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What changed in CPI Card Group Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CPI Card Group Inc.'s 2022 and 2023 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 2023 report.

+271 added−294 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-08)

Top changes in CPI Card Group Inc.'s 2023 10-K

271 paragraphs added · 294 removed · 202 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeBy 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. To achieve our vision, we focus on our four strategic priorities: deep customer focus, market-leading quality products and customer service, continuous innovation, and market competitive business model.
Biggest changeWe 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.
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 not to depend on any single supplier.
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.
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 10 Table of Contents 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 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.
The CFPB has issued guidance that applies to “supervised service providers” which the CFPB has defined to include service providers like us as well as CFPB supervised banks and nonbanks. The CFPB has in the past 11 Table of Contents and may in the future issue regulations that may require us to make compliance investments.
The CFPB has issued guidance that applies to “supervised service providers” which the CFPB has 11 Table of Contents defined to include service providers like us as well as CFPB supervised banks and nonbanks. The CFPB has in the past and may in the future issue regulations that may require us to make compliance investments.
Competitive factors for our business include product quality, durability, security, service reliability, product line comprehensiveness and integration, timely introduction of new products and features, 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, 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.
Instant Card Issuance Systems and Services In addition to centralized personalization services performed at our facilities, our customers may also utilize personalization services through Card@Once, our proprietary and patented instant card issuance system and SaaS solution, which provides our customers the ability to issue a completely personalized, permanent debit or credit card within the bank branch to individual cardholders upon demand.
Instant Card Issuance Systems and Services In addition to centralized personalization services performed at our facilities, our customers may also utilize personalization services through Card@Once, our proprietary and patented instant card issuance system and SaaS-based solution, which provides our customers the ability to issue a completely personalized, permanent debit or credit card within the bank branch to individual cardholders upon demand.
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 payment technology company and leading provider of comprehensive Financial Payment Card solutions in the United States.
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.
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, Thales (formerly known as Gemalto NV), Travel Tags, and WestRock (Multi Packaging Solutions), among others.
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.
Our business consists of the following reportable segments: ● Debit and Credit, which primarily produces Financial Payment Cards and provides integrated card 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.
Our 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.
Market-Leading Quality Products and Customer Service ​ Our strong team of dedicated, passionate employees embrace a culture of collaboration and steadfast focus on delivering superior products and exceptional customer service which has helped build us into a leading solutions provider.
Market-Leading Quality Payments Solutions and Customer Service ​ Our strong team of dedicated, passionate employees embrace a culture of collaboration and steadfast focus on delivering superior products and exceptional customer service which has helped build us into a leading solutions provider.
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, as well as 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 this prepaid retail market.
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.
The Payment Card Brand attestations of compliance allow us to produce cards bearing these brands and provide relevant card services for our issuer 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.
With a focus on market-leading quality products and customer service, we are committed to operational excellence and adapting to market dynamics to help our customers achieve top-of-wallet status and build their businesses. We listen to the voices of our customers and focus on helping them deliver unique and differentiated solutions that elevate their customers’ experience.
With a focus on market-leading quality payments solutions and customer service, we are committed to operational excellence and adapting to market dynamics to help our customers achieve top-of-wallet status and build their businesses. We listen to the voices of our customers and focus on helping them deliver unique and differentiated solutions that elevate their customers’ experience.
Nearly two-thirds of our net sales for the year ended December 31, 2022 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.
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.
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 direct fulfillment to a consumer.
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.
Our sales and marketing strategy focuses 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. 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 U.S. and foreign patents and applications have an average remaining maturity of approximately 13 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.
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 12 Table of Contents Report on Form 10-K.
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.
As of December 31, 2022, we operated facilities comprising approximately 386,000 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, 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.
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 7 Table of Contents business-to-consumer verticals such as healthcare, transit, payroll, corporate incentives, government disbursement, benefits and insurance.
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.
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. Earth Elements TM Eco-Focused Cards We believe we are a leading provider of eco-focused card solutions in the U.S., having sold more than 90 million eco-focused contactless payment cards since launch in 2019.
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.
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, 2022, we had 48 U.S. and foreign trademark registrations and applications, 39 existing U.S. patents, 42 existing foreign patents, as well as 45 pending U.S. and foreign patent applications.
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.
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 card processor on behalf of a financial institution. Such information can include names, email and physical addresses, card account numbers and expiration dates.
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.
Beginning with the year ended December 31, 2021, the Company is classified as an accelerated filer with respect to SEC regulations and filing requirements. ​
Beginning with the year ended December 31, 2021, the Company is classified as an accelerated filer with respect to SEC regulations and filing requirements. 12 Table of Contents
The Company had one customer that accounted for 10% or more of its net sales in 2022. Net sales from this customer was approximately 16% of total net sales for the year ended December 31, 2022. We have been serving this customer for more than 10 years.
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.
Our Earth Elements portfolio offers eco-focused solutions, including 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, Earth Elements cards incorporate varying types and amounts of upcycled plastic content, including ROBP, recycled PVC and recycled PET-G.
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.
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 products and customer service with a market-competitive business model. We believe these efforts have resulted in CPI gaining estimated overall market share each year from 2018 to 2022.
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.
Cards in the Earth Elements portfolio are available in all forms of EMV Financial Payment Cards (contact and contactless dual-interface), and 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.
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.
Under the agreement, we agreed to pay certain fees in exchange for the supplier’s commitment to reserve 8 Table of Contents 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.
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.
For the year ended December 31, 2022 approximately 97% of our purchased microchips and antennas came from these four main suppliers, and approximately 68% came from one supplier, with most of our contactless chips being provided from that same supplier. The other key components for our products are substrates and inlays.
For the year ended December 31, 2023 approximately 96% of our purchased microchips and antennas came from these four main suppliers, and approximately 72% came from one supplier, including most of our contactless chips. The other key components for our products are substrates and inlays.
We continue to focus on driving top-line performance, profitability, and operational efficiency. Our Products and Services EMV Financial Payment Cards (Contact and Contactless Dual-Interface) We produce plastic EMV cards, including our eco-focused solutions that we describe further below, and encased metal contact EMV cards.
Our Products and Services EMV Financial Payment Cards (Contact and Contactless Dual-Interface) We produce plastic EMV cards, including our eco-focused solutions that we describe further below, and encased metal contact EMV cards.
EMV ® is a registered trademark or tradename of EMVCo LLC in the United States and other countries. Our Strategy We are a payment technology company that provides end-to-end debit, credit and prepaid payment solutions delivered physically, digitally and on-demand.
EMV ® is a registered trademark in the U.S. and other countries and an unregistered trademark elsewhere. The EMV trademark is owned by EMV Co, LLC . Our Strategy We are a payments technology company that provides end-to-end debit, credit and prepaid payment solutions delivered physically, digitally and on-demand.
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.
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 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, 2022, CPI employed approximately 1,375 full-time employees, approximately 55% male and 45% female. Approximately 59% of the employee base identifies 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, 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.
The total value of our commitment is $194.9 million over the term of the agreement. Customers We categorize our customers as follows: large issuers, small to mid-sized issuers, fintechs, prepaid debit issuers and program managers and Group Service Providers.
As of December 31, 2023, the remaining commitment was $125.3 million. 8 Table of Contents Customers We categorize our customers as follows: large issuers, small- to mid-sized issuers, fintechs, prepaid debit issuers and program managers and Group Service Providers.
We aim to inspire and satisfy our customers by redefining experiences that may have traditionally seemed rigid and complex. With our full and expanding suite of catalytic and competitively differentiated products and solutions, we offer our customers choice, convenience and control.
With our full and expanding suite of catalytic and competitively differentiated products and solutions, we offer our customers choice, convenience and control.
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.
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.
We have also developed standards of excellence and target metrics regarding the quality, reliability and on-time delivery of our products. We invest in equipment advancements and technology in order to create broader capabilities as well as improve the quality and efficiencies of, and the customer satisfaction with, our offerings.
We invest in equipment advancements and technology in order to create broader capabilities as well as improve the quality and efficiencies of, and the customer satisfaction with, our offerings. We continue to focus on driving top-line performance, profitability and operational efficiency.
