CPI Card 10Q 2025 Q2 Quarterly report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the Quarterly Period Ended June 30, 2025

☐

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from to

Commission File Number: 001-37584

CPI Card Group Inc.

(Exact name of the registrant as specified in its charter)



Delaware		26-0344657
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)

10368 W. Centennial Road
Littleton, CO		80127
(Address of principal executive offices)		(Zip Code)

(720) 681-6304

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	PMTS	Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Number of shares of Common Stock, $0.001 par value, outstanding as of July 31, 2025: 11,337,367

Table of Contents

Table of Contents


		Page
Part I — Financial Information

Item 1 — Condensed Consolidated Financial Statements (Unaudited)		3

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3 — Quantitative and Qualitative Disclosures About Market Risk		28

Item 4 — Controls and Procedures		28

Part II — Other Information

Item 1 — Legal Proceedings		28

Item 1A — Risk Factors		28

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		28

Item 3 — Defaults Upon Senior Securities		29

Item 4 — Mine Safety Disclosures		29

Item 5 — Other Information		29

Item 6 — Exhibits		30

Signatures		31

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PART I - Financial Information

Item 1. Financial Statements

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)


	June 30,		December 31,
	2025		2024
Assets
Current assets:
Cash and cash equivalents	$	17,124	$	33,544
Accounts receivable, net		87,495		85,491
Inventories, net		83,872		72,660
Prepaid expenses and other current assets		15,850		11,347
Total current assets		204,341		203,042
Plant, equipment, leasehold improvements and operating lease right-of-use assets, net		104,774		68,648
Intangible assets, net of accumulated amortization of $57,340 and $55,393, respectively		20,945		10,492
Goodwill		48,211		47,150
Other assets		21,524		20,325
Total assets	$	399,795	$	349,657
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	24,564	$	16,123
Accrued expenses		52,933		57,979
Deferred revenue and customer deposits		1,535		1,485
Total current liabilities		79,032		75,587
Long-term debt		310,911		280,405
Deferred income taxes		—		3,318
Other long-term liabilities		38,878		25,968
Total liabilities		428,821		385,278

Commitments and contingencies (Note 12)

Stockholders’ deficit:
Series A Preferred Stock; $0.001 par value—100,000 shares authorized; 0 shares issued and outstanding at June 30, 2025 and December 31, 2024		—		—
Common stock; $0.001 par value—100,000,000 shares authorized; 11,334,910 and 11,240,507 shares issued and outstanding at June 30, 2025 and December 31, 2024, respectively		11		11
Capital deficit		(104,126)		(105,429)
Accumulated earnings		75,089		69,797
Total stockholders’ deficit		(29,026)		(35,621)
Total liabilities and stockholders’ deficit	$	399,795	$	349,657

See accompanying notes to condensed consolidated financial statements

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CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

(in thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Net sales:
Products	$	80,950	$	63,844	$	150,125	$	122,002
Services		48,803		54,974		102,389		108,752
Total net sales		129,753		118,818		252,514		230,754
Cost of sales:
Products (exclusive of depreciation and amortization shown below)		54,978		41,893		101,263		79,695
Services (exclusive of depreciation and amortization shown below)		30,546		31,743		63,176		61,672
Depreciation and amortization		4,109		2,794		7,259		5,481
Total cost of sales		89,633		76,430		171,698		146,848
Gross profit		40,120		42,388		80,816		83,906
Operating expenses:
Selling, general and administrative (exclusive of depreciation and amortization shown below)		29,291		26,225		54,786		52,268
Depreciation and amortization		1,406		1,254		2,503		2,584
Total operating expenses		30,697		27,479		57,289		54,852
Income from operations		9,423		14,909		23,527		29,054
Other expense, net:
Interest, net		(8,069)		(6,530)		(15,754)		(12,955)
Other (expense) income, net		(13)		(78)		5		(143)
Total other expense, net		(8,082)		(6,608)		(15,749)		(13,098)
Income before income taxes		1,341		8,301		7,778		15,956
Income tax expense		(823)		(2,300)		(2,486)		(4,500)
Net income	$	518	$	6,001	$	5,292	$	11,456

Basic and diluted earnings per share:
Basic earnings per share	$	0.05	$	0.54	$	0.47	$	1.03
Diluted earnings per share	$	0.04	$	0.51	$	0.44	$	0.97

Basic weighted-average shares outstanding		11,297,785		11,049,968		11,271,815		11,158,334
Diluted weighted-average shares outstanding		11,927,943		11,776,894		11,969,909		11,817,584

Comprehensive income:
Net income	$	518	$	6,001	$	5,292	$	11,456
Total comprehensive income	$	518	$	6,001	$	5,292	$	11,456

See accompanying notes to condensed consolidated financial statements

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CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

(in thousands, except share amounts)

(Unaudited)


	Common stock			Capital		Accumulated		Stockholders
	Shares	Amount		deficit		earnings		deficit
March 31, 2025	11,281,489	$	11	$	(104,299)	$	74,571	$	(29,717)
Shares issued under stock-based compensation plans	53,421		—		(536)		—		(536)
Stock-based compensation	—		—		709		—		709
Components of comprehensive income:
Net income	—		—		—		518		518
June 30, 2025	11,334,910	$	11	$	(104,126)	$	75,089	$	(29,026)


