
Revenue | 1,920 | 2,661 | 7,599 | 8,390 |
Intersegment eliminations | ||||
Segment Reporting | ||||
Revenue | $ (125) | $ (863) | $ (1,421) | $ (5,210) |
Segment Reporting - Reconciliat
Segment Reporting - Reconciliation of EBITDA from Continuing Operations to "Net (Loss) Income from Continuing Operations" (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Reconciliation of total segment EBITDA to income before taxes | ||||
Total segment EBITDA from continuing operations | $ 8,968 | $ 7,895 | $ 18,879 | $ 15,551 |
Interest, net | (6,151) | (5,304) | (17,243) | (15,532) |
Income tax benefit | 355 | 783 | 4,933 | 4,154 |
Depreciation and amortization | (4,257) | (4,172) | (14,133) | (12,842) |
Net loss from continuing operations | $ (1,085) | $ (798) | $ (7,564) | $ (8,669) |
Segment Reporting - Balance She
Segment Reporting - Balance Sheet Data (Details) - USD ($) $ in Thousands | Sep. 30, 2018 | Jan. 02, 2018 | Dec. 31, 2017 |
Segment Reporting | |||
Assets of discontinued operation | $ 20,294 | $ 20,651 | |
Total assets | $ 207,148 | 234,005 | |
Operating Segments | |||
Segment Reporting | |||
Total assets | 207,148 | 213,354 | |
Operating Segments | U.S. Debit and Credit | |||
Segment Reporting | |||
Total assets | 153,905 | 164,397 | |
Operating Segments | U.S. Prepaid Debit | |||
Segment Reporting | |||
Total assets | 38,375 | 33,130 | |
Operating Segments | Other | |||
Segment Reporting | |||
Total assets | $ 14,868 | $ 15,827 |
Segment Reporting - Geographic
Segment Reporting - Geographic Information (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Segment Reporting | |||||
Total plant, equipment and leasehold improvement additions | $ 1,652 | $ 1,119 | $ 5,471 | $ 6,292 | |
Revenue | 70,987 | 60,997 | 187,298 | 166,255 | |
Total long-lived assets | 122,524 | 122,524 | $ 131,679 | ||
U.S. | |||||
Segment Reporting | |||||
Total plant, equipment and leasehold improvement additions | 1,652 | 1,081 | 5,425 | 6,131 | |
Total long-lived assets | 121,778 | 121,778 | 130,768 | ||
Canada | |||||
Segment Reporting | |||||
Total plant, equipment and leasehold improvement additions | $ 38 | 46 | $ 161 | ||
Total long-lived assets | $ 746 | $ 746 | $ 911 |
Segment Reporting - Net Sales b
Segment Reporting - Net Sales by Product and Services (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Segment Reporting | ||||
Total net sales | $ 70,987 | $ 60,997 | $ 187,298 | $ 166,255 |
Products | ||||
Segment Reporting | ||||
Total net sales | 34,673 | 26,777 | 90,911 | 79,644 |
Services | ||||
Segment Reporting | ||||
Total net sales | $ 36,314 | $ 34,220 | $ 96,387 | $ 86,611 |