In 2022, we began transitioning positions that were staffed with temporary workers to permanent employee positions, in order to better manage our workforce and operations. 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.
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 strive to enhance our offerings to create and deliver next generation products and solutions that meet the demands of the marketplace and exceed customers’ expectations. Continuous innovation aims to win new business and help our customers differentiate themselves with distinctive products and solutions, build their brands, and achieve top-of-wallet status.
We strive to enhance our offerings to create and deliver next generation products and solutions that meet the demands of the marketplace and exceed customers’ expectations.
Market-Competitive Business Model By creating a dynamic and efficient operating model, we have positioned ourselves to better serve our customers. We aim to streamline our operations, which enables us to allocate resources focused on providing our 6 Table of Contents customers with unmatched solutions, innovation and exceptional service.
Continuous innovation aims to win new business and help our customers differentiate themselves with distinctive products and solutions, build their brands and achieve top-of-wallet status. 6 Table of Contents Market-Competitive Business Model By creating a dynamic and efficient operating model, we have positioned ourselves to better serve our customers.
We 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.
Our principal executive offices are located at 10368 West Centennial Road, Littleton, CO 80127, telephone (720) 681-6304.
Approximately 74% of our full-time employees are production and service facility staff. Additionally, we use the services of temporary workers to provide flexibility for our business needs, particularly in our Prepaid Debit Card locations where historically we experienced more seasonality, although this is becoming a less meaningful portion of our workforce.
Approximately 74% of our full-time employees are production and service facility staff. In 2023, we completed the process of transitioning temporary worker positions in our Prepaid Debit Card locations, where historically we experienced more seasonality, to permanent employee positions, in order to better manage our workforce and operations, and significantly reduced our reliance on temporary workers.
Deep Customer Focus We are committed to keeping our customers at the center of everything we do. By partnering with our customers and allowing their needs to inform our business, we enhance our ability to deliver value and help their businesses thrive.
By partnering with our customers and allowing their needs to inform our business, we enhance our ability to deliver value and help their businesses thrive. We aim to inspire and satisfy our customers by redefining experiences that may have traditionally seemed rigid and complex.
Our vision is to be our customers’ partner of choice by providing market-leading quality products, customer service and continuous innovation with a market-competitive business model. 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.
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.
If suppliers cannot fulfill our orders this can constrain our ability to support customer demand and negatively impact net sales. To mitigate the supply-chain constraints discussed above, we increased inventory levels in 2022 and entered into a capacity reservation agreement with one of our chip suppliers to reserve production supply capacity.
In 2022, we entered into a capacity reservation agreement with one of our chip suppliers to reserve production supply capacity.
Digital Services While not currently significant to our financial results, we provide digital services and issuance technologies, including online card ordering, order lifecycle management, customer inventory management, self-service card customization, push provisioning, and other innovative solutions.
Digital Solutions While not currently significant to our financial results, we provide digital solutions, including push provisioning which allows our customers to facilitate the provisioning of payment credentials to a cardholder’s digital wallet, digital cards which allow our customers to utilize prepaid cards with online merchants, and online front-end ordering and card customization allowing customers to order one-time use physical rewards cards.
Removed
Surges in demand for certain raw materials and components, as well as other factors such as staffing challenges, have continued to strain the global supply-chain network, which has resulted in increased costs of such raw materials and components, increased shipping costs, freight and logistics delays, longer lead times and unpredictability.
Added
To achieve our vision, we focus on our four strategic priorities: deep customer focus, market-leading quality payments solutions and customer service, continuous innovation and a market competitive business model. Deep Customer Focus We are committed to keeping our customers at the center of everything we do.
Removed
Although we strive to place orders for materials and components sufficiently in advance to compile buffer stock to mitigate the impacts of freight and logistics delays and to bolster our access to raw materials and components, it is difficult to predict the ability of our suppliers to continue to fulfill such orders, and it is possible that such delays as well as costs to obtain such raw materials and components will continue.
Added
We aim to streamline our operations, which enables us to allocate resources focused on providing our customers with unmatched solutions, innovation and exceptional service. We have also developed standards of excellence and target metrics regarding the quality, reliability and on-time delivery of our products.
Removed
Our office-based employees moved to a primarily remote work environment beginning in March 2020. ​ We are committed to a diverse and inclusive workplace, in which we promote honest, ethical and respectful conduct. 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.

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 rising inflation, resulting in reduced consumer confidence and consumer and business spending and decreased demand for our products. ● Disruptions, delays and increasing 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. ● 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. ● Costs associated with being an accelerated filer and compliance with Section 404 of the Sarbanes-Oxley Act of 2002. ● Failure to recruit, retain and develop qualified new and replacement personnel amidst labor shortages and in competitive labor markets. ● The effects of the COVID-19 pandemic including restrictions imposed by federal, state and local governments as well as related economic disruptions adversely affecting our supply chain, workforce, overall operations and financial condition. ● 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. ● 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 increase if we incur additional debt. ● 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. ● The impact of the increasing focus on environmental, social and governance (“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. ● 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. ● Defects in our products that may give rise to products recalls, product liability and warranty claims as well as damage to our reputation. ● 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. ● 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 continued outbreaks of COVID-19 and tariffs and trade restrictions. ● The effects of the ongoing military action by Russia in Ukraine on the global economy. ● 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. ● 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 ● 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.
The terms of our outstanding indebtedness, low trading volume and the fluctuating trading price of our common stock may adversely affect our ability to access capital markets and any such financing may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements.
The terms of our outstanding indebtedness and the low trading volume and fluctuating trading price of our common stock may adversely affect our ability to access capital markets and any such financing may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements.
Although our directors and officers have a duty of loyalty to us under Delaware law and our certificate of incorporation, transactions that we enter into in which a director or officer has a conflict of interest are generally permissible so long as (1) the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our board of directors and a majority of our disinterested directors approves the transaction, (2) the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our stockholders and a majority of our disinterested stockholders approve the transaction or (3) the transaction is otherwise fair to us.
Although our directors and officers have a duty of loyalty to the Company under Delaware law and our certificate of incorporation, transactions that we enter into in which a director or officer has a conflict of interest are generally permissible so long as (1) the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our board of directors and a majority of our disinterested directors approves the transaction, (2) the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our stockholders and a majority of our disinterested stockholders approve the transaction or (3) the transaction is otherwise fair to us.
In addition, our continued business relationship with our customers may be impacted by several factors beyond our control, including changes of 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 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.
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, or single, key suppliers.
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.
Furthermore, in periods of industry overcapacity or when our customers encounter difficulties in their end-markets, orders are more exposed to cancellations, reductions, price renegotiations 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 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.
The successful development of new products may require us to undertake time-consuming and costly research and development activities, and we may experience difficulties or challenging market conditions that could delay or prevent the successful development, commercialization and marketing of these new products, including, for example, limited or delayed market acceptance of dual-interface EMV technology or eco-focused card solutions in the United States.
The successful development of new products and services may require us to undertake time-consuming and costly research and development activities, and we may experience difficulties or challenging market conditions that could delay or prevent the successful development, commercialization and marketing of these new products and services, including, for example, limited or delayed market acceptance of dual-interface EMV technology or eco-focused card solutions in the United States.
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 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. 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 a company in our supply chain engages in illegal, unethical or other questionable conduct, we may not have visibility to 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 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.
Nevertheless, unauthorized parties may attempt to copy aspects of our products or technologies or to obtain and use information that we regard as proprietary and may use such information to interfere with our business. Enforcing our intellectual property rights has in the past, and may in the future, cause us to incur significant costs.
Nevertheless, unauthorized parties may attempt to copy aspects of our products or technologies or to obtain and use information that we regard as proprietary and may use such information to interfere with our business. Enforcing our intellectual property rights has in the past caused and may in the future cause us to incur significant costs.
Before we can commercialize any new products, we may need to expend significant funds in order to conduct substantial research and development. Additionally, we have limited research and development resources as compared to many of our competitors, which may result in an immature product development process and lengthy product roll-outs.
Before we can commercialize any new products and services, we may need to expend significant funds in order to conduct substantial research and development. Additionally, we have limited research and development resources as compared to many of our competitors, which may result in an immature product development process and lengthy product roll-outs.