	Common stock			Capital		Accumulated		Stockholders
	Shares	Amount		deficit		earnings		deficit
December 31, 2024	11,240,507	$	11	$	(105,429)	$	69,797	$	(35,621)
Shares issued under stock-based compensation plans	94,403		—		(1,077)		—		(1,077)
Stock-based compensation	—		—		2,380		—		2,380
Components of comprehensive income:
Net income	—		—		—		5,292		5,292
June 30, 2025	11,334,910	$	11	$	(104,126)	$	75,089	$	(29,026)


	Common stock			Capital		Accumulated		Stockholders
	Shares	Amount		deficit		earnings		deficit
March 31, 2024	11,391,476	$	11	$	(104,193)	$	55,731	$	(48,451)
Shares issued under stock-based compensation plans	79,612		—		(1,177)		—		(1,177)
Stock-based compensation			—		2,094		—		2,094
Repurchase and retirement of common shares	(284,492)		—		(3,024)		—		(3,024)
Components of comprehensive income:
Net income	—		—		—		6,001		6,001
June 30, 2024	11,186,596	$	11	$	(106,300)	$	61,732	$	(44,557)


	Common stock			Capital		Accumulated		Stockholders
	Shares	Amount		deficit		earnings		deficit
December 31, 2023	11,446,155	$	11	$	(102,223)	$	50,276	$	(51,936)
Shares issued under stock-based compensation plans	93,191		—		(1,286)		—		(1,286)
Stock-based compensation	—		—		5,154		—		5,154
Repurchase and retirement of common shares	(352,750)		—		(7,945)		—		(7,945)
Components of comprehensive income:
Net income	—		—		—		11,456		11,456
June 30, 2024	11,186,596	$	11	$	(106,300)	$	61,732	$	(44,557)

See accompanying notes to condensed consolidated financial statements

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CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Six Months Ended June 30,
	2025		2024
Operating activities
Net income	$	5,292	$	11,456
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		7,815		6,188
Amortization expense		1,947		1,877
Stock-based compensation expense		3,038		5,154
Amortization of debt issuance costs		658		917
Deferred income taxes and other, net		850		(1,879)
Changes in operating assets and liabilities:
Accounts receivable, net		7,451		(2,720)
Inventories		(7,769)		(15,584)
Prepaid expenses and other assets		2,253		(20,316)
Income taxes, net		(3,154)		1,598
Accounts payable		4,977		7,079
Accrued expenses and other liabilities		(13,471)		9,858
Deferred revenue and customer deposits		50		480
Cash provided by operating activities		9,937		4,108
Investing activities
Capital expenditures for plant, equipment and leasehold improvements, net		(9,112)		(2,744)
Cash paid for acquisition, net of cash acquired		(42,442)		—
Other		50		—
Cash used in investing activities		(51,504)		(2,744)
Financing activities
Proceeds from borrowings on debt		35,000		4,000
Payments on debt		(5,000)		—
Payments on finance leases and other obligations		(3,776)		(2,413)
Common stock repurchased		—		(6,481)
Debt issuance costs		—		(118)
Taxes withheld and paid on stock-based compensation awards		(1,077)		(1,286)
Cash provided by (used in) financing activities		25,147		(6,298)
Net decrease in cash and cash equivalents		(16,420)		(4,934)
Cash and cash equivalents, beginning of period		33,544		12,413
Cash and cash equivalents, end of period	$	17,124	$	7,479
Supplemental disclosures of cash flow information
Cash paid (refunded) during the period for:
Interest	$	15,453	$	12,332
Income taxes paid	$	6,381	$	6,481
Income taxes refunded	$	(60)	$	(272)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	10,844	$	1,292
Financing leases	$	8,761	$	983
Accounts payable and accrued expenses for capital expenditures for plant, equipment and leasehold improvements	$	1,815	$	500
Unsettled share repurchases included in accrued expenses	$	—	$	2,197

See accompanying notes to condensed consolidated financial statements

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CPI Card Group Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share amounts or as otherwise indicated)

(Unaudited)

1. Business Overview and Summary of Significant Accounting Policies

Business Overview

CPI Card Group Inc. (which, together with its subsidiary companies, is referred to herein as “CPI” or the “Company”) is a payments technology company providing a comprehensive range of payment cards and related digital solutions. CPI is a leader in several areas of the U.S. payment card solutions market, including debit and credit card production, personalization, and Software-as-a-Service-based (“SaaS-based”) instant issuance services. CPI is also a market leader in the production of “Prepaid Debit Cards,” defined as debit cards issued on the networks of the “Payment Card Brands” (Visa, Mastercard^®, American Express^® and Discover^®) but not linked to a traditional bank account, and related secure packaging solutions.

CPI’s revenues are primarily generated from the production of and services related to secure debit and credit cards that are issued on the networks of the Payment Card Brands, including Prepaid Debit Cards. The Company’s business consists of the following reportable segments:

●

Debit and Credit: primarily produces secure debit and credit cards and provides card services for U.S. card-issuing financial institutions. Services include personalization; instant issuance, which provides customers the ability to issue an instant personalized debit or credit card on-demand within a customer location; and other payment solutions such as digital push provisioning for mobile wallets;

●

Prepaid Debit: primarily provides secure packaging solutions, Prepaid Debit Cards, and other integrated prepaid card services to prepaid program managers in the U.S.; and

●

Other: primarily corporate expenses.

Basis of Presentation

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to Form 10-Q and Article 8 of Regulation S-X. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the results of the interim periods presented. The condensed consolidated balance sheet as of December 31, 2024 is derived from the audited financial statements as of that date. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Use of Estimates

Management uses estimates and assumptions relating to the reporting of assets and liabilities as of the date of the financial statements, the reported revenues and expenses recognized during the reporting period, and certain financial statement disclosures in the preparation of the condensed consolidated financial statements. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and intangible assets, leases, valuation allowances for inventories and deferred taxes, revenue recognized for work performed but not completed, recognition of amounts and timing of contract costs, and uncertain tax positions. Actual results could differ from those estimates.

