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What changed in CPI Card Group Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of CPI Card Group Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+414 added−431 removedSource: 10-K (2025-03-04) vs 10-K (2024-03-07)

Top changes in CPI Card Group Inc.'s 2024 10-K

414 paragraphs added · 431 removed · 301 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

67 edited+49 added−43 removed16 unchanged
Biggest changeOur business consists of the following reportable segments: ● Debit and Credit, which primarily produces Financial Payment Cards and provides integrated card services, including digital services, to card-issuing financial institutions primarily in the United States; ● Prepaid Debit, which primarily provides integrated prepaid card services to Prepaid Debit Card program managers primarily in the United States; and ● “Other,” which includes corporate expenses. 4 Table of Contents For additional details regarding our segments, see Part II, Item 8, Financial Statements and Supplementary Data, Note 17 "Segment Reporting," and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K.
Biggest changeFor additional details regarding our segments, see Part II, Item 8, Financial Statements and Supplementary Data, Note 17 "Segment Reporting," and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K. Our Strategy Our vision is to be the most trusted partner for innovative payments technology solutions.
Our sales and marketing strategy is focused on strengthening our relationships with existing customers through a consultative approach that includes cross-selling expanded services and sharing expertise to enhance customers’ card programs. We leverage the strength of our full-service offerings to attract new customers. Our marketing efforts focus on the needs of our specific types of customers.
Our sales and marketing strategy is focused on strengthening our relationships with existing customers through a consultative approach that includes cross-selling expanded services and sharing expertise to enhance customers’ card programs. Our marketing efforts focus on the needs of our specific types of customers and leverage the strength of our full-service offerings to attract new customers.
We use an array of different marketing communications and thought leadership across various industry publications, editorial white papers, case studies, conferences and trade shows, print and digital advertisements, educational webinars, podcasts, and blogs to introduce our existing customers and new customers to innovations in the payments market.
We use an array of marketing communications and thought leadership across various industry publications, editorial white papers, case studies, conferences and trade shows, print and digital advertisements, educational webinars, podcasts, and blogs to introduce our existing customers and new customers to innovations in the payments market.
As part of our promotion and retention efforts, we also invest in ongoing leadership development and conduct employee surveys to measure employee engagement and identify areas of focus. ​ Employee health and safety in the workplace is one of the Company’s core values.
As part of our promotion and retention efforts, we also invest in ongoing leadership development and conduct employee surveys to measure employee engagement and identify areas of focus. ​ Employee health and safety in the workplace is one of our core values.
Financial Services We are generally not directly subject to federal or state regulations specifically applicable to financial institutions such as banks, thrifts and credit unions.
Financial Services We are generally not directly subject to federal or state regulations specifically applicable to financial institutions such as banks and credit unions.
The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are available free of charge through the “Investor Relations” portion of the Company's website (www.cpicardgroup.com), as soon as reasonably practical after they are filed with, or furnished to, the SEC.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are available free of charge through the “Investor Relations” portion of our website (www.cpicardgroup.com), as soon as reasonably practical after they are filed with, or furnished to, the SEC.
Our website and the information contained on that site, or connected to that site, are not incorporated into and are not a part of this report. The SEC also maintains a website (www.sec.gov), which contains reports and information statements, and other information filed electronically with the SEC by the Company.
Our website and the information contained on that site, or connected to that site, are not incorporated into and are not a part of this report. The SEC also maintains a website (www.sec.gov), which contains reports and information statements, and other information filed electronically with the SEC.
As a service provider to financial institutions in the United States, we are subject to certain Federal Trade Commission requirements, certain privacy provisions of the 10 Table of Contents Gramm-Leach-Bliley Act and its implementing regulations, various other federal and state privacy statutes and regulations, certain of the PCI Security Standards Council’s requirements and the Health Insurance Portability and Accountability Act (“HIPAA”), each of which is subject to change at any time.
As a service provider to financial institutions in the United States, we are subject to certain Federal Trade Commission requirements, certain privacy provisions of the Gramm-Leach-Bliley Act and its implementing regulations, various other federal and state privacy statutes and regulations, certain of the PCI Security Standards Council’s requirements and the Health Insurance Portability and Accountability Act (“HIPAA”), each of which is subject to change at any time.
We also focus on a variety of community initiatives to enhance the lives of people in the communities where we operate through volunteerism, charitable giving and economic support. ​ As of December 31, 2023, approximately 1,448 people were employed by CPI, of which nearly half are women and approximately 60% identify as being within a minority category.
We also focus on a variety of community initiatives to enhance the lives of people in the communities where we operate through volunteerism, charitable giving and economic support. ​ As of December 31, 2024, approximately 1,500 people were employed by CPI, of which nearly half are women and approximately 60% identify as being within a minority category.
Human Capital Our leadership team has significant experience in the payments industry, and many of our employees possess career-long expertise and knowledge that is unique to the Financial Payment Card industry. Our compensation programs are designed to attract and retain individuals with the unique skill sets that are fundamental to our business.
Human Capital Our leadership team has significant experience in the payment card industry, and many of our employees possess specialized career-long expertise and knowledge. Our compensation programs are designed to attract and retain individuals with the unique skill sets that are fundamental to our business.
However, certain components are only available from a single supplier, or substituting a component from a different supplier may require additional time and investment. Some of the most important components of our products include the EMV/contactless microchips and antennas.
However, certain components are only available from a single supplier, or substituting a component from a different supplier may require additional time and investment. Some of the most important components of our products include the microchips and antennas for our card products.
We have long-standing, trust-based relationships with customers and have collaborated with our top 10 customers for more than ten years, on average. We strive to put our customers at the center of everything we do. Our customer relationships often involve the handling of sensitive information as well as process and technology integration.
We have long-standing, trust-based relationships with customers and have collaborated with our top 10 customers for more than 10 years, on average. We strive to put our customers at the center of everything we do. Our customer relationships generally involve the handling of sensitive information and require process and/or technology integration.
We also strive to meet customer demand for new or enhanced products by innovating through research and development activities. We believe these efforts drive customer retention and satisfaction and attract new customers. Competition The market for products and services in the payment card industry is highly competitive.
We also strive to develop new or enhanced products by innovating through research and development activities. We believe these efforts drive customer retention and satisfaction and attract new customers. 9 Table of Contents Competition The market for products and services in the payment card industry is highly competitive.
Under the agreement, we agreed to pay certain fees in exchange for the supplier’s commitment to reserve capacity to produce a set quantity of chips from 2023 through 2025, subject to certain conditions, and the Company has committed to purchase those chips. The total value of our commitment is $194.9 million over the term of the agreement.
Under the agreement, we agreed to pay certain fees in exchange for the supplier’s commitment to reserve capacity to produce a set quantity of chips from 2023 through 2026, subject to certain conditions, and we have committed to purchase those chips. The total value of our commitment is approximately $190.0 million over the term of the agreement.
The Company had one customer that accounted for 10% or more of its net sales in 2023. Net sales from this customer were approximately 18% of total net sales for the year ended December 31, 2023. We have been serving this customer for more than 10 years.
CPI had one customer that accounted for 10% or more of its net sales in 2024. Net sales from this customer were approximately 18% of total net sales for the year ended December 31, 2024, and we have been serving this customer for nearly 20 years.
Additionally, o ur Second Wave payment cards feature a core made with ROBP, which we either have sourced or currently source from suppliers in Haiti and Thailand. We monitor supply-chain risks and evaluate alternative suppliers based on numerous attributes including quality, performance, service, scalability, features, innovation, resiliency and price.
The other key components for our products are substrates and inlays. Our Second Wave payment cards feature a core made with ROBP, which we either have sourced or currently source from suppliers in Haiti and Thailand. We monitor supply-chain risks and evaluate alternative suppliers based on numerous attributes including quality, performance, service, scalability, features, innovation, resiliency and price.
We also produce contactless EMV cards which feature a radio-frequency identification (“RFID”) antenna that utilizes near field communications (“NFC”) technology to allow transactions to process on a contactless basis when the card is brought within the requisite proximity to an NFC-enabled payment terminal.
We also produce contactless cards (also known as dual interface cards), which share the functionality of a contact card but also have a radio-frequency identification (“RFID”) antenna that utilizes near field communications (“NFC”) technology to allow transactions to process on a contactless basis when the card is brought within the requisite proximity to an NFC-enabled payment terminal.
We strategize and collaborate with our customers to bring them valuable and innovative solutions. We have sales representatives, customer relationships and partners that provide a wide geographic reach across the United States to sell and market our solutions. Our sales representatives offer a complete end-to-end solution that incorporates the full spectrum of our products and services from concept to delivery.
We have sales representatives, customer relationships and partners that provide a wide geographic reach across the United States to sell and market our solutions. Our sales representatives offer complete end-to-end solutions that incorporate the full spectrum of our products and services from concept to delivery.
We rely on secure ground and secure air freight to deliver finished products to our customers. Due to the high-security nature of the Financial Payment Card products we provide to our customers, certain products must be shipped to these customers via a secure method, such as armored vehicle.
Due to the high-security nature of the payment card products we provide to our customers, certain products must be shipped to these customers via a secure method, such as armored vehicle.
CPI Card Group Inc. qualifies as a smaller reporting company in accordance with Rule 12b-2 under the Exchange Act and has elected to follow certain of the scaled back disclosure accommodations within this Annual Report on Form 10-K.
We qualify as a smaller reporting company in accordance with Rule 12b-2 under the Exchange Act and have elected to follow certain of the scaled back disclosure accommodations within this Annual Report on Form 10-K. 12 Table of Contents
We believe that our comprehensive solutions allow our customers to choose a single trusted partner to address their card program needs in a cost-effective manner instead of managing multiple suppliers across a complex value chain. ● Network of High-Security Facilities.
We believe that our comprehensive solutions allow many of our customers to choose a single, trusted partner to address their card program needs in a cost-effective manner instead of managing multiple suppliers across a complex value chain. ● Payment Card Capabilities, Industry Experience, and Proprietary and Patented Solutions.
We are integral to many of our customers’ card programs, pairing card design and production with an end-to-end offering of card data personalization and card services that are integrated within our customers’ operations.
We are integral to many of our customers’ card programs, pairing design and production with an end-to-end offering of data personalization and services that are integrated within our customers’ operations and in certain cases utilize data links to transfer highly sensitive cardholder information.
Item 1. Busines s As used herein, “CPI,” “we,” “our” and similar terms refer to CPI Card Group Inc. and its subsidiaries, unless the context indicates otherwise. Overview We are a payments technology company and leading provider of comprehensive Financial Payment Card solutions in the United States.
Item 1. Busines s As used herein, “CPI,” “the Company,” “we,” “our” and similar terms refer to CPI Card Group Inc. and its subsidiaries, unless the context indicates otherwise. Overview CPI is a payments technology company providing a comprehensive range of payment cards and related digital solutions.
Print-On-Demand Solution Through our print-on-demand services, we are able to produce images, personalized payment cards and related collateral on a one-by-one, on-demand basis for our customers, enabling individualized offerings and reducing inventory. Our service offering includes online ordering of a customized payment card through a program manager, with 7 Table of Contents direct fulfillment to a consumer.
We are also able to personalize payment cards and related collateral on a one-by-one, on-demand basis for our customers, enabling individualized offerings in an expedited manner. Our service offering includes online ordering of a customized payment card through a program manager, with direct fulfillment to a consumer.
These EMV cards feature an integrated circuit that interfaces with an EMV payment terminal over a contact plate on the surface of the card when inserted into an EMV-enabled payment terminal.
We primarily produce contact and contactless cards that are issued on the networks of the Payment Card Brands. Contact cards feature an integrated circuit that interfaces with a payment terminal over a contact plate on the surface of the card when inserted into an enabled payment terminal.
In 2022, we entered into a capacity reservation agreement with one of our chip suppliers to reserve production supply capacity.
In 2022 in order to fulfill the demands of our customers and to mitigate the impact of supply chain shortages, we entered into a capacity reservation agreement with one of our chip suppliers to reserve production supply capacity.
Our high-security facilities are each audited for compliance with the standards of the PCI Security Standards Council by one or more of the Payment Card Brands, forming a network of compliant production facilities in the United States.
Each of our high-security facilities is audited for compliance with the PCI Security Standards Council by one or more of the Payment Card Brands, forming a network of compliant facilities in the United States. The Payment Card Brands’ attestations of compliance allow us to produce cards bearing these brands and provide relevant card services for our customers.
We believe our print-on-demand solution further differentiates us with our financial institution and Prepaid Debit Card program manager customers and enables us to access business-to-business and business-to-consumer verticals such as healthcare, transit, payroll, corporate incentives, government disbursement, benefits and insurance.
We believe our breadth, quality, and speed of personalization solutions further differentiates us with our financial institution and prepaid program manager customers and enables us to access additional business-to-business and business-to-consumer verticals such as healthcare, gig economy payment, corporate incentives, government disbursement, benefits, insurance, tax refund, transit, payroll and others.
The foundation of our strong market position with our small- to mid-sized issuer customers and fintechs is our comprehensive end-to-end Financial Payment Card solutions. Our solutions provide a full suite of products and card services required to produce, personalize and fulfill Financial Payment Cards, while maintaining the security requirements of the Payment Card Brands.
Our solutions provide a full suite of products and services required to produce, personalize and fulfill payment cards, while maintaining the security requirements of the Payment Card Brands.
Our Code of Business Conduct and Ethics sets the standards for appropriate behavior, and employees are required to follow these standards and participate in related training. We encourage employees to bring forward issues and concerns. In addition, we periodically analyze our employment procedures and pay practices to help ensure individuals are provided with equal employment opportunities and equitable pay.
We encourage employees to bring forward issues and concerns. In addition, we periodically analyze our employment procedures and pay practices to help ensure individuals are provided with equal employment opportunities and equitable pay.
We believe we are in competition with ABCorp, Arroweye, CompoSecure L.L.C., Entrust, FIS, Fiserv, Giesecke & Devrient GmbH, HID Global, IDEMIA (formerly known as Oberthur Technologies S.A.), Perfect Plastic Printing, Thales (formerly known as Gemalto NV), Travel Tags, and WestRock (Multi Packaging Solutions), among others.
We believe we are in competition with other card producers, card personalization service providers, card packaging providers, and others that provide technology and digital solutions related to payment cards, such as ABCorp, Arroweye, CompoSecure L.L.C., Entrust, FIS, Fiserv, Giesecke & Devrient GmbH, HID Global, IDEMIA, Perfect Plastic Printing, Thales, Travel Tags, and WestRock (Multi Packaging Solutions), among others.
None of our employees are represented by labor unions. We believe that our relations with our employees are positive. ​ Available Information CPI Card Group Inc. is a Delaware corporation. We were initially formed as CPI Holdings I, Inc. in June 2007 and changed our name to CPI Card Group Inc. in August 2015.
We believe that our relations with our employees are positive. ​ Available Information We are a Delaware corporation and were initially formed as CPI Holdings I, Inc. in June 2007 and changed our name to CPI Card Group Inc. in August 2015. Our principal executive offices are located at 10368 West Centennial Road, Littleton, CO 80127, telephone (720) 681-6304.
We define “Financial Payment Cards” as credit, debit and Prepaid Debit Cards (as defined below) issued on the networks of the “Payment Card Brands” (Visa, Mastercard ® , American Express ® and Discover ® ). We define “Prepaid Debit Cards” as debit cards issued on the networks of the Payment Card Brands, but not linked to a traditional bank account.
We are also a market leader in the production of “Prepaid Debit Cards,” which we define as debit cards issued on the networks of the “Payment Card Brands” (Visa, Mastercard ® , American Express ® and Discover ® ) but not linked to a traditional bank account, and related secure packaging solutions.
We believe we are well-positioned for success given our diversified business model, history of innovation and ability to evolve with the needs and expectations of our customers. By helping our customers elevate their customers’ experience, we foster compelling connections between people and technology through traditional and next generation solutions that build brands and enhance people’s everyday lives.
By helping our customers elevate their customers’ experience, we foster compelling connections between people and technology through traditional and next-generation solutions that build brands and enhance people’s everyday lives.
Over the course of our long operating history, we have developed technological, engineering and operational expertise that we believe has made us a leader in our industry. Europay, Mastercard and Visa (“EMV ® ”) is a global technical standard, maintained by EMVCo LLC for smart payment cards, and for payment terminals and automated teller machines that accept them.
Over the course of our long operating history, we have developed technological, engineering and operational expertise that we believe has made us a leader in our industry, including expertise with respect to complying with global technical standards for smart payment cards.
In addition, through our direct and indirect customer relationships, a majority of our annual net sales in our Debit and Credit segment are derived from small- to mid-sized issuers and fintechs. Individually, many of these customers, including independent community banks and credit unions, represent minor amounts of our annual net sales.
The majority of these sales are from Resellers, who provide our products and services to thousands of indirect customers. Through our direct and indirect customer relationships, a majority of our annual net sales in our Debit and Credit segment are derived from small to mid-sized financial institutions and fintechs.