If these entities do not deploy dual-interface EMV technology or do so less quickly and/or completely than we expect, our ability to grow could be significantly affected which could have a material adverse effect on our business, financial condition and results of operations.
If these entities do not deploy dual-interface EMV technology or do so less quickly and/or completely than we expect, our ability to grow could be affected which could have a material adverse effect on our business, financial condition and results of operations.
As we develop products, we may need to make significant investments in product development and new technology, as well as sales and marketing resources. Furthermore, if we are unable to develop and introduce new and innovative products in a cost-effective and timely manner, our product and service offerings could be rendered obsolete.
As we develop products and services, we may need to make significant investments in product development and new technology, as well as sales and marketing resources. Furthermore, if we are unable to develop and introduce new and innovative products in a cost-effective and timely manner, our product and service offerings could be rendered obsolete.
The development of new or enhanced products is a complex and uncertain process requiring the accurate anticipation of technological, market and industry trends, as well as precise technical execution, all of which could adversely affect our ability to meet customer demand for new or enhanced products.
The development of new or enhanced products and services is a complex and uncertain process requiring the accurate anticipation of technological, market and industry trends, as well as precise technical execution, all of which could adversely affect our ability to meet customer demand for new or enhanced products.
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, ongoing inflation 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, 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.
Continuation of this concentrated ownership could result in a limited amount 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.
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.
Our future success depends upon our ability to develop, introduce and commercialize new products, which can be a lengthy and complex process. We may be unable to commercialize new or improved products we may develop on a timely basis or at all.
Our future success depends upon our ability to develop, introduce and commercialize new products and services which can be a lengthy and complex process. We may be unable to commercialize new or improved products and services we may develop on a timely basis or at all.
The legal, political and business environments in these areas are rapidly changing, and subsequent legislation, regulation, litigation, court rulings or other events could expose the Company to increased program costs, liability and reputational damage. 28 Table of Contents New and developing technology solutions and products could make our existing technology solutions and products obsolete or irrelevant, and if we are unable to introduce new products and services in a timely manner, our business could be materially adversely affected.
The legal, political and business environments in these areas are rapidly changing, and subsequent legislation, regulation, litigation, court rulings or other events could expose the Company to increased program costs, liability and reputational damage. 27 Table of Contents New and developing technology solutions and products could make our existing technology solutions and products obsolete or irrelevant, and if we are unable to introduce new products and services in a timely manner, our business could be materially adversely affected.
Any disruption of, interference at, 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 needs for capacity by our third-party data centers or hosted infrastructure partners could interrupt our business operations.
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, these directors may not be disinterested.
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.
The market for qualified personnel is highly competitive and we have experienced labor availability issues in several of our facilities.
The market for qualified personnel is highly competitive and we have previously experienced labor availability issues in several of our facilities.
We are subject to numerous evolving and complex laws and regulations which apply, among other things, to financial reporting standards, corporate governance, data privacy, tax, trade regulations, environmental regulations and permit requirements, export controls, competitive practices, and labor and health and safety laws and regulations in each jurisdiction in which we operate.
We are subject to numerous evolving and complex laws and regulations which apply, among other things, to financial reporting standards, corporate governance, data privacy, tax, unclaimed property, trade regulations, environmental regulations and permit requirements, export controls, competitive practices, and labor and health and safety laws and regulations in each jurisdiction in which we operate.
The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies 27 Table of Contents has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, financial condition and results of operations.
The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers and the U.S. economy, which in turn could have a material adverse effect on our business, financial condition and results of operations.
Our failure to operate our business in accordance with the standards of the PCI Security Standards Council or other industry standards applicable to our customers, such as Payment Card Brand compliance standards, could have a material adverse effect on our business.
Our failure to operate our business in accordance with the standards of the PCI Security Standards Council or other industry standards applicable to our customers, such as Payment Card Brands compliance standards, could have a material adverse effect on our business.
Any of these factors could have a material adverse effect on our business, financial condition and results of operations. ​ The covenants and restrictions contained in agreements governing our indebtedness may adversely affect our business and results of operations, may restrict our ability to grow and could make it difficult or impossible to timely make our debt service payments or refinance our debt when it comes due.
Any of these factors could have a material adverse effect on our business, financial condition and results of operations. 19 Table of Contents The covenants and restrictions contained in agreements governing our indebtedness may adversely affect our business and results of operations, may restrict our ability to grow and could make it difficult or impossible to timely make our debt service payments or refinance our debt when it comes due.
These actions and the broader Russia-Ukraine conflict have not had a material impact on the Company's financial condition or results of operations; however, the continuation or escalation of geopolitical tensions or military action related to the conflict and the imposition of additional economic sanctions could continue to adversely affect the global economy and financial markets, disrupt trade and accelerate inflationary pressures, among other things, which could negatively affect the demand for our products and further intensify problems in the global supply chain.
These actions and conflicts have not had a material impact on the Company's financial condition or results of operations; however, the continuation or escalation of geopolitical tensions or military action related to the conflict and the imposition of additional economic sanctions could continue to adversely affect the global economy and financial markets, disrupt trade and accelerate inflationary pressures, among other things, which could negatively affect the demand for our products and further intensify problems in the global supply chain.
For the year ended December 31, 2022, 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, 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.
We have been and may continue to be a target of cyber-attacks or cyber intrusions via the Internet, computer viruses, break-ins, malware, 18 Table of Contents phishing attacks, ransomware attacks, hacking, denial-of-service attacks or other attacks and similar disruptions from unauthorized use of or access to computer systems (including from internal and external sources).
We have been and may continue to be a target of cyber-attacks or cyber intrusions via the Internet, computer viruses, break-ins, malware, phishing attacks, ransomware attacks, hacking, denial-of-service attacks or other attacks and similar disruptions from unauthorized use of or access to computer systems (including from internal and external sources).
We may suffer disruptions in our production, either due to production difficulties, such as machinery or technology failures, human or other errors, or as a result of external factors beyond our control, such as delay of, or quality issues with, 22 Table of Contents materials provided by suppliers, interruption of our electrical service or a natural disaster.
We may suffer disruptions in our production, either due to production difficulties, such as machinery or technology failures, human or other errors, or as a result of external factors beyond our control, such as delay of, or quality issues with, materials provided by suppliers, interruption of our electrical service or a natural disaster.
Further investments may be costly, and if we are unable to continue to meet these standards and criteria, we may 29 Table of Contents 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 constituted in the past an important part of our revenue and profitability.
Certain provisions of our amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing changes in control if our board of directors determines that such changes in control are not in the 32 Table of Contents best interests of us and our stockholders.
Certain provisions of our amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing changes in control if our board of directors determines that such changes in control are not in the best interests of us and our stockholders.
The failure to implement ESG strategies, meet our ESG goals or evolving stakeholder expectations or standards or comply with any new ESG related regulations could adversely affect our reputation and our relationships with customers, which in turn could adversely affect our business, financial condition, results of operations and cash flows. Climate change may adversely affect our operations and financial performance.
The failure to implement ESG strategies, meet our ESG goals or evolving stakeholder expectations or standards or comply with any new ESG related regulations could adversely affect our reputation and our relationships with customers, which in turn could adversely affect our business, financial condition, results of operations and cash flows.
Additionally, as a result of labor shortages and supply-chain constraints, the Company has experienced extended production lead times in some areas of the business and difficulty meeting some customers’ delivery expectations.
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.
Further, the costs associated with compliance with and implementation of procedures under these and future laws and related rules could have a material impact on our results of operations. ​ Management has assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).
The costs associated with compliance with these and future laws and related rules and interpretations could have a material impact on our results of operations. ​ Management has assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).
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.
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.
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 from time to time; 20 Table of Contents ● 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); ● 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 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.
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 58% of our common stock, in the aggregate, as of December 31, 2022.
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.
Such problems may 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 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.
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.
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.
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 relating to any continued outbreak of COVID-19), 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 to produce our products and thus subject us to losses or adversely affect our ability to bring products to market.
Any serious disruption at any of our facilities, including as a result of the COVID-19 pandemic, 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 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.