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Business Combinations

The Company accounts for business combinations using the acquisition method of accounting, which requires that most assets (both tangible and intangible) and liabilities are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of net assets is recognized as goodwill. Certain adjustments to the assessed fair values of the assets and liabilities made subsequent to the acquisition date, but within the measurement period, which is one year or less, are recorded as adjustments to goodwill. Results of operations of the acquired company are included in the Company’s results from the date of the acquisition. Acquisition-related costs are expensed as incurred and included in “Selling, general, and administrative expenses” in the Company’s condensed consolidated statement of operations and comprehensive income.

Net Sales

Products Net Sales

The Company reassessed certain aspects of its revenue recognition practices under ASC 606, Revenue from Contracts with Customers, and the legal enforceability of certain contract terms based on evolving business practices where the Company and a customer deviate from contract terms after an order is placed but before it is shipped. This assessment highlights the Company’s approach relating to goods that are in production but not yet shipped, reflecting its emphasis on maintaining long-term customer relationships.

Such deviations may impact the legal enforceability of payment terms for goods that are in the process of being produced but not shipped. As a result, the Company concluded that certain contracts no longer meet the criteria for over-time revenue recognition under ASC 606. Effective prospectively beginning in the second quarter of 2025, the Company now recognizes revenue for these contracts at a point in time, typically upon shipment or customer acceptance. Additionally, in connection with the acquisition and integration of Arroweye Solutions, Inc. ("Arroweye") during the second quarter of 2025, the Company assessed Arroweye’s customer contracts and determined that Arroweye revenue should also be recognized at point-in-time.

Services Net Sales

Net sales for “Services” are recognized as the services are performed. Items included in “Services” net sales include the personalization and fulfillment of payment cards, including SaaS-based personalization of instant issuance solutions, and the providing of tamper-evident secure packaging and fulfillment services to prepaid program managers. As applicable, for work performed but not billed, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts.

Customer Contracts

The Company often enters into Master Services Agreements (“MSAs”) with its customers. Generally, enforceable rights and obligations for goods and services occur only when a customer places a purchase order or statement of work to obtain goods or services under an MSA. The contract term as defined by ASC 606 is the length of time it takes to deliver the goods or services promised under the purchase order or statement of work. As such, the Company's contracts are generally short term in nature.

Costs to Obtain a Contract with a Customer

Costs to obtain a contract (“contract costs”) include only costs that the Company would not have incurred if the contract had not been obtained. For contracts in which the term is greater than one year, these costs are recorded as an asset and amortized consistent with the timing of the related revenue over the life of the contract. The current portion of the asset is included in “Prepaid expenses and other current assets” and the noncurrent portion is included in “Other assets” on the Company's condensed consolidated balance sheets. Contract costs incurred but unpaid are included in “Accrued expenses” on the Company's condensed consolidated balance sheets. Contract costs are expensed as incurred when the amortization period is one year or less.

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Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which will require a disaggregated rate reconciliation disclosure as well as additional information regarding taxes paid on an annual basis. Adoption of this accounting standard is effective for the Company for fiscal years beginning after December 15, 2024. The Company has elected not to early adopt this accounting standard. The adoption of this standard will result in additional income tax disclosures for the year ended December 31, 2025; however, the Company does not anticipate that it will have a material impact on the Company’s consolidated financial position and results of operations.

In November 2024, the Financial Accounting Standards Board issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which will require disclosure of disaggregated information about certain expense captions presented in the income statement. Adoption of this accounting standard is effective for the Company for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027. The requirements should be applied on a prospective basis while retrospective application is permitted. The Company is evaluating the impact of adoption of this standard and does not anticipate that it will have a material impact on the Company’s consolidated financial position and results of operations.

2. Accounts Receivable

Accounts receivable consisted of the following:


		June 30,		December 31,
		2025		2024
Trade accounts receivable	$	87,885	$	78,464
Unbilled accounts receivable		—		7,213
		87,885		85,677
Less allowance for credit losses		(390)		(186)
Total accounts receivable, net	$	87,495	$	85,491

3. Inventories

Inventories consisted of the following:


		June 30,		December 31,
		2025		2024
Raw materials	$	72,208	$	63,863
Work in process		4,850		955
Finished goods		6,814		7,842
Total inventories, net	$	83,872	$	72,660

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4. Acquisition

Arroweye Acquisition

On May 6, 2025, the Company acquired Arroweye, a leading provider of digitally-driven on-demand payment card solutions for the U.S. market, based in Las Vegas, Nevada, for a purchase price of $45.6 million, subject to customary post-closing working capital adjustments. As of June 30, 2025, the estimated adjusted purchase price was $46.0 million. The acquisition was funded through a combination of cash on hand and the Company’s available capacity under the ABL Revolver (defined in Note 8, “Long-Term Debt”), with $1.5 million of the purchase price held in escrow. The Company incurred $2.3 million of acquisition-related costs during the six months ended June 30, 2025, which are presented in “Selling, general and administrative” expenses in the Company’s condensed consolidated statement of operations and comprehensive income. The final consideration and the final purchase price allocation are subject to an additional working capital adjustment, further analysis of tax balances, final valuation of identifiable intangible assets, and other items.

The Arroweye financial results are included in the Company's Debit and Credit segment from the date of acquisition.