Under the PCI Security Standards Council’s requirements, we must meet certain security standards in order to achieve compliance that allows us to produce and personalize Financial Payment Cards issued on their networks. These standards include extensive requirements with respect to the physical characteristics of our facilities, as well as our electronic treatment and storage of cardholder data.
Under the PCI Security Standards Council’s requirements, we must meet certain security standards in order to achieve compliance that allows us to produce and personalize debit and credit cards issued on the Payment Cards Brands’ networks.
In order to comply with our obligations under applicable laws, we are required, among other things, to comply with reporting requirements, to implement operating policies and procedures to comply with Office of Foreign Assets Control requirements, to protect the privacy and security of our customers’ information and to undergo periodic audits and examinations. In 2010, the Dodd-Frank Act was enacted.
In order to comply with our obligations under applicable laws, we are required, among other things, to comply with reporting requirements, to implement operating policies and procedures to comply with Office of Foreign Assets Control requirements, to protect the privacy and security of our customers’ information and to undergo periodic audits and examinations. 11 Table of Contents The Dodd-Frank Wall Street Reform and Protection Act (the “Dodd-Frank Act”) set forth substantial reforms to the supervision and operation of the financial services industry, including the establishment of the Consumer Financial Protection Bureau (“CFPB”), which has broad supervisory, enforcement and rulemaking authority over consumer financial products and services.
Nearly two-thirds of our net sales for the year ended December 31, 2023 were from our top ten direct customers, which include certain Group Service Providers, and we have been serving these top ten direct customers for an average of more than 10 years.
Although our direct relationship is with this customer, this customer resells our services to a large number of indirect customers. Nearly two-thirds of our net sales for the year ended December 31, 2024 were from our top 10 customers, whom we have been serving for an average of more than 10 years.
Our U.S. and foreign patents and applications have an average remaining maturity of approximately 12 years, and our trademarks will be due for renewal for additional ten-year periods on an ongoing basis.
Our U.S. and foreign patents and applications have an average remaining maturity of approximately 12 years, and our trademarks will be due for renewal for additional ten-year periods on an ongoing basis. 10 Table of Contents Regulation Privacy and Data Security In the course of our business, we receive personally identifiable information of cardholders from our customers, either from a financial institution or through a Reseller.
Our personalization services are technology-driven with full color printing and edge-to-edge coverage, and provide a wide range of card customization options, using advanced processes to personalize (encode, program and emboss or print with data such as cardholder name and account number) and fulfill cards to individual cardholders.
Our technology-driven personalization services provide a wide range of customization options using advanced processes to encode, program, and emboss or print data, such as the cardholder’s name and account number. In addition, we provide data preparation services related to the embedded chips within payment cards. In certain cases, we prepare customized mailers to deliver cards to individual cardholders.
Our Competitive Strengths ● Strong Market Position with Long-Term Customer Relationships. Our vision is to be the partner of choice for our customers by providing market-leading quality payments solutions and customer service with a market-competitive business model. We believe these efforts have resulted in CPI gaining estimated overall market share since 2017.
Our vision is to be our customers’ partner of choice by providing market-leading, high-quality payment solutions and customer service and delivering continuous innovation. We believe these efforts have resulted in CPI gaining estimated overall U.S. market share over the last several years.
In most cases, our contractual arrangements include neither exclusivity clauses nor commitments from our customers to order any given quantities of products on a medium or long-term basis. Production and Services We have a network of high-security facilities that we leverage to fulfill customer orders, with an array of products and services available to our customers.
We then enter into a purchase order or other short-term arrangement that defines the quantities of products to be delivered or services rendered and other terms specific to the order, as appropriate. In most cases, our contractual arrangements include neither exclusivity clauses nor commitments from our customers to order any given quantities of products on a medium or long-term basis.
Health and safety of our employees has remained paramount and the Company has adapted its health and safety procedures and protocols as necessary to foster a safe working environment. We maintain a combination of on-site and remote employees in our workforce. ​ We are committed to a diverse and inclusive workplace, in which we promote honest, ethical and respectful conduct.
The health and safety of our employees has remained paramount, and we have adapted our health and safety procedures and protocols as necessary to foster a safe working environment.
Our main suppliers of EMV/contactless microchips and antennas include four leading international producers with locations in Germany, Thailand, South Korea and Singapore, some of which source materials from Taiwan.
Our main suppliers of microchips and antennas include three leading international producers with locations in Germany, Thailand, and Singapore, some of which source materials from Taiwan. For the year ended December 31, 2024, approximately 95% of our purchased microchips and antennas came from these three main suppliers, and approximately 78% came from one supplier, including most of our contactless chips.
Our key areas of focus in this area include: incorporating environmental sustainability practices as and where feasible in alignment with our business model, values and customer needs; engaging employees; and communicating and promoting our commitment and contribution to more sustainable practices and products. 9 Table of Contents Sales and Marketing We market ourselves as a leader and trusted partner in payments, seeking to meet or exceed the needs of our customers through high quality, flexibility, and meaningful, innovative products at value-driven pricing.
Sales and Marketing We market ourselves as a leader and trusted partner in payments, seeking to meet or exceed the needs of our customers through high quality, flexibility, and meaningful, innovative products at value-driven pricing. We strategize and collaborate with our customers to bring them valuable and innovative solutions.
We believe we have established a leading market position in the prepaid debit market, built on high quality services, innovation and reliable delivery to our customers.
We have also established a leading market position in the U.S. prepaid debit market, built on high-quality services, innovative tamper-evident secure packaging solutions aimed at reducing fraud and driving shelf appeal, and reliable delivery to our customers. ● Long-Term Customer Relationships .
Tamper-Evident Secure Packaging Solutions We offer specialized and innovative tamper-evident secure packaging products and services to customers aimed at reducing fraud for Prepaid Debit Cards sold through the retail channel. In certain cases, we also manage the fulfillment of fully-completed Prepaid Debit Card packages to retail locations on behalf of our customers utilizing this solution.
In certain cases, we also manage the fulfillment of fully completed Prepaid Debit Card packages to retail locations on behalf of our customers.
Intellectual Property We own, control or license various intellectual property rights, such as patents, trade secrets, confidential information, trademarks, service marks, tradenames, copyrights and applications. We are party to certain patent cross-license arrangements with industry participants and may, from time to time, enter into similar commercial agreements should we consider it necessary or beneficial for our business.
We are party to certain patent cross-license arrangements with industry participants and may, from time to time, enter into similar commercial agreements we consider necessary or beneficial for our business. We rely on a combination of statutory (copyright, trademark and trade secret) and contractual safeguards to protect our intellectual property throughout the world.
We provide card data personalization services for financial institutions and managers of Prepaid Debit Card programs that require technology integration, such as secure data links to transfer highly sensitive cardholder information.
We are integral to many of our customers’ card programs, pairing design and production with an end-to-end offering of data personalization and services that are integrated within our customers’ operations and require process and/or technology integration, such as secure data links to transfer highly sensitive cardholder information.
Suppliers While we have developed constructive relationships with our suppliers and, in general, receive a high level of cooperation and support from them, one objective of our procurement strategy is to not depend on any single supplier.
Accordingly, we compete with certain of our customers, including those that offer transaction processing products and services to financial institutions. Suppliers Our general procurement philosophy is to prevent or avoid being dependent on a single-source supplier. We believe we have developed constructive relationships with our suppliers and, in general, receive a high level of cooperation and support from them.
Our eco-focused solutions include our Second Wave cards that feature a core made with ROBP and our Earthwise cards made with upcycled plastic. Dependent upon design and card construction, eco-focused cards incorporate varying types and amounts of upcycled plastic content, including ROBP and recycled PVC.
Dependent upon design and card construction, our Second Wave ® and Earthwise ® eco-focused cards incorporate various types and amounts of upcycled material, including recycled ocean-bound plastic (“ROBP”) and recycled PVC. Cards in our eco-focused portfolio have been approved by two of the major Payment Card Brands.
Our vision is to be our customers’ partner of choice by providing market-leading quality payments solutions, customer service and continuous innovation with a market-competitive business model. We also aim to expand our addressable market over the long-term by adding adjacent product and service offerings, including more digital solutions, for our extensive customer base of thousands of financial institutions.
We aim to expand our addressable market over the long term through diversification by adding adjacent product and service offerings, including additional digital solutions, for our extensive customer base, and by leveraging our existing solutions for new 4 Table of Contents customer verticals.
We consider large issuers to be the top 10 card issuers in the United States based on an average of cards issued during the past three years. Our diverse customer base includes some of the largest issuers of credit and debit cards in the United States and the largest Prepaid Debit Card program managers in the United States.
Solutions for customer segments in our traditional markets include: ● Large card issuers (defined as the top 10 card issuers in the United States based on an average of cards issued during the past three years): secure debit and credit cards; ● Small to mid-sized financial institutions: secure debit and credit cards, card personalization services, instant card issuance, and other payment solutions including digital solutions.
CPI’s Second Wave ® payment cards featuring a core made with recovered ocean-bound plastic (“ROBP”) and Earthwise ® cards made with upcycled plastic address customer demands for more eco-focused card options. We also sell CPI Metals ® , a premium encased metal card. Our offerings also include Card@Once, our proprietary and patented instant card issuance system and SaaS solution.
We continuously work to enhance our offerings and to create and deliver next-generation products and solutions that meet the demands of the marketplace and our customers. Our eco-focused cards, including Second Wave cards featuring a core made with recovered ocean-bound plastic and Earthwise cards made with upcycled plastic, address customer demands for more eco-focused card options.
As of December 31, 2023, we operated facilities comprising approximately 402,000 square feet in the United States where we focus on Financial Payment Card production, personalization services, card printer provisioning and fulfillment, card packaging and fulfillment services. See Part I, Item 2, Properties in this Annual Report on Form 10-K for information on the operations of each facility.
As of December 31, 2024, we operated facilities comprising approximately 400,000 square feet in the United States, with the majority of the space dedicated to payment card production, personalization services, card packaging and fulfillment services.
Competitive factors for our business include product quality, durability, security, service reliability, product line comprehensiveness and integration, timely introduction of new products, features and capabilities, and price. Our products and services compete with other card solutions providers. Certain existing and potential customers also have the ability to produce and/or personalize Financial Payment Cards in-house.
Competitive factors for our business include product quality, customer service, innovation, product line comprehensiveness and integration, timely introduction of new products, features and capabilities, and price.
Prepaid Debit Card program managers; ● the U.S. small-to mid-sized financial institutions market, which includes independent community banks and credit unions; ● the U.S. large issuer market, serving some of the largest U.S. debit and credit card issuers; and ● the U.S. fintech market, where we produce and personalize Financial Payment Cards for financial technology companies.
We primarily sell in the U.S. market and our diverse customer base includes some of the largest issuers of secure credit and debit cards, the largest prepaid program managers, major financial institution platform providers and card processor organizations, leading fintechs, thousands of small to mid-sized financial institutions, and others.
We define “Group Service Providers” as reseller or card processor organizations that assist small card issuers, such as credit unions, with managing their credit and debit card programs, including managing the Financial Payment Card issuance process, core banking operations and other financial services.
We define “Resellers” as financial institution platform providers and card processor organizations that assist financial institutions with their core banking operations, including management of their credit and debit card programs; ● Fintechs: secure debit and credit cards and card personalization services; ● Prepaid program managers: Prepaid Debit Cards, secure packaging solutions and other integrated prepaid card services.
We have designed our facilities and operating processes to target providing exceptional service to all customers, with capabilities to: ● execute high - volume production runs; ● execute lower - volume production runs of smaller orders; ● execute on-demand solutions; and ● meet the specific needs of our Prepaid Debit Card customers, as an industry leader in tamper-evident secure card packaging, through our expertise and capabilities specifically designed for the prepaid retail market.
Production We have a network of high-security facilities that we leverage to fulfill customer orders, with an array of products and services available to our customers. We have attempted to design our facilities and operating processes to provide exceptional service to all customers, with capabilities to execute high-volume and lower-volume production runs and on-demand solutions.
We rely on a combination of statutory (copyright, trademark and trade secret) and contractual safeguards to protect our intellectual property throughout the world. As of December 31, 2023, we had 70 U.S. and foreign trademark registrations and applications, 42 existing U.S. patents, 51 existing foreign patents, as well as 45 pending U.S. and foreign patent applications.
As of December 31, 2024, we had 66 U.S. and foreign trademark registrations and applications, 63 existing U.S. patents, 50 existing foreign patents, as well as 34 pending U.S. and foreign patent applications.
Non-EMV Financial Payment Cards We produce non-EMV cards that utilize magnetic stripes, contactless cards that utilize NFC technology, and cards that include both magnetic stripes and NFC technology. In addition, we produce non-EMV cards that are issued on the networks of the Payment Card Brands, including Prepaid Debit Cards.
We also produce non-chip cards that only utilize magnetic stripes, contactless payment and non-payment cards that utilize NFC technology, and cards that include both magnetic stripes and NFC technology. Card Data Personalization and Fulfillment We facilitate the issuance and distribution of payment cards to consumers for the majority of our U.S. customers.
As a result, our customers are selective about working with partners they can trust and that can deliver the highest quality products and customer service. We maintain important relationships with the Payment Card Brands to ensure our facilities and processes meet their standards.
As a result, our customers often view CPI as a partner they can trust and that can deliver the highest quality products and customer service. ● Comprehensive End-to-End Card Solutions. The foundation of our strong market position with our small to mid-sized financial institution and fintech customers is our comprehensive end-to-end payment card solutions.
Dual-interface EMV cards also have contact EMV technology, and we generally refer to all cards we produce with an RFID antenna as ‘contactless’ cards. Eco-Focused Cards We believe we are a leading provider of eco-focused card solutions in the U.S., having sold more than 100 million eco-focused contactless payment cards since launch in 2019.
Contactless cards have increased as a percentage of sales versus contact cards for both CPI and the wider U.S. industry. We believe we are a leading provider of eco-focused card solutions in the U.S. payments market.
Cards in the eco-focused portfolio have been approved by two of the major Payment Card Brands. These solutions aim to satisfy increasing consumer demand for more eco-focused products and help support our and our customers’ environmental, social and governance (“ESG”) objectives.
These solutions aim to satisfy increasing U.S. cardholder demand for more environmentally friendly products and help support our and our customers’ environmental objectives. We also have a variety of metal card offerings that we produce as contact or contactless depending on the needs of our customers.
The Payment Card Brands attestations of compliance allow us to produce cards bearing these brands and provide relevant card services for our issuer customers.
Our solutions provide a full suite of products and services required to produce, personalize and fulfill payment cards, while maintaining the security requirements of the Payment Card Brands.
Regulation Privacy and Data Security In the course of our business, we receive personally identifiable information of cardholders from our customers, either from a financial institution or through a Group Service Provider. Such information can include names, email and physical addresses, card account numbers and expiration dates.
Such information can include names, email and physical addresses, card account numbers and expiration dates.
Removed
We also offer an instant card issuance solution, which provides customers the ability to issue a personalized debit or credit card within the bank branch to individual cardholders. We have established a leading position in the Financial Payment Card solutions market through more than 20 years of experience.
Added
We are a leader in several areas of the U.S. payment card solutions market, including debit and credit card production, personalization, and Software-as-a-Service-based (“SaaS-based”) instant issuance services.
Removed
We serve a diverse set of several thousand customers which includes direct customers and indirect customer relationships, whereby CPI provides Financial Payment Card solutions to a customer through a Group Service Provider (as defined below).
Added
We serve thousands of customers through direct and indirect sales channels and have maintained long-standing relationships with our top customers. The foundation of our strong market position is our focus on customer service, quality and innovation and our comprehensive offering of payment card solutions.
Removed
Our customers include some of the largest issuers of debit and credit cards in the United States, the largest Prepaid Debit Card program managers in the United States, numerous financial technology companies (“fintechs”), as well as independent community banks, credit unions and Group Service Providers.
Added
These services are important to many of our customers not just for the payment cards themselves but as an essential element in utilizing them as part of their overall branding and marketing initiatives.
Removed
We serve our customers through a network of high-security production and card services facilities in the United States, each of which is audited for compliance with the standards of the Payment Card Industry Security Standards Council (the “PCI Security Standards Council”) by one or more of the Payment Card Brands.
Added
The U.S. payment card solutions market in which we operate has experienced growth in cards-in-circulation over a long-term period, driven by new account openings by legacy issuers and new entrants to the payment card market, such as financial technology companies (“fintechs”) and others.
Removed
Many of our customers require us to comply with PCI Security Standards Council requirements that relate to the provision of our products and services. Our network of high-security production facilities allows us to optimize our solutions offerings and to serve the needs of our diverse customer base.
Added
The U.S. payment card solutions market is characterized by users (primarily U.S. consumers) maintaining multiple payment cards and by historically stable and recurring revenue driven by the continuous reissuance of debit and credit cards due to card expiration, re-branding, and card replacement activity, and by U.S. consumers switching from one financial institution to another.
Removed
Driven by a combination of our strong relationships, quality, technology, innovation, and supply-chain management, we believe we have strong positions in the following markets: ● the U.S. prepaid debit market, including the largest U.S.
Added
Our revenues are primarily generated from the production of and services related to secure debit and credit cards that are issued on the networks of the Payment Card Brands, including Prepaid Debit Cards.
