CPI CARD GROUP INC., 10-Q filed on 5/4/2017
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2017
Apr. 24, 2017
Document and Entity Information
 
 
Entity Registrant Name
CPI Card Group Inc. 
 
Entity Central Index Key
0001641614 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2017 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
55,592,024 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q1 
 
Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 25,906 
$ 36,955 
Accounts receivable, net of allowances of $71 and $126, respectively
33,955 
31,492 
Inventories
23,975 
19,369 
Prepaid expenses and other current assets
5,054 
4,601 
Income taxes receivable
1,947 
 
Total current assets
90,837 
92,417 
Plant, equipment and leasehold improvements, net
53,470 
53,419 
Intangible assets, net
45,143 
46,348 
Goodwill
72,083 
71,996 
Other assets
271 
240 
Total assets
261,804 
264,420 
Current liabilities:
 
 
Accounts payable
12,799 
10,996 
Accrued expenses
15,701 
17,487 
Income taxes payable
 
64 
Deferred revenue and customer deposits
10,241 
6,729 
Total current liabilities
38,741 
35,276 
Long-term debt
302,406 
301,922 
Deferred income taxes
20,936 
21,261 
Other long-term liabilities
1,599 
1,234 
Total liabilities
363,682 
359,693 
Commitments and contingencies (Note 10)
   
   
Stockholders' deficit:
 
 
Common Stock; $0.001 par value—100,000,000 shares authorized; 55,592,024 and 55,359,251 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
56 
55 
Capital deficiency
(114,383)
(114,881)
Accumulated earnings
18,663 
25,968 
Accumulated other comprehensive loss
(6,214)
(6,415)
Total stockholders' deficit
(101,878)
(95,273)
Total liabilities and stockholders' deficit
$ 261,804 
$ 264,420 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Condensed Consolidated Balance Sheets
 
 
Allowance on accounts receivable
$ 71 
$ 126 
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)
55,592,024 
55,359,251 
Common shares, outstanding shares (in shares)
55,592,024 
55,359,251 
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Net sales:
 
 
Products
$ 29,764 
$ 54,958 
Services
26,244 
31,435 
Total net sales
56,008 
86,393 
Cost of sales:
 
 
Products (exclusive of depreciation and amortization shown below)
19,688 
36,353 
Services (exclusive of depreciation and amortization shown below)
17,441 
17,764 
Depreciation and amortization
2,784 
2,584 
Total cost of sales
39,913 
56,701 
Gross Profit
16,095 
29,692 
Operating expenses:
 
 
Selling, general and administrative (exclusive of depreciation and amortization shown below)
16,155 
14,498 
Depreciation and amortization
1,749 
1,529 
Total operating expenses
17,904 
16,027 
(Loss) income from operations
(1,809)
13,665 
Other expense, net
 
 
Interest, net
(5,062)
(5,033)
Foreign currency gain (loss)
73 
(102)
Other income (loss), net
(2)
Total other expense, net
(4,988)
(5,137)
(Loss) income before income taxes
(6,797)
8,528 
Income tax benefit (expense)
2,291 
(2,814)
Net (loss) income
(4,506)
5,714 
Basic and diluted (loss) earnings per share:
 
 
Basic and diluted (loss) earnings per share:
$ (0.08)
$ 0.10 
Weighted-average shares outstanding
 
 
Basic (in shares)
55,424,559 
56,542,116 
Diluted (in shares)
55,424,559 
56,836,082 
Dividends declared per common share
$ 0.045 
$ 0.045 
Comprehensive (loss) income
 
 
Net (loss) income
(4,506)
5,714 
Currency translation adjustment
201 
82 
Total comprehensive (loss) income
$ (4,305)
$ 5,796 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Operating activities
 
 
Net (loss) income
$ (4,506)
$ 5,714 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
 
 
Depreciation and amortization expense
4,533 
4,113 
Stock-based compensation expense
546 
745 
Amortization of debt issuance costs and debt discount
484 
482 
Excess tax benefits from stock-based compensation
 
(239)
Deferred income taxes
(351)
(58)
Other, net
(39)
(13)
Changes in operating assets and liabilities:
 
 
Accounts receivable
(2,375)
7,711 
Inventories
(4,551)
1,957 
Prepaid expenses and other assets
(485)
(532)
Income taxes
(2,005)
4,433 
Accounts payable
1,751 
(3,758)
Accrued expenses
(1,794)
(3,980)
Deferred revenue and customer deposits
3,424 
199 
Other liabilities
357 
(18)
Cash (used in) provided by operating activities
(5,011)
16,756 
Investing activities
 
 
Acquisitions of plant, equipment and leasehold improvements
(3,283)
(3,780)
Cash used in investing activities
(3,283)
(3,780)
Financing activities
 
 
Dividends paid on common stock
(2,527)
 
Taxes withheld and paid on stock-based compensation awards
(336)
 
Excess tax benefits from stock-based compensation
 
239 
Cash (used in) provided by financing activities
(2,863)
239 
Effect of exchange rates on cash
108 
32 
Net (decrease) increase in cash and cash equivalents:
(11,049)
13,247 
Cash and cash equivalents, beginning of period
36,955 
 
Cash and cash equivalents, end of period
25,906 
26,853 
Supplemental disclosures of cash flow information
 
 
Interest
4,488 
4,621 
Income taxes, net payments (refunds)
$ 65 
$ (1,567)
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 a leading provider of comprehensive Financial Payment Card solutions in the United States. The Company defines Financial Payment Cards as credit, debit and prepaid debit cards issued on the networks of the Payment Card Brands (Visa, MasterCard, American Express and Discover) and Interac (in Canada). The Company serves its customers through a network of ten production and card services facilities, including eight high-security facilities in the United States and Canada that are each certified by one or more of the Payment Card Brands and Interac (in Canada) and, where required by the Company’s customers, certified to be in compliance with the standards of the Payment Card Industry (“PCI”) Security Standards Council.

 

In addition to its eight facilities in the United States and Canada, the Company has two facilities in the United Kingdom that produce retail cards, such as gift and loyalty cards, and provide card personalization, packaging and fulfillment services for customers in the United Kingdom and continental Europe.  These facilities are not certified by the Payment Card Brands or to be in compliance with the Standards of the PCI Security Standards Council, but are certified to be in compliance with International Organization for Standardization (“ISO”) 27001 standards.

 

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, 2016 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, 2016.

 

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; and stock-based compensation expense. Actual results could differ from those estimates.

 

Inventories

 

Inventories consist of raw materials, work–in-process and finished goods and are measured at the lower of cost or net realizable value (determined on the first-in, first-out or specific identification basis) in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) 2015-11, InventorySimplifying the Measurement of Inventory, which the Company adopted on January 1, 2017.  Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  The adoption of this standard did not impact the Company’s financial position, results of operations or cash flows during the three months ended March 31, 2017.

 

Adoption of New Accounting Standard

 

As of January 1, 2017, the Company adopted FASB ASU 2016-09, Compensation–Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplified several aspects of the accounting for employee share based payment transactions, including classification in the statement of cash flows, the accounting for forfeitures and statutory withholding requirements. 

 

Classification in the Statement of Cash Flows

 

As a result of the adoption of ASU 2016-09, excess tax benefits and deficiencies in connection with the Company’s stock-based compensation plans are no longer recorded directly through equity, and are recorded in “Income tax benefit” in the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income.  The impact to the Company’s condensed consolidated financial statements was not material during the three months ended March 31, 2017. See Note 7, “Income Taxes” and Note 11, “Stock-Based Compensation”. 

 

The Company has also elected to present excess tax benefits as an operating activity prospectively, commencing with the Company’s Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2017.

 

Additionally, during the three months ended March 31, 2017, the Company paid $336 to tax authorities for shares withheld to satisfy employer income tax obligations in relation to the vesting of stock-based compensation awards.  As required by ASU 2016-09, the Company classified these payments as a financing activity in the Condensed Consolidated Statement of Cash Flows.  There was no impact to prior periods as a result of the required retrospective application of this requirement within ASU 2016-09. 

 

Forfeitures

 

The Company has elected to account for forfeitures when they occur.  The cumulative-effect adjustment to “Accumulated earnings” and “Capital deficiency” in the Company’s Condensed Consolidated Balance Sheet was immaterial. 