All assets and liabilities have been recorded at fair value, excluding deferred tax liabilities. The following table summarizes the preliminary allocations of purchase price:


	June 30,
	2025
Cash and cash equivalents	$	1,603
Accounts receivable		9,427
Inventories		4,071
Prepaid expenses and other current assets		1,683
Plant, equipment, leasehold improvements and operating lease right-of-use assets		18,275
Intangible assets		12,400
Goodwill		1,061
Deferred income taxes		6,256
Other assets		298
Total assets		55,074
Accounts payable		2,837
Accrued expenses		3,849
Accrued long-term operating leases		2,371
Total purchase price	$	46,017

The goodwill recognized for Arroweye is primarily attributable to the assembled workforce and is recorded in the Debit and Credit segment. The amount attributed to goodwill is not tax deductible.

The preliminary estimated fair values of the identifiable intangible assets acquired at the date of acquisition are as follows:


	Weighted Average	June 30,
	Life (Years)	2025
Trademark	2.5	$	600
Acquired technology	7.0		4,400
Customer relationships	15.0		7,400
Total identifiable intangible assets acquired		$	12,400

The fair values of the trademark and customer relationships were determined using, in respective order, the relief from royalty and excess earnings methodologies of the income approach. The fair value of acquired technology was determined using the cost to replace methodology of the cost approach. The valuations of the intangible assets were derived using Level 3 inputs and require significant judgment and estimates, including the amount and timing of future cash flows and the determination of royalty and discount rates.

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5. Plant, Equipment, Leasehold Improvements and Operating Lease Right-of-Use Assets

Plant, equipment, leasehold improvements and operating lease right-of-use assets consisted of the following:


		June 30,		December 31,
		2025		2024
Machinery and equipment	$	82,362	$	71,781
Machinery and equipment under financing leases		41,030		32,272
Furniture, fixtures and computer equipment		4,451		1,123
Leasehold improvements		23,549		18,875
Construction in progress		10,618		5,141
Operating lease right-of-use assets		27,459		15,090
		189,469		144,282
Less accumulated depreciation and amortization		(84,695)		(75,634)
Total plant, equipment, leasehold improvements and operating lease right-of-use assets, net	$	104,774	$	68,648

6. Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In determining fair value, the Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

● Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

● Level 2— Observable inputs other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term for the assets or liabilities.

● Level 3— Valuations based on unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The Company’s financial assets and liabilities that are not required to be re-measured at fair value in the condensed consolidated balance sheets were as follows:


	Carrying		Estimated
	Value as of		Fair Value as of		Fair Value Measurement at June 30, 2025
	June 30,		June 30,		(Using Fair Value Hierarchy)
	2025		2025		Level 1		Level 2		Level 3
Liabilities:
Senior Notes	$	285,000	$	302,456	$	—	$	302,456	$	—
ABL Revolver	$	30,000	$	30,000	$	—	$	30,000	$	—


	Carrying		Estimated
	Value as of		Fair Value as of		Fair Value Measurement at December 31, 2024
	December 31,		December 31,		(Using Fair Value Hierarchy)
	2024		2024		Level 1		Level 2		Level 3
Liabilities:
Senior Notes	$	285,000	$	304,571	$	—	$	304,571	$	—

The aggregate fair value of the Company’s Senior Notes (defined in Note 8, “Long-Term Debt”) was based on quoted prices for identical or similar liabilities in markets that are not active and, as a result, they are classified as Level 2 inputs. The fair value measurement associated with the ABL Revolver approximates its carrying value as of June 30, 2025, given the applicable variable interest rates.

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The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable each approximate fair value due to their short-term nature.

7. Accrued Expenses

Accrued expenses consisted of the following:


	June 30,		December 31,
	2025		2024
Accrued payroll and related employee expenses	$	10,304	$	9,493
Accrued employee performance-based incentive compensation		2,220		4,664
Employer payroll taxes		400		868
Accrued rebates		3,520		3,956
Capitalized contract costs payable		—		8,000
Accrued interest		13,446		13,506
Current operating and financing lease liabilities		11,630		9,065
Income taxes payable		309		881
Other		11,104		7,546
Total accrued expenses	$	52,933	$	57,979

Other accrued expenses as of June 30, 2025, and December 31, 2024, consisted primarily of miscellaneous accruals for invoices not yet received, self-insurance claims incurred but yet to be reported, and accrued restructuring and severance.

8. Long-Term Debt

As of June 30, 2025, and December 31, 2024, long-term debt consisted of the following:


	June 30,		December 31,
	2025		2024
Senior Notes	$	285,000	$	285,000
ABL Revolver		30,000		—
Unamortized deferred financing costs		(4,089)		(4,595)
Total long-term debt		310,911		280,405
Less current maturities		—		—
Long-term debt, net of current maturities	$	310,911	$	280,405

Senior Notes

On July 11, 2024 (the “Closing Date”), the Company completed a private offering by its wholly-owned subsidiary, CPI CG Inc., of $285.0 million aggregate principal amount of 10.000% Senior Secured Notes due 2029 (the “Senior Notes”) and related guarantees at an issue price of 100%. The Senior Notes mature on July 15, 2029 and interest is payable on January 15 and July 15 of each year.

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 and certain asset sales.

ABL Revolver

On the Closing Date, the Company and CPI CG Inc. as borrower (the “Borrower”), entered into a credit agreement with JPMorgan Chase Bank, N.A., as lender, administrative agent and collateral agent, providing for an asset-based, senior secured revolving credit facility (the “ABL Revolver”) of up to $75.0 million. The ABL Revolver matures on the earliest to occur of July 11, 2029, and the date that is 91 days prior to the maturity of the Senior Notes.