Removed
Our Card@Once ® instant issuance solution provides the necessary on-site equipment and supplies, proprietary software-as-a-service (SaaS) capability, customer support and secure data exchange to provide personalized cards on-site and on-demand at bank and credit union branches across the United States.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisk Factors Summary Risks Relating to our Business ● A deterioration in general economic conditions, including inflation-related challenges, resulting in reduced consumer confidence and consumer and business spending and decreased demand for our products. ● The unpredictability of our operating results due to the varying cyclicality of the financial card and electronic payment industries, changes in customer inventory management practices, capital requirements, competition, new product developments, technological changes and other factors. ● Disruptions, delays and increased costs and inflationary pressures in our supply chain, including with respect to single-source suppliers, or the failure or inability of our suppliers to comply with our codes of conduct or contractual requirements. ● Failure to retain existing key customers and attract new customers due to competitive products, pricing pressures, extended production lead times, financial health of our customers and macroeconomic conditions affecting our industry or our customers. ● Failure to recruit, retain and develop qualified new and replacement personnel and implement effective succession processes amidst labor shortages and competitive labor markets. ● Adverse conditions in the banking system and financial markets, including bank and financial institution failures. ● A cyber-attack or breach of our information technology systems resulting in losses of our intellectual property and/or sensitive cardholder data, harm to our competitive position and a loss of customer trust and confidence, and, as threats evolve, the necessity to invest in significant additional resources to enhance our information security and controls. ● Any interruption of our information technology systems, including disruptions or failures of our third-party data centers, inhibiting our ability to service our customers. ● Our inability to undertake time-consuming and costly research and development activities in order to develop new or enhanced products and services. ● Our substantial indebtedness and the covenants and restrictions in the agreements governing our indebtedness limiting our ability to use our cash flow in certain areas of our business, capitalize on certain business opportunities and pursue our business strategies, all of which could be further impacted if we incur additional debt. ● An inability to refinance our existing debt on favorable terms or at all. ● Costs associated with being an accelerated filer and compliance with the Sarbanes-Oxley Act of 2002. ● A disruption at any of our production facilities and our inability to recover quickly or otherwise provide continuity of production in order to meet customer requirements. ● Problems in our production processes, including as a result of mechanical or technological failures, which could lead to reduced production capacity and quality. ● Defects in our products that may give rise to products recalls, product liability and warranty claims as well as damage to our reputation. ● The impact of the increasing focus on ESG factors on our ability to access capital, produce our products in conformity with stakeholder preferences, and comply with stakeholder demands as well as comply with any new ESG related regulatory requirements. ● Damage to our reputation or brand image resulting from negative perceptions of our business or those entities or individuals with whom we do business. ● The effects of climate change on our business. 13 Table of Contents ● Our inability to protect our trade secrets, intellectual property and proprietary software; to obtain additional intellectual property rights in the future; and to ensure our products are not infringing the intellectual property rights of others. ● Defects in our software and computing systems, resulting in errors or delays in the processing of transactions and other interruptions in our business operations. ● The effects of the low trading volume and fluctuating trading price of our common stock as well as terms of our outstanding indebtedness and market conditions on our ability to access capital markets. ● Our exposure to additional tax collection efforts by states, unclaimed property laws, or future increases in U.S. federal or state income taxes, resulting in additional expenses which we may be unable to pass along to our customers. ● Our inability to divest or consolidate certain non-strategic businesses, and our inability to execute successfully on an acquisition strategy. ● A write-down of our long-lived assets, which represent a significant portion of our total assets. ● Our inability to renew licenses with key technology licensors, resulting in our loss of access to certain technologies upon which we rely to develop certain of our products. ​ Risks Relating to our Industry ● The highly competitive, saturated and consolidated nature of our marketplace. ● Challenges, costs and potential liabilities associated with compliance or failure to comply with existing or future data privacy and security laws, regulations and requirements. ● The widespread adoption of technological changes, new products or industry standards, such as digital payment systems or mobile payments, which may render our products obsolete or irrelevant, and our failure to develop and introduce innovative products to address the evolving needs of our customers. ● Our failure to comply with the standards of the PCI Security Standards Council, including due to an inability to continue to make investments in our facilities necessary to maintain compliance with such standards. ● The effects of delays or interruptions in our ability to source raw materials and components used in our products from foreign countries due to economic downturns or disruptions, including as a result of responses to global health emergencies and tariffs and trade restrictions. ● The effects of ongoing foreign conflicts on the global economy. ● Our failure to comply with environmental, health and safety laws and regulations, including climate change regulations, that apply to our products and the raw materials we use in our production processes.
Biggest changeRisk Factors Summary Risks Relating to our Business and Industry ● A deterioration in general economic conditions, including due to inflation-related challenges, resulting in reduced consumer confidence and consumer and business spending and decreased demand for our products. ● The unpredictability of our operating results due to the varying cyclicality of the financial card and electronic payment industries, changes in customer inventory management practices, capital requirements, competition, new product developments, technological changes and other factors. ● Failure to retain existing key customers and attract new customers due to competitive products, pricing pressures, extended production lead times, financial health of our customers and macroeconomic conditions affecting our industry or our customers. ● The highly competitive, saturated and consolidated nature of our marketplace. ● Our inability to develop new or enhanced products and services, including due to our inability to undertake time-consuming and costly research and development activities. ● The widespread adoption of technological changes, new products or industry standards, such as digital payment systems or mobile payments, which may render our products obsolete or irrelevant, and our failure to develop, introduce and commercialize innovative products to address the evolving needs of our customers in a timely manner or at all. ● A cyber-attack or breach of our information technology systems resulting in losses of our intellectual property and/or sensitive cardholder data, harm to our competitive position and a loss of customer trust and confidence, and, as threats evolve, the necessity to invest in significant additional resources to enhance our information security and controls. ● The usage, or lack thereof, of artificial intelligence technologies. ● Disruptions, delays or other failures in our supply chain, including due to increased costs and inflationary pressures in our supply chain, single-source suppliers, or the failure or inability of our suppliers to comply with our codes of conduct or contractual requirements , trade restrictions, tariffs, foreign conflicts or political unrest in countries in which our suppliers operate, and our inability to pass related costs on to our customers or difficulty meeting customers’ delivery expectations due to extended lead times . ● Any interruption of our information technology systems, including disruptions or failures of our third-party data centers, inhibiting our ability to serve our customers. ● Defects in our software and computing systems, resulting in errors or delays in the processing of transactions and other interruptions in our business operations. ● A disruption at any of our production facilities due to weather conditions, climate change, political instability, or social unrest and our inability to recover quickly or otherwise provide continuity of production to meet customer requirements. ● Problems in our production processes, including as a result of mechanical or technological failures, which could lead to reduced production capacity and quality. ● Defects in our products that may give rise to products recalls, product liability and warranty claims as well as damage to our reputation. ● Failure to recruit, retain and develop qualified new and replacement personnel and implement effective succession processes amidst labor shortages and competitive labor markets. ● Our substantial indebtedness and the covenants and restrictions in the agreements governing our indebtedness limiting our ability to use our cash flow in certain areas of our business, capitalize on certain business opportunities and pursue our business strategies, all of which could be further impacted if we incur additional debt and could impact our ability to make debt service payments. 13 Table of Contents ● Our inability to make debt service payments and an inability to refinance our existing debt on favorable terms or at all. ● Our inability to execute successfully on an acquisition strategy or strategic relationships. ● Our inability to divest or consolidate certain non-strategic businesses. ● Our potential failure to comply with the Sarbanes-Oxley Act of 2002, including maintaining effective control over financial reporting and risks relating to investor confidence in our financial reports. ● The impact of the increasing focus on ESG factors on our ability to access capital, produce our products in conformity with stakeholder preferences, and comply with stakeholder demands as well as comply with any new ESG-related legal or regulatory requirements or restrictions, and negative perceptions of our products due to the impact of our products and production processes on the environment and other ESG-related risks. ● Damage to our reputation or brand image resulting from negative perceptions of our business or those entities or individuals with whom we do business. ● The effects of climate change on our business. ● Our inability to protect our trade secrets, intellectual property and proprietary software; to obtain additional intellectual property rights in the future; and to ensure our products are not infringing the intellectual property rights of others. ● Our inability to renew licenses with key technology licensors, resulting in our loss of access to certain technologies upon which we rely to develop certain of our products. ● Our inability to successfully access capital markets due to the effects of the low trading volume and fluctuating trading price of our common stock as well as terms of our outstanding indebtedness and unfavorable market conditions, which may lead to delays in innovation or the abandonment of our strategic initiatives. ● Our exposure to additional tax collection efforts by states, unclaimed property laws, or future increases in U.S. federal or state income taxes, resulting in additional expenses which we may be unable to pass along to our customers. ● Our inability to realize the full value of our long-lived assets, which represent a significant portion of our total assets. ● Challenges, costs and potential liabilities associated with compliance or failure to comply with existing or future data privacy and security laws, regulations and other requirements, including customer contractual requirements. ● Our failure to comply with the standards of the PCI Security Standards Council and other industry standards, including due to an inability to continue to make investments in our facilities necessary to maintain compliance with such standards. ● The effects of delays or interruptions in our ability to source raw materials and components used in our products from foreign countries due to economic downturns or disruptions, including as a result of responses to global health emergencies and tariffs and trade restrictions. ● The effects of ongoing foreign conflicts on the global economy. ● Adverse conditions in the banking system and financial markets, including bank and financial institution failures. ● Our failure to comply with environmental, health and safety laws and regulations, including climate change regulations, that apply to our products and the raw materials we use in our production processes.
A sustained deterioration in general economic conditions, particularly in the United States, or increases in interest rates may adversely affect our financial performance by reducing the demand for our Financial Payment Card solutions or reducing the purchase of our higher margin products.
A sustained deterioration in general economic conditions, particularly in the United States, or increases in interest rates may adversely affect our financial performance by reducing the demand for our payment card solutions or reducing the purchase of our higher margin products.
If one or more of our key customer relationships ends, it could have a material adverse effect on our business and financial results. Our ability to provide products and services to these customers and our other customers and meet very high-quality standards in a timely manner is critical to our business success.
If one or more of our key customer relationships ends, it could have a material adverse effect on our business and financial results. Our ability to provide products and services to these and other customers and meet very high-quality standards in a timely manner is critical to our success.
If we have difficulty producing innovative products, there could be a material adverse effect on our revenue, results of operations, reputation and business. New or enhanced product and service offerings may also expose us to additional risks, such as new sources of supplies, increased regulation or reputational harm.
New or enhanced product and service offerings may also expose us to additional risks, such as new sources of supplies, increased regulation or reputational harm. If we have difficulty producing innovative products, there could be a material adverse effect on our revenue, results of operations, reputation and business.
Our substantial indebtedness and interest expense could have important consequences to us, including: ● limiting our ability to use a substantial portion of our cash flow from operations in other areas of our business, including for working capital, research and development, expanding our infrastructure, capital expenditures and other general business activities and investment opportunities in our company, because we must dedicate a substantial portion of these funds to pay interest, make principal payments and/or otherwise service our debt; ● impacting our cash flows, results of operations and financial condition when interest rates rise, because the interest rate on our revolving credit facility is a floating rate that varies depending on market interest rates and issuance or refinancing of other debt in the future may be incurred at higher interest rates than current debt; ● limiting our ability to retain or attract customers and our ability to attract or retain qualified employees due to our significant amount of debt and the related implications of such debt for the Company’s long-term financial condition; ● limiting our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions and the execution of our strategy, and other expenses or investments planned by us; ● limiting our flexibility and our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in government regulation, our business and our industry; ● limiting our ability to timely make our debt service payments or to satisfy our other obligations under our indebtedness (which could result in an event of default and acceleration if we fail to comply with the requirements of our indebtedness); ● limiting our ability, or increasing the costs, to refinance indebtedness prior to maturity dates; ● increasing our vulnerability to a downturn in our business and to adverse economic and industry conditions generally; and ● placing us at a competitive disadvantage as compared to our competitors that are less leveraged.
Our substantial indebtedness and interest expense could have important consequences to us, including: ● limiting our ability to use significant cash flow from operations in other areas of our business, including for working capital, research and development, expanding our infrastructure, capital expenditures and other general business activities and investment opportunities in our company, because we must dedicate a substantial portion of these funds to pay interest, make principal payments and/or otherwise service our debt; ● impacting our cash flows, results of operations and financial condition when interest rates rise, because the interest rate on our revolving credit facility is a floating rate that varies depending on market interest rates and issuance or refinancing of other debt in the future may be incurred at higher interest rates than current debt; ● limiting our ability to retain or attract customers and our ability to attract or retain qualified employees due to our significant amount of debt and the related implications of such debt for the Company’s long-term financial condition; ● limiting our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions and the execution of our strategy, and other expenses or investments planned by us; ● limiting our flexibility and our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in government regulation, our business and our industry; ● limiting our ability to timely make our debt service payments or to satisfy our other obligations under our indebtedness (which could result in an event of default and acceleration if we fail to comply with the requirements of our indebtedness); ● limiting our ability, or increasing the costs, to refinance indebtedness prior to maturity dates; ● increasing our vulnerability to a downturn in our business and to adverse economic and industry conditions generally; and ● placing us at a competitive disadvantage as compared to our competitors that are less leveraged.
Alternatively, any renewal or refinancing may occur on less favorable terms for both the long-term debt and the credit facility.
Alternatively, any renewal or refinancing may occur on less favorable terms for both the long-term debt and credit facility.
In the event of a disruption in production at one of our facilities, our other facilities may not have sufficient capacity, may not have the specialized equipment necessary, may have higher production costs, may take significant time to increase production or may fail to meet our customers’ requirements, any of which could negatively impact our business, results of operations and financial condition.
In the event of a disruption at one of our facilities, our other facilities may not have sufficient capacity or necessary specialized equipment, may have higher production costs, may take significant time to increase production or may fail to meet our customers’ requirements, any of which could negatively impact our business, results of operations and financial condition.
Parallel49 Equity and entities controlled by it may in the future hold equity interests in entities that directly or indirectly compete with us, and companies in which it currently invests may begin directly or indirectly competing with us.
Parallel49 and entities controlled by it may in the future hold equity interests in entities that directly or indirectly compete with us, and companies in which it currently invests may begin directly or indirectly competing with us.
Changes in the financial or business condition of our suppliers, political instability, social or civil unrest, war or adverse market conditions in a supplier’s country, including any new global health emergency, demand from other customers of such suppliers or failure to comply with our codes of conduct or other contractual requirements, could render our suppliers unable to provide us with, or render us unable or unwilling to accept, the components we need to produce our products and thus subject us to losses or adversely affect our ability to bring products to market.
Changes in the financial or business condition of our suppliers, political instability, social or civil unrest, war or adverse market conditions in a supplier’s country, including any new global health emergency, demand from other customers of such suppliers or failure to comply with our codes of conduct or other contractual requirements, could render our suppliers unable to provide us with, or render us unable or unwilling to accept, the components we need and thus subject us to losses or adversely affect our ability to bring products to market.
If, as a result of noncompliance with standards of the PCI Security Standards Council or other standards of the Payment Card Brands, we are not able to produce cards for or provide services to any or all of the issuers issuing debit or credit cards on such networks, we could lose a substantial number of our customers, which could have a material adverse effect on our business, financial condition and results of operations.
If, as a result of noncompliance with standards of the PCI Security Standards Council or the Payment Card Brands, we are not able to produce cards for or provide services to any or all of the issuers issuing debit or credit cards on such networks, we could lose a substantial number of our customers, which could have a material adverse effect on our business, financial condition and results of operations.
Any of the foregoing events could result in lower demand for our products, which in turn could have a material adverse effect on our business, financial condition and results of operations. ​ Critical vendors, third-party manufacturers or other third parties on which we rely could also be adversely affected by the liquidity and other risks related to bank failures, which in turn could result in material adverse impacts on our business, financial condition and results of operations.
Any of the foregoing events could result in lower demand for our products, which in turn could have a material adverse effect on our business, financial condition and results of operations. ​ Critical vendors, third-party manufacturers or other third parties on which we rely could also be adversely affected by the liquidity and other risks related to bank failures.
In operating a Financial Payment Card business, we manage large amounts of personally identifiable information of cardholders, including cardholder names, account numbers, healthcare provider names and health savings account numbers, and similar information and are thus subject to laws and requirements relating to data privacy and security, which continue to evolve and may become increasingly difficult to comply with.
In operating a payment card business, we manage large amounts of personally identifiable information of cardholders, including cardholder names, account numbers, healthcare provider names and health savings account numbers, and similar information and are thus subject to laws and requirements relating to data privacy and security, which continue to evolve and may become increasingly difficult to comply with.
However, such increases may result in customer pushback or attrition and be difficult or impossible in future periods, all of which may have an adverse effect on our financial condition and results of operations. Our operating results are unpredictable and may vary significantly from quarter to quarter and annually, and may differ significantly from our expectations.