 

 

Recently Issued Accounting Pronouncements

 

The FASB issued ASU 2014-09, Revenue from Contracts with Customers, in May 2014, as amended by ASU 2016-12 Narrow-scope Improvements and Practical Expedients, in May 2016. ASU 2014-09, as amended, 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. An entity should also 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. In July 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017, and interim reporting periods within those periods. The Company plans to implement the provisions of ASU 2014-09, as amended, as of January 1, 2018. The Company plans to adopt the standard using the cumulative effect transition method with the cumulative effect of initial adoption recognized at the date of initial application.  The Company is currently assessing the impact that the future adoption of ASU 2014-09, as amended, may have on its condensed consolidated financial statements by analyzing its current portfolio of customer contracts, including a review of historical accounting policies and practices to identify potential differences in applying the new guidance. 

In February 2016, the FASB issued ASU 2016-02, Leases, 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 standard is required to be adopted using a modified retrospective approach. The Company is in the process of assessing the impact of ASU 2016-02 on its results of operations, financial position and condensed consolidated financial statements.

 

Inventories
Inventories

2. Inventories

 

Inventories are summarized below:

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

 

 

 

 

 

 

 

    

Raw materials

 

$

9,353

 

$

8,206

 

Work-in-process

 

 

9,707

 

 

6,340

 

Finished goods

 

 

4,915

 

 

4,823

 

 

 

$

23,975

 

$

19,369

 

 

Plant, Equipment and Leasehold Improvements
Plant, Equipment and Leasehold Improvements

3. Plant, Equipment and Leasehold Improvements

 

Plant, equipment and leasehold improvements consist of the following:

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

 

 

 

 

 

 

 

    

Buildings

 

$

2,108

 

$

2,077

 

Machinery and equipment

 

 

60,193

 

 

59,464

 

Furniture, fixtures and computer equipment

 

 

6,843

 

 

6,634

 

Leasehold improvements

 

 

18,715

 

 

18,655

 

Construction in progress

 

 

3,653

 

 

1,136

 

 

 

 

91,512

 

 

87,966

 

Less accumulated depreciation and amortization

 

 

(38,042)

 

 

(34,547)

 

 

 

$

53,470

 

$

53,419

 

 

Amounts recorded for the depreciation of plant, equipment and leasehold improvements was $3,310 and $2,973 for the three months ended March 31, 2017 and 2016, respectively.

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

4. Goodwill and Other Intangible Assets

 

The Company’s goodwill by reportable segment at March 31, 2017 and December 31, 2016 is as follows:

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

U.S. Debit and Credit

 

$

64,330

 

$

64,330

U.K. Limited

 

 

5,980

 

 

5,908

Other

 

 

1,773

 

 

1,758

 

 

$

72,083

 

$

71,996

 

The change in goodwill from December 31, 2016 to March 31, 2017 was a result of foreign currency translation adjustments.

 

Intangible assets consist of customer relationships, technology and software, non-compete agreements and trademarks. Total intangible assets are being amortized over a weighted-average useful life of 15.6 years. The changes in the cost basis of the intangibles from December 31, 2016 to March 31, 2017 are related to foreign currency translations. Intangible amortization expense was $1,223 and $1,140 for the three months ended March 31, 2017 and 2016, respectively. 

 

As of March 31, 2017 and December 31, 2016, intangible assets, excluding goodwill, were comprised of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

 

December 31, 2016

 

 

 

Average Life

 

 

 

 

Accumulated

 

Net Book

 

 

 

 

Accumulated

 

Net Book

 

 

 

(Years)

 

Cost

 

Amortization

 

Value

 

Cost

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

    

12

to

20

    

$

59,036

    

$

(21,874)

    

$

37,162

    

$

58,994

    

$

(20,972)

    

$

38,022

 

Technology and software

 

 7

to

10

 

 

7,100

 

 

(2,399)

 

 

4,701

 

 

7,101

 

 

(2,167)

 

 

4,934

 

Non-compete agreements

 

 5

to

 8

 

 

491

 

 

(346)

 

 

145

 

 

491

 

 

(331)

 

 

160

 

Trademarks

 

7.5

to

10

 

 

3,330

 

 

(195)

 

 

3,135

 

 

3,330

 

 

(98)

 

 

3,232

 

Intangible assets subject to amortization

 

 

 

 

 

$

69,957

 

$

(24,814)

 

$

45,143

 

$

69,916

 

$

(23,568)

 

$

46,348

 

 

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of March 31, 2017 is as follows:

 

 

 

 

 

2017 (remaining 9 months)

 

$

3,672

2018

    

 

4,895

2019

 

 

4,875

2020

 

 

4,835

2021

 

 

4,575

Thereafter

 

 

22,291

 

 

$

45,143

 

Fair Value of Financial Instruments
Fair Value of Financial Instruments

5. 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 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value as of 

 

Fair Value as of 

 

Fair Value Measurement at March 31, 2017

 

 

 

March 31, 

 

March 31, 

 

 (Using Fair Value Hierarchy)

 

 

 

2017

 

2017

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

First Lien Term Loan

 

$

312,500

 

$

290,625

 

$

 

$

290,625

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Value as of

 

Fair Value as of

 

Fair Value Measurement at December 31, 2016

 

 

 

December 31, 

 

December 31, 

 

 (Using Fair Value Hierarchy)

 

 

 

2016

 

2016

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

First Lien Term Loan

 

$

312,500

 

$

290,625

 

$

 

$

290,625

 

$

 —

 

 

The aggregate fair value of the Company’s First Lien Term Loan was based on bank quotes.

 

The carrying amounts for cash and cash equivalents approximate fair value due to their short maturities.

 

 

 

Long-Term Debt and Credit Facility
Long-Term Debt and Credit Facility

6. Long-Term Debt and Credit Facility

 

As of March 31, 2017 and December 31, 2016, long-term debt and credit facilities consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

    

Interest

    

March 31, 

    

December 31, 

 

 

 

Rate (1)

 

2017

 

2016

 

First lien term loan facility (1)

 

5.83

%  

$

312,500

 

$

312,500

 

Unamortized discount

 

 

 

 

(3,627)

 

 

(3,795)

 

Unamortized deferred financing costs

 

 

 

 

(6,467)

 

 

(6,783)

 

Long-term debt

 

 

 

$

302,406

 

$

301,922

 


(1)

Interest rate at March 31, 2017.  Interest rate at December 31, 2016 was 5.50%.

 

First Lien Credit Facility

 

On August 17, 2015, the Company entered into a 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 Adjusted EBITDA, as defined in the agreement. As of March 31, 2017, 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.

 

As of March 31, 2017, 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 March 31, 2017 and December 31, 2016, 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.

 

Sellers Note

 

The Company entered into a subordinated, unsecured promissory note for $9,000 with certain sellers of EFT Source as part of the EFT Source acquisition, which was fully repaid on September 2, 2016. Interest on the Sellers Note accrued at 5.0% per annum and was paid quarterly.

 

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.

 

As of March 31, 2017, long-term debt of $312,500 matures in 2022.

Income Taxes
Income Taxes

7. Income Taxes

 

During the three months ended March 31, 2017, the Company recognized an income tax benefit of $2,291 on pre-tax loss of $6,797, representing an effective income tax rate of 33.7%, compared to an income tax expense of $2,814 on pre-tax income of $8,528, representing an effective tax rate of 33.0% during the three months ended March 31, 2016.

 

The effective tax rates for all periods presented differ from the federal U.S. statutory rate primarily due to a benefit from permanent deductions related to credits for domestic production activities and the impact of state and foreign income taxes. 

 

The Company’s tax returns are subject to audits by U.S. federal, state, and foreign tax authorities.  In March 2017, the Company was notified that the Internal Revenue Service ("IRS") would examine its 2014 federal income tax return. The Company is in the process of providing information requested by the IRS with respect to such tax year. As the exam process is in the early stages, the Company has not been notified of any items that are being disputed by the IRS.

 

Stockholders' Equity
Stockholders’ Equity

8. Stockholders’ Equity

 

During the three months ended March 31, 2017, the Company paid dividends of $2,527, representing $0.045 per share.  Additionally, on March 1, 2017, the Board of Directors approved a dividend of $0.045 per share, payable on April 7, 2017 to stockholders of record as of the close of business on March 17, 2017.  The accrued dividend of $2,500 is reflected in “Accrued expenses” in the Condensed Consolidated Balance Sheet as of March 31, 2017. 

 

On May 11, 2016, the Board of Directors approved a stock repurchase program that authorizes repurchases of the Company’s common stock up to $20,000, limited to a maximum of 2,827,105 shares, prior to May 11, 2017.  Repurchases may be executed using open market purchases, privately negotiated transactions, accelerated share repurchase programs or other transactions.  During the three months ended March 31, 2017, there were no common shares repurchased.  At March 31, 2017, up to $13,992 remained available under the share repurchase authorization, limited to 1,387,683 shares.