Risks Relating to Ownership of our Common Stock ● Our majority stockholders’ continued concentrated ownership of our shares and ability to control decisions regarding our business direction and policies as well as the potential conflicts of interest that may arise between our majority stockholders and our other stockholders. ● The influence of securities analysts over the trading market for and price of our common stock, particularly due to the lack of substantial research coverage of our common stock. ● Our failure to maintain our listing on the Nasdaq Global Market (“Nasdaq”) due to failure to comply with Nasdaq listing standards . ● The impact of stockholder activism or securities litigation on the trading price and volatility of our common stock. ● Certain provisions of our organizational documents and other contractual provisions that may delay or prevent a change in control and make it difficult for stockholders other than our majority stockholders to change the composition of our board of directors.
Risks Relating to Ownership of our Common Stock ● Continued concentrated ownership of our shares by our majority stockholders and their ability to control decisions regarding our business direction and policies as well as the potential conflicts of interest that may arise between our majority stockholders and our other stockholders. ● The influence of securities analysts over the trading market for and price of our common stock, particularly due to the lack of substantial research coverage of our common stock. ● Our failure to maintain our listing on the Nasdaq Global Market (“Nasdaq”) due to failure to comply with Nasdaq listing standards . ● The impact of stockholder activism or securities litigation on the trading price and volatility of our common stock. ● Share repurchase programs may not have the intended effect on long-term stockholder value. ● Certain provisions of our organizational documents and other contractual provisions that may delay or prevent a change in control and make it difficult for stockholders other than our majority stockholders to change the composition of our board of directors.
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 whose functionality in the marketplace was adversely impacted.
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.
We generally do not 15 Table of Contents maintain large volumes of inventory, which makes us even more susceptible to harm if a supplier fails to deliver products or materials as required.
We generally do not maintain large volumes of certain types of inventory, which makes us even more susceptible to harm if a supplier fails to deliver products or materials as required.
Our long-lived assets recorded as of December 31, 2022 include $57.2 million of plant, equipment, leasehold improvements and operating lease right-of-use assets, $18.0 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, 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.
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 our largest stockholder constitute a substantial portion of our board of directors.
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.
There can be no assurance that we will be able to maintain compliance with the requirements for continued listing of our common stock on Nasdaq. If our common stock is delisted and we are unable to list our common stock on another U.S. national securities exchange, we expect our securities would be quoted on an over-the-counter market.
We may not be able to maintain compliance with the requirements for continued listing of our common stock on Nasdaq. If our common stock is delisted and we are unable to list our common stock on another U.S. national securities exchange, we expect our securities would be quoted on an over-the-counter market.
If we fail to recruit, retain and develop personnel who can provide the needed expertise across the entire spectrum of our expertise and intellectual capital needs, 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 as a result of leadership changes, then the ability of our business to successfully compete and grow may be adversely affected.
Additionally, as we continue to innovate our products and services offerings and expand into new lines of business and as the number of jurisdictions enacting privacy and related laws increases and the scope of these laws and enforcement efforts expand, we have and may continue to become subject to additional data privacy and security legal requirements and regulations such as HIPAA.
Additionally, as we continue to innovate our products and services offerings, including potentially leveraging the use of artificial intelligence and machine learning capabilities, and expand into new lines of business, and as the number of jurisdictions enacting privacy and related laws increases and the scope of these laws and enforcement efforts expand, we have and may continue to become subject to additional data privacy and security legal requirements and regulations such as HIPAA.
Additionally, an economic downturn or prolonged outbreak of the COVID-19 pandemic could result in extended voluntary or mandated closure of retail locations that sell certain of our products to consumers, including our Prepaid Debit Cards.
Additionally, an economic downturn or another global health emergency similar to the COVID-19 pandemic could result in extended voluntary or mandated closure of retail locations that sell certain of our products to consumers, including our Prepaid Debit Cards.
Net sales from this customer was approximately 16% of total net sales for the year ended December 31, 2022. 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, 2022 were from our top ten direct customers, which include certain Group Service Providers.
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.
Our certificate of incorporation also provides that any principal, officer, member, manager and/or employee of Parallel49 Equity or any entity that controls, is controlled by or under common control with Parallel49 Equity (other than any company that is controlled by us) or any investment funds managed by Parallel49 Equity will not be required to offer any transaction opportunity of which they become aware to us and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is offered to them solely in their capacities as our directors. 31 Table of Contents Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.
Our certificate of incorporation also provides that any principal, officer, member, manager and/or employee of Parallel49 Equity or any entity that controls, is controlled by or under common control with Parallel49 Equity (other than any company that is controlled by us) or any investment funds managed by Parallel49 Equity will not be required to offer any transaction opportunity of which such person becomes aware to us and could take any such opportunity for himself, herself or itself or offer such opportunity to other companies in which such person has an investment, unless such opportunity is offered to such person solely in his, her or its capacity as one of our directors. 31 Table of Contents Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.
The ongoing military action by Russia in Ukraine has impacted and may continue to have adverse effects on the global economy, and such effects could materially adversely affect our business, operations, operating results and financial condition.
Prolonged military action in foreign conflicts has impacted and may continue to have adverse effects on the global economy, and such effects could materially adversely affect our business, operations, operating results and financial condition.
If we are unable to enter into 26 Table of Contents new cross-licensing agreements or continue to successfully renew existing cross-licensing agreements, we may lose our access to certain technologies that we rely upon to develop certain of our products and or be forced to cease or delay certain growth initiatives, which could have a material adverse effect on our business.
If we are unable to enter into new cross-licensing agreements or continue to successfully renew existing cross-licensing agreements, we may lose our access to certain technologies that we rely upon to develop certain of our products and or be forced to cease or delay certain growth initiatives, which could have a material adverse effect on our business. ​ 26 Table of Contents Risks Relating to our Industry We face competition that may result in a loss of our market share and/or a decline in our profitability.
We have experienced and may continue to experience delays and interruptions in our ability to obtain materials imported into the United States due to global economic downturns and trade disruptions, including related to the COVID-19 pandemic.
We have experienced and may in the future experience delays and interruptions in our ability to obtain materials imported into the United States due to global economic downturns and trade disruptions, including related to global health crises.
For these reasons, our net sales and operating results and cash flows may differ materially from our expectations as visibility is reduced. This may have a material adverse effect on our business, financial condition and results of operations.
For these reasons, our net sales and operating results and cash flows may differ materially from our expectations as visibility is reduced. This may have a material adverse effect on our business, financial condition and results of operations. A disruption or other failure in our supply chain could adversely affect our business and financial results.
In 23 Table of Contents addition, extreme weather events could have an adverse impact on, among other things, our customers’ demand for our products and services due to impacts of such events on them as well as decreased consumer demand and spending power as a result of such events, and also on our insurance premiums, operating costs and ability to timely fulfill customer orders in the event of damage or disruption to one of our facilities resulting from such an event.
In addition, extreme weather events could have an adverse impact on, among other things, our customers’ demand for our products and services due to impacts of such events on them as well as decreased consumer demand and spending power as a result of such events, and also on our insurance premiums, operating costs and ability to timely fulfill customer orders in the event of damage or disruption to one of our facilities resulting from such an event. 23 Table of Contents We may be unable to adequately protect our trade secrets and intellectual property rights against misappropriation or infringement, which may have a material adverse effect on our business.
A breach of our security defenses could result in a loss of our intellectual property, the release of sensitive cardholder information and customer, consumer or employee personal data, or the loss of production capabilities at one or more of our production facilities.
Increasing use of artificial intelligence or machine learning capabilities may increase these risks. A breach of our security defenses could result in a loss of our intellectual property, the release of sensitive cardholder information and customer, consumer or employee personal data, or the loss of production capabilities at one or more of our production facilities.
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 10% or more of its net sales in 2022.
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.
These factors include, among others, the varying cyclicality of the financial card and electronic payment industries, labor and supply challenges, capital requirements, Payment Card Brands standards and requirements, competition, new product developments, technological changes and other factors.
These factors include the varying cyclicality of the financial card and electronic payment industries, limited visibility into our customers’ anticipated purchasing needs, labor and supply challenges, capital requirements, Payment Card Brands standards and requirements, competition, new product developments, technological changes and other factors.