However, such increases or maintaining such increases may result in customer pushback or attrition and be difficult or impossible in future periods, all of which may have an adverse effect on our financial condition and results of operations. Our operating results are unpredictable and may vary significantly from quarter to quarter and annually, and may differ significantly from our expectations.
If a company in our supply chain engages in illegal, unethical or other questionable conduct, we may not have visibility into these practices, we may in certain circumstances be deemed to have concurrent responsibility with our supplier for such conduct, and we, and our customers, may face legal or reputational harm in addition to interruptions to our supply chain.
If a supplier engages in illegal, unethical or other questionable conduct, we may not have visibility into these practices, we may in certain circumstances be deemed to have concurrent responsibility with our supplier for such conduct, and we, and our customers, may face legal or reputational harm in addition to interruptions to our supply chain.
Such problems have in the past resulted, and may in the future result, in our inability to properly fulfill customer orders and/or our obligation or election to replace products at our cost and expense, provide credit to or reimburse customers for related damages. We may also be subject to claims relating to such issues.
Such problems have resulted, and may in the future result, in our inability to properly fulfill customer orders and/or our obligation or election to replace products at our cost and expense, provide credit to or reimburse customers for related damages. We may also be subject to claims relating to such issues.
As the complexity of both our products and our technological processes has become more advanced, production tolerances have been reduced and requirements for precision have become more demanding. If we do not advance our production processes at the market rate, we may experience a lower production quality than the market standard.
As the complexity of both our products and our technological processes has become more advanced, production tolerances have been reduced and requirements for precision have become more demanding. If we do not advance our production processes at the market rate, we may experience lower production quality than the market standard.
Our activities and investment in protective measures may not be deployed sufficiently quickly or successfully in order to protect our system or network against disruptions and may not prevent or limit the damage from any future security breaches.
Our activities and investment in protective measures may not be deployed sufficiently quickly or successfully to protect our system or network against disruptions and may not prevent or limit the damage from any future security breaches.
In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. 33 Table of Contents General Risk Factors We are required to comply with complex laws and regulations in the United States and other countries and are exposed to business risks associated with our international business.
In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. 32 Table of Contents General Risk Factors We are required to comply with complex laws and regulations in the United States and other countries and are exposed to business risks associated with our international business.
As a result of these relationships, when conflicts between the interests of Parallel49 Equity, on the one hand, and of our other stockholders, on the other hand, arise, such directors may not be disinterested.
As a result of these relationships, when conflicts between the interests of Parallel49, on the one hand, and of our other stockholders, on the other hand, arise, such directors may not be disinterested.
The provisions in our amended and restated certificate of incorporation and bylaws include, among other things, the following: ​ ● the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval; ● following the time that the Tricor Funds and their affiliates cease to beneficially own a majority of our common stock, stockholder action may only be taken at a special or regular meeting and not by written consent, and special meetings may only be called by a majority of the total number of directors that we would have if there were no vacancies on our board of directors; ● advance notice procedures and information and disclosure requirements for nominating candidates to our board of directors or presenting matters at stockholder meetings; and ● allowing only our board of directors to fill vacancies on our board of directors. ​ We have entered into a director nomination agreement (the “Director Nomination Agreement”) with the Tricor Funds that provides the Tricor Funds the right to designate nominees for election to our board of directors for so long as the Tricor Funds collectively beneficially own 5% or more of the total number of shares of our common stock then outstanding.
The provisions in our amended and restated certificate of incorporation and bylaws include, among other things, the following: ​ ● the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval; ● stockholder action may only be taken at a special or regular meeting and not by written consent, and special meetings may only be called by a majority of the total number of directors that we would have if there were no vacancies on our board of directors; ● advance notice procedures and information and disclosure requirements for nominating candidates to our board of directors or presenting matters at stockholder meetings; and ● allowing only our board of directors to fill vacancies on our board of directors. ​ We have entered into a director nomination agreement (the “Director Nomination Agreement”) with the Tricor Funds that provides the Tricor Funds the right to designate nominees for election to our board of directors for so long as the Tricor Funds collectively beneficially own 5% or more of the total number of shares of our common stock then outstanding.
Any disruption of, interference with, or inability to keep up with our needs for capacity by our third-party data centers or hosted infrastructure partners could interrupt our business operations.
Any disruption of, interference with, or inability to keep up with our capacity needs by our third-party data centers or hosted infrastructure partners could interrupt our business operations.
These costs may exceed our expectations or we may face delays for the relocation of the facility, which could have an adverse effect on our operations, customer relationships and financial performance. 21 Table of Contents Our business could suffer from problems in production quality, materials and process, which could reduce, delay or interrupt production of our products, resulting in adverse impacts to our business and financial results.
These costs may exceed our expectations or we may face delays for the relocation of the facility, which could have an adverse effect on our operations, customer relationships and financial performance. 20 Table of Contents Our business could suffer from problems in production quality, materials and process, which could reduce, delay or interrupt production of our products, resulting in adverse impacts to our business and financial results.
Our ability to service our customers also largely depends on the efficient and uninterrupted operation of our own computer information systems and complex production equipment, much of which relies on computer operating systems, residing at our leased facilities. The proper functioning of such systems can be adversely affected by the increasing age and usage of such systems, among other things.
Our ability to serve our customers also largely depends on the efficient and uninterrupted operation of our own computer information systems and complex production equipment, much of which relies on computer operating systems, residing at our leased facilities. The proper functioning of such systems can be adversely affected by the increasing age and usage of such systems, among other things.
Many of our customers issue their cards on the networks of the Payment Card Brands that are subject to the standards of the PCI Security Standards Council or other standards and criteria relating to service providers’ and producers’ facilities, products and physical and logical security which we must satisfy in order to be eligible to supply products and services to such customers.
Many of our customers issue their cards on the networks of the Payment Card Brands that are subject to the standards of the PCI Security Standards Council or other standards and criteria relating to service providers’ and producers’ facilities, products and physical and logical security which we must satisfy to be eligible to supply products and services to such customers.
Accordingly, disruption at a single-site production operation could significantly impact our ability to supply our customers and could have a severe impact on us. Additionally, all of our production facilities are currently leased, and we are subject to risks associated with our current and future real estate leases for such facilities.
Accordingly, disruption at a single-site production operation could significantly impact our ability to supply our customers and could have a severe impact on us. Additionally, all of our production facilities are currently leased, and we are subject to risks associated with our current and future real estate leases.
Additionally, we have experienced malfunctions and errors, including human error, relating to the operation of certain machinery and systems used in our production process that, in some instances, have resulted in the delivery to our customers of products that did not meet their standards or specifications or failed to function in the marketplace.
Additionally, we have experienced malfunctions and errors, including human error, relating to the operation of certain production machinery and systems that, in some instances, have resulted in the delivery to our customers of products that did not meet their standards or specifications or failed to function in the marketplace.
Other states have enacted similar data privacy laws and regulations and/or amended their existing data privacy laws and regulations. Furthermore, to the extent these laws apply to our customers, our customers have imposed, and may continue to impose additional, privacy related contractual obligations on us, adherence to which may require additional investment in resources and internal processes.
Other states have enacted or amended similar data privacy laws and regulations. Furthermore, to the extent these laws apply to our customers, our customers have imposed, and may continue to impose additional, privacy related contractual obligations on us, adherence to which may require additional investment in resources and internal processes.
Specifically, certain key components for our Financial Payment Card products include EMV microchips, substrates (such as PVC), resin, modules, antennas and inlays, which we source from multiple suppliers located in various countries, primarily on a purchase order basis.
Specifically, certain key components for our payment card products include microchips, substrates (such as PVC), resin, modules, antennas and inlays, which we source from multiple suppliers located in various countries, primarily on a purchase order basis.
In addition, some competitors are non-public companies, and are therefore not subject to the public company requirements and related expenses that we are. We also face competition from newly established competitors, suppliers of products and customers who choose to develop their own products and services.
In addition, some competitors are non-public companies and are not subject to the public company requirements and related expenses that we are. We also face competition from newly established competitors, suppliers of products and customers who develop their own products and services.
Also, smart cards are equipped with keys that encrypt and decode messages in order to secure transactions and maintain the confidentiality of data. The security afforded by this technology depends on the integrity of the encryption keys and the complexity of the algorithms used to encrypt and decode information.
Also, smart cards are equipped with keys that encrypt and decode messages to secure transactions and maintain the confidentiality of data. The security afforded by this technology depends on the integrity of the encryption keys and the complexity of the algorithms used to encrypt and decode information.
A failure to adequately meet these various stakeholder expectations and standards may result in reputational damage, the loss of business, diluted market valuation, an inability to attract customers or an inability to attract and retain top talent. Additionally, the potential for future ESG and climate risk reporting requirements may result in additional costs to monitor, track and report sustainability measures.
A failure to adequately meet various stakeholder expectations and standards may result in reputational damage, the loss of business, diluted market valuation, an inability to attract customers or an inability to attract and retain top talent. Additionally, future ESG and climate risk reporting requirements may result in additional costs to monitor, track and report sustainability measures.
Some of our contractual agreements require the payment of penalties if our systems do not meet certain operating standards, and failure to operate in accordance with the standards of one or more of the Payment Card Brands could result in a loss of compliance of our facilities, any of which could have a material adverse effect on our business.
Some of our contractual agreements require the payment of 19 Table of Contents penalties if our systems do not meet certain operating standards, and failure to operate in accordance with the standards of one or more of the Payment Card Brands could result in a loss of compliance of our facilities, any of which could have a material adverse effect on our business.
Additionally, we have a limited number of employees with the expertise required to operate such internal applications, systems and networks as well as remediate them in the event of a failure, and thus the attrition of such employees could result in our inability to quickly and effectively resolve future IT issues that may arise.
Additionally, we have a limited number of employees with the expertise required to operate such internal applications, systems and networks as well as remediate them in the event of a failure, and thus the attrition of such employees could result in our inability to quickly and effectively resolve future IT issues.
Extreme weather events have and may continue to adversely affect us because of their impact on the availability and cost of raw materials and components we need to produce our products and that we source from locations in the United States and internationally that have experienced and may continue to experience such events.
Extreme weather events have and may continue to adversely affect us because of their impact on the availability and cost of raw materials and components we need to produce our products and that we source from locations in the United States and 24 Table of Contents internationally that have experienced and may continue to experience such events.
Such technologies are imperfect and the use of artificial intelligence or machine learning technologies by us, our customers or parties with whom we conduct business, and by unrelated third parties could inadvertently cause us to infringe upon other parties’ intellectual property ownership or rights, or could alternatively infringe upon our intellectual property rights.
Such technologies are imperfect and the use of artificial intelligence or machine learning technologies by us, our customers or 25 Table of Contents parties with whom we conduct business, and by unrelated third parties could inadvertently cause us to infringe upon other parties’ intellectual property ownership or rights, or could alternatively infringe upon our intellectual property rights.
These competitors may be able to adapt more quickly to new technological requirements and changes in customer and/or regulatory requirements to leverage their scale to lower production costs and prices, and utilize their global footprint to win certain customers with card needs in multiple markets and by producing cards in lower cost geographies.
These competitors may be able to adapt more quickly to new technological requirements and changes in customer and/or regulatory requirements to lower production costs and prices, and utilize their global footprint to win customers with card needs in multiple markets and by producing cards in lower cost geographies.
Furthermore, our costs of complying with current and future environmental and health and safety laws, or our liabilities arising from past or future releases of, or exposure to, regulated materials, may have a material adverse effect on our business, financial condition and results of operations.
Furthermore, our costs of complying with current and future environmental and health and safety laws, or our liabilities arising from past or future 29 Table of Contents releases of, or exposure to, regulated materials, may have a material adverse effect on our business, financial condition and results of operations.
Furthermore, in periods of industry overcapacity or when our customers encounter difficulties in their end-markets, orders are more exposed to cancellations, reductions, price reductions or postponements, or changes in customer inventory management practices which in turn reduce our management’s ability to forecast the next quarter or full-year production levels, net sales, profits and cash flows.
Furthermore, in periods of industry overcapacity or when our customers encounter difficulties, orders are more exposed to cancellations, reductions, price reductions or postponements, or changes in customer inventory management practices which in turn reduce our ability to forecast the next quarter or full-year production levels, net sales, profits and cash flows.
Failure to comply with existing or future data privacy and security laws, regulations and requirements to which we are or become subject could result in fines, sanctions, penalties, civil lawsuits or other adverse consequences as well as loss of customer and consumer confidence, which could materially adversely affect our results of operations, overall business and reputation.
Failure to comply with existing or future data privacy and security laws, regulations and requirements could result in fines, sanctions, penalties, civil lawsuits or other adverse consequences as well as loss of customer and consumer confidence, which could materially adversely affect our results of operations, overall business and reputation.
We may enter into agreements with suppliers from time to time which commit us to purchase products at prices less favorable than those available in the market at the time of the order, or in quantities greater than our future needs.
We may enter into supplier agreements from time to time which commit us to purchase products at prices less favorable than those available in the market at the time of the order, or in quantities greater than our future needs.
General Risk Factors ● Our inability to comply with numerous evolving and complex laws and regulations relating to financial reporting standards, corporate governance, data privacy, tax, trade regulations, environmental regulations and permit requirements, export controls, competitive practices, labor and health and safety. ● Legal costs, insurance expenses, settlement costs and the risk of an adverse decision related to legal or regulatory proceedings or litigation. ​ 14 Table of Contents Risks Relating to our Business ​ Risks associated with reduced levels of consumer and business spending, inflation-related challenges and the effects of an economic downturn could adversely affect our business, financial condition and results of operations.
General Risk Factors ● Our inability to comply with numerous evolving and complex laws and regulations relating to financial reporting standards, corporate governance, data privacy, tax, trade regulations, environmental regulations and permit requirements, export controls, competitive practices, labor and health and safety. ● Legal costs, the adequacy of our insurance policies, settlement costs and the risk of an adverse decision related to legal or regulatory proceedings or litigation. ​ Risks Relating to our Business and Industry ​ Risks associated with reduced levels of consumer and business spending, inflation-related challenges and the effects of an economic downturn could adversely affect our business, financial condition and results of operations.
If we fail to recruit, retain and develop personnel who can provide the needed expertise across the entire spectrum of our operating and intellectual capital needs, including as a result of leadership changes, then the ability of our business to successfully compete and grow may be adversely affected.
If we fail to recruit, retain and develop personnel who can provide the needed expertise across the entire spectrum of our operating and intellectual capital needs, including due to leadership changes, then the ability of our business to successfully compete and grow may be adversely affected.
We rely on licensing arrangements in production and other fields, and actions taken by any of our licensing partners could have a material adverse effect on our business. Many of our products integrate third-party technologies that we license or otherwise obtain the right to use, including software relating to smart card operating systems used in products such as EMV cards.
We rely on licensing arrangements in production and other fields, and actions taken by any of our licensing partners could have a material adverse effect on our business. Many of our products integrate third-party technologies that we license or otherwise obtain the right to use, including software relating to smart card operating systems.
Such audits may cause us to incur significant costs related to outside professional fees and divert management’s time away from business operations. Additionally, we may be subject to assessments, penalties or fines that could adversely affect our financial results.
Such audits may cause us to incur significant costs related to outside professional fees and divert management’s time away from business operations. 26 Table of Contents Additionally, we may be subject to assessments, penalties or fines that could adversely affect our financial results.
As a company engaged in production and distribution, we are subject to the risks inherent in such activities, including product quality control issues, disruptions or delays in our supply chain as well other external factors over which we have no control. Raw materials used in our products may be sourced from a few key suppliers or a single key supplier.
We are subject to the risks inherent in production and distribution activities, including product quality control issues, disruptions or delays in our supply chain and other external factors over which we have no control. Raw materials used in our products may be sourced from a few key suppliers or a single key supplier.
Failure to retain our existing customers or identify and attract new customers would have a material adverse effect on our business. A substantial portion of our net sales is derived from several large customers. The Company had one customer that accounted for approximately 18% of total net sales for the year ended December 31, 2023.
Failure to retain our existing customers or identify and attract new customers would have a material adverse effect on our business. 15 Table of Contents A substantial portion of our net sales is derived from several large customers. The Company had one customer that accounted for approximately 18% of total net sales for the year ended December 31, 2024.
Our business practices may also be subject to periodic audits by customers as part of that customer’s third-party risk management programs, the outcome of which may result in the loss of that customer or may cause us to incur significant costs in order to satisfy the customer’s requirements.
Our business practices may also be subject to periodic audits by customers as part of their third-party risk management programs, the outcome of which may result in customer loss or cause us to incur significant costs to satisfy customer requirements.
In addition, any problems faced by our third-party data center operations or hosted infrastructure partners with the telecommunications network providers with whom we or they contract, or with the systems by which our telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our customers.
In addition, any problems faced by our third-party data center operations or hosted infrastructure partners with their or our telecommunications network providers, or with the systems by which our telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our customers.
Our ability to protect our intellectual property is important to our business. We depend on patents and other intellectual property rights to protect our products, proprietary designs and technological processes against misappropriation by others. Our existing or future patents may be challenged, invalidated or circumvented. Our patents have been and may in the future be challenged as invalid.