 

(Loss) Earnings per Share
(Loss) Earnings per Share

9. (Loss) Earnings per Share

 

Basic and diluted (loss) earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period.

 

The following table sets forth the computation of basic and diluted (loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

2017

 

2016

    

Numerator:

 

 

    

    

 

    

 

Net (loss) income

 

$

(4,506)

 

$

5,714

 

Denominator: 

 

 

 

 

 

 

 

Basic-weighted-average common shares outstanding

 

 

55,424,559

 

 

56,542,116

 

Diluted-weighted-average common shares outstanding

 

 

55,424,559

 

 

56,836,082

 

(Loss) earnings per share:

 

 

 

 

 

 

 

Basic

 

$

(0.08)

 

$

0.10

 

Diluted

 

$

(0.08)

 

$

0.10

 

 

The Company reported a net loss for the three months ended March 31, 2017.  Accordingly, the potentially dilutive effect of 2,325,878 stock options and 186,763 restricted stock units has been excluded from the computation of diluted earnings per share as their inclusion would be anti-dilutive.

 

 

 

Commitments and Contingencies
Commitments and Contingencies

10. Commitments and Contingencies

 

Commitments

 

The Company incurred rent expense under non-cancellable operating leases of $953 and $815 for the three months ended March 31, 2017 and 2016, respectively.

 

Contingencies 

 

CPI Card Group Inc. Securities Litigation, Case No. 1:16-CV-04531 (S.D.N.Y.)

 

On June 15, 2016, two purported CPI shareholders 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 against CPI and certain of its officers and 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 (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 (“PSLRA”). 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. All discovery and other proceedings in the action are stayed under the PSLRA pending the resolution of that motion.

 

The Company believes these claims are without merit and intends to defend the action vigorously.  Given the current stage of these matters, the range of potential loss is not probable or estimable and no accrual has been recognized as of March 31, 2017 and December 31, 2016.

 

Gemalto S.A. v. CPI Card Group Inc. (2 cases)

 

First case. This suit was initially filed by Gemalto S.A. (“Gemalto”) against the Company in the United States District Court for the Western District of Texas in October 2015.  The now-stayed complaint alleges that the Company infringes a Gemalto patent by incorporating into the Company’s products microchips that allegedly practice the EMV standard.  Gemalto’s patent expired in March 2017.  The Company successfully moved to transfer the lawsuit to the District of Colorado.  On January 28, 2016, the Company answered the complaint and filed counterclaims that the asserted patent is invalid and unenforceable, and that Gemalto’s lawsuit is a “sham” intended to interfere with the Company’s IPO and business relationships.  Gemalto answered the Company’s counterclaims on February 5, 2016.  On March 8, 2016, Gemalto provided specific infringement contentions, which—contrary to the complaint’s claim that all EMV-compliant products infringed upon Gemalto’s patent—only named CPI products that incorporate microchips supplied by two specific vendors.

 

On May 31, 2016, the Company filed an Inter Partes Review petition with the United States Patent & Trademark Office’s Patent Trial & Appeal Board (“PTAB”), seeking re-examination of Gemalto’s asserted patent. In light of the Company’s petition, on July 11, 2016, the United States District Court for the District of Colorado granted the Company’s motion to stay the litigation pending the PTAB’s consideration of the Company’s challenge to the patentability of asserted claims. The petition was granted as to all of the independent claims of Gemalto’s patent on November 9, 2016.  The PTAB also granted the Company’s petition as to certain dependent claims, which are claims that rely upon and incorporate an independent claim. The district court litigation remains stayed.

 

Second case. On May 3, 2016, Gemalto filed a second patent infringement action against CPI in the United States District Court for the District of Colorado. The complaint alleges that the Company infringes a Gemalto patent on networked smartcard printing by way of the Company’s Card@Once offering. Gemalto alleges that its patent will expire in 2019.  Gemalto provided initial infringement contentions to the Company on July 29, 2016, and amended its contentions on October 13, 2016. The parties are presently engaged in claim construction activities, including the deposition of the patent-in-suit’s named inventor and the inspection records relating to the alleged commercial embodiment of Gemalto’s patent. During May 2017, the Company filed an Inter Partes Review petition with the United States Patent & Trademark Office’s Patent Trial & Appeal Board, seeking re-examination of Gemalto’s asserted patent.  The PTAB has not yet ruled on the Company’s petition.

 

With respect to both cases, the Company believes Gemalto’s claims are without merit and that the Company has strong legal and equitable defenses, plus meritorious counterclaims and indemnity rights. The Company intends to defend these suits vigorously.  While a risk of loss is reasonably possible, given the current stage of these matters, as well as the aforementioned defenses, counterclaims and indemnity rights, the range of potential loss is not estimable and no accrual has been recognized as of March 31, 2017 and December 31, 2016.

 

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 our business, financial condition or results of operations.

 

Stock-Based Compensation
Stock-Based Compensation

11. Stock-Based Compensation

 

CPI Card Group Inc. Omnibus Incentive Plan

 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 has reserved 4,000,000 shares of common stock for issuance under the Omnibus Plan.  As of March 31, 2017, there were 1,460,029 shares available for grant under the Omnibus Plan.

During the three months ended March 31, 2017, the Company granted awards of non-qualified stock options under the Omnibus Plan for 785,370 shares of common stock.  The stock option awards were granted at various times during the quarter.  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.   As of March 31, 2017, there are no exercisable options outstanding under the Omnibus Plan.

Outstanding stock options under the Omnibus Plan are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

Weighted-

 

Average

 

 

 

 

Average

 

Remaining

 

 

 

 

Exercise

 

Contractual Term

 

 

Options

 

Price

 

(in Years)

Outstanding as of December 31, 2016

 

1,437,508

 

$

8.62

 

 

Granted

 

785,370

 

 

4.31

 

 

Forfeited

 

(7,000)

 

 

10.00

 

 

Outstanding as of March 31, 2017

 

2,215,878

 

$

7.06

 

9.14

 

Unvested options as of March 31, 2017 will vest as follows:

 

 

 

 

 

2017

    

377,305

 

2018

 

744,389

 

2019

 

715,109

 

2020

 

366,938

 

2021

 

12,137

 

Total unvested options as of March 31, 2017

 

2,215,878

 

 

The fair value of the stock option awards was determined using a Black-Scholes option-pricing model with the following average assumptions:

 

 

 

 

 

 

 

Three Months

 

 

 

Ended

 

 

 

March

 

 

    

31, 2017

 

Expected term in years

 

6.0

 

Volatility

 

33.7

%

Risk-free interest rate

 

2.1

%

Dividend yield

 

4.1

%

 

During the three months ended March 31, 2017, the Company granted awards of restricted stock units for 114,446 shares of common stock. The restricted stock units contain conditions associated with continued employment or service, and a majority will vest three years from the date of grant.  On the vesting date, shares of common stock will be issued to the award recipients.

 

The following table summarizes the changes in the number of outstanding restricted stock units for the three month period ended March 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

Average

 

 

 

 

Grant Date

 

 

Shares

 

Fair Value

Outstanding as of December 31, 2016

    

270,466

    

$

7.13

Granted

 

114,446

 

 

4.32

Vested

 

(198,149)

 

 

7.91

Forfeited

 

 —

 

 

 

Outstanding as of March 31, 2017

 

186,763

 

$

4.59

 

During the three months ended March 31, 2017, the Company granted awards of 932,837 cash performance units with a grant date fair value of $663. 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 price, 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.  The cash performance units were valued using a Monte Carlo simulation.  The Monte Carlo model used the following valuation assumptions based on the 3-year term of the awards: leverage adjusted peer volatility of 48%, risk free rate of 1.5%, and a dividend yield of 4.0%.  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 March 31, 2017, the amount of liability recorded for cash performance units was not material.

 

The following table summarizes the changes in the number of outstanding cash performance units for the three month period ended March 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

    

Units

    

Grant Date Fair Value

 

 

 

 

 

 

Outstanding as of December 31, 2016

 

 —

 

$

 —

Granted

 

932,837

 

 

0.71

Vested

 

 —

 

 

 —

Forfeited

 

 

 

Outstanding as of March 31, 2017

 

932,837

 

$

0.71

Compensation expense for the Omnibus Plan for the three months ended March 31, 2017 and March 31, 2016 was $689 and $422, respectively.  As of March 31, 2017, the total unrecognized compensation expense related to unvested options, restricted stock units, and cash performance unit awards under the Omnibus Plan was $3,824, which the Company expects to recognize over an estimated weighted average period of 1.9 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 March 31, 2017. 