This shortage of labor has resulted, and may continue to result, in increased compensation and recruiting expenses which could have a material adverse effect on our profitability, particularly if we are unable to pass all of such expenses on to our customers or are limited in our ability to find suitable workers.
This shortage of labor has resulted, and may in the future result, in increased compensation and recruiting expenses which could have a material adverse effect on our profitability, particularly if we are unable to pass all of such expenses on to our customers or are limited in our ability to find suitable workers. ​ In addition, we rely, in part, on the accumulated knowledge, skills and experience of our key personnel, including our executive officers.
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.
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.
A write-down of our long-lived assets may result from, among other things, deterioration in our performance and a decline in expected future cash flows and could have a material adverse effect on our business, financial condition and results of operations. Costs relating to product defects, and any related product liability and warranty claims may materially adversely affect our business.
A write-down of our long-lived assets may result from, among other things, deterioration in our performance and a decline in expected future cash flows and could have a material adverse effect on our business, financial condition and results of operations.
Most of our microchips, as well as certain other raw materials used in our products, are imported from suppliers located outside of the United States, including some with operations in China, Taiwan, Thailand or Haiti.
Most of our microchips, as well as certain other raw materials used in our products, are imported from suppliers located outside of the United States.
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 Germany, Thailand, South Korea, the United States, Haiti and Singapore, some of which source materials from Taiwan, primarily on a purchase order basis.
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.
This would adversely affect our financial condition, results of operations and cash flows. ​ Furthermore, customer, investor and consumer expectations in ESG areas have been varied, rapidly evolving and increasing.
We also may need to make changes to our operations that could require additional capital expenditures. This would adversely affect our financial condition, results of operations and cash flows. ​ Furthermore, customer, investor and consumer expectations in ESG areas have been varied, rapidly evolving and increasing.
Orders for replacement debit or credit cards often are placed on short notice and may require personalization. If we are unable to offer these and our other products and services in a high quality and timely manner, our relationships with our customers may be adversely affected and customers may terminate their contracts with us.
If we are unable to offer these and our other products and services in a high quality and timely manner, our relationships with our customers may be adversely affected and customers may terminate their contracts with us.
Expectations of stakeholders relating to environmental, social and governance matters may impose additional costs and expose us to new risks as well as have an adverse effect on our business, financial condition, results of operations, and cash flows.
Expectations of stakeholders relating to environmental, social and governance matters may impose additional costs and expose us to new risks as well as have an adverse effect on our business, financial condition, results of operations, and cash flows. There is an increasing focus from certain investors, regulators, customers, employees and other stakeholders concerning corporate responsibility, specifically related to ESG matters.
Although we have no operations in Russia or Ukraine, we believe we have experienced shortages in raw materials and increased costs for transportation and energy due in part to the negative impact of the Russia-Ukraine conflict on the global economy, which impacts may persist or worsen as the conflict continues or escalates.
Although we do not have any operations in the affected areas, we believe we have experienced shortages in raw materials and increased costs for transportation and energy due in part to the negative impact of the foreign military conflicts on the global economy, which impacts may persist or worsen as these conflicts continue or escalate.
Inflation, which increased significantly during 2022, has adversely affected us by increasing the costs of materials and labor needed to operate our business and could continue to adversely affect us in future periods. In the event inflation continues to increase, we may seek to increase the sales prices of our products and services in order to maintain satisfactory margins.
Inflation, which increased significantly during 2022 and 2023, has adversely affected us by increasing the costs of materials and labor needed to operate our business and could continue to adversely affect us in future periods.
However, these effects may harm our business, financial condition and results of operations in the near term and could have a continuing material impact on our operations, sales, and liquidity. ​ System security risks, data protection breaches, and cyber-attacks could compromise our proprietary information, impair customer and vendor relationships, disrupt our internal operations, harm perception of our products and expose us to litigation and/or regulatory penalties, which could have a material adverse effect on our business and our reputation.
Any third-party bankruptcy or insolvency, or any breach or default by a third party on which we rely, or the loss of any significant supplier relationships, could result in material adverse impacts on our business, financial condition and results of operations. ​ System security risks, data protection breaches, and cyber-attacks could compromise our proprietary information, impair customer and vendor relationships, disrupt our internal operations, harm perception of our products and expose us to litigation and/or regulatory penalties, which could have a material adverse effect on our business and our reputation.
In addition, we could become subject to investigations by any stock exchange on which our securities are listed, the SEC or other regulatory authorities, or litigation or disputes with stockholders, which could require additional financial and management resources and result in more costly directors’ and officers’ insurance, which could have an adverse impact on our business. ​ The failure to effectively recruit, retain and develop qualified personnel and implement effective succession processes could adversely affect our success and could have a material adverse effect on our business, financial condition and results of operations. ​ Our business functions are complex and require wide-ranging expertise and intellectual capital.
In addition, we could become subject to investigations by any stock exchange on which our securities are listed, the SEC or other regulatory authorities, or litigation or disputes with stockholders, which could require additional financial and management resources and result in more costly directors’ and officers’ insurance, which could have an adverse impact on our business. ​ Disruptions in production at one or more of our facilities may have a material adverse impact on our business, results of operations and/or financial condition.
In order to serve our customers and operate certain aspects of our business, we depend on data centers and computing infrastructure that is both our own as well as provided by third party vendors.
The reliability of our IT infrastructure and software, and our ability to expand and continually update technologies in response to our changing needs, are critical to our business. 18 Table of Contents In order to serve our customers and operate certain aspects of our business, we depend on data centers and computing infrastructure that is both our own as well as provided by third party vendors.
The extent and duration of the military action, sanctions and resulting market and economic disruptions are impossible to predict but could be substantial. ​ Current and prospective regulations, changes in our product offerings and customer contractual requirements addressing consumer privacy and data use and security could increase our costs of operations, which could adversely affect our operations, results of operations and financial condition.
Current and prospective regulations, changes in our product offerings and customer contractual requirements addressing consumer privacy and data use and security could increase our costs of operations, which could adversely affect our operations, results of operations and financial condition.
Mobile payments offer consumers an alternative method to make purchases without the need to carry a physical card and could, if widely adopted, reduce the number of Financial Payment Cards issued to consumers. In addition, other new and developing technology solutions and products could make our existing technology solutions and products obsolete or irrelevant.
Mobile payments, biometric payments and direct installment payment programs offer consumers an alternative method to make purchases without the need to carry a physical card and could, if widely adopted, reduce the number of Financial Payment Cards issued to consumers.
The Company is evaluating this purported nomination. An affiliate of Steamboat has criticized us, and we could face criticism from others, for risks associated with Parallel49 Equity’s controlling ownership interest in the Company. We could become more prone to stockholder activist demands in the event Parallel49 Equity reduces its ownership in the Company.
We could also face similar criticism from others, as well as criticism for risks associated with Parallel49 Equity’s controlling ownership interest in the Company. We could become more prone to stockholder activist demands in the event Parallel49 Equity reduces its ownership in the Company.
For the year ended December 31, 2022 approximately 97% of our purchased microchips and antennas came from four main suppliers, and approximately 68% came from one supplier, with most of our contactless chips being provided from that same supplier.
For the year ended December 31, 2023 approximately 96% of the total value of our purchased microchips and antennas came from four main suppliers, and approximately 72% came from one supplier, including most of our contactless chips.
We may be unable to produce or procure our products in conformity with these preferences and concerns, or doing so may require significant research and development costs as well as increased costs associated with procuring alternative raw materials and components. We also may need to make changes to our operations that could require additional capital expenditures.
Potential consumer concerns may also extend to the sourcing of certain materials and labor and other conditions in those locations. We may be unable to produce or procure our products in conformity with these preferences and concerns, or doing so may require significant research and development costs as well as increased costs associated with procuring alternative raw materials and components.
In addition, investment in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions.
In addition, certain investment funds specialize in companies that perform well in such assessments, and some major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions. In addition to the topics typically considered in such assessments, for businesses in the card production industry, issues of emissions and plastic waste are of particular importance.
We are considered an accelerated filer and are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, and our inability to maintain effective internal control over financial reporting in the future could result in investors losing confidence in the accuracy and completeness of our financial reports and negatively affect the market price of our common stock. ​ As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls.