We depend on patents and other intellectual property rights to protect our products, proprietary designs and technological processes against misappropriation by others. Our existing or future patents may be challenged, invalidated or circumvented. Our patents have been and may in the future be challenged as invalid.
The reliability and security of our IT infrastructure and our ability to protect sensitive and confidential information for our customers, which include many financial institutions, is critical to our business.
The reliability and security of our information technology (“IT”) infrastructure and our ability to protect sensitive and confidential information for our customers, which include many financial institutions, is critical to our business.
In addition, our continued business relationship with our customers may be impacted by several factors beyond our control, including changes in purchasing and inventory management practices by our customers, more attractive product offerings from our competitors, pricing and inflationary pressures, Group Service Providers’ and program managers’ ability to retain existing or gain new customers, the financial health of our customers and macroeconomic conditions affecting the Financial Payment Card industry or our financial institution and other customers.
In addition, our continued business relationship with our customers may be impacted by several factors beyond our control, including changes in customer purchasing and inventory management practices, more attractive product offerings from our competitors, pricing and inflationary pressures, Resellers’ and program managers’ ability to retain existing or gain new customers, the financial health of our customers and macroeconomic conditions affecting the payment card industry or our customers.
Historically, we have not attracted substantial research coverage, and the analysts who publish information about our common stock may have relatively little experience with us, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates.
We do not control these analysts. Historically, we have not attracted substantial research coverage, and the current or future analysts who publish information about our common stock may have relatively little experience with us, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates.
While we continue to proactively monitor, 16 Table of Contents assess and take steps to minimize disruptions and delays in production, these disruptions and delays have caused, and may continue to cause, the Company to lose or delay customer opportunities.
While we continue to proactively monitor, assess and take steps to minimize disruptions and delays in production, these disruptions and delays have caused, and may continue to cause, the Company to lose or delay customer opportunities.
Not only could we suffer damage to our brand and reputation in the event of a system outage or data loss or interruption, but we may also be liable to third parties, including our customers.
We could suffer damage to our brand and reputation in the event of a system outage or data loss or interruption and also be liable to third parties, including our customers.
If we were to lose compliance with one or more of the standards of the Payment Card Brands or of the PCI Security Standards Council for one or more of our facilities, we may lose the ability to produce cards for or provide services to banks issuing credit or debit cards on the networks of the Payment Card Brands.
If we fail to comply with one or more of the standards of the Payment Card Brands or of the PCI Security Standards Council for one or more of our facilities, we may lose the ability to produce cards for or provide services to banks issuing credit or debit cards on the Payment Card Brand networks.
If our key personnel were to leave us without adequate succession plans in place, it may cause a failure to maintain continuity in key business functions. We may not succeed in recruiting sufficient personnel to support our production needs or may fail to effectively replace current personnel who depart with qualified or effective successors.
If our key personnel were to leave us without adequate succession plans in place we may be unable to maintain continuity in key business functions. We may not succeed in recruiting sufficient personnel to support our production needs or may fail to effectively replace current personnel who depart with qualified or effective successors.
Any interruption in our business applications, systems or networks, including, but not limited to, new system implementations, server downtime, failure to upgrade or patch software, facility issues, natural disasters or energy blackouts, could have a material adverse impact on our operations, sales and operating results.
Any interruption in our business applications, systems or networks, including due to new system implementations, server downtime, failure to upgrade or patch software, facility issues, natural disasters or energy disruptions, could have a material adverse impact on our operations, sales and operating results.
Further investments may be costly, and if we are unable to continue to meet these standards and criteria, we may become ineligible to provide products and services that have constituted in the past an important part of our revenue and profitability.
Further investments may be costly, and if we are unable to continue to meet these standards and criteria, we may become ineligible to provide products and services that have been an important part of our revenue and profitability.
If and when some or all of these shares are sold by the Tricor Funds or the participants in their funds, either through sale on the open market, through privately negotiated transactions or through a distribution to the participants in their funds, or if it is perceived that they will be sold, the market price of our common stock could decline. ​ Conflicts of interest may arise because directors who are principals of or who were nominated by our majority stockholders serve on our board of directors.
If some or all of the remaining shares are sold by the Tricor Funds or the participants in their funds, either through sale on the open market, through privately negotiated transactions or through a distribution to the participants in their funds, or if it is perceived that they will be sold, the market price of our common stock could decline. ​ 30 Table of Contents Conflicts of interest may arise because directors who are principals of or who were nominated by our significant stockholders serve on our board of directors.
For example, one of the key services that we offer our customers is the prompt and timely production and delivery of replacement debit or credit cards. Orders for replacement debit or credit cards often are placed on short notice and may require personalization.
For example, one of our key services is the prompt and timely production and delivery of replacement debit or credit cards. Orders for these replacement cards often are placed on short notice and may require personalization.
The loss of the services of any of our key personnel could have a material adverse effect on our business, financial condition and results of operations, as we may not be able to find suitable individuals to replace such key personnel on a timely basis or without incurring increased costs, or at all.
The loss of the services of any of our key personnel could have a material adverse effect on our business, financial condition and results of operations because we may not be able to replace them on a timely basis or without incurring increased costs, or at all.
Amounts borrowed and outstanding under our long-term debt agreement and senior secured revolving credit facility are required to be repaid in full, together with any accrued and unpaid interest, no later than March 15, 2026 (and may be subject to earlier mandatory prepayment upon certain events).
Amounts borrowed and outstanding under our long-term debt agreement and credit facility are required to be repaid in full, together with any accrued and unpaid interest, no later than July 15, 2029 (and may be subject to earlier mandatory prepayment upon certain events).
If such supplier is unable to fulfill our orders for microchips or is delayed in shipping microchips to us, we could fail to timely fulfill customer orders, which could damage our reputation and result in a loss of customers and customer opportunities and material harm to our financial results. 15 Table of Contents Additionally, our Second Wave cards, featuring a core made with ROBP rely on a largely international supply chain to source and provide such plastic in accordance with our defined parameters.
If such supplier is unable or delayed in fulfilling our microchip orders, we could fail to timely fulfill customer orders, which could damage our reputation and result in a loss of customers and customer opportunities and material harm to our financial results. 18 Table of Contents Additionally, our Second Wave cards featuring a core made with ROBP, rely on a largely international supply chain to provide such plastic in accordance with our parameters.
Continuation of this concentrated ownership could result in a limited number of shares being available to be traded in the market, resulting in reduced liquidity. Additionally, the price of our common stock has experienced volatility due to the limited number of shares available to trade on the open market.
Continued concentrated ownership could result in a limited number of shares being available to be traded in the market, resulting in reduced liquidity, and historically the price of our common stock has experienced volatility due to the limited number of shares available to trade on the open market.
In addition, any increases in the costs of goods and services for our business, including as a result of inflationary pressures, may adversely affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise achieve cost efficiencies in our operations.
In addition, any increases in the costs of goods and services for our business, including because of inflationary pressures or tariffs, may adversely affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise achieve operational cost efficiencies.
If an economic downturn occurs, credit card issuers may reduce credit limits, close accounts and become more selective with respect to whom they issue credit cards. Certain of our customers, especially in the fintech space, could be severely impacted by a downturn in economic conditions limiting their spending on cards, or cease to exist altogether.
If an economic downturn occurs, credit card issuers may reduce credit limits, close accounts and become more selective in issuing credit cards. Certain of our customers, especially in the fintech space, could be severely impacted by a downturn in economic conditions limiting credit card spending, or cease to exist altogether.
Any material breach of our secured systems could harm our competitive position, result in a loss of customer trust and confidence, and cause us to incur significant costs to remedy the damages caused by system or network disruptions, whether caused by cyber-attacks, security breaches, internal control failures or otherwise, which could ultimately have a material adverse effect on our business, financial condition and results of operations.
Any material breach of our secured systems could harm our competitive position, result in a loss of customer trust and confidence, and cause us to incur significant costs to remedy the damages caused by system or network disruptions, which could ultimately have a material adverse effect on our business, financial condition and results of operations.
The protective measures we have implemented to protect against data and security breaches and cyber-attacks may not prevent system or network disruptions and may be insufficient to prevent or limit the damage from any future security breaches.
The protective measures we have implemented may not prevent system or network disruptions and may be insufficient to prevent or limit the damage from any future security breaches.
Additionally, as a result of labor shortages and supply-chain constraints, the Company has experienced extended production lead times in the past in some areas of the business which resulted in difficulty meeting some customers’ delivery expectations.
Additionally, as a result of labor shortages and supply-chain constraints, the Company has in the past experienced, and may in the future experience, extended production lead times which may result in difficulty meeting some customers’ delivery expectations .
Our long-lived assets recorded as of December 31, 2023 include $63.1 million of plant, equipment, leasehold improvements and operating lease right-of-use assets, $14.1 million of net intangible assets, and $47.2 million of goodwill. We perform goodwill impairment testing on an annual basis as of October 1 of each year.
Our long-lived assets recorded as of December 31, 2024 include $68.6 million of plant, equipment, leasehold improvements and operating lease right-of-use assets, $10.5 million of net intangible assets, and $47.2 million of goodwill. We perform goodwill impairment testing on an annual basis as of October 1 of each year.
We have been serving this customer for more than 10 years. In addition, nearly two-thirds of our net sales for the year ended December 31, 2023 were from our top ten direct customers, which include certain Group Service Providers. We have been serving these top ten direct customers for an average of more than 10 years.
We have been serving this customer for nearly 20 years. In addition, nearly two-thirds of our net sales for the year ended December 31, 2024 were from our top 10 direct customers, which include certain Resellers. We have been serving these top 10 direct customers for an average of more than 10 years.
Nicholas Peters, who is an officer of Parallel49 Equity (and its predecessor), serves on our board of directors. H. Sanford Riley was nominated to serve on our board of directors by the Tricor Funds, our majority stockholders pursuant to the Director Nomination Agreement (defined below). The Tricor Funds are funds controlled by Parallel49 Equity and its affiliates.
Nicholas Peters, who is an officer of Parallel49 (and its predecessor), serves on our board of directors. H. Sanford Riley and Lisa Oleson each were nominated to serve on our board of directors by the Tricor Funds, our significant stockholders pursuant to the Director Nomination Agreement (defined below). The Tricor Funds are controlled by Parallel49 and its affiliates.
These could include, but may not be limited to, delayed 17 Table of Contents access to deposits or other financial assets or the uninsured loss of deposits or other financial assets and difficulty in accessing commercial financing on acceptable terms or at all due to tightening credit markets, unfavorable covenant terms and higher interest rates.
These could include delayed access to, or the uninsured loss of, deposits or other financial assets and difficulty in accessing commercial financing on acceptable terms or at all due to tightening credit markets, unfavorable covenant terms and higher interest rates.
Any serious disruption at any of our facilities, including as a result of public health emergencies, severe weather conditions, climate change, natural disasters, hostilities, political instability, social unrest, network outages or terrorist activities, could impair our ability to use our facilities and have a material adverse impact on our revenues and increase our costs and expenses.
Any serious disruption at any of our facilities, including as a result of public health emergencies, severe weather conditions, climate change, natural disasters, hostilities, political instability, social unrest, network outages, terrorist activities, or our inability to successfully relocate our Fort Wayne, Indiana operations to a new location as anticipated could impair our ability to use our facilities and have a material adverse impact on our revenues and increase our costs.
Damage to our reputation or brand image can adversely affect our business. Our reputation forms the foundation of our relationships with key stakeholders and other constituencies, including employees, consumers, customers and suppliers, and maintaining a positive reputation globally is critical to the successful operation of our business.
Our reputation forms the foundation of our relationships with key stakeholders and other constituencies, including employees, consumers, customers and suppliers, and maintaining a positive reputation globally is critical to the successful operation of our business.
For the year ended December 31, 2023, the vast majority of the products we produced and services we provided were subject to compliance with the standards of one or more of the Payment Card Brands.
For the year ended December 31, 2024, the vast majority of our products and services were subject to compliance with the standards of one or more of the Payment Card Brands.
Tricor Pacific Capital Partners (Fund IV), Limited Partnership and Tricor Pacific Capital Partners (Fund IV) US, Limited Partnership (collectively, the “Tricor Funds”), affiliated with Parallel49 Equity (formerly known as Tricor Pacific Capital), own approximately 57% of our common stock, in the aggregate, as of December 31, 2023.
Tricor Pacific Capital Partners (Fund IV), Limited Partnership and Tricor Pacific Capital Partners (Fund IV) US, Limited Partnership (collectively, the “Tricor Funds”), affiliated with Parallel49 Equity (formerly known as Tricor Pacific Capital) (“Parallel49”), were formerly our controlling stockholders and own approximately 43% of our common stock, in the aggregate, as of December 31, 2024.
Our business depends heavily on the overall level of consumer and business spending. Our revenue is exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income or changes in consumer purchasing habits.
Our business depends heavily on consumer and business spending. Our revenue is exposed to general economic conditions that affect consumer confidence, spending, discretionary income or purchasing habits.
We intend to continue to seek additional acquisition opportunities to potentially expand into new markets and to enhance our position in existing markets.
We have sought and intend to continue to seek acquisition opportunities and business relationships to potentially expand into new markets and to enhance our position in existing markets.
If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
If one or more of these analysts provide inaccurate or unfavorable research, issue an adverse opinion regarding our stock price, cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

9 edited+2 added−2 removed17 unchanged
Biggest changeThe CTO and DC also each have over 20 years of experience serving in various roles in information technology fields; the CTO has been with the Company since 2014 and the DC previously served as the Chief Information Security Officer at an IT services and consulting company.
Biggest changeThe CTO has been with the Company since 2014 and the DC previously served as the Chief Information Security Officer at an IT services and consulting company. The CLCO has over 20 years of experience managing risks and related disclosure requirements, including risks arising from cybersecurity threats, at publicly traded companies.
Management’s Role Our chief information security officer (“CISO”), chief technology officer (“CTO”), Chief Legal and Compliance Officer (“CLCO”) and Director Information and Cybersecurity (“DC”) have primary responsibility for assessing and managing material cybersecurity risks and are members of an internal committee that reviews issues and initiatives related to data security and privacy (the “Security Committee”), which drives alignment on security decisions across the Company.
Management’s Role Our Chief Information Security Officer (“CISO”), Chief Information Officer (“CIO”), Chief Technology Officer (“CTO”), Chief Legal and Compliance Officer (“CLCO”) and Director of Information and Cybersecurity (“DC”) have primary responsibility for assessing and managing material cybersecurity risks and are members of an internal committee that reviews issues and initiatives related to data security and privacy (the “Security Committee”), which drives alignment on security decisions across the Company.
We maintain controls and procedures that are designed to encourage prompt escalation of certain cybersecurity incidents so that decisions regarding customer disclosure, public disclosure and reporting of such incidents can be made by management and the board of directors in a timely manner.
We maintain controls and procedures that are designed to encourage prompt escalation of certain cybersecurity incidents so that decisions regarding customer and supplier disclosure, public disclosure and reporting of such incidents can be made by management and the board of directors in a timely manner.
Education and Awareness Our Company policies require our employees to assist in the protection of our customers’ data. We have various training programs, conducted frequently, designed to heighten employees' awareness of current threats, educate them on effective mitigations and reinforce the importance of handling and safeguarding customer and employee data in accordance with our established security protocols.
Education and Awareness Our Company policies require our employees to assist in the protection of our customers’ data. We have various training programs, conducted frequently, designed to heighten employees' awareness of current threats, educate them on effective mitigation strategies and reinforce the importance of handling and safeguarding customer and employee data in accordance with our established security protocols.
Risk Management and Strategy Our policies and processes for assessing, identifying and managing material risks from cybersecurity threats are integrated into our overall risk management program and are based on the frameworks established by the National 34 Table of Contents Institute of Standards and Technology (“NIST”) and other applicable industry standards.
Risk Management and Strategy Our policies and processes for assessing, identifying and managing material risks from cybersecurity threats are integrated into our overall risk management program and are based on the frameworks established by the National Institute of Standards and Technology (“NIST”) and other applicable industry standards.
Item 1C. Cybersecurity ​ Cyber threat actors and the types of threats posed are becoming more sophisticated and effective and are increasingly targeting commercial companies. In an attempt to mitigate these cyber threats to our business, we take a comprehensive approach to cybersecurity risk management and make securing the data, customers and other stakeholders entrust to us, a top priority.
Item 1C. Cybersecurity ​ Cyber threat actors and the types of threats posed are becoming more sophisticated and effective and are increasingly targeting commercial companies. In seeking to mitigate these cyber threats to our business, we take a comprehensive approach to cybersecurity risk management and make securing the data, customers and other stakeholders entrusted to us, a top priority.
Our cybersecurity program in particular focuses on the following key areas: Collaboration We work to identify and address our cybersecurity risks through a comprehensive, cross-functional approach.
Our cybersecurity program in particular focuses on the following key areas: 33 Table of Contents Collaboration We work to identify and address our cybersecurity risks through a comprehensive, cross-functional approach.
These assessments include a variety of activities including information security maturity assessments, audits and independent reviews of our information security control environment and operating effectiveness.