 

The following table summarizes the changes in the number of outstanding stock options under the Option Plan for the three-month period ended March 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted-

 

 

 

 

 

 

 

 

 Average 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

 

Weighted- Average

 

 Contractual Term

 

 

 

Options

 

 Exercise Price

 

 (in Years)

 

 

 

 

 

 

 

 

 

 

Outstanding and Exercisable as of December 31, 2016

 

216,334

 

$

0.0004

 

 

 

Granted

 

 

 

 

 

 

Exercised

 

(106,334)

 

 

0.0003

 

 

 

Forfeited

 

 —

 

 

 —

 

 

 

Outstanding and Exercisable as of March 31, 2017

 

110,000

 

$

0.0004

 

5.17

 

 

There was no compensation expense related to options previously granted under the Option Plan for the three months ended March 31, 2017, as all options were fully vested.  The aggregate intrinsic value of stock option awards outstanding and exercisable under the Option Plan as of March 31, 2017 was $462.

 

Other Stock-Based Compensation Awards

 

During June 2015, the Company issued 191,664 restricted shares of common stock to executives with a weighted-average grant date fair value of $9.48 per share.  The awards contain conditions associated with continued employment or service.  The terms of the unvested restricted shares of common stock provide voting and regular dividend rights to the holders, and accordingly are included in weighted-average shares outstanding in the Company’s basic earnings per share calculation.  See Note 9, “(Loss) Earnings per Share”.  As of March 31, 2017, 94,864 restricted shares of common stock were outstanding, which vest over a three-year period from the grant date.  The executive holding the remaining restricted shares changed employment status to a consultant during the first quarter of 2017.  Accordingly, the Company remeasured the awards and reduced stock-based compensation expense by $143 during the three months ended March 31, 2017.  Compensation expense for the three month period ended March 31, 2016 was $323. 

Segment Reporting
Segment Reporting

12. 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.

 

As of March 31, 2017, the Company’s reportable segments are as follows:

 

·

U.S. Debit and Credit;

·

U.S. Prepaid Debit; and

·

U.K. Limited.

 

The “Other” category includes the Company’s corporate headquarters and less significant operating segments that derive their 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 months ended March 31, 2017 and 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

Three Months Ended March 31, 

 

 

 

2017

 

2016

 

U.S. Debit and Credit

    

$

39,508

    

$

65,091

 

U.S. Prepaid Debit

 

 

9,784

 

 

12,341

 

U.K. Limited

 

 

5,587

 

 

6,232

 

Other

 

 

2,503

 

 

3,142

 

Intersegment eliminations

 

 

(1,374)

 

 

(413)

 

Total:

 

$

56,008

 

$

86,393

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

 

 

Three Months Ended March 31, 

 

 

 

2017

 

2016

 

U.S. Debit and Credit

    

$

7,630

    

$

18,922

 

U.S. Prepaid Debit

 

 

1,785

 

 

3,267

 

U.K. Limited

 

 

325

 

 

219

 

Other

 

 

(6,942)

 

 

(4,734)

 

Total:

 

$

2,798

 

$

17,674

 

 

The following table provides a reconciliation of total segment EBITDA to net (loss) income for the three months ended March 31, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2017

    

2016

 

Total segment EBITDA from continuing operations

 

$

2,798

 

$

17,674

 

Interest, net

 

 

(5,062)

 

 

(5,033)

 

Income tax benefit (expense)

 

 

2,291

 

 

(2,814)

 

Depreciation and amortization

 

 

(4,533)

 

 

(4,113)

 

Net (loss) income

 

$

(4,506)

 

$

5,714

 

 

Balance Sheet Data of Reportable Segments

 

Total assets of the Company’s reportable segments as of March 31, 2017 and December 31, 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

 

 

 

 

 

 

 

 

U.S. Debit and Credit

 

$

197,756

 

$

205,417

 

U.S. Prepaid Debit

 

 

24,638

 

 

23,509

 

U.K. Limited

 

 

28,431

 

 

26,060

 

Other

 

 

10,979

 

 

9,434

 

Total assets:

 

$

261,804

 

$

264,420

 

 

Plant, Equipment and Leasehold Improvement Additions of Geographic Locations

 

Plant, equipment and leasehold improvement additions of the Company’s geographical locations for the three months ended March 31, 2017 and 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

U.S.

 

$

2,275

 

$

2,402

 

Canada

 

 

72

 

 

114

 

Total North America

 

 

2,347

 

 

2,516

 

U.K.

 

 

961

 

 

624

 

Total plant, equipment and leasehold improvement additions

 

$

3,308

 

$

3,140

 

 

Net Sales to Geographic Locations

 

Net sales to the Company’s geographic locations for the three months ended March 31, 2017 and 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

U.S.

 

$

47,811

 

$

74,436

 

Canada

 

 

2,028

 

 

3,999

 

Total North America

 

 

49,839

 

 

78,435

 

U.K.

 

 

3,955

 

 

6,605

 

Other (a)

 

 

2,214

 

 

1,353

 

Total net sales

 

$

56,008

 

$

86,393

 


(a)

Amounts in Other include sales to various countries that individually are not material.

 

Long-Lived Assets of Geographic Segments

 

Long-lived assets of the Company’s geographic segments as of March 31, 2017 and December 31, 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

 

 

 

 

 

 

 

 

U.S.

 

$

155,798

 

$

157,773

 

Canada

 

 

2,903

 

 

2,899

 

Total North America:

 

 

158,701

 

 

160,672

 

U.K.

 

 

11,995

 

 

11,091

 

Total long-lived assets

 

$

170,696

 

$

171,763

 

 

Net Sales by Product and Services

 

Net sales from products and services sold by the Company for the three months ended March 31, 2017 and 2016 were as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

March 31, 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Product net sales (a)

 

$

29,764

 

$

54,958

 

Services net sales (b)

 

 

26,244

 

 

31,435

 

Total net sales:

 

$

56,008

 

$

86,393

 


(a)

Product net sales include the design and production of Financial Payment Cards in contact-EMV, Dual-Interface EMV, contactless and magnetic stripe card formats.  The Company also generates product 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 service revenue from personalizing retail gift cards (primarily in Canada and the United Kingdom) 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.

 

Subsequent Events
Subsequent Events

13.  Subsequent Events

On May 3, 2017, the Board of Directors approved a dividend of $0.045 per share. This dividend is payable on July 7, 2017, to stockholders of record as of the close of business on June 16, 2017.

 

Business Overview and Summary of Significant Accounting Policies (Policies)

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, 2016 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, 2016.

 

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; and stock-based compensation expense. Actual results could differ from those estimates.

Inventories

 

Inventories consist of raw materials, work–in-process and finished goods and are measured at the lower of cost or net realizable value (determined on the first-in, first-out or specific identification basis) in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) 2015-11, InventorySimplifying the Measurement of Inventory, which the Company adopted on January 1, 2017.  Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  The adoption of this standard did not impact the Company’s financial position, results of operations or cash flows during the three months ended March 31, 2017.

Adoption of New Accounting Standard

 

As of January 1, 2017, the Company adopted FASB ASU 2016-09, Compensation–Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplified several aspects of the accounting for employee share based payment transactions, including classification in the statement of cash flows, the accounting for forfeitures and statutory withholding requirements. 

 

Classification in the Statement of Cash Flows

 

As a result of the adoption of ASU 2016-09, excess tax benefits and deficiencies in connection with the Company’s stock-based compensation plans are no longer recorded directly through equity, and are recorded in “Income tax benefit” in the Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income.  The impact to the Company’s condensed consolidated financial statements was not material during the three months ended March 31, 2017. See Note 7, “Income Taxes” and Note 11, “Stock-Based Compensation”. 

 

The Company has also elected to present excess tax benefits as an operating activity prospectively, commencing with the Company’s Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2017.

 

Additionally, during the three months ended March 31, 2017, the Company paid $336 to tax authorities for shares withheld to satisfy employer income tax obligations in relation to the vesting of stock-based compensation awards.  As required by ASU 2016-09, the Company classified these payments as a financing activity in the Condensed Consolidated Statement of Cash Flows.  There was no impact to prior periods as a result of the required retrospective application of this requirement within ASU 2016-09. 

 

Forfeitures

 

The Company has elected to account for forfeitures when they occur.  The cumulative-effect adjustment to “Accumulated earnings” and “Capital deficiency” in the Company’s Condensed Consolidated Balance Sheet was immaterial. 