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Borrowings under the ABL Revolver bear interest at a rate per annum that ranges based on the applicable term secured overnight financing rate as administered by the Federal Reserve Bank of New York plus 1.50% to 1.75% (subject, in each case, to a credit spread adjustment of 0.10%), based on the average daily borrowing capacity under the ABL Revolver over the most recently completed month. The unused portion of the ABL Revolver commitment accrues a commitment fee, which ranges from 0.375% to 0.50% per annum, based on the average daily excess availability under the ABL Revolver over the immediately preceding month.

As of June 30, 2025, the Company had $30.0 million of outstanding borrowings on the ABL Revolver.

Deferred Financing Costs

Certain costs incurred with borrowings are reflected as a reduction to the long-term debt balance. These costs are amortized as an adjustment to interest expense over the life of the borrowing. As of June 30, 2025, the remaining unamortized debt issuance costs recorded on the Senior Notes were $4.1 million and were reported as a reduction to the long-term debt balance. The remaining unamortized debt issuance costs on the ABL Revolver were $1.4 million and were recorded as other assets on the condensed consolidated balance sheet as of June 30, 2025.

9. Income Taxes

The Company’s effective tax rates on pre-tax income were 61.4% and 27.7% for the three months ended June 30, 2025 and 2024, respectively, and 32.0% and 28.2% for the six months ended June 30, 2025 and 2024, respectively. The increase in the Company’s effective tax rate for the three months and six months ended June 30, 2025, compared to the prior year related to limitations on deductibility of executive compensation and non-deductible acquisition-related costs and increased state tax expenses related to the acquisition of Arroweye.

For the six months ended June 30, 2025 and 2024, the effective tax rates differ from the U.S. federal statutory income tax rate as follows:


	June 30,
	2025		2024
Tax at federal statutory rate	21.0	%	21.0	%
State taxes, net	9.0		6.2
Permanent items ⁽¹⁾	3.6		1.9
Tax credits	(1.6)		(0.9)
Effective income tax rate	32.0	%	28.2	%

(1)

Includes the deductibility limitations on excess compensation.

As part of the acquisition of Arroweye completed on May 6, 2025, the Company acquired operating loss (NOL) carryforwards of over $85.8 million. The utilization of these NOLs will be subject to applicable limitations and include both NOLs with a 20-year carryover period ($72.1 million), as well as NOLs with no expiration period ($13.7 million). Due to the likelihood of expiration, a gross valuation allowance was calculated of $46.5 million and a net deferred tax asset (DTA) value of $8.6 million was recorded, specifically related to the NOLs.

During the three and six months ended June 30, 2025, the Company utilized $2.2 million of these NOL carryforwards to offset a portion of its taxable income for the period. This resulted in the utilization of approximately $0.5 million of the DTA and a corresponding reduction of the current income tax liability.

The remaining unutilized DTA, net of valuation allowance, specifically related to acquired NOLs is $8.1 million, which the Company expects to use in future periods, subject to applicable limitations.

10. Stockholders’ Deficit

Share 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 expired on December 31, 2024 with a remaining unused authorized amount of $11.2 million.

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During the six months ended June 30, 2024, the Company repurchased 352,750 shares of its common stock at an average price of $18.14 per share, excluding commissions, or $6.4 million in aggregate, on a trade date basis. As a result of certain of these share repurchases, the Company was obligated to purchase 120,534 shares from one of the Company’s significant stockholders at an average price of $18.23 per share in the subsequent quarter, in accordance with the stock repurchase agreements entered into with Tricor Pacific Capital Partners (Fund IV) US, LP.

11. Earnings per Share

Basic and diluted earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of restricted stock have vested. For the three months ended June 30, 2025 and 2024, 9,363 and 15,185 potentially dilutive securities, respectively, and for the six months ended June 30, 2025 and 2024, 10,693 and 24,298, respectively, were excluded from the calculation of diluted earnings per share. The effect of these shares was anti-dilutive under the treasury stock method, as the assumed proceeds of the options and restricted stock per unit were above our average share price during the periods.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Numerator:
Net income	$	518	$	6,001	$	5,292	$	11,456

Denominator:
Basic weighted-average common shares outstanding		11,297,785		11,049,968		11,271,815		11,158,334
Dilutive shares		630,158		726,926		698,094		659,250
Diluted weighted-average common shares outstanding		11,927,943		11,776,894		11,969,909		11,817,584

Basic earnings per share	$	0.05	$	0.54	$	0.47	$	1.03

Diluted earnings per share	$	0.04	$	0.51	$	0.44	$	0.97

12. Commitments and Contingencies

Contingencies

In accordance with applicable accounting guidance, the Company establishes an accrued expense when loss contingencies are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. As a matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. Once the loss contingency is deemed to be both probable and estimable, the Company will establish an accrued expense and record a corresponding amount of expense. The Company expenses professional fees associated with litigation claims and assessments as incurred. The Company is subject to routine legal proceedings in the ordinary course of business. The Company believes that the ultimate resolution of any such matters will not have a material adverse effect on its business, financial condition or results of operations.