If we refinance on terms that are less favorable to us than the terms of our existing debt and credit facility, our interest expense may increase significantly, which could impact our results of operations and impair our ability to use our funds for other purposes. 20 Table of Contents ​ We are considered an accelerated filer and are required to comply with the Sarbanes-Oxley Act of 2002, and our inability to maintain effective internal control over financial reporting in the future could result in investors losing confidence in the accuracy and completeness of our financial reports and negatively affect the market price of our common stock. ​ As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls.

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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 205,000 Leased Fort Wayne, Indiana Financial Payment Card production 45,000 Leased Nashville, Tennessee Financial Payment Card personalization services, instant issuance, fulfillment 71,000 Leased ​ ​
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 ​ ​

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeShould the patents 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. In addition to the matter described above, the Company may be subject to routine legal proceedings in the ordinary course of business.
Biggest changeThe 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 3. Legal Proceeding s Smart Packaging Solutions SA v. CPI Card Group Inc. ​ 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.
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.
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, has filed requests 34 Table of Contents for Inter Parties Review (“IPR”) proceedings concerning each of the four patents.
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.
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.
In 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 .
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. The current proceedings in the patent office are scheduled to run through September 2023.
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 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-five stockholders of record as of March 1, 2023.
Biggest changeItem 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.
Removed
Any future cash dividend or other dividend declarations are subject to the determination of the Company’s board of directors. Repurchases There were no shares repurchased during the years ended December 31, 2022, and 2021. ​
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
The repurchase from Parallel49 will take place in early April 2024 and will be part of the share repurchase plan authorization levels.
Added
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.
Added
The 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.
Added
(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 changeGross profit margin for Prepaid Debit decreased to 36.6% for the year ended December 31, 2022 compared to 39.7% in the prior year, primarily due to higher production costs, primarily materials, partially offset by operating leverage from higher sales, including the benefit of price increases. ​ Operating Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ ​ ​ ​ ​ % of ​ ​ ​ % of ​ ​ ​ ​ ​ ​ ​ 2022 ​ net sales ​ 2021 ​ net sales ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) Operating expenses by segment: ​ ​ ​ ​ ​ Debit and Credit ​ $ 34,169 ​ 8.7 % $ 30,537 ​ 10.3 % $ 3,632 11.9 % Prepaid Debit ​ ​ 5,976 ​ 6.9 % 4,510 ​ 5.7 % ​ 1,466 32.5 % Other ​ ​ 56,492 ​ * ​ ​ 46,915 ​ * ​ ​ 9,577 ​ 20.4 % Total ​ $ 96,637 ​ 20.3 % $ 81,962 ​ 21.8 % $ 14,675 17.9 % ​ Debit and Credit: Debit and Credit operating expenses increased $3.6 million, or 11.9%, for the year ended December 31, 2022 compared to the prior year, primarily due to a $1.3 million increase in selling and compensation expenses and a $1.0 million increase in professional services fees. ​ Prepaid Debit: Prepaid Debit operating expenses increased $1.5 million, or 32.5%, for the year ended December 31, 2022 compared to the prior year, primarily due to increased selling expenses. ​ Other: Other operating expenses increased $9.6 million, or 20.4%, for the year ended December 31, 2022 compared to the prior year, primarily due to a $7.2 million increase in compensation expenses as a result of increased employee 41 Table of Contents headcount and higher salaries and $2.2 million of increased stock compensation, and a $2.4 million increase in professional services fees, including costs related to compliance with the Sarbanes-Oxley Act. ​ Income from Operations and Operating Margin: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ ​ ​ ​ % of ​ ​ ​ % of ​ ​ ​ ​ ​ ​ 2022 ​ net sales ​ 2021 ​ net sales ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) Income from operations by segment: Debit and Credit ​ $ 110,045 28.2 % $ 79,469 26.8 % $ 30,576 38.5 % Prepaid Debit ​ ​ 25,577 29.7 % 26,910 34.0 % ​ (1,333) (5.0) % Other ​ ​ (56,492) * ​ (46,915) * ​ ​ (9,577) (20.4) % Total ​ $ 79,130 16.6 % $ 59,464 15.9 % $ 19,666 33.1 % ​ Debit and Credit: Income from operations for Debit and Credit increased $30.6 million, or 38.5%, for the year ended December 31, 2022 compared to the prior year, primarily due to higher net sales , partially offset by increased production costs and operating expenses.
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.
Operating Expenses Operating expenses are primarily comprised of selling, general and administrative expenses (“SG&A”) which generally consist of expenses for executive, finance, sales, marketing, legal, information technology, customer service, human resources, research and development and administrative personnel, including payroll, benefits and stock-based compensation expense, bad debt expense and outside legal and other advisory fees, including consulting, accounting, and software related fees.
Operating Expenses Operating expenses are primarily comprised of selling, general and administrative expenses (“SG&A”) which generally consist of expenses for executive, finance, sales, marketing, legal and compliance, information technology, procurement, customer service, human resources, research and development and administrative personnel, including payroll, benefits and stock-based compensation expense, bad debt expense and outside legal and other advisory fees, including consulting, accounting, and software related fees.
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 2022.
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 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 2022.
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.
The Company’s valuation allowance recorded as of December 31, 2022 relates primarily to a capital loss realized on the sale of a foreign subsidiary whereby the Company does not anticipate a capital gain in the foreseeable future that would allow for the recognition of the capital loss carryover.
The Company’s valuation allowance recorded as of December 31, 2023, relates primarily to a capital loss realized on the sale of a foreign subsidiary whereby the Company does not anticipate a capital gain in the foreseeable future that would allow for the recognition of the capital loss carryover.
Product costs include the cost of raw materials, including microchips 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 costs.
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.
We also generate product revenue from the sale of our Card@Once 38 Table of Contents 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 Financial Payment Cards, including print-on-demand services, tamper-evident security packaging, fulfillment services and SaaS personalization of instant issuance Financial Payment cards.
The determination of the amount of valuation allowance to be provided on recorded deferred tax assets involves consideration of estimates regarding the timing and amount of the reversal of taxable temporary differences, expected future taxable income, and the impact of tax planning strategies. Changes in the relevant facts can significantly impact the judgment or need for valuation allowances.
The determination of the amount of valuation allowance to be provided on recorded deferred tax assets involves consideration of estimates regarding the timing and amount of the reversal of taxable temporary differences and the impact of tax planning strategies. Changes in the relevant facts can significantly impact the judgment or need for valuation allowances.
In addition, the Company has a partial valuation allowance on certain state interest deduction limitations, 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.
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 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 ® ). 35 Table of Contents 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 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.
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 46 Table of Contents issuance debit and credit cards.
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.
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.
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.
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 asset related to the future deductibility of executive stock 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 compensation and accrued incentive compensation, which also requires significant judgment.
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.
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.
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.
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.
Included in the above amounts, during 2022, the Company entered into a capacity reservation agreement with one of the Company’s chip suppliers to reserve production supply capacity due to the current global supply shortage environment.
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.
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.
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.
Our ability to make investments in and grow our business, service our debt and improve our debt leverage ratios, while maintaining strong liquidity, will depend upon our ability to generate excess operating cash flows through our operating subsidiaries.
Our ability to make investments in and grow our business, service our debt and improve our debt leverage ratios, while maintaining strong liquidity, depends on our ability to generate excess operating cash flows through our operating subsidiaries.
We have estimated our future interest payments assuming no additional borrowings under the ABL Revolver, no early redemptions of principal on the Senior Notes, no early voluntary or required repayment of the borrowings under the ABL Revolver within the next twelve months, 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 ABL Revolver, no early redemptions of principal on the Senior Notes, and no debt issuances or renewals upon the maturity dates of our notes.
Debt Service Requirements As of December 31, 2022, the total projected principal and interest payments on our borrowings were $377.4 million, primarily related to the Senior Notes, of which $25.2 million of interest is expected to be paid in the next 12 months.
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.
Through March 31, 2023, the applicable interest rate margin ranges from 1.50% to 1.75% depending on the average excess availability of the facility for the most recently completed quarter.
The applicable interest rate margin ranges from 1.25% to 1.75% depending on the average excess availability of the facility for the most recently completed quarter.