 

 

Recently Issued Accounting Pronouncements

 

The FASB issued ASU 2014-09, Revenue from Contracts with Customers, in May 2014, as amended by ASU 2016-12 Narrow-scope Improvements and Practical Expedients, in May 2016. ASU 2014-09, as amended, 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. An entity should also 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. In July 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017, and interim reporting periods within those periods. The Company plans to implement the provisions of ASU 2014-09, as amended, as of January 1, 2018. The Company plans to adopt the standard using the cumulative effect transition method with the cumulative effect of initial adoption recognized at the date of initial application.  The Company is currently assessing the impact that the future adoption of ASU 2014-09, as amended, may have on its condensed consolidated financial statements by analyzing its current portfolio of customer contracts, including a review of historical accounting policies and practices to identify potential differences in applying the new guidance. 

In February 2016, the FASB issued ASU 2016-02, Leases, 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 standard is required to be adopted using a modified retrospective approach. The Company is in the process of assessing the impact of ASU 2016-02 on its results of operations, financial position and condensed consolidated financial statements.

Inventories (Tables)
Schedule of inventories

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

 

 

 

 

 

 

 

    

Raw materials

 

$

9,353

 

$

8,206

 

Work-in-process

 

 

9,707

 

 

6,340

 

Finished goods

 

 

4,915

 

 

4,823

 

 

 

$

23,975

 

$

19,369

 

 

Plant, Equipment and Leasehold Improvements (Tables)
Schedule of plant, equipment and leasehold improvements

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

 

 

 

 

 

 

 

    

Buildings

 

$

2,108

 

$

2,077

 

Machinery and equipment

 

 

60,193

 

 

59,464

 

Furniture, fixtures and computer equipment

 

 

6,843

 

 

6,634

 

Leasehold improvements

 

 

18,715

 

 

18,655

 

Construction in progress

 

 

3,653

 

 

1,136

 

 

 

 

91,512

 

 

87,966

 

Less accumulated depreciation and amortization

 

 

(38,042)

 

 

(34,547)

 

 

 

$

53,470

 

$

53,419

 

 

Goodwill and Other Intangible Assets (Tables)

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

U.S. Debit and Credit

 

$

64,330

 

$

64,330

U.K. Limited

 

 

5,980

 

 

5,908

Other

 

 

1,773

 

 

1,758

 

 

$

72,083

 

$

71,996

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

 

December 31, 2016

 

 

 

Average Life

 

 

 

 

Accumulated

 

Net Book

 

 

 

 

Accumulated

 

Net Book

 

 

 

(Years)

 

Cost

 

Amortization

 

Value

 

Cost

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

    

12

to

20

    

$

59,036

    

$

(21,874)

    

$

37,162

    

$

58,994

    

$

(20,972)

    

$

38,022

 

Technology and software

 

 7

to

10

 

 

7,100

 

 

(2,399)

 

 

4,701

 

 

7,101

 

 

(2,167)

 

 

4,934

 

Non-compete agreements

 

 5

to

 8

 

 

491

 

 

(346)

 

 

145

 

 

491

 

 

(331)

 

 

160

 

Trademarks

 

7.5

to

10

 

 

3,330

 

 

(195)

 

 

3,135

 

 

3,330

 

 

(98)

 

 

3,232

 

Intangible assets subject to amortization

 

 

 

 

 

$

69,957

 

$

(24,814)

 

$

45,143

 

$

69,916

 

$

(23,568)

 

$

46,348

 

 

 

 

 

 

 

2017 (remaining 9 months)

 

$

3,672

2018

    

 

4,895

2019

 

 

4,875

2020

 

 

4,835

2021

 

 

4,575

Thereafter

 

 

22,291

 

 

$

45,143

 

Fair Value of Financial Instruments (Tables)
Schedule of financial assets and liabilities subject to fair value measurements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value as of 

 

Fair Value as of 

 

Fair Value Measurement at March 31, 2017

 

 

 

March 31, 

 

March 31, 

 

 (Using Fair Value Hierarchy)

 

 

 

2017

 

2017

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

First Lien Term Loan

 

$

312,500

 

$

290,625

 

$

 

$

290,625

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Value as of

 

Fair Value as of

 

Fair Value Measurement at December 31, 2016

 

 

 

December 31, 

 

December 31, 

 

 (Using Fair Value Hierarchy)

 

 

 

2016

 

2016

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

    

 

    

    

 

    

    

 

    

    

 

    

    

 

    

 

First Lien Term Loan

 

$

312,500

 

$

290,625

 

$

 

$

290,625

 

$

 —

 

 

Long-Term Debt and Credit Facility (Tables)
Schedule of long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Interest

    

March 31, 

    

December 31, 

 

 

 

Rate (1)

 

2017

 

2016

 

First lien term loan facility (1)

 

5.83

%  

$

312,500

 

$

312,500

 

Unamortized discount

 

 

 

 

(3,627)

 

 

(3,795)

 

Unamortized deferred financing costs

 

 

 

 

(6,467)

 

 

(6,783)

 

Long-term debt

 

 

 

$

302,406

 

$

301,922

 


(1)

Interest rate at March 31, 2017.  Interest rate at December 31, 2016 was 5.50%.

(Loss) Earnings per Share (Tables)
Computation of basic and diluted EPS

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

2017

 

2016

    

Numerator:

 

 

    

    

 

    

 

Net (loss) income

 

$

(4,506)

 

$

5,714

 

Denominator: 

 

 

 

 

 

 

 

Basic-weighted-average common shares outstanding

 

 

55,424,559

 

 

56,542,116

 

Diluted-weighted-average common shares outstanding

 

 

55,424,559

 

 

56,836,082

 

(Loss) earnings per share:

 

 

 

 

 

 

 

Basic

 

$

(0.08)

 

$

0.10

 

Diluted

 

$

(0.08)

 

$

0.10

 

 

Stock-Based Compensation (Tables)

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

Average

 

 

 

 

Grant Date

 

 

Shares

 

Fair Value

Outstanding as of December 31, 2016

    

270,466

    

$

7.13

Granted

 

114,446

 

 

4.32

Vested

 

(198,149)

 

 

7.91

Forfeited

 

 —

 

 

 

Outstanding as of March 31, 2017

 

186,763

 

$

4.59

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

    

Units

    

Grant Date Fair Value

 

 

 

 

 

 

Outstanding as of December 31, 2016

 

 —

 

$

 —

Granted

 

932,837

 

 

0.71

Vested

 

 —

 

 

 —

Forfeited

 

 

 

Outstanding as of March 31, 2017

 

932,837

 

$

0.71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

Weighted-

 

Average

 

 

 

 

Average

 

Remaining

 

 

 

 

Exercise

 

Contractual Term

 

 

Options

 

Price

 

(in Years)

Outstanding as of December 31, 2016

 

1,437,508

 

$

8.62

 

 

Granted

 

785,370

 

 

4.31

 

 

Forfeited

 

(7,000)

 

 

10.00

 

 

Outstanding as of March 31, 2017

 

2,215,878

 

$

7.06

 

9.14

 

 

 

 

 

2017

    

377,305

 

2018

 

744,389

 

2019

 

715,109

 

2020

 

366,938

 

2021

 

12,137

 

Total unvested options as of March 31, 2017

 

2,215,878

 

 

 

 

 

 

 

 

Three Months

 

 

 

Ended

 

 

 

March

 

 

    

31, 2017

 

Expected term in years

 

6.0

 

Volatility

 

33.7

%

Risk-free interest rate

 

2.1

%

Dividend yield

 

4.1

%

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted-

 

 

 

 

 

 

 

 

 Average 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

 

Weighted- Average

 

 Contractual Term

 

 

 

Options

 

 Exercise Price

 

 (in Years)

 

 

 

 

 

 

 

 

 

 

Outstanding and Exercisable as of December 31, 2016

 

216,334

 

$

0.0004

 

 

 

Granted

 

 

 

 

 

 

Exercised

 

(106,334)

 

 

0.0003

 

 

 

Forfeited

 

 —

 

 

 —

 

 

 

Outstanding and Exercisable as of March 31, 2017

 

110,000

 

$

0.0004

 

5.17

 

 

Segment Reporting (Tables)

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

Three Months Ended March 31, 

 

 

 

2017

 

2016

 

U.S. Debit and Credit

    

$

39,508

    

$

65,091

 

U.S. Prepaid Debit

 

 

9,784

 

 

12,341

 

U.K. Limited

 

 

5,587

 

 

6,232

 

Other

 

 

2,503

 

 

3,142

 

Intersegment eliminations

 

 

(1,374)

 

 

(413)

 

Total:

 

$

56,008

 

$

86,393

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

 

 

Three Months Ended March 31, 

 

 

 

2017

 

2016

 

U.S. Debit and Credit

    

$

7,630

    

$

18,922

 

U.S. Prepaid Debit

 

 

1,785

 

 

3,267

 

U.K. Limited

 

 

325

 

 

219

 

Other

 

 

(6,942)

 

 

(4,734)

 

Total:

 

$

2,798

 

$

17,674

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2017

    

2016

 

Total segment EBITDA from continuing operations

 

$

2,798

 

$

17,674

 

Interest, net

 

 

(5,062)

 

 

(5,033)

 

Income tax benefit (expense)

 

 

2,291

 

 

(2,814)

 

Depreciation and amortization

 

 

(4,533)

 

 

(4,113)

 

Net (loss) income

 

$

(4,506)

 

$

5,714

 

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

 

 

 

 

 

 

 

 

U.S. Debit and Credit

 

$

197,756

 

$

205,417

 

U.S. Prepaid Debit

 

 

24,638

 

 

23,509

 

U.K. Limited

 

 

28,431

 

 

26,060

 

Other

 

 

10,979

 

 

9,434

 

Total assets:

 

$

261,804

 

$

264,420

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

U.S.