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Voluntary Disclosure Program

The Company is subject to unclaimed or abandoned property (escheat) laws which require it to turn over to state governmental authorities the property of others held by the Company that has been unclaimed for specified periods of time. Property subject to escheat laws generally relates to uncashed checks, trade accounts receivable credits and unpaid payable balances. During the second quarter of 2022, the Company received a letter from the Delaware Secretary of State inviting the Company to participate in the Delaware Secretary of State’s Abandoned or Unclaimed Property Voluntary Disclosure Agreement Program to avoid being sent an audit notice by the Delaware Department of Finance. On August 31, 2022, the Company entered into Delaware’s Voluntary Disclosure Agreement Program in order to voluntarily comply with Delaware’s abandoned property law in exchange for certain protections and benefits. The Company continues to work in good faith to complete a review of its books and records related to unclaimed or abandoned property during the periods required under the program. Any potential loss, or range of loss, that may result from this matter is not currently reasonably estimable.

13. Stock-Based Compensation

In October 2015, the Company adopted the CPI Card Group Inc. Omnibus Incentive Plan (as amended and supplemented, the “Omnibus Plan”) pursuant to which cash and equity-based incentives may be granted to participating employees, advisors, and directors. Effective January 30, 2024, the Company’s stockholders approved an amendment to the Omnibus Plan to increase the total number of shares of the Company’s common stock reserved and available for issuance thereunder by 1,000,000 shares, resulting in a total of 3,200,000 shares issuable under the Omnibus Plan. As of June 30, 2025, there were 780,053 shares of common stock available for grant under the Omnibus Plan.

In January 2024, the Company granted 60,000 performance stock units (PSU) in connection with the appointment of its Chief Executive Officer (“CEO”), with a grant date fair value of $0.9 million using a Monte Carlo simulation model. The PSU award will vest, subject to continuous employment, in equal one-third increments upon the attainment of the rolling weighted average closing price of the Company’s common stock equaling or exceeding each of $35.00, $50.00, and $65.00, in each case, for at least 90 consecutive trading days during the five-year performance period commencing on the grant date.

In February 2025, the Company granted executives a performance cash award (PCA) with a grant date fair value of $2.0 million using a Monte Carlo simulation model. The PCA will vest on December 31, 2025, subject to continuous employment and the achievement of certain Company performance goals including the Company’s relative total shareholder return of stock against the Russell 2000 index. Because the award is liability-classified, the award is remeasured at fair value at each reporting date and at settlement, which changes recognized as stock-based compensation expense.

During the six months ended June 30, 2025, the Company granted 112,828 restricted stock units at a weighted average grant date fair value of $24.95, and as of June 30, 2025, there were 545,360 outstanding restricted stock units at a weighted average grant date fair value of $22.23.

As of June 30, 2025, there were 747,937 options outstanding at a weighted average exercise price of $21.46. No options were granted during the six months ended June 30, 2025. Options have seven-year terms and are issued with exercise prices equal to the fair market value of the Company’s common stock on the grant date.

All equity awards are contingent and issued only upon approval by the compensation committee of the Company’s board of directors, or as otherwise permitted under the Omnibus Plan. The Company accounts for stock-based compensation pursuant to ASC 718, Share-Based Payments. All stock-based compensation is required to be measured at fair value and expensed over the requisite service period, generally defined as the applicable vesting period. The Company accounts for forfeitures as they occur and reverses previously recognized expenses for the unvested portion of the forfeited shares. Upon the exercise of stock options, shares of common stock are issued from authorized common shares.

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14. Segment Reporting

The Company’s chief operating decision maker is its CEO, who is charged with the management of the Company and is responsible for the evaluation of operating performance and decision-making about the allocation of resources to operating segments based on the measures of net sales and EBITDA.

As the Company uses the term, “EBITDA” is defined as income before interest expense, income taxes, depreciation and amortization. The Company’s chief operating decision maker believes EBITDA is a meaningful measure and is useful as a supplement to GAAP measures as it represents a transparent view of the Company’s operating performance that is unaffected by fluctuations in property, equipment and leasehold improvement additions. The Company’s chief operating decision maker uses EBITDA to perform periodic reviews and comparison of operating trends and to identify strategies to improve the allocation of resources amongst segments.

As of June 30, 2025, the Company’s reportable segments were as follows:

●

Debit and Credit;

●

Prepaid Debit; and

●

Other.

Debit and Credit Segment

The Debit and Credit segment primarily produces secure debit and credit cards and provides card services, including digital services, for U.S. card-issuing financial institutions. Products produced by this segment primarily include payment cards, including contact, contactless, eco-focused, and magnetic stripe cards. This segment also provides personalization services; instant issuance solutions, which provide customers the ability to issue an instant personalized debit or credit card on-demand within a customer location; and other payment solutions such as digital push provisioning for mobile wallets.

Prepaid Debit Segment

The Prepaid Debit segment primarily provides integrated prepaid card services to prepaid program managers primarily in the U.S., including payment cards issued on the networks of the Payment Card Brands and related tamper-evident secure packaging.

Other

The Other segment includes corporate expenses.