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 for card-issuing financial institutions and fintechs primarily in the United States.
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.
The unused portion of the ABL Revolver commitment accrues a monthly unused line fee, 0.50% per annum through March 31, 2023, times the aggregate amount of Revolver commitments less the average Revolver usage during the immediately preceding month.
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.
On March 3, 2022, we entered into Amendment No. 1 to Credit Agreement, which amended the ABL Revolver, to among other things, increased the available borrowing capacity to $75.0 million, increased the uncommitted accordion feature to $25.0 million and revised the interest rate provisions to replace the LIBOR benchmark with updated benchmark provisions using the secured overnight financing rate (“SOFR”) as administered by the Federal Reserve Bank of New York.
The amendment, among other things, increased the available borrowing capacity to $75.0 million, increased the uncommitted accordion feature to $25.0 million and revised the interest rate provisions to replace the prior LIBOR benchmark with updated benchmark provisions using the secured overnight financing rate (“SOFR”) as administered by the Federal Reserve Bank of New York.
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. 43 Table of Contents On March 15, 2021, we completed a private offering of $310.0 million aggregate principal amount of the Senior Notes and related guarantees at an issue price of 100%.
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.
On October 11, 2022, we entered into Amendment No. 2 to the Credit Agreement, which amended the ABL Revolver to adjust certain monthly document delivery terms and to clarify the treatment of certain inventory.
On October 11, 2022, we entered into Amendment No. 2 to the Credit Agreement, which amended the ABL Revolver to adjust certain monthly document delivery terms and to clarify 45 Table of Contents the treatment of certain inventory. We primarily utilize our ABL Revolver to provide general liquidity and to support shorter term financing requirements.
The total value of the minimum non-cancellable commitment is $194.9 million over the term of the agreement, $69.6 million of which is expected to be paid in the next 12 months.
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 permitted by the indenture governing the Senior Notes, the Company may from time to time repurchase some or all of the Senior Notes in open market transactions, in privately negotiated transactions or otherwise.
As permitted by the indenture governing the Senior Notes, we may also from time to time repurchase some or all of the Senior Notes in open market transactions, in privately negotiated transactions or otherwise. During the year ended December 31, 2023, we repurchased $17.1 million of our Senior Notes in open market transactions.
Although we can provide no assurances, we believe that our cash flows from operations, combined with our current cash levels, 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.
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.
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 We are a payment technology company and leading provider of comprehensive Financial Payment Card solutions in the United States.
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.
Refer to Part II, Item 8, Financial Statements and Supplemental Data, Note 9, “Financing and Operating Leases” for details on our leasing arrangements, including future maturities of our operating lease liabilities. 45 Table of Contents Purchase Obligations A purchase obligation is an agreement to purchase goods or services that is enforceable, legally binding, and specifies all significant terms.
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.
The timing and amount of any such redemptions or repurchases will depend upon market conditions, contractual commitments, the Company’s capital needs and other factors. ​ The Company has obligations to make an offer to repay the Senior Notes, requiring prepayment in advance of the maturity date, upon the occurrence of certain events including a change of control, certain asset sales and based on an annual excess cash flow calculation.
Factors that we believe are important in assessing our credit ratings include earnings, cash flow generation, leverage, available liquidity and the overall business. ​ We have obligations to make an offer to repay the Senior Notes, requiring prepayment in advance of the maturity date, upon the occurrence of certain events including a change of control, certain asset sales and based on an annual excess cash flow calculation.
On March 15, 2021, we entered into a credit agreement with Wells Fargo Bank, National Association providing for an ABL Revolver of up to $50.0 million.
The timing and amount of any such redemptions or repurchases will depend upon market conditions, contractual commitments, our capital needs and other factors. ​ ABL Revolver ​ On March 15, 2021, we entered into a Credit Agreement with Wells Fargo Bank, National Association providing for an ABL Revolver.
As of December 31, 2022, we had approximately $221.7 million of outstanding purchase obligations, of which approximately $94.9 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, 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.
Cash used in investing activities was related primarily to capital expenditures, including investments to support the business, such as machinery and information technology equipment. 44 Table of Contents As presented in our supplemental disclosures of non-cash information on the statement of cash flows, finance leases were executed for the acquisition of right-of-use machinery and equipment assets totaling $9.1 million during the year ended December 31, 2022, compared to $1.9 million during the year ended December 31, 2021. ​ Financing Activities During the year ended December 31, 2022, cash used in financing activities was $23.2 million.
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.
Our working capital needs are typically highest in the first and third quarters due to the timing of payments for employee incentives and interest on outstanding borrowings.
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.
Net Income Net income consists of our income from operations, less other expense, net, and income taxes. 39 Table of Contents Results of Operations Year Ended December 31, 2022 Compared With Year Ended December 31, 2021 The table below presents our results of operations for the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2022 ​ 2021 ​ $ Change ​ % Change ​ ​ ​ (dollars in thousands) Net sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Products $ 281,190 $ 199,586 $ 81,604 40.9 % Services ​ ​ 194,555 ​ 175,533 ​ ​ 19,022 10.8 % Total net sales ​ ​ 475,745 ​ ​ 375,119 ​ ​ 100,626 26.8 % Cost of sales ​ ​ 299,978 ​ 233,693 ​ ​ 66,285 28.4 % Gross profit ​ ​ 175,767 ​ ​ 141,426 ​ ​ 34,341 24.3 % Operating expenses ​ ​ 96,637 ​ 81,962 ​ ​ 14,675 17.9 % Income from operations ​ ​ 79,130 ​ ​ 59,464 ​ ​ 19,666 33.1 % Other expense, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest, net ​ ​ (29,616) ​ (30,608) ​ ​ 992 (3.2) % Other (expense) income, net ​ ​ 107 ​ 14 ​ ​ 93 * ​ Loss on debt extinguishment ​ ​ (474) ​ (5,048) ​ ​ 4,574 * ​ Income before taxes ​ ​ 49,147 ​ ​ 23,822 ​ ​ 25,325 * ​ Income tax expense ​ ​ (12,607) ​ (7,881) ​ ​ (4,726) * ​ Net income ​ $ 36,540 ​ $ 15,941 ​ $ 20,599 129.2 % * Not meaningful ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2022 ​ 2021 ​ $ Change ​ % Change ​ ​ (dollars in thousands) Net sales by segment: ​ Debit and Credit ​ $ 390,559 ​ $ 296,204 ​ $ 94,355 31.9 % Prepaid Debit ​ 86,136 ​ 79,213 ​ 6,923 8.7 % Eliminations ​ ​ (950) ​ (298) ​ ​ (652) * ​ Total ​ $ 475,745 ​ $ 375,119 ​ $ 100,626 26.8 % ​ Debit and Credit: Net sales for Debit and Credit increased $94.4 million, or 31.9%, for the year ended December 31, 2022 compared to the prior year.
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.
Prior to March 15, 2023, the Company may also redeem some or all of the Senior Notes at a “make-whole” redemption price, and on or after March 15, 2023, the Company may redeem some or all of the Senior Notes at a redemption price initially set at 104.313% of the principal amount of the notes to be redeemed, and reducing over time to 100%, in each case plus accrued and unpaid interest.
Pursuant to the terms of the indenture, redemptions would be priced at 104.313% of the principal amount of any notes to be redeemed through March 15, 2024, 102.156% from March 16, 2024 through March 15, 2025, and reducing to 100% thereafter, in each case plus accrued and unpaid interest.
Gross profit margin decreased to 36.9% during the year ended December 31, 2022, compared to 37.1% in the prior year, primarily due to higher production costs, primarily materials, partially offset by operating leverage from higher sales, including the benefit of price increases . ​ Prepaid Debit: Gross profit for Prepaid Debit increased $0.1 million, or 0.4%, for the year ended December 31, 2022 compared to the prior year, primarily due to the net sales increase described above, partially offset by the inflationary impact on production costs.
Net sales also benefited from price increases, which were primarily implemented in 2022. ​ Gross Profit and Gross Profit Margin: Gross profit and gross profit margin decreased for the year ended December 31, 2023, primarily due to lower net sales and higher materials costs.