External Assessments Our cybersecurity policies, standards, processes and practices are regularly assessed by consultants and external auditors. These assessments include a variety of activities including information security maturity assessments, audits 34 Table of Contents and independent reviews of our information security control environment and operating effectiveness.
To evaluate the effectiveness of these training programs and monitor the effectiveness of our security controls, we have implemented mock testing practices.
To evaluate the effectiveness of these training programs and monitor the effectiveness of our security controls, we have implemented mock testing practices. Annual incident response training is conducted for administrative personnel that would be expected to be involved with, and respond to, a security incident.
Removed
Annual incident response training is conducted for administrative personnel that would be expected to be involved with, and respond to, a security incident. ​ 35 Table of Contents External Assessments Our cybersecurity policies, standards, processes and practices are regularly assessed by consultants and external auditors.
Added
The CIO, CTO and DC also each have over 20 years of experience serving in various roles in information technology fields; the CIO has over 25 years of global technology leadership across fintech, software, and payments industries, leading technology, product, and engineering organizations for multinational companies, with extensive experience in implementing software solutions and managing risk across the entire technology lifecycle.
Removed
The CLCO has over 10 years of experience managing risks, including risks arising from cybersecurity threats, at publicly traded companies. The Security Committee meets at least quarterly to review security performance metrics, identify security risks and assess the status of approved security enhancements.
Added
The Security Committee meets at least quarterly to evaluate security performance metrics, prioritize risks identified through threat intelligence, vulnerability and risk assessments, external audits, and incident response insights, and review the progress of approved security enhancements.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changePropertie s ​ Information regarding each of our facilities, which may include multiple leases at each location, is set forth below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Square ​ Owned/ Location Operations Footage Leased Littleton, Colorado Financial Payment Card production, corporate facility 65,000 Leased Roseville, Minnesota Financial Payment Card production, card personalization services, card packaging services, fulfillment 227,000 Leased Fort Wayne, Indiana Financial Payment Card production 45,000 Leased Nashville, Tennessee Financial Payment Card personalization services, instant issuance, fulfillment 65,000 Leased ​ ​
Biggest changePropertie s ​ Information regarding each of our facilities, which may include multiple leases at each location, is set forth below. ​ ​ ​ ​ ​ ​ ​ Location Operations Square Footage Owned/ Leased Littleton, Colorado Debit and Credit card production, corporate facility 65,000 Leased Roseville, Minnesota Debit and Credit card production and personalization services; and Prepaid Debit card packaging services, fulfillment 227,000 Leased Fort Wayne, Indiana (1) Debit and Credit card production 45,000 Leased Nashville, Tennessee Debit and Credit card personalization services, instant issuance, fulfillment 65,000 Leased (1) In 2025, we intend to relocate our current Indiana operations to a new build-to-suit leased facility.
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This new facility will be located in Fort Wayne, Indiana and will be approximately 80,000 square feet. ​ ​ ​ 35 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn addition to the matter described above, the Company may be subject to routine legal proceedings in the ordinary course of business. The Company believes that the ultimate resolution of any such matters will not have a material adverse effect on its business, financial condition or results of operations .
Biggest changeItem 3. Legal Proceeding s The Company may be subject to routine legal proceedings in the ordinary course of business. The Company believes that the ultimate resolution of any such matters will not have a material adverse effect on its business, financial condition or results of operations .
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Item 3. Legal Proceeding s Smart Packaging Solutions SA v. CPI Card Group Inc. 36 Table of Contents ​ On April 20, 2021, Smart Packaging Solutions, SA (“SPS”) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware seeking an unspecified amount of damages and equitable relief.
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In the complaint, SPS alleges that the Company infringed four patents that SPS has exclusively licensed from Feinics AmaTech Teoranta. The patents all relate to antenna technology. SPS alleges that the Company incorporates the patented technology into its products that use contactless communication.
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The Company does not produce antennas; it purchases certain antenna-related components from SPS and a number of other suppliers. The Company’s motion to dismiss the complaint is currently pending. Additionally, a third party, Infineon, filed requests for Inter Parties Review (“IPR”) proceedings concerning each of the four patents.
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As a result, the Delaware District Court stayed the case pending resolution of the requests for review. The United States Patent Office has instituted proceedings with respect to all of the IPR requests; three of the patents have been invalidated in the IPR proceedings and one remains under review.
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The patent owner, Feinics AmaTech Teoranta, initially appealed the invalidation of the three patents and subsequently elected to dismiss those appeals. Should the remaining patent survive review by the United States Patent Office, the Company intends to defend the suit vigorously. However, no assurance can be given that this matter will be resolved favorably.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Company may enter into similar arrangements with Parallel49 in the future. ​ The following table sets forth share repurchases for each of the three months of the quarter ended December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period ​ Total Number of Shares Purchased ​ Average Price Paid per Share ​ Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) ​ Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (b) October 1 - 31 ​ ​ — ​ $ — ​ ​ — ​ $ — November 1 - 30 ​ ​ — ​ $ — ​ ​ — ​ $ — December 1 - 31 ​ ​ 13,180 ​ $ 18.93 ​ ​ 13,180 ​ $ 19,017 Total ​ ​ 13,180 ​ $ 18.93 ​ ​ 13,180 ​ ​ ​ ​ (a) Reflects shares repurchased and retired under the 2023 repurchase authorization.
Biggest changeThe agreements with Parallel49 expired on June 30, 2024. ​ The following table sets forth share repurchases activity for each of the three months of the quarter ended December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period ​ Total Number of Shares Purchased ​ Average Price Paid per Share ​ Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ​ Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) October 1 - 31 ​ ​ — ​ $ — ​ ​ — ​ $ 11,154 November 1 - 30 ​ ​ — ​ $ — ​ ​ — ​ $ 11,154 December 1 - 31 ​ ​ — ​ $ — ​ ​ — ​ $ — Total ​ ​ — ​ $ — ​ ​ — ​ ​ ​ 36 Table of Contents ​
Any future cash dividend or other dividend declarations are subject to the determination of the Company’s board of directors. Repurchases On November 2, 2023, the Company's board of directors approved a share repurchase plan authorizing the Company to repurchase up to $20.0 million of the Company's common stock, par value $0.001 per share. This authorization expires on December 31, 2024.
Any future cash dividend or other dividend declarations are subject to the determination of the Company’s board of directors. Repurchases On November 2, 2023, the Company's board of directors approved a share repurchase plan authorizing the Company to repurchase up to $20.0 million of the Company's common stock, par value $0.001 per share.
Item 5. Market for Registrant’s Common Equit y, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Our common stock trades on the Nasdaq Global Market under the symbol “PMTS”. Holders There were twenty-three stockholders of record as of February 29, 2024.
Item 5. Market for Registrant’s Common Equit y, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Our common stock trades on the Nasdaq Global Market under the symbol “PMTS”. Holders There were 19 stockholders of record as of February 27, 2025.
Pursuant to this agreement, the Company has agreed to purchase from Parallel49, and Parallel49 has agreed to sell to the Company, three times the number of shares of the Company’s common stock acquired by the Company in the open market from time to time from non-Parallel49 holders during the period commencing from the date of this agreement and ending on March 31, 2024, up to a maximum of 325,000 shares.
The Company agreed to purchase from Parallel49, and Parallel49 agreed to sell to the Company, three times the number of shares of the Company’s common stock acquired by the Company in the open market from time to time from non-Parallel49 holders up to a maximum of 650,000 shares in total.
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Under the share repurchase plan, the Company may purchase shares through privately negotiated transactions or through open market purchases, including through plans complying with Rule 10b5-1 under the Exchange Act.
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This authorization expired on December 31, 2024 with a remaining unused authorized amount of $11.2 million . ​ In connection with the share repurchase plan, the Company entered into stock repurchase agreements with Parallel49, which was one of the Company’s majority stockholders.
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The extent and timing of repurchases will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by the Company. ​ 37 Table of Contents On December 6, 2023, the Company entered into a Stock Repurchase Agreement with Tricor Pacific Capital Partners (Fund IV) US, LP (“Parallel49”), which is one of the Company’s majority stockholders.
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Pursuant to these agreements, the Company repurchased 364,848 shares from Parallel49 at an average price of $18.09 per share during the year ended December 31, 2024.
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Such open market purchases will be made pursuant to the Company’s stock repurchase plan. The repurchase price for any shares acquired by the Company from Parallel49 pursuant to this agreement will be 98% of the volume weighted average purchase price paid by the Company for all other shares acquired by the Company in the open market during such period.
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The repurchase from Parallel49 will take place in early April 2024 and will be part of the share repurchase plan authorization levels.
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In the event that the Company enters into any other privately negotiated repurchase transaction prior to March 31, 2024, the Agreement also gives Parallel49 the option to sell to the Company a number of shares equal to three times the number of shares acquired by the Company in such privately negotiated repurchase transaction, at the same price.
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(b) Reflects the $20.0 million repurchase authorization less completed open market purchases and $0.7 million owed to Parallel49, in accordance with the Stock Repurchase Agreement entered into on December 6, 2023. ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeNet sales also benefited from price increases, which were primarily implemented in 2022. ​ Gross Profit and Gross Profit Margin: ​ Gross profit and gross profit margin for Debit and Credit decreased for the year ended December 31, 2023, primarily due to lower net sales and higher materials costs. ​ Income from Operations: ​ The changes in income from operations for Debit and Credit for the year ended December 31, 2023 were primarily due to the factors discussed in “Gross Profit and Gross Profit Margin” above and decreases in operating expenses related to compensation related expenses and professional services. ​ 43 Table of Contents Prepaid Debit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) ​ Net sales ​ $ 84,237 ​ $ 86,136 ​ $ (1,899) ​ (2.2) % Gross profit ​ $ 28,713 ​ $ 31,553 ​ $ (2,840) ​ (9.0) % Income from operations ​ $ 24,927 ​ $ 25,577 ​ $ (650) ​ (2.5) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit margin ​ ​ 34.1% ​ ​ 36.6% ​ ​ ​ ​ ​ ​ ​ Net Sales: ​ Net sales for Prepaid Debit decreased for the year ended December 31, 2023, primarily due to decreased volumes from existing customers, partially offset by sales to new customers. ​ Gross Profit and Gross Profit Margin: Gross profit and gross profit margin for Prepaid Debit decreased for the year ended December 31, 2023, primarily due to lower net sales, as well as increased labor costs and other expenses related to implementation of a change in our production staffing model where we completed the transition of temporary worker positions to permanent employee positions. ​ Income from Operations: ​ Income from operations for Prepaid Debit decreased for the year ended December 31, 2023 , primarily due to the factors discussed in “Gross Profit and Gross Profit Margin” above, partially offset by lower operating expenses. ​ Other: ​ As the Other segment is comprised entirely of corporate expenses, income from operations for Other consists of operating expenses shown below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) ​ Operating expenses ​ $ 58,243 ​ $ 56,492 ​ $ 1,751 ​ 3.1 % ​ Operating Expenses: ​ Other operating expenses increased for the year ended December 31, 2023, primarily due to increased compensation expenses as a result of $7.0 million of compensation related to an executive retention agreement and increased employee headcount and salary increases, partially offset by decreases in employee short-term incentive compensation and professional services. ​ Liquidity and Capital Resources At December 31, 2023, we had $12.4 million of cash and cash equivalents.
Biggest changeProducts net sales were relatively consistent, as higher volumes of contactless cards were offset by volume declines in contact-only and other cards. ​ Gross Profit and Gross Profit Margin: ​ Gross profit for Debit and Credit was relatively consistent and gross profit margin decreased for the year ended December 31, 2024 as the increase in net sales was offset by a higher volume of lower margin products sold compared to the prior year period. ​ 40 Table of Contents Income from Operations: ​ Income from operations for Debit and Credit decreased for the year ended December 31, 2024, primarily due to increased employee performance-based incentive compensation related to stronger 2024 company performance compared to 2023 and salary expenses. ​ Prepaid Debit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2024 2023 ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) ​ Net sales ​ $ 106,541 ​ $ 84,237 ​ $ 22,304 ​ 26.5 % Gross profit ​ $ 43,124 ​ $ 28,713 ​ $ 14,411 ​ 50.2 % Income from operations ​ $ 37,201 ​ $ 24,927 ​ $ 12,274 ​ 49.2 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit margin ​ ​ 40.5% ​ ​ 34.1% ​ ​ ​ ​ ​ ​ ​ Net Sales: ​ Net sales for Prepaid Debit increased for the year ended December 31, 2024, primarily due to increased sales to existing customers of higher-priced packaging solutions and healthcare payment cards. ​ Gross Profit and Gross Profit Margin: Gross profit and gross profit margin for Prepaid Debit increased for the year ended December 31, 2024, primarily due to higher net sales discussed above and the resulting operating leverage. ​ Income from Operations: ​ Income from operations for Prepaid Debit increased for the year ended December 31, 2024, primarily due to the factors discussed in “Gross Profit and Gross Profit Margin” above, partially offset by increased employee performance-based incentive compensation related to stronger 2024 company performance compared to 2023 and salary expenses. ​ Other: ​ As the Other segment is comprised entirely of corporate expenses, income from operations for Other consists of operating expenses shown below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2024 2023 ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) ​ Operating expenses ​ $ 67,265 ​ $ 58,243 ​ $ 9,022 ​ 15.5 % ​ Operating Expenses: ​ Other operating expenses increased for the year ended December 31, 2024, primarily due to an increase in compensation-related expenses, including the factors discussed in consolidated “Operating Expenses” above. ​ 41 Table of Contents ​ Liquidity and Capital Resources At December 31, 2024, we had $33.5 million of cash and cash equivalents.
Other Expense, net Other expense, net consists primarily of interest expense and other non-operating items. Income Tax Expense Income tax expense consists of our federal and state income taxes at statutory rates, including the impact of other items such as valuation allowances, tax credits, permanent items, and foreign taxes.
Other (Expense) Income, net Other (expense) income, net consists primarily of interest expense and other non-operating items. Income Tax Expense Income tax expense consists of our federal and state income taxes at statutory rates, including the impact of other items such as valuation allowances, tax credits, permanent items, and foreign taxes.
In the event that the supplier is unable to deliver the specified quantity of chips, it will be subject to liquidated damages of 10% of the price of any non-delivered products. ​ Cyclical and Seasonal Nature of Business Financial Payment Cards are generally influenced by broader cyclical changes in the economy, with economic downturns potentially resulting in decreases in the demand for our products and services and economic upturns potentially resulting in increases in demand.
In the event that the supplier is unable to deliver the specified quantity of chips, it will be subject to liquidated damages of 10% of the price of any non-delivered products. ​ Cyclical and Seasonal Nature of Business Payment cards are generally influenced by broader cyclical changes in the economy, with economic downturns potentially resulting in decreases in the demand for our products and services and economic upturns potentially resulting in increases in demand.
During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. The company is required to make estimates regarding future compensation for covered individuals to determine the value of its deferred tax assets related to the future deductibility of executive stock compensation and accrued incentive compensation, which also requires significant judgment.
During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. The company is required to make estimates regarding future compensation for covered individuals to determine the value of its deferred tax assets related to the future deductibility of executive stock-based compensation and accrued incentive compensation, which also requires significant judgment.
We have estimated our future interest payments assuming no additional borrowings under the ABL Revolver, no early redemptions of principal on the Senior Notes, and no debt issuances or renewals upon the maturity dates of our notes.
We have estimated our future interest payments assuming no additional borrowings under the 2029 ABL Revolver, no early redemptions of principal on the 2029 Senior Notes, and no debt issuances or renewals upon the maturity dates of our notes.
In particular, prolonged economic downturns typically have resulted in significant reductions in the demand for general purpose credit cards due to tightening credit conditions. Our net sales are also influenced by changes in customer behavior such as altering inventory management practices, Financial Payment Card renewal cycles and demand for new products, such as contactless cards.
In particular, prolonged economic downturns typically have resulted in significant reductions in the production demand for general purpose credit cards due to tightening credit conditions. Our net sales are also influenced by changes in customer behavior such as altering inventory management practices, payment card renewal cycles and demand for new products, such as contactless cards.
For work performed but not completed and unbilled, we estimate net sales by taking actual costs incurred and applying historical margins for similar types of contracts. Margins across each business with similar contracts have been relatively consistent and we have not made changes to our methods and assumptions during 2023.
For work performed but not completed and unbilled, we estimate net sales by taking actual costs incurred and applying historical margins for similar types of contracts. Margins across each business with similar contracts have been relatively consistent and we have not made changes to our methods and assumptions during 2024.
Under this lease agreement, we will pay an annual base rent of $0.9 million subject to an annual rent increase of 2.0%. The lease is for ten years and includes two consecutive options to extend the term of the lease by five years for each such option.
Under this lease agreement, we will pay an annual base rent of $0.9 million subject to an annual rent increase of 2.0%. The lease is for 10 years and includes two consecutive options to extend the term of the lease by five years for each such option.
Total capital expenditures, net for this project are anticipated to increase cash used in investing activities and assets acquired under lease arrangements in both 2024 and 2025. ​ Share Repurchase Authorization and Activity ​ On November 2, 2023, our board of directors approved a share repurchase plan authorizing us to repurchase up to $20.0 million of our common stock, par value $0.001 per share.
