CPI Card Group(US:PMTS)2021-02-25 12:39Company Overview - CPI Card Group Inc. serves approximately 2,000 direct customers and several thousand indirect customers, including major debit and credit card issuers in the U.S.[14] - The company has established a leading market position in the prepaid debit market through high-quality services and innovation[23]. - The company operates approximately 381,000 square feet of facilities in the U.S. focused on Financial Payment Card production and services[48]. - The company serves approximately 2,000 direct customers, including major debit and credit card issuers in the U.S.[193]. - The company has established a leading position in the Financial Payment Card market through over 20 years of experience[193]. Financial Performance - For the year ended December 31, 2020, net sales increased by 12.3% to $312.2 million, compared to $278.1 million in 2019[197]. - Income from operations for 2020 was $38.4 million, with an operating income margin of 12.3%, up from 8.9% in the prior year[197]. - Net income from continuing operations improved to $16.2 million in 2020, compared to a net loss of $5.0 million in 2019, representing a $21.2 million improvement[197]. - Cash provided by operating activities from continuing operations was $22.1 million in 2020, an increase of $19.1 million from $3.0 million in 2019[198]. Product Offerings and Innovation - CPI produced over 25 million eco-focused contactless payment cards in the past 18 months, estimating to have produced more than 80% of all U.S. eco-focused cards in 2020[33]. - CPI's Second Wave cards, made with recovered ocean-bound plastic, are available in all forms of EMV Financial Payment Cards and align with customers' environmental goals[33]. - CPI's comprehensive end-to-end Financial Payment Card solutions allow customers to manage their card programs cost-effectively[24]. - The company focuses on continuous innovation to create next-generation products that meet marketplace demands and exceed customer expectations[30]. - CPI On-Demand® Solutions enable individualized offerings and reduce waste, targeting new verticals such as healthcare and government disbursement[37]. - Card@Once system allows banks to issue personalized debit or credit cards on demand, generating initial sales revenue and recurring revenue from card personalization[39]. - AdaptivesTM technology offers EMVCo certified chip and antenna personalization, allowing integration into various devices[40]. Market and Competitive Landscape - The payment card industry is highly competitive, with competitors having greater financial resources and integrated product offerings[52]. - The highly competitive nature of the marketplace may affect CPI's ability to retain and attract customers[77]. - The company faces intense competition, with larger competitors potentially adapting more quickly to market changes, which could lead to a loss of market share[138]. Supply Chain and Operational Risks - As of December 31, 2020, approximately 95% of purchased microchips and antennas came from four main suppliers, highlighting supply chain dependency[43]. - The company relies on a diverse international supply chain for key components, making it vulnerable to disruptions from suppliers[92]. - The company has experienced delays in its supply chain, which have previously impacted production timelines[93]. - Disruptions in the supply chain could adversely affect the company's ability to produce products in a timely manner, impacting customer relationships[93]. - The company is subject to risks associated with its leased manufacturing facilities, which could affect operations and financial performance[103]. Regulatory and Compliance Issues - The company must meet PCI Security Standards to maintain eligibility to supply products, and failure to comply could result in significant revenue loss[149]. - Compliance with evolving data privacy laws, such as the California Consumer Privacy Act, may increase operational costs and impact financial performance[137]. - The company is subject to increased sales tax collection obligations due to recent legislation, which could lead to additional tax expenses and administrative burdens, adversely impacting future cash flows and financial results[122]. - The U.S. government has imposed tariffs on imports, which could adversely affect the company's access to raw materials and overall financial condition[132]. Human Resources and Talent Management - The company may experience difficulties in recruiting and retaining qualified personnel, which could adversely affect its ability to grow and maintain profitability[107]. - The company may incur significant expenses in retaining and developing personnel, which could adversely impact profitability if unable to attract top talent[108]. Debt and Financial Obligations - The company maintains a substantial amount of debt, which may limit cash flow from operations and restrict growth opportunities[85]. - The Senior Credit Facility requires the company to achieve at least $25 million of adjusted EBITDA for the previous four consecutive fiscal quarters[88]. - CPI faces risks related to substantial indebtedness, which may restrict its ability to capitalize on business opportunities[74]. Impact of COVID-19 - The ongoing COVID-19 pandemic has caused significant economic disruption, adversely impacting CPI's supply chain, workforce, and overall operations[79]. - The pandemic may lead to increased transportation costs for materials and products, negatively affecting CPI's cash flows and customer demand[80]. - The company’s ability to sell and market products may be adversely affected by government-imposed restrictions and the economic downturn resulting from COVID-19[83]. - The company may not be eligible for relief programs under the CARES Act, which could limit potential benefits from government assistance[84]. Intellectual Property and Technology - The company holds 32 existing U.S. patents and 20 existing foreign patents, with an average remaining maturity of approximately 13 years[56]. - The company’s ability to protect its intellectual property is critical, as challenges to patents or misappropriation could have a material adverse effect on its business[109]. - The company relies on licensing agreements for third-party technologies, including Java and Multos card technology, which are critical for EMV cards[131]. Stock and Market Considerations - The common stock is traded on the TSX and quoted on the OTCQX, with specific financial and share distribution targets required to maintain listing[156]. - Failure to meet continued listing requirements could lead to reduced liquidity and adverse consequences for stockholders[157]. - The common stock is not currently listed on a U.S. national exchange, which may decrease its value and limit investor interest[158]. - Majority stockholders, Tricor Funds, control approximately 59% of the common stock, potentially impacting liquidity and trading price[164]. - The stock price may be significantly affected by market fluctuations and the limited trading volume on the OTCQX[161].