The decrease in interest expense due to the “make-whole” interest premium was partially offset by higher average interest rates on our borrowings during the year ended December 31, 2022, net premium paid of $0.5 million relating to the early retirement of the 8.625% Senior Secured Notes due 2026 (the “Senior Notes”), and interest income received of approximately $0.4 million in 2021 related to income tax refunds. ​ Loss on Debt Extinguishment: During the year ended December 31, 2022, we recorded a $0.5 million loss on debt extinguishment relating to the $25.0 million early retirement of the Senior Notes, as we expensed the associated portion of the unamortized deferred financing costs. ​ During the year ended December 31, 2021, we recorded a $5.0 million loss on debt extinguishment relating to the termination of both our previous Senior Credit Facility and First Lien Term Loan as we expensed the unamortized deferred financing costs and debt discount.
For the year ended December 31, 2022, interest expense included a $0.6 million premium paid relating to the $20.0 million early redemption of the 8.625% Senior Secured Notes due 2026 (the “Senior Notes”). ​ Other Expense, net: ​ Other expense, net was relatively consistent for the years ended December 31, 2023, and 2022. ​ Income Tax Expense: ​ Our effective tax rate on pre-tax income was 30.4% and 25.7% for the years ended December 31, 2023, and 2022, respectively.
The majority of our interest payments are due in the first and third quarters. ​ 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.
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.
Operating margins increased to 28.2% for the year ended December 31, 2022 compared to 26.8% in the prior year, primarily due to operating leverage from higher net sales, partially offset by higher production costs, primarily materials. ​ Prepaid Debit: Income from operations for Prepaid Debit decreased $1.3 million, or 5.0%, for the year ended December 31, 2022 compared to the prior year, primarily due to increased production costs and operating expenses, partially offset by higher sales.
Operating Expenses: Operating expenses decreased for the year ended December 31, 2023, primarily due to decreases in professional services in our Other segment and operating expenses in our Prepaid Debit segment, partially offset by an increase in compensation expenses.
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 have experienced, and expect to continue to experience, labor availability issues, particularly in the Company’s production facilities.
Added
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.
Removed
In the year ended December 31, 2022, the Company incurred increased employee compensation and recruiting expenses in Cost of Sales and Operating Expenses, which we expect to continue throughout 2023 and beyond as the Company continues to actively recruit additional employees and is affected by inflationary pressure.
Added
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.
Removed
Also as a result of labor shortages and supply-chain constraints, as described below, the Company has experienced extended production lead times in some areas of the business and difficulty meeting some customers’ delivery expectations.
Added
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.
Removed
We continue to proactively monitor, assess and take steps to minimize disruptions and delays in production and are seeing improvements; however, disruptions and delays that have previously caused the Company to lose or delay customer opportunities could reoccur again or worsen in 2023 and beyond. ​ ● We have experienced, and continue to experience, inflationary pressure in our supply chain, as well as delays and difficulties in sourcing key materials and components needed for our products.
Added
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.
Removed
Although we are seeing improvements in certain areas, such issues as well as other factors such as staffing challenges, have continued to strain the global supply chain network, which has resulted in increased costs of certain raw materials and components, increased shipping costs, freight and logistics delays, longer lead times, shortages of raw materials we use in our products, such as the on-going global microchip shortage, and 36 Table of Contents unpredictability.
Added
Net Sales: ​ Net sales decreased for the year ended December 31, 2023, primarily due to decreased Products net sales in our Debit and Credit segment, driven by lower volumes, partially offset by increased Card@Once services .
Removed
Certain of our suppliers have also required us to place orders that commit us to purchase goods a year or more in advance of our anticipated production need, which is a significant change from the historical practice of placing purchase orders for delivery within weeks of the anticipated production need.
Added
Compensation expenses increased due to the impacts of compensation related to an executive retention agreement and increased employee headcount and salary increases, partially offset by lower employee short-term incentive compensation. ​ 42 Table of Contents Interest, net : ​ Interest expense decreased for the year ended December 31, 2023, primarily due to lower outstanding principal balances on our borrowings.
Removed
While we are taking actions to limit the impact of the dynamics described above, including compiling buffer stock, we expect to experience supply-chain impacts on our business which may impact our ability to meet customer demand in future periods.
Added
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.
Removed
We also believe some of our customers may have anticipated, or may anticipate in the future, supply-chain-related delays and correspondingly have increased, or may seek to increase, their own inventory of the Company’s products on hand which has resulted and may result in less demand for our products in the future.
Added
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.
Removed
Also, geopolitical uncertainties associated with the ongoing Russia and Ukraine conflict, as well as COVID-19 impacts in China, have created additional supply-chain disruptions on a macro-economic level. Such events may further compound the Company’s supply-chain challenges.
Added
Our primary source of liquidity has been cash generated from our operating activities, which has been driven from net income and fluctuations in working capital.
Removed
Additionally, certain microchip producers have limited the types of microchips that they produce, which will affect our ability to continue to provide lower-cost contact microchips for certain of our customers.
Added
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.
Removed
This could cause us and affected customers to migrate to more expensive microchip options or to contactless cards at a faster pace than expected, which may be disruptive for the Company and affected customers.
Added
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.
Removed
While we may be able to pass on some of our increased labor and material costs to our customers, cost inflation has increased at a faster pace than anticipated, and we expect these factors will impact profitability throughout 2023 and beyond.
Added
These positive cash flow impacts were partially offset by lower net income and higher employee performance incentive compensation payments in 2023 related to 2022 performance.
Removed
In addition, given that raw materials inventory is recognized on a first-in, first-out basis, we expect the impact of increasing raw materials costs to be realized into our statement of operations throughout 2023 and possibly beyond. ● Our Second Wave ® payment cards feature a core made with recovered ocean-bound plastic (“ROBP”), which we historically have sourced from Haiti and processed using single-source suppliers.
Added
Cash flow from operating activities is expected to be negatively impacted in the first quarter of 2024 due to a $5.0 million payment pursuant to an agreement entered into on June 2, 2023 with the Company’s prior Chief Executive Officer, who departed in the first quarter of 2024.
Removed
Due to political instability and other factors as well as the supply-chain constraints described above, we have faced challenges in obtaining consistent supply of ROBP from Haiti. We recently began sourcing ROBP from Thailand, and the supply chain for this material includes single-source suppliers similar to the materials sourced from Haiti.
Added
Additionally, we anticipate inventory levels to increase in 2024 as a result of the capacity reservation agreement we entered into with one of our suppliers in 2022, which will be in effect through 2025.
Removed
We have tested this material and believe that cards that incorporate the material meet or exceed applicable quality standards, and we believe we will be able to procure sufficient supply from this new source country.
Added
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%.
Removed
However, if we encounter production challenges with this material or are unable to obtain adequate or consistent supply from the source country, we may not have sufficient supply of ROBP to meet customer demand for our Second Wave cards.
Added
We may redeem some or all of the Senior Notes in 2024, subject to market and other conditions.
Removed
The Company continues to actively monitor and manage its supply chain, including compiling buffer stock of materials and evaluating alternative suppliers and sources for ROBP, but it is uncertain how issues in Haiti and other factors in the ROBP supply chain will affect our ability to continue obtaining sufficient ROBP.
Added
On March 3, 2022, we entered into Amendment No. 1 to the Credit Agreement, which amended the ABL Revolver.
Removed
Additionally, alternative suppliers of ROBP in other source countries may be constrained by local or global geopolitical challenges, instability and unpredictability, and we may be subject to increased shipping and materials costs, which we may not be able to pass through to our customers. ● The Company has been classified as an accelerated filer since 2021 with respect to SEC regulations and filing requirements.
Added
Credit Ratings and Debt Covenants ​ The credit ratings on our debt are an important consideration in our overall business, managing our financing costs and facilitating access to additional capital on favorable terms.
Removed
As a result, our annual assessment of the effectiveness of our internal control over financial reporting must be audited by our external audit firm in compliance with the provisions of Section 404 of the Sarbanes-Oxley Act of 2002 (“the Sarbanes-Oxley Act”).
Added
The annual excess cash flow calculation is determined based on an adjusted net income calculation pursuant to the terms of the indenture, and varies based on our annual net leverage ratio.

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