Capital expenditures, net for this project are anticipated to increase cash used in investing activities and assets acquired under lease arrangements in 2025. ​ Share Repurchase Authorization and Activity ​ On November 2, 2023, our board of directors approved a share repurchase plan authorizing us to repurchase up to $20.0 million of our common stock, par value $0.001 per share.
Included in the above amounts, during 2022, we entered into a capacity reservation agreement with one of our chip suppliers to reserve production supply capacity due to the current global supply shortage environment.
Included in the above amounts, during 2023, we entered into a capacity reservation agreement with one of our chip suppliers to reserve production supply capacity due to the current global supply shortage environment.
The results of operations should be read in conjunction with the discussion of our segment results of operations, which provide more detailed discussions concerning certain components of the Consolidated Statements of Income.
The results of operations should be read in conjunction with the discussion of our segment results of operations, which provide more detailed discussions concerning certain components of the consolidated statements of operations and comprehensive income.
However, we may borrow additional amounts under the ABL Revolver, redeem principal on the Senior Notes early or refinance all or a portion of our borrowings in future periods. Leases We lease real property for production and services, in addition to equipment.
However, we may borrow additional amounts under the 2029 ABL Revolver, redeem principal on the 2029 Senior Notes early or refinance all or a portion of our borrowings in future periods. Leases We lease equipment and real property for production and services.
The remaining interest payments are expected to be paid over the remaining term of the Senior Notes, which mature in 2026, and the principal is due upon maturity.
The remaining interest payments are expected to be paid over the remaining term of the 2029 Senior Notes, which mature in 2029, and the principal is due upon maturity.
Our working capital fluctuates primarily due to the timing of tax payments, timing of receipts from customers, inventory levels, payments of employee incentive programs and interest payments on our Senior Notes, with the interest payments being due in the first and third quarters of the year.
Our working capital fluctuates primarily due to the timing of tax payments, timing of receipts from customers, inventory purchases, payments of employee incentive programs and interest payments on our outstanding Senior Notes, with the interest payments being due in the first and third quarters of the year.
Services costs include the cost of labor, raw materials in the case of tamper-evident security packaging, equipment and facilities costs, operation overhead, depreciation and amortization, leases and rental charges and transport costs. Cost of sales can be impacted by many factors, including volume, operational efficiencies, procurement costs, promotional activity, and employee relations.
Services costs include the cost of labor, raw materials in the case of tamper-evident secure packaging, equipment and facilities costs, operation overhead, depreciation and amortization, leases and transport costs. Cost of sales can be impacted by many factors, including volume, operational efficiencies, procurement costs, promotional activity, and employee relations.
In February 2024, we entered into a build-to-suit lease agreement to relocate and modernize our operations at our Fort Wayne, Indiana production facility, which is set to commence the later of: the landlord’s delivery of exclusive possession of the premises; and March 1, 2025.
In February 2024, we entered into a build-to-suit lease agreement to relocate and modernize our operations at our Fort Wayne, Indiana production facility, which is set to commence the later of: (i) the landlord’s delivery of 44 Table of Contents exclusive possession of the premises and (ii) March 1, 2025.
We include gross shipping and handling revenue in net sales. 40 Table of Contents Cost of Sales Cost of sales includes the direct and indirect costs of the products we sell and the services that we provide.
We include gross shipping and handling revenue in net sales. Cost of Sales Cost of sales includes the direct and indirect costs of the products we sell and the services that we provide.
Product net sales include the design and production of Financial Payment Cards, including contact and contactless cards, which includes our eco-focused cards. Contactless EMV cards have additional technology to process contactless transactions and generally have a higher selling price than contact-only EMV cards.
Product net sales include the design and production of payment cards, including contact and contactless cards, which includes our eco-focused cards. Contactless cards have additional technology to process contactless transactions and generally have a higher selling price 37 Table of Contents than contact-only cards.
Additionally, commencing with the month immediately following a date on which borrowing capacity is below $7.5 million and until such time that borrowing capacity equals or exceeds $7.5 million for 30 consecutive days, we must maintain a fixed charge coverage ratio (as defined in the Credit Agreement for the ABL Revolver) greater than 1.00, calculated for the trailing 12 months in order to borrow under the ABL Revolver.
Additionally, commencing with the month immediately following a date on which borrowing capacity is below the greater of $7.5 million and 10% of the Maximum Revolver Amount and until such time that borrowing capacity equals or exceeds the greater of $7.5 million and 10% of the Maximum Revolver Amount for 30 consecutive days, the Company must maintain a fixed charge coverage ratio (as defined in the ABL Credit Agreement) of at least 1.00 to 1.00, calculated for the trailing 12 months, in order to borrow under the ABL Revolver.
Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 9, “Financing and Operating Leases” for details on our leasing arrangements, including future maturities of our operating lease liabilities, as of December 31, 2023.
Refer to Part II, Item 8, Financial Statements and Supplementary Data , Note 9, “Financing and Operating Leases,” for details on our leasing arrangements, including future maturities of our operating lease liabilities, as of December 31, 2024.
The Borrowing Base is further reduced by credit line reserves, letters of credit, as well as the loan ledger balance outstanding on the ABL Revolver.
The 43 Table of Contents Borrowing Base is further reduced by credit line reserves and letters of credit, as well as the loan ledger balance outstanding on the ABL Revolver.
Product costs include the cost of raw materials, including microchips for all EMV cards and antennas for contactless EMV cards, labor costs, equipment and facilities costs, operation overhead, depreciation and amortization, leases and rental charges and transport costs. Product costs also include Card@Once instant issuance printer and consumable product costs.
Product costs include the cost of raw materials, including microchips for all applicable cards and antennas for contactless cards, labor costs, equipment and facilities costs, operation overhead, depreciation and amortization, leases and transport costs. Product costs also include Card@Once instant issuance hardware and consumable product costs.
The borrowing capacity represents the net availability under the ABL Revolver and is calculated as the lesser of a) the total of certain eligible assets, including cash, accounts receivable and inventories, further reduced by stated contribution percentages and adjustments or b) the $75.0 million of available borrowing capacity under the ABL Revolver (“Borrowing Base”).
The borrowing capacity represents the net availability under the ABL Revolver and is calculated as the lesser of a) the total of certain eligible assets, including cash, accounts receivable and inventories, further reduced by stated contribution percentages and adjustments (the “Borrowing Base”) and b) the Maximum Revolver Amount.
The ABL Revolver includes limitations on our ability to borrow in certain situations, including limitations based on the calculation of a borrowing capacity and further limitations that are triggered if the amount available to borrow under the ABL Revolver is less than $7.5 million.
The 2029 ABL Revolver includes limitations on the Borrower’s ability to borrow in certain situations, including limitations based on the calculation of borrowing capacity and further limitations that are triggered if the amount available to borrow under the ABL Revolver is less than the greater of $7.5 million and 10% of the Maximum Revolver Amount.
Other Our Other segment includes corporate general and administrative expenses. Key Components of Results of Operations Set forth below is a brief description of key line items of our consolidated statements of operations and comprehensive income. Net Sales Net sales reflect our revenue generated from the sale of products and services.
Key Components of Results of Operations Set forth below is a brief description of key line items of our consolidated statements of operations and comprehensive income. Net Sales Net sales reflect our revenue generated from the sale of products and services.
The contract term as defined by ASC 606, Revenue from Contracts with Customers , is the length of time it takes to deliver the goods or services promised under the purchase order or statement of work. As such, the Company's contracts are generally considered short term in nature.
The contract term as defined by the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers , is the length of time it takes to deliver the goods or services promised under the purchase order or statement of work. As such, the Company's contracts are generally short term in nature.
Purchase Obligations A purchase obligation is an agreement to purchase goods or services that is enforceable, legally binding, and specifies all significant terms. As of December 31, 2023, we had approximately $138.0 million of outstanding purchase obligations, of which approximately $89.4 million is expected to be paid in the next 12 months.
Purchase Obligations A purchase obligation is an agreement to purchase goods or services that is enforceable, legally binding, and specifies all significant terms. As of December 31, 2024, we had approximately $78.9 million of outstanding purchase obligations, of which approximately $66.5 million is expected to be paid in the next 12 months.
Although we can provide no assurances, we believe that our cash flows from operations, 44 Table of Contents combined with our current cash levels, and our senior secured revolving credit facility (the “ABL Revolver”) with available borrowing capacity of $74.7 million as of December 31, 2023, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations, share repurchases and working capital needs.
Although we can provide no assurances, we believe that our cash flows from operations, combined with our current cash levels, and our senior secured revolving credit facility (the “2029 ABL Revolver”) with available borrowing capacity of $72.8 million as of December 31, 2024, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations, and working capital needs.
We also generate product revenue from the sale of our Card@Once instant issuance system and consumables, private label credit cards and retail gift cards. Services net sales include revenue from the personalization and fulfillment of Financial Payment Cards, including print-on-demand services, tamper-evident security packaging, fulfillment services and SaaS personalization of instant issuance Financial Payment cards.
We also generate product revenue from the sale of our Card@Once ® instant issuance system and consumables, private label credit cards and retail gift cards. Services net sales include revenue from the personalization and fulfillment of payment cards, tamper-evident secure packaging, fulfillment services, SaaS-based personalization of instant issuance payment cards and other digital offerings.
Debt Service Requirements As of December 31, 2023, the total projected principal and interest payments on our borrowings were $326.4 million, primarily related to the Senior Notes, of which $23.5 million of interest is expected to be paid in the next 12 months.
Debt Service Requirements As of December 31, 2024, the total projected principal and interest payments on our borrowings are $429.7 million, primarily related to the 2029 Senior Notes, of which $29.2 million of interest is expected to be paid in the next 12 months.
Cash Priorities ​ Capital Expenditures ​ We primarily use cash in investing activities for capital expenditures. During the year ended December 31, 2023, capital expenditures, including investments to support the business, such as machinery and information technology equipment, totaled $6.4 million.
Cash Priorities ​ Capital Expenditures ​ We primarily use cash in investing activities for capital expenditures. During the year ended December 31, 2024, capital expenditures, including investments to support the business, such as machinery and information technology equipment, totaled $9.3 million. ​ During 2023, we commenced work on relocating and modernizing our production facility in Indiana.
Income Taxes We are subject to income taxes in the United States and certain foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes.
Contract costs are expensed as incurred when the amortization period is one year or less. Income Taxes We are subject to income taxes in the United States and certain foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes.
To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact the current provision for income taxes. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.
To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact the current provision for income taxes.
Under the 47 Table of Contents agreement, we agreed to pay certain fees in exchange for the supplier’s commitment to reserve capacity to produce a set quantity of chips from 2023 through 2025, subject to certain conditions, and we have committed to purchase those chips.
Under the agreement, we agreed to pay certain fees in exchange for the supplier’s commitment to reserve capacity to produce a set quantity of chips from 2023 through 2026, subject to certain conditions, and we have committed to purchase those chips. The total value of the minimum non-cancellable commitment is approximately $190.0 million over the term of the agreement.
Our future cash flows could be impacted by a variety of factors, some of which are beyond our control. These factors include, but are not limited to, changes in economic conditions, especially those impacting our customers, and the pricing, terms and availability of goods and services that we purchase, and financings that we enter into.
Factors include, but are not limited to, demand from some of our customers for certain products and services, changes in economic conditions, especially those impacting our customers, and the pricing, terms and availability of goods and services that we purchase, and financings that we enter into.
This authorization expires on December 31, 2024. ​ During the year ended December 31, 2023, we repurchased 13,180 shares, on a trade date basis, of our common stock at an average price of $18.93 per share excluding commissions, or $0.3 million in aggregate.
This authorization expired on December 31, 2024 with a remaining unused authorized amount of $11.2 million . ​ During the year ended December 31, 2024, we repurchased 473,284 shares of our common stock at an average price of $18.16 per share, excluding commissions, or $8.6 million in aggregate, on a trade date basis.
We define “Financial Payment Cards” as credit, debit and Prepaid Debit Cards (as defined below) issued on the networks of the “Payment Card Brands” (Visa, Mastercard ® , American Express ® and Discover ® ). We define “Prepaid Debit Cards” as debit cards issued on the networks of the Payment Card Brands, but not linked to a traditional bank account.
We are also a market leader in the production of “Prepaid Debit Cards,” which we define as debit cards issued on the networks of the “Payment Card Brands” (Visa, Mastercard ® , American Express ® and Discover ® ) but not linked to a traditional bank account, and related secure packaging solutions.
The total value of the minimum non-cancellable commitment is $194.9 million over the term of the agreement. As of December 31, 2023, the remaining commitment was $125.3 million, of which $77.0 million is expected to be paid in the next 12 months.
As of December 31, 2024, the remaining commitment was $62.0 million, of which $49.9 million is expected to be paid in the next 12 months.
Following these events, we experienced reduced demand in the Debit and Credit segment. ​ 39 Table of Contents Segment Overview Our business consists of the following reportable segments: ● Debit and Credit; ● Prepaid Debit; and ● Other. ​ Debit and Credit Segment Our Debit and Credit segment primarily produces Financial Payment Cards and provides integrated card services, including digital services, for card-issuing financial institutions and fintechs primarily in the United States.
Segment Overview ​ Our business consists of the following reportable segments: Debit and Credit, Prepaid Debit, and Other. Debit and Credit Segment Our Debit and Credit segment primarily produces secure debit and credit cards and provides card services for U.S. card-issuing financial institutions.
Services Net Sales: Net sales are recognized for “Services” as the services are performed. Items included in “Services” net sales include the personalization and fulfillment of Financial Payment Cards, providing tamper-evident secure packaging and fulfillment services to Prepaid Debit Card program managers, and SaaS personalization of instant issuance debit and credit cards.
Items included in “Services” net sales include the personalization and fulfillment of payment cards, providing tamper-evident secure packaging and fulfillment services to prepaid program managers, and SaaS-based personalization of instant issuance debit and credit cards. For work performed but not completed and billed, we estimate revenue by taking actual costs incurred and applying historical margins for similar types of contracts.
Our actual results may differ materially from those anticipated in these forward - looking statements as a result of certain factors, some of which are not within our control.
Our actual results may differ materially from those anticipated in these forward - looking statements as a result of certain factors, some of which are not within our control. See "Risk Factors" and “Cautionary Statement Regarding Forward - Looking Statements.” Company Overview CPI is a payments technology company providing a comprehensive range of payment cards and related digital solutions.
Recent Accounting Pronouncements Refer to Part II, Item 8, Financial Statements and Supplementary Data , Note 2, “Summary of Significant Accounting Policies” for a discussion of recent accounting pronouncements.
Additionally, other changes to the federal and state tax regulations can lead to variability in allowable deductions, which can impact the Company’s valuation allowance. Recent Accounting Pronouncements Refer to Part II, Item 8, Financial Statements and Supplementary Data , Note 2, “Summary of Significant Accounting Policies” for a discussion of recent accounting pronouncements.
No such payment was required to be made in either 2024 or 2023 based on our operating results for the years ended December 31, 2023 and 2022, respectively. ​ The Senior Notes and the ABL Revolver contain covenants limiting our ability, and the ability of CPI CG Inc. and our restricted subsidiaries to, among other things, incur or guarantee additional debt or issue disqualified stock or certain preferred stock; create or incur liens; pay dividends, redeem stock or make other distributions; make certain investments; create restrictions on the ability of CPI CG Inc. and our restricted subsidiaries to pay dividends to us or make other intercompany transfers; transfer or sell assets; merge or consolidate; and enter into certain transactions with affiliates, subject to a number of important exceptions and qualifications as set forth in the respective agreements.
Factors that we believe are important in assessing our credit ratings include earnings, cash flow generation, leverage, available liquidity and the overall health of the business. ​ The 2029 Senior Notes and the 2029 ABL Revolver contain covenants limiting the ability of the Company, the Borrower and the Company’s restricted subsidiaries to, among other things, incur or guarantee additional debt or issue disqualified stock or certain preferred stock; create or incur liens; pay dividends, redeem stock or make other distributions; make certain investments; create restrictions on the ability of the Borrower and its restricted subsidiaries to pay dividends to the Company or make other intercompany transfers; transfer or sell assets; merge or consolidate; and enter into certain transactions with affiliates, subject to a number of important exceptions and qualifications as set forth in the indenture governing the 2029 Senior Notes and the ABL Credit Agreement.
Usually our contractual arrangements include neither exclusivity clauses nor commitments from our customers to order any given quantities of products on a 48 Table of Contents medium or long-term basis.
Generally, enforceable rights and obligations for goods and services occur only when a customer places a purchase order or statement of work to obtain goods or services under an MSA. Usually our contractual arrangements include neither exclusivity clauses nor commitments from our customers to order any given quantities of products on a medium or long-term basis.
Items included in “Products” net sales are produced Financial Payment Cards, including contact-EMV, contactless EMV, Second Wave, contactless and magnetic stripe cards, private label credit cards and retail gift cards. Card@Once printers and consumables are also included in “Products” net sales, and their associated revenues are recognized at the time of shipping.