 

$

2,275

 

$

2,402

 

Canada

 

 

72

 

 

114

 

Total North America

 

 

2,347

 

 

2,516

 

U.K.

 

 

961

 

 

624

 

Total plant, equipment and leasehold improvement additions

 

$

3,308

 

$

3,140

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

U.S.

 

$

47,811

 

$

74,436

 

Canada

 

 

2,028

 

 

3,999

 

Total North America

 

 

49,839

 

 

78,435

 

U.K.

 

 

3,955

 

 

6,605

 

Other (a)

 

 

2,214

 

 

1,353

 

Total net sales

 

$

56,008

 

$

86,393

 


(a)

Amounts in Other include sales to various countries that individually are not material.

 

 

 

 

 

 

 

 

 

 

    

March 31, 2017

    

December 31, 2016

 

 

 

 

 

 

 

 

 

U.S.

 

$

155,798

 

$

157,773

 

Canada

 

 

2,903

 

 

2,899

 

Total North America:

 

 

158,701

 

 

160,672

 

U.K.

 

 

11,995

 

 

11,091

 

Total long-lived assets

 

$

170,696

 

$

171,763

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

 

March 31, 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Product net sales (a)

 

$

29,764

 

$

54,958

 

Services net sales (b)

 

 

26,244

 

 

31,435

 

Total net sales:

 

$

56,008

 

$

86,393

 


(a)

Product net sales include the design and production of Financial Payment Cards in contact-EMV, Dual-Interface EMV, contactless and magnetic stripe card formats.  The Company also generates product 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 service revenue from personalizing retail gift cards (primarily in Canada and the United Kingdom) 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 of Significant Accounting Policies - Business Overview and Basis of Presentation (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
item
Business Overview and Summary of Significant Accounting Policies
 
Total number of production and card services facilities
10 
Payment to tax authorities for shares withheld to satisfy employer income tax obligations
$ 336 
United States and Canada
 
Business Overview and Summary of Significant Accounting Policies
 
Number of high-security production and card services facilities
Number of payment card brands which certify card services
U.K.
 
Business Overview and Summary of Significant Accounting Policies
 
Total number of production and card services facilities
Inventories (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Inventories
 
 
Raw materials
$ 9,353 
$ 8,206 
Work-in-process
9,707 
6,340 
Finished goods
4,915 
4,823 
Inventory
$ 23,975 
$ 19,369 
Plant, Equipment and Leasehold Improvements (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Plant, Equipment and Leasehold Improvements
 
 
 
Plant, equipment and leasehold improvements, gross
$ 91,512 
 
$ 87,966 
Less accumulated depreciation and amortization
(38,042)
 
(34,547)
Plant, equipment and leasehold improvements, net
53,470 
 
53,419 
Depreciation
3,310 
2,973 
 
Buildings
 
 
 
Plant, Equipment and Leasehold Improvements
 
 
 
Plant, equipment and leasehold improvements, gross
2,108 
 
2,077 
Machinery and equipment
 
 
 
Plant, Equipment and Leasehold Improvements
 
 
 
Plant, equipment and leasehold improvements, gross
60,193 
 
59,464 
Furniture, fixtures and computer equipment
 
 
 
Plant, Equipment and Leasehold Improvements
 
 
 
Plant, equipment and leasehold improvements, gross
6,843 
 
6,634 
Leasehold improvements
 
 
 
Plant, Equipment and Leasehold Improvements
 
 
 
Plant, equipment and leasehold improvements, gross
18,715 
 
18,655 
Construction in progress
 
 
 
Plant, Equipment and Leasehold Improvements
 
 
 
Plant, equipment and leasehold improvements, gross
$ 3,653 
 
$ 1,136 
Goodwill and Other Intangible Assets - Goodwill by Reporting Segment (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Goodwill
$ 72,083 
$ 71,996 
U.S. Debit and Credit
 
 
Goodwill
64,330 
64,330 
U.K. Limited
 
 
Goodwill
5,980 
5,908 
Other
 
 
Goodwill
$ 1,773 
$ 1,758 
Goodwill and Other Intangible Assets - Intangible Assets (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Intangible Assets [Line Items]
 
 
 
Weighted-average useful life
15 years 7 months 6 days 
 
 
Intangible amortization expense
$ 1,223 
$ 1,140 
 
Intangible assets subject to amortization, Cost
69,957 
 
69,916 
Intangible assets subject to amortization, Accumulated Amortization
(24,814)
 
(23,568)
Intangible assets subject to amortization, Net Book Value
45,143 
 
46,348 
Customer relationships
 
 
 
Intangible Assets [Line Items]
 
 
 
Intangible assets subject to amortization, Cost
59,036 
 
58,994 
Intangible assets subject to amortization, Accumulated Amortization
(21,874)
 
(20,972)
Intangible assets subject to amortization, Net Book Value
37,162 
 
38,022 
Customer relationships |
Minimum
 
 
 
Intangible Assets [Line Items]
 
 
 
Weighted-average useful life
12 years 
 
 
Customer relationships |
Maximum
 
 
 
Intangible Assets [Line Items]
 
 
 
Weighted-average useful life
20 years 
 
 
Technology and software
 
 
 
Intangible Assets [Line Items]
 
 
 
Intangible assets subject to amortization, Cost
7,100 
 
7,101 
Intangible assets subject to amortization, Accumulated Amortization
(2,399)
 
(2,167)
Intangible assets subject to amortization, Net Book Value
4,701 
 
4,934 
Technology and software |
Minimum
 
 
 
Intangible Assets [Line Items]
 
 
 
Weighted-average useful life
7 years 
 
 
Technology and software |
Maximum
 
 
 
Intangible Assets [Line Items]
 
 
 
Weighted-average useful life
10 years 
 
 
Non-compete agreements
 
 
 
Intangible Assets [Line Items]
 
 
 
Intangible assets subject to amortization, Cost
491 
 
491 
Intangible assets subject to amortization, Accumulated Amortization
(346)
 
(331)
Intangible assets subject to amortization, Net Book Value
145 
 
160 
Non-compete agreements |
Minimum
 
 
 
Intangible Assets [Line Items]
 
 
 
Weighted-average useful life
5 years 
 
 
Non-compete agreements |
Maximum
 
 
 
Intangible Assets [Line Items]
 
 
 
Weighted-average useful life
8 years 
 
 
Trademarks
 
 
 
Intangible Assets [Line Items]
 
 
 
Intangible assets subject to amortization, Cost
3,330 
 
3,330 
Intangible assets subject to amortization, Accumulated Amortization
(195)
 
(98)
Intangible assets subject to amortization, Net Book Value
$ 3,135 
 
$ 3,232 
Trademarks |
Minimum
 
 
 
Intangible Assets [Line Items]
 
 
 
Weighted-average useful life
7 years 6 months 
 
 
Trademarks |
Maximum
 
 
 
Intangible Assets [Line Items]
 
 
 
Weighted-average useful life
10 years 
 
 
Goodwill and Other Intangible Assets - Future Aggregate Amortization Expense (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Estimated future aggregate amortization expense
 
 
2017 (remaining 9 months)
$ 3,672 
 
2018
4,895 
 
2019
4,875 
 
2020
4,835 
 
2021
4,575 
 
Thereafter
22,291 
 
Intangible assets subject to amortization, Net Book Value
$ 45,143 
$ 46,348 
Fair Value of Financial Instruments (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Liabilities:
 
 
Carrying amount
$ 312,500 
 
First Lien Credit Facility
 
 
Liabilities:
 
 
Carrying amount
312,500 
312,500 
First Lien Credit Facility |
Term Loan
 
 
Liabilities:
 
 
Carrying amount
312,500 
 
Long-term debt
290,625 
290,625 
First Lien Credit Facility |
Level 2 |
Term Loan
 