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Performance Measures of Reportable Segments

Net sales and EBITDA of the Company’s reportable segments, as well as a reconciliation of total segment EBITDA to income from operations and net income for the three and six months ended June 30, 2025 and 2024, were as follows:


	Three Months Ended June 30, 2025
	Debit and Credit		Prepaid Debit		Other		Intersegment Eliminations		Total
Net sales
Products	$	81,176	$	—	$	—	$	(226)	$	80,950
Services		29,581		19,222		—		—		48,803
Total net sales		110,757		19,222		—		(226)		129,753
Cost of sales
Products ⁽¹⁾		55,204		—		—		(226)		54,978
Services ⁽¹⁾		17,860		12,686		—		—		30,546
Depreciation and amortization		3,044		1,065		—		—		4,109
Total cost of sales		76,108		13,751		—		(226)		89,633
Gross profit		34,649		5,471		—		—		40,120
Operating expenses		11,596		1,300		17,801		—		30,697
Income (loss) from operations	$	23,053	$	4,171	$	(17,801)	$	—	$	9,423

EBITDA by segment:
Income (loss) from operations	$	23,053	$	4,171	$	(17,801)	$	—	$	9,423
Depreciation and amortization		3,528		1,126		861		—		5,515
Other income (expense)		(33)		—		20		—		(13)
EBITDA	$	26,548	$	5,297	$	(16,920)	$	—	$	14,925

Gross profit margin		31.3%		28.5%		*		*		30.9%
EBITDA margin		24.0%		27.6%		*		*		11.5%


	Six Months Ended June 30, 2025
	Debit and Credit		Prepaid Debit		Other		Intersegment Eliminations		Total
Net sales
Products	$	150,801	$	—	$	—	$	(676)	$	150,125
Services		56,476		45,935		—		(22)		102,389
Total net sales		207,277		45,935		—		(698)		252,514
Cost of sales
Products ⁽¹⁾		101,939		—		—		(676)		101,263
Services ⁽¹⁾		34,293		28,905		—		(22)		63,176
Depreciation and amortization		5,142		2,117		—		—		7,259
Total cost of sales		141,374		31,022		—		(698)		171,698
Gross profit		65,903		14,913		—		—		80,816
Operating expenses		21,147		2,743		33,399		—		57,289
Income (loss) from operations	$	44,756	$	12,170	$	(33,399)	$	—	$	23,527

EBITDA by segment:
Income (loss) from operations	$	44,756	$	12,170	$	(33,399)	$	—	$	23,527
Depreciation and amortization		5,799		2,242		1,721		—		9,762
Other income (expense)		(40)		6		39		—		5
EBITDA	$	50,515	$	14,418	$	(31,639)	$	—	$	33,294

Gross profit margin		31.8%		32.5%		*		*		32.0%
EBITDA margin		24.4%		31.4%		*		*		13.2%

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	Three Months Ended June 30, 2024
	Debit and Credit		Prepaid Debit		Other		Intersegment Eliminations		Total
Net sales
Products	$	64,461	$	—	$	—	$	(617)	$	63,844
Services		31,159		23,815		—		—		54,974
Total net sales		95,620		23,815		—		(617)		118,818
Cost of sales
Products ⁽¹⁾		42,510		—		—		(617)		41,893
Services ⁽¹⁾		16,988		14,755		—		—		31,743
Depreciation and amortization		1,958		836		—		—		2,794
Total cost of sales		61,456		15,591		—		(617)		76,430
Gross profit		34,164		8,224		—		—		42,388
Operating expenses		8,775		1,315		17,389		—		27,479
Income (loss) from operations	$	25,389	$	6,909	$	(17,389)	$	—	$	14,909

EBITDA by segment:
Income (loss) from operations	$	25,389	$	6,909	$	(17,389)	$	—	$	14,909
Depreciation and amortization		2,237		895		916		—		4,048
Other income (expense)		(1)		(1)		(76)		—		(78)
EBITDA	$	27,625	$	7,803	$	(16,549)	$	—	$	18,879

Gross profit margin		35.7%		34.5%		*		*		35.7%
EBITDA margin		28.9%		32.8%		*		*		15.9%


	Six Months Ended June 30, 2024
	Debit and Credit		Prepaid Debit		Other		Intersegment Eliminations		Total
Net sales
Products	$	122,832	$	—	$	—	$	(830)	$	122,002
Services		60,761		48,013		—		(22)		108,752
Total net sales		183,593		48,013		—		(852)		230,754
Cost of sales
Products ⁽¹⁾		80,525		—		—		(830)		79,695
Services ⁽¹⁾		33,580		28,114		—		(22)		61,672
Depreciation and amortization		3,829		1,652		—		—		5,481
Total cost of sales		117,934		29,766		—		(852)		146,848
Gross profit		65,659		18,247		—		—		83,906
Operating expenses		17,516		2,593		34,743		—		54,852
Income (loss) from operations	$	48,143	$	15,654	$	(34,743)	$	—	$	29,054

EBITDA by segment:
Income (loss) from operations	$	48,143	$	15,654	$	(34,743)	$	—	$	29,054
Depreciation and amortization		4,387		1,766		1,912		—		8,065
Other income (expense)		(63)		(2)		(78)		—		(143)
EBITDA	$	52,467	$	17,418	$	(32,909)	$	—	$	36,976

Gross profit margin		35.8%		38.0%		*		*		36.4%
EBITDA margin		28.6%		36.3%		*		*		16.0%

Calculation not meaningful.

(1)

Exclusive of depreciation and amortization.

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Reconciliation of Net Income to EBITDA


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Net income	$	518	$	6,001	$	5,292	$	11,456
Interest, net		8,069		6,530		15,754		12,955
Income tax expense		823		2,300		2,486		4,500
Depreciation and amortization		5,515		4,048		9,762		8,065
EBITDA	$	14,925	$	18,879	$	33,294	$	36,976

Balance Sheet Data of Reportable Segments

Total assets of the Company’s reportable segments as of June 30, 2025, and December 31, 2024, were as follows:


	June 30,		December 31,
	2025		2024
Debit and Credit	$	330,132	$	248,970
Prepaid Debit		48,323		60,621
Other		21,340		40,066
Total assets	$	399,795	$	349,657

Capital Expenditures of Reportable Segments

Total capital expenditures of the Company’s reportable segments as of June 30, 2025 and 2024, were as follows:


	Six Months Ended June 30,
	2025		2024
Debit and Credit	$	7,516	$	1,371
Prepaid Debit		1,341		1,373
Other		255		—
Total capital expenditures	$	9,112	$	2,744

15. Subsequent Events

On July 2, 2025, the Company and the Borrower entered into Amendment No. 1 to Credit Agreement (the “Amendment”), which amends the ABL Revolver to, among other things, increase the available borrowing capacity to $100.0 million from $75.0 million. The amendment did not modify the maturity date of the agreement nor the interest rate.