Items included in “Products” net sales are produced payment cards, including contact, contactless, eco-focused, and magnetic stripe cards, private label credit cards and retail gift cards.
Cash Flow from Operating Activities Cash provided by operating activities increased for the year ended December 31, 2023 to $34.0 million from $31.3 million for the year ended December 31, 2022, primarily due to collections on outstanding receivables from the prior year end and a decrease in inventory purchases in 2023.
Cash Flows from Operating Activities Cash provided by operating activities for the year ended December 31, 2024 increased to $43.3 million from $34.0 million for the year ended December 31, 2023, primarily due to higher net income excluding debt refinancing costs and changes in working capital.
Net Income Net income consists of our income from operations, less other expense, net, and income taxes. ​ ​ 41 Table of Contents Results of Operations Year Ended December 31, 2023 Compared With Year Ended December 31, 2022 The following table presents the components of our consolidated statements of operations for each of the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2023 ​ 2022 ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) Net sales: (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products $ 249,354 $ 281,190 $ (31,836) (11.3) % Services ​ ​ 195,193 ​ 194,555 ​ ​ 638 0.3 % Total net sales ​ ​ 444,547 ​ ​ 475,745 ​ ​ (31,198) (6.6) % Cost of sales (1) ​ ​ 289,058 ​ 299,978 ​ ​ (10,920) (3.6) % Gross profit ​ ​ 155,489 ​ ​ 175,767 ​ ​ (20,278) (11.5) % Operating expenses ​ ​ 93,899 ​ 96,637 ​ ​ (2,738) (2.8) % Income from operations ​ ​ 61,590 ​ ​ 79,130 ​ ​ (17,540) (22.2) % Other expense, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest, net ​ ​ (26,913) ​ (29,616) ​ ​ 2,703 (9.1) % Other expense, net ​ ​ (215) ​ (367) ​ ​ 152 * ​ Income before taxes ​ ​ 34,462 ​ ​ 49,147 ​ ​ (14,685) (29.9) % Income tax expense ​ ​ (10,477) ​ (12,607) ​ ​ 2,130 (16.9) % Net income ​ $ 23,985 ​ $ 36,540 ​ $ (12,555) (34.4) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit margin ​ ​ 35.0% ​ ​ 36.9% ​ ​ ​ ​ ​ ​ ​ * Calculation not meaningful ​ (1) For the years ended December 31, 2023 and 2022, net sales and cost of sales each include $0.7 million and $1.0 million of intersegment eliminations, respectively. ​ The following discussion of our consolidated results of operations and segment results refers to the year ended December 31, 2023, compared to the corresponding period in the prior year.
Net Income Net income consists of our income from operations, less other expense, net, and income taxes. ​ ​ 38 Table of Contents Results of Operations Year Ended December 31, 2024 Compared With Year Ended December 31, 2023 The following table presents the components of our consolidated statements of operations and comprehensive income for each of the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2024 ​ 2023 ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) Net sales: (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products $ 250,008 $ 249,354 $ 654 0.3 % Services ​ ​ 230,593 ​ 195,193 ​ ​ 35,400 18.1 % Total net sales ​ ​ 480,601 ​ ​ 444,547 ​ ​ 36,054 8.1 % Cost of sales (1) ​ ​ 309,382 ​ 289,058 ​ ​ 20,324 7.0 % Gross profit ​ ​ 171,219 ​ ​ 155,489 ​ ​ 15,730 10.1 % Operating expenses ​ ​ 108,427 ​ 93,899 ​ ​ 14,528 15.5 % Income from operations ​ ​ 62,792 ​ ​ 61,590 ​ ​ 1,202 2.0 % Other expense, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest, net ​ ​ (34,087) ​ (26,913) ​ ​ (7,174) 26.7 % Loss on debt extinguishment ​ ​ (2,987) ​ ​ (243) ​ ​ (2,744) ​ * ​ Other (expense) income, net ​ ​ (691) ​ 28 ​ ​ (719) * ​ Income before taxes ​ ​ 25,027 ​ ​ 34,462 ​ ​ (9,435) (27.4) % Income tax expense ​ ​ (5,506) ​ (10,477) ​ ​ 4,971 (47.4) % Net income ​ $ 19,521 ​ $ 23,985 ​ $ (4,464) (18.6) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit margin ​ ​ 35.6% ​ ​ 35.0% ​ ​ ​ ​ ​ ​ * Calculation not meaningful.
Financing As of December 31, 2023, we had the following outstanding borrowings: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 ​ ​ (dollars in thousands) Senior Notes ​ $ 267,897 ​ $ 285,000 ABL Revolver ​ ​ — ​ ​ 5,000 Unamortized deferred financing costs ​ ​ (2,900) ​ ​ (4,478) Total long-term debt ​ $ 264,997 ​ $ 285,522 ​ Senior Notes ​ On March 15, 2021, we completed an offering of $310.0 million aggregate principal amount of Senior Notes and related guarantees at an issue price of 100%.
Financing As of December 31, 2024 and 2023, we had the following outstanding borrowings: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2024 2023 ​ ​ (dollars in thousands) 2029 Senior Notes ​ $ 285,000 ​ $ — 2026 Senior Notes ​ ​ — ​ ​ 267,897 Unamortized deferred financing costs ​ ​ (4,595) ​ ​ (2,900) Total long-term debt ​ $ 280,405 ​ $ 264,997 ​ 2029 Senior Notes ​ On July 11, 2024 (the “Closing Date”), we completed a private offering by our wholly-owned subsidiary, CPI CG Inc.
This decrease was partially offset by an increase in Services net sales due to higher Card@Once services, driven by a higher printer installation base.
The increase in Services net sales was driven by higher personalization and Card@Once services.
For work performed but not completed and billed, we estimate revenue by taking actual costs incurred and applying historical margins for similar types of contracts. Margins across each business with similar contracts have been relatively consistent and we have not made changes to our methods and assumptions during 2023.
Margins across each business with similar contracts have been relatively consistent and we have not made changes to our methods and assumptions during 2024. Customer Contracts: The Company often enters into Master Services Agreements (“MSAs”) with its customers.
The unused portion of the ABL Revolver commitment accrues a monthly unused line fee, between 0.375% to 0.50% per annum, multiplied by the aggregate amount of Revolver commitments less the average Revolver usage during the immediately preceding month.
The unused portion of the 2029 ABL Revolver commitment accrues a commitment fee, which ranges from 0.375% to 0.50% per annum, based on the average daily excess availability under the 2029 ABL Revolver over the immediately preceding month. As of December 31, 2024, there were no outstanding borrowings on the 2029 ABL Revolver.
We also offer an instant card issuance solution, which provides customers the ability to issue a personalized debit or credit card within the bank branch to individual cardholders.
Services include personalization; instant issuance, which provides customers the ability to issue an instant personalized debit or credit card on-demand within a customer location; and other payment solutions such as digital push provisioning for mobile wallets.
We may purchase shares through open market purchases or through privately negotiated transactions, the extent and timing of which will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations, as determined by us. ​ Material Cash Requirements Our material cash requirements include interest payments on our long-term debt, operating and finance lease payments, and purchase obligations to support our operations.
Material Cash Requirements Our material cash requirements include interest payments on our long-term debt, operating and finance lease payments, and purchase obligations to support our operations.
The increase in the effective tax rate for the year ended December 31, 2023, was primarily due to tax deductibility limitations on executive compensation and a decrease in unrecognized tax benefits liabilities during the year ended December 31, 2022 due to the lapse of the statute of limitations. ​ Segment Discussion ​ Debit and Credit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) ​ Net sales ​ $ 361,057 ​ $ 390,559 ​ $ (29,502) ​ (7.6) % Gross profit ​ $ 126,776 ​ $ 144,214 ​ $ (17,438) ​ (12.1) % Income from operations ​ $ 94,906 ​ $ 110,045 ​ $ (15,139) ​ (13.8) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit margin ​ ​ 35.1% ​ ​ 36.9% ​ ​ ​ ​ ​ ​ ​ Net Sales: ​ Net sales for Debit and Credit decreased for the year ended December 31, 2023, primarily due to a decrease in Products net sales, driven by volume declines in eco-focused cards compared to 2022, which benefited from the acquisition of a new portfolio by an existing customer, and EMV cards, partially offset by increased sales of other contactless cards.
The effective tax rate for the year ended December 31, 2023 was impacted by limitation of executive compensation deductibility related to the former Chief Executive Officer’s (“CEO’s”) retention agreement. ​ Segment Discussion ​ Debit and Credit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2024 2023 ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) ​ Net sales ​ $ 375,261 ​ $ 361,057 ​ $ 14,204 ​ 3.9 % Gross profit ​ $ 128,095 ​ $ 126,776 ​ $ 1,319 ​ 1.0 % Income from operations ​ $ 92,856 ​ $ 94,906 ​ $ (2,050) ​ (2.2) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit margin ​ ​ 34.1% ​ ​ 35.1% ​ ​ ​ ​ ​ ​ ​ Net Sales: ​ Net sales for Debit and Credit increased for the year ended December 31, 2024, primarily due to increased Services net sales.
In addition, the Company has a partial valuation allowance on certain state interest deduction limitations and net operating losses, which the Company estimates may not be fully utilized. Additionally, other changes to the federal and state tax regulations can lead to variability in allowable deductions, which can impact the Company’s valuation allowance.
We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. 46 Table of Contents The Company’s valuation allowance recorded as of December 31, 2024, relates to certain state net operating losses, which the Company estimates may not be fully utilized.
Removed
See "Risk Factors" and “Cautionary Statement Regarding Forward - Looking Statements.” Company Overview We are a payments technology company and leading provider of comprehensive Financial Payment Card solutions in the United States.
Added
We are a leader in several areas of the U.S. payment card solutions market, including debit and credit card production, personalization, and Software-as-a-Service-based (“SaaS-based”) instant issuance services.
Removed
We have established a leading position in the Financial Payment Card solutions market through more than 20 years of experience. ​ We serve a diverse set of several thousand customers which includes direct customers and indirect customer relationships whereby CPI provides Financial Payment Card solutions to a customer through a Group Service Provider (as defined below).
Added
We serve thousands of customers through direct and indirect sales channels and have maintained long-standing relationships with our top customers. Our revenues are primarily generated from the production of and services related to secure debit and credit cards that are issued on the networks of the Payment Card Brands, including Prepaid Debit Cards.
Removed
Our customers include some of the largest issuers of debit and credit cards in the United States, the 38 Table of Contents largest Prepaid Debit Card program managers in the United States, numerous financial technology companies (“fintechs”), as well as independent community banks, credit unions and Group Service Providers.
Added
Prepaid Debit Segment Our Prepaid Debit segment primarily provides secure packaging solutions, Prepaid Debit Cards, and other integrated prepaid card services to prepaid program managers in the U.S. Other Our Other segment includes corporate expenses.
Removed
We define “Group Service Providers” as reseller or card processor organizations that assist small card issuers, such as credit unions, with managing their credit and debit card programs, including managing the Financial Payment Card issuance process, core banking operations and other financial services. ​ We serve our customers through a network of high-security production and card services facilities in the United States, each of which is audited for compliance with the standards of the Payment Card Industry Security Standards Council (the “PCI Security Standards Council”) by one or more of the Payment Card Brands.
Added
(1) For the years ended December 31, 2024 and 2023, net sales and cost of sales each include $1.2 million and $0.7 million of intersegment eliminations, respectively. ​ The following discussion of our consolidated results of operations and segment results refers to the year ended December 31, 2024 compared to the corresponding prior year period.
Removed
Many of our customers require us to comply with PCI Security Standards Council requirements that relate to the provision of our products and services.
Added
Net Sales: ​ Net sales increased for the year ended December 31, 2024, primarily due to higher Services net sales in our Prepaid Debit segment and higher personalization services net sales in our Debit and Credit segment. ​ Net sales were negatively impacted by reduced demand from some of our customers for debit and credit card products during 2023 and the first half of 2024, which we believe was the result of economic concerns and supply chain-related purchase timing, whereby certain customers increased their inventory of our products during 2022 amid product availability concerns and then focused on reducing their inventory levels in subsequent periods. ​ Gross Profit and Gross Profit Margin: Gross profit and gross profit margin increased for the year ended December 31, 2024, primarily due to higher net sales described above and the resulting operating leverage.
Removed
Our network of high-security production facilities allows us to optimize our solutions offerings and to serve the needs of our diverse customer base. ​ Driven by a combination of our strong relationships, quality, technology, and innovation, we believe we have strong positions in the following markets: ● the U.S. prepaid debit market, including the largest U.S.
Added
Operating Expenses: Operating expenses increased for the year ended December 31, 2024, primarily due to increased compensation-related expenses, including employee performance-based incentive compensation related to stronger 2024 company performance compared to 2023 and salary expenses. 39 Table of Contents ​ Interest, net : ​ Interest expense increased for the year ended December 31, 2024, primarily due to payment of an early redemption premium of $5.8 million related to the redemption of the $267.9 million 8.625% Senior Secured Notes due 2026 (the “2026 Senior Notes”), as well as impacts from higher interest rates on the 10.000% Senior Secured Notes due 2029 (defined below) entered into on July 11, 2024. ​ Loss on Debt Extinguishment: During the year ended December 31, 2024, we recorded a loss on debt extinguishment relating to unamortized deferred financing costs in connection with the redemption of the 2026 Senior Notes and the refinancing of our ABL Revolver Credit Agreement in July 2024.
Removed
Prepaid Debit Card program managers; ● the U.S. small to mid-sized financial institutions market, which includes independent community banks and credit unions; ● the U.S. large issuer market, serving some of the largest U.S. debit and credit card issuers; and ● the U.S. fintech market, where we produce and personalize Financial Payment Cards for financial technology companies.
Added
Other (Expense) Income, net: ​ Other (expense) income, net increased for the year ended December 31, 2024, primarily due to expenses incurred related to a secondary offering of our common stock.
Removed
Trends and Key Factors Affecting our Financial Performance ​ We believe the following key factors may have a meaningful impact on our business performance and may negatively influence our financial and operating results: ​ We believe some customers have reduced demand for our products and services and we may experience reduced demand from customers in the future due to the following: ​ ● Some large banks point toward the possibility that the U.S. economy may experience an economic slowdown in the near future, which we believe has caused, and may continue to cause, some of our customers, particularly in the banking and financial services industry, to have concerns about the broader economic environment and therefore reduce overall spending, delay spending into future periods, or request pricing concessions, including on card programs or other products and services we offer. ​ ● Some of our customers have anticipated supply-chain-related delays and have correspondingly increased their own inventory of the Company’s products on hand during 2022.
Added
See Part II, Item 8, Financial Statements and Supplementary Data , Note 12, “Stockholders’ Deficit” of the consolidated financial statements for further information. ​ Income Tax Expense: ​ Our effective tax rates on pre-tax income were 22.0% and 30.4% for the years ended December 31, 2024 and 2023, respectively.
Removed
As supply-chain lead times have improved and given the economic concerns noted above, we believe some customers have become and continue to remain more focused on reducing their inventory levels. ​ ● Certain banks have experienced negative liquidity events, including takeover by industry regulators and deposit outflows, which have had the effect of deteriorating share prices and limiting access to capital, leading to cautionary signals and uncertainty in the financial services industry.
Added
The effective tax rate for the year ended December 31, 2024 benefited from increased deductibility of stock-based compensation realized upon certain stock option exercises and restricted stock unit vesting, and benefits recognized due to the lapse of the statute of limitations related to specific uncertain tax benefit positions.
Removed
Products produced by this segment primarily include EMV ® and non-EMV Financial Payment Cards, including contact and contactless (dual-interface) cards and plastic and encased metal cards, and Second Wave payment cards featuring a core made with ROBP, and other private label credit cards that are not issued on the networks of the Payment Cards Brands.
Added
Our future cash flows could be impacted by a variety of factors, some of which are beyond our control.
Removed
We also sell Card@Once ® printers and related supplies as part of our proprietary and patented instant card issuance system. Services provided include a variety of integrated card services, including card personalization and fulfillment services.
Added
Working capital changes included lower employee performance-based incentive compensation payments in 2024 related to 2023 performance as compared to those made in 2023 related to 2022 performance and lower cash paid for interest on our Senior Notes due to the timing of the refinancing, partially offset by payments for incentives related to a customer contract entered into in the first quarter of 2024, a $5.0 million payment pursuant to an agreement entered into on June 2, 2023 with the Company’s prior CEO, and deposits made on machinery and equipment yet to be placed in service.
Removed
We also provide print-on-demand services, where we produce images, personalized payment cards and related collateral on a one-by-one, on-demand basis for our customers, as well as our Card@Once software-as-a-service (SaaS) solution. The Debit and Credit segment operations are each audited for compliance by one or more of the Payment Card Brands.
Added
Working capital was also significantly impacted in 2024 by the timing of collections from customers and payments to our vendors.
Removed
Many of our customers require us to comply with the standards of the PCI Security Standards Council. Prepaid Debit Segment Our Prepaid Debit segment primarily provides integrated prepaid card services to Prepaid Debit Card providers in the United States, including tamper-evident security packaging.

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