 
Liabilities:
 
 
Long-term debt
$ 290,625 
$ 290,625 
Long-Term Debt and Credit Facility - Long-Term Debt (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Debt Instrument [Line Items]
 
 
Long-term debt
$ 312,500 
 
Total long-term debt
302,406 
301,922 
First Lien Credit Facility
 
 
Debt Instrument [Line Items]
 
 
Interest rate (as a percent)
5.83% 
5.50% 
Long-term debt
312,500 
312,500 
Unamortized discount
(3,627)
(3,795)
Unamortized deferred financing costs
$ (6,467)
$ (6,783)
Long-Term Debt and Credit Facility - First Lien Credit Facility (Details) (First Lien Credit Facility, USD $)
In Thousands, unless otherwise specified
0 Months Ended 3 Months Ended
Aug. 17, 2015
Mar. 31, 2017
Aug. 17, 2015
Long-term Debt
 
 
 
Maximum net leverage ratio
7.00 
 
 
Term Loan
 
 
 
Long-term Debt
 
 
 
Maximum borrowing capacity
$ 435,000 
 
$ 435,000 
Term Loan |
Eurodollar rate
 
 
 
Long-term Debt
 
 
 
Applicable margin over reference rate (as a percent)
4.50% 
 
 
Term Loan |
Eurodollar rate |
Minimum
 
 
 
Long-term Debt
 
 
 
Interest rate (as a percent)
1.00% 
 
1.00% 
Term Loan |
Base rate
 
 
 
Long-term Debt
 
 
 
Applicable margin over reference rate (as a percent)
3.50% 
 
 
Revolving Credit Facility
 
 
 
Long-term Debt
 
 
 
Maximum borrowing capacity
 
 
40,000 
Fee on outstanding letters of credit (as a percent)
 
4.50% 
 
Fronting fee for letters of credit (as a percent)
 
0.125% 
 
Amount drawn to trigger net leverage requirement (as a percent)
50.00% 
 
 
Letters of credit outstanding
 
50 
 
Amount outstanding
 
$ 0 
 
Revolving Credit Facility |
Minimum
 
 
 
Long-term Debt
 
 
 
Unused commitment fee (as a percent)
0.375% 
 
 
Revolving Credit Facility |
Maximum
 
 
 
Long-term Debt
 
 
 
Unused commitment fee (as a percent)
0.50% 
 
 
Long-Term Debt and Credit Facility - Sellers Note (Details) (Sellers Note, USD $)
In Thousands, unless otherwise specified
Sep. 2, 2016
Sellers Note
 
Long-term Debt
 
Promissory note
$ 9,000 
Interest rate (as a percent)
5.00% 
Long-Term Debt and Credit Facility - Letters of Credit (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2017
First Lien Credit Facility
Dec. 31, 2016
First Lien Credit Facility
Mar. 31, 2017
Term Loan
First Lien Credit Facility
Aug. 17, 2015
Term Loan
First Lien Credit Facility
Mar. 31, 2017
Revolving Credit Facility
First Lien Credit Facility
item
Aug. 17, 2015
Revolving Credit Facility
First Lien Credit Facility
Long-term Debt
 
 
 
 
 
 
 
Number of outstanding letters of credit
 
 
 
 
 
 
Letters of credit outstanding
 
 
 
 
 
$ 50 
 
Remaining borrowing capacity
 
 
 
 
 
19,950 
 
Fee on outstanding letters of credit (as a percent)
 
 
 
 
 
4.50% 
 
Fronting fee for letters of credit (as a percent)
 
 
 
 
 
0.125% 
 
Maximum borrowing capacity
 
 
 
 
435,000 
 
40,000 
Long-term debt
$ 312,500 
$ 312,500 
$ 312,500 
$ 312,500 
 
 
 
Income Taxes (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Income Taxes
 
 
Income tax expense (benefit)
$ (2,291)
$ 2,814 
Income before income taxes
 
 
(Loss) income before income taxes
$ (6,797)
$ 8,528 
Effective income tax rate (as a percent)
33.70% 
33.00% 
Stockholders' Equity - Common Stock (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
0 Months Ended 3 Months Ended
Mar. 1, 2017
Mar. 31, 2017
Sep. 30, 2016
Mar. 31, 2016
May 11, 2016
Dividends, Common Stock [Abstract]
 
 
 
 
 
Dividends paid on common stock
 
$ 2,527 
$ 2,527 
 
 
Cash dividend paid per common share
 
$ 0.045 
 
 
 
Cash dividends declared per common share
$ 0.045 
$ 0.045 
 
$ 0.045 
 
Repurchase Program
 
 
 
 
 
Maximum value of shares authorized for repurchase under repurchase plan
 
 
 
 
20,000 
Maximum number of shares authorized for repurchase under repurchase program
 
 
 
 
2,827,105 
Shares repurchased and retired (in shares)
 
 
 
 
Value of remaining shares available under repurchase authorization
 
13,992 
 
 
 
Maximum remaining number of shares available under repurchase authorization
 
1,387,683 
 
 
 
Accrued expenses
 
 
 
 
 
Dividends, Common Stock [Abstract]
 
 
 
 
 
Accrued dividend
 
$ 2,500 
 
 
 
Stockholders' Equity - Repurchase Program (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
May 11, 2016
Stockholders’ Equity
 
 
Maximum value of shares authorized for repurchase under repurchase plan
 
$ 20,000 
Maximum number of shares authorized for repurchase under repurchase program
 
2,827,105 
Shares repurchased and retired (in shares)
 
Value of remaining shares available under repurchase authorization
$ 13,992 
 
Maximum remaining number of shares available under repurchase authorization
1,387,683 
 
(Loss) Earnings per Share (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Numerator:
 
 
Net (loss) income
$ (4,506)
$ 5,714 
Denominator:
 
 
Basic - weighted average common shares outstanding
55,424,559 
56,542,116 
Dilutive - weighted average common shares outstanding
55,424,559 
56,836,082 
(Loss) earnings per share:
 
 
Basic (in dollars per share)
$ (0.08)
$ 0.10 
Diluted (in dollars per share)
$ (0.08)
$ 0.10 
Stock Options
 
 
Potentially dilutive effect of outstanding stock options
 
 
Potential dilutive effect of share-based compensation excluded (in shares)
2,325,878 
 
Restricted stock units
 
 
Potentially dilutive effect of outstanding stock options
 
 
Potential dilutive effect of share-based compensation excluded (in shares)
186,763 
 
Commitments and Contingencies - Rental Expense (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Commitments and Contingencies.
 
 
Operating leases, rent expense
$ 953 
$ 815 
Commitments and Contingencies - Contingencies (Details) (USD $)
In Thousands, unless otherwise specified
0 Months Ended
Jun. 15, 2016
plaintiff
Mar. 31, 2017
Securities Litigation Case
Pending Litigation
Dec. 31, 2016
Securities Litigation Case
Pending Litigation
Mar. 31, 2017
Gemalto Suit
Pending Litigation
Dec. 31, 2016
Gemalto Suit
Pending Litigation
Loss Contingencies [Line Items]
 
 
 
 
 
Number of purported shareholders that have filed lawsuits
 
 
 
 
Loss contingency accrual
 
$ 0 
$ 0 
$ 0 
$ 0 
Stock-Based Compensation - Omnibus Incentive Plan (Details) (Omnibus Plan, USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Oct. 9, 2015
Valuation Assumptions:
 
 
 
Compensation expense
$ 689 
$ 422 
 
Stock Options
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
Number of shares authorized
 
 
4,000,000 
Number of shares available for grant
1,460,029 
 
 
Stock options granted (in shares)
785,370 
 
 
Stock option life (in years)
 
10 years 
 
Vesting period
 
3 years 
 
Number of exercisable options outstanding
 
 
Number of shares
 
 
 
Balance at beginning of year (in shares)
1,437,508 
 
 
Granted (in shares)
785,370 
 
 
Forfeited (in shares)
(7,000)
 
 
Balance at end of year (in shares)
2,215,878 
 
 
Weighted-Average Exercise Price
 
 
 
Balance at beginning of year (in dollars per share)
$ 8.62 
 
 
Granted (in dollars per share)
$ 4.31 
 
 
Forfeited (in dollars per share)
$ 10.00 
 
 
Balance at end of year (in dollars per share)
$ 7.06 
 
 
Weighted- Average Remaining Contractual Term (in Years)
 
 
 
Balance (in years)
9 years 1 month 21 days 
 
 
Number of unvested options scheduled to vest
 
 
 
Unvested options (in shares)
2,215,878 
 
 
Valuation Assumptions:
 