On July 15, 2025, the Company redeemed $20.0 million of its outstanding $285.0 million aggregate principal amount Senior Notes. The redemption was made pursuant to the terms of the indenture governing the terms of the Senior Notes, at a redemption price of 103.000% of par plus accrued and unpaid interest to the date of redemption.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to the “Company,” “our,” “us” or “we” refer to CPI Card Group Inc. and its subsidiaries. For an understanding of the significant factors that influenced our results, the following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2025. Management’s Discussion and Analysis should also be read in conjunction with the management’s discussion and analysis and consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (“SEC”).

Cautionary Statement Regarding Forward-Looking Information

Certain statements and information in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2025 (as well as information included in other written or oral statements we make from time to time) may contain or constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “estimate,” “project,” “expect,” “anticipate,” “affirm,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “continue,” “committed,” “attempt,” “aim,” “target,” “objective,” “guides,” “seek,” “focus,” “provides guidance,” “provides outlook” or other similar expressions are intended to identify forward-looking statements, which are not historical in nature. These forward-looking statements, including statements about our strategic initiatives and market opportunities, are based on our current expectations and beliefs concerning future developments and their potential effect on us and other information currently available. Such forward-looking statements, because they relate to future events, are by their very nature subject to many important risks and uncertainties that could cause actual results or other events to differ materially from those contemplated.

These risks and uncertainties include, but are not limited to: (i) risks relating to our business and industry, such as a deterioration in general economic conditions, including due to inflationary conditions, resulting in reduced consumer confidence and business spending, and a decline in consumer credit worthiness impacting demand for our products; the unpredictability of our operating results, including an inability to anticipate changes in customer inventory management practices and its impact on our business; our failure to retain our existing key customers or identify and attract new customers; the highly competitive, saturated and consolidated nature of our marketplace; our inability to develop, introduce and commercialize new products and services, including due to our inability to undertake research and development activities; new and developing technologies that make our existing technology solutions and products obsolete or less relevant or our failure to introduce new products and services in a timely manner or at all; system security risks, data protection breaches and cyber-attacks; the usage, or lack thereof, of artificial intelligence technologies; disruptions, delays or other failures in our supply chain, including as a result of inflationary pressures, single-source suppliers, failure or inability of suppliers to comply with our code of conduct or contractual requirements, trade restrictions, tariffs, foreign conflicts or political unrest in countries in which our suppliers operate, and our inability to pass related costs on to our customers or difficulty meeting customers’ delivery expectations due to extended lead times; changes in U.S. trade policy and the impact of tariffs on our business and results of operations; interruptions in our operations, including our information technology systems, or in the operations of the third parties that operate computing infrastructure on which we rely; defects in our software and computing systems; disruptions in production at one or more of our facilities due to weather conditions, climate change, political instability, or social unrest; problems in production quality, materials and process and costs relating to product defects and any related product liability and/or warranty claims and damage to our reputation; our inability to recruit, retain and develop qualified personnel, including key personnel, and implement effective succession processes; our substantial indebtedness, including the restrictive terms of our indebtedness and covenants of future agreements governing indebtedness and the resulting restraints on our ability to pursue our business strategies; our inability to make debt service payments or refinance such indebtedness; our inability to successfully execute on, integrate, or achieve the anticipated benefits of acquisitions, including the acquisition of Arroweye, or execute on divestitures or strategic relationships; our status as an accelerated filer and complying with the Sarbanes-Oxley Act of 2002 and the costs associated with such compliance and implementation of procedures thereunder; our failure to maintain effective internal control over financial reporting and risks relating to investor confidence in our financial reporting; environmental, social and governance (“ESG”) preferences and demands of various stakeholders and the related impact on our ability to access capital, produce our products in conformity with stakeholder preferences, comply with stakeholder demands and comply with any related legal or regulatory requirements or restrictions; negative perceptions of our products due to the impact of our products and production processes on the environment and other ESG-related risks; damage to our reputation or brand image; the effects of climate change on our business; our inability to adequately protect our trade secrets and intellectual property rights from misappropriation,

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infringement claims brought against us and risks related to open source software; our inability to renew licenses with key technology licensors; our limited ability to raise capital, which may lead to delays in innovation or the abandonment of our strategic initiatives; costs and impacts related to additional tax collection efforts by states, unclaimed property laws, or future increases in U.S. federal or state income taxes, resulting in additional expenses which we may be unable to pass along to our customers; our inability to realize the full value of our long-lived assets; costs and potential liabilities associated with compliance or failure to comply with laws and regulations, customer contractual requirements and evolving industry standards regarding consumer privacy and data use and security; our failure to operate our business in accordance with the Payment Card Industry Security Standards Council security standards or other industry standards; the effects of trade restrictions, delays or interruptions in our ability to source raw materials and components used in our products from foreign countries; the effects of ongoing foreign conflicts on the