 
 
Expected term in years
6 years 
 
 
Volatility (as a percent)
33.70% 
 
 
Risk-free interest rate
2.10% 
 
 
Dividend yield (as a percent)
4.10% 
 
 
2017 |
Stock Options
 
 
 
Number of unvested options scheduled to vest
 
 
 
Unvested options (in shares)
377,305 
 
 
2018 |
Stock Options
 
 
 
Number of unvested options scheduled to vest
 
 
 
Unvested options (in shares)
744,389 
 
 
2019 |
Stock Options
 
 
 
Number of unvested options scheduled to vest
 
 
 
Unvested options (in shares)
715,109 
 
 
2020 |
Stock Options
 
 
 
Number of unvested options scheduled to vest
 
 
 
Unvested options (in shares)
366,938 
 
 
2021 |
Stock Options
 
 
 
Number of unvested options scheduled to vest
 
 
 
Unvested options (in shares)
12,137 
 
 
Stock-Based Compensation - Restricted Stock Units (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Restricted stock units
 
 
Number of Restricted Stock Units
 
 
Units outstanding at the beginning of the period (in shares)
270,466 
 
Granted (in shares)
114,446 
 
Vested (in shares)
(198,149)
 
Units outstanding at the end of the period (in shares)
186,763 
 
Weighted Average Grant Date Fair Value
 
 
Units outstanding at the beginning of the period (in dollars per shares)
$ 7.13 
 
Granted (in dollars per share)
$ 4.32 
 
Vested (in dollars per share)
$ 7.91 
 
Units outstanding at the end of the period (in dollars per shares)
$ 4.59 
 
Omnibus Plan
 
 
Weighted Average Grant Date Fair Value
 
 
Compensation expense
$ 689 
$ 422 
Omnibus Plan |
Restricted stock units
 
 
Number of Restricted Stock Units
 
 
Granted (in shares)
114,446 
 
Weighted Average Grant Date Fair Value
 
 
Unrecognized compensation expense
$ 3,824 
 
Period over which compensation expense expected to recognize
1 year 10 months 24 days 
 
Stock-Based Compensation - Cash Performance Units (Details) (Cash Performance, USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Cash Performance
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Grant date fair value
$ 663 
Period over which compensation expense expected to recognize
3 years 
Valuation Assumptions:
 
Expected term in years
3 years 
Volatility (as a percent)
48.00% 
Risk-free interest rate
1.50% 
Dividend yield (as a percent)
4.00% 
Number of Cash Performance Units
 
Granted (in shares)
932,837 
Units outstanding at the end of the period (in shares)
932,837 
Weighted Average Grant Date Fair Value
 
Granted (in dollars per share)
$ 0.71 
Units outstanding at the end of the period (in dollars per shares)
$ 0.71 
Stock-Based Compensation - Option Plan (Details) (Option Plan, USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Number of shares
 
Balance at beginning of year (in shares)
216,334 
Exercised (in shares)
(106,334)
Balance at end of year (in shares)
110,000 
Weighted-Average Exercise Price
 
Balance at beginning of year (in dollars per share)
$ 0.0004 
Exercised (in dollars per share)
$ 0.0003 
Balance at end of year (in dollars per share)
$ 0.0004 
Weighted- Average Remaining Contractual Term (in Years)
 
Balance (in years)
5 years 2 months 1 day 
Stock Options
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Stock option life (in years)
10 years 
Compensation expense
$ 0 
Weighted- Average Remaining Contractual Term (in Years)
 
Aggregate intrinsic value of stock option awards outstanding
$ 462 
Stock-Based Compensation - Restricted Shares (Details) (Restricted shares, USD $)
In Thousands, except Share data, unless otherwise specified
1 Months Ended 3 Months Ended
Jun. 30, 2015
Mar. 31, 2017
Mar. 31, 2016
Restricted shares
 
 
 
Number of Restricted Stock Units
 
 
 
Granted (in shares)
191,664 
 
 
Units outstanding at the end of the period (in shares)
 
94,864 
 
Weighted Average Grant Date Fair Value
 
 
 
Granted (in dollars per share)
$ 9.48 
 
 
Vesting period
 
3 years 
 
Compensation expense
 
$ (143)
$ 323 
Segment Reporting - Revenue and EBITDA (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Segment Reporting
 
 
Revenues
$ 56,008 
$ 86,393 
EBITDA
2,798 
17,674 
U.S. Debit and Credit
 
 
Segment Reporting
 
 
EBITDA
7,630 
18,922 
U.S. Prepaid Debit
 
 
Segment Reporting
 
 
EBITDA
1,785 
3,267 
U.K. Limited
 
 
Segment Reporting
 
 
EBITDA
325 
219 
Other
 
 
Segment Reporting
 
 
EBITDA
(6,942)
(4,734)
Operating Segments |
U.S. Debit and Credit
 
 
Segment Reporting
 
 
Revenues
39,508 
65,091 
Operating Segments |
U.S. Prepaid Debit
 
 
Segment Reporting
 
 
Revenues
9,784 
12,341 
Operating Segments |
U.K. Limited
 
 
Segment Reporting
 
 
Revenues
5,587 
6,232 
Operating Segments |
Other
 
 
Segment Reporting
 
 
Revenues
2,503 
3,142 
Intersegment eliminations
 
 
Segment Reporting
 
 
Revenues
$ (1,374)
$ (413)
Segment Reporting - Reconciliation of EBITDA to Income Before Taxes (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Reconciliation of total segment EBITDA to income before taxes
 
 
Total segment EBITDA from continuing operations
$ 2,798 
$ 17,674 
Interest, net
(5,062)
(5,033)
Income tax benefit (expense)
2,291 
(2,814)
Depreciation and amortization
(4,533)
(4,113)
Net (loss) income
$ (4,506)
$ 5,714 
Segment Reporting - Balance Sheet Data (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Segment Reporting, Asset Reconciling Item [Line Items]
 
 
Total assets
$ 261,804 
$ 264,420 
Operating Segments |
U.S. Debit and Credit
 
 
Segment Reporting, Asset Reconciling Item [Line Items]
 
 
Total assets
197,756 
205,417 
Operating Segments |
U.S. Prepaid Debit
 
 
Segment Reporting, Asset Reconciling Item [Line Items]
 
 
Total assets
24,638 
23,509 
Operating Segments |
U.K. Limited
 
 
Segment Reporting, Asset Reconciling Item [Line Items]
 
 
Total assets
28,431 
26,060 
Operating Segments |
Other
 
 
Segment Reporting, Asset Reconciling Item [Line Items]
 
 
Total assets
$ 10,979 
$ 9,434 
Segment Reporting - Geographic Information (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
Segment Reporting Information [Line Items]
 
 
 
Total plant, equipment and leasehold improvement additions
$ 3,308 
$ 3,140 
 
Revenues
56,008 
86,393 
 
Total long-lived assets
170,696 
 
171,763 
Total North America
 
 
 
Segment Reporting Information [Line Items]
 
 
 
Total plant, equipment and leasehold improvement additions
2,347 
2,516 
 
Revenues
49,839 
78,435 
 
Total long-lived assets
158,701 
 
160,672 
U.S.
 
 
 
Segment Reporting Information [Line Items]
 
 
 
Total plant, equipment and leasehold improvement additions
2,275 
2,402 
 
Revenues
47,811 
74,436 
 
Total long-lived assets
155,798 
 
157,773 
Canada
 
 
 
Segment Reporting Information [Line Items]
 
 
 
Total plant, equipment and leasehold improvement additions
72 
114 
 
Revenues
2,028 
3,999 
 
Total long-lived assets
2,903 
 
2,899 
U.K.
 
 
 
Segment Reporting Information [Line Items]
 
 
 
Total plant, equipment and leasehold improvement additions
961 
624 
 
Revenues
3,955 
6,605 
 
Total long-lived assets
11,995 
 
11,091 
Other
 
 
 
Segment Reporting Information [Line Items]
 
 
 
Revenues
$ 2,214 
$ 1,353 
 
Segment Reporting - Net Sales by Product and Services (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Segment Reporting
 
 
Product net sales
$ 29,764 
$ 54,958 
Services net sales
26,244 
31,435 
Total net sales
$ 56,008 
$ 86,393 
Subsequent Events (Details)
0 Months Ended 3 Months Ended 0 Months Ended
Mar. 1, 2017
Mar. 31, 2017
Mar. 31, 2016
May 3, 2017
Subsequent Event [Member]
Subsequent Event [Line Items]
 
 
 
 
Cash dividends declared per common share
$ 0.045 
$ 0.045 
$ 0.045 
$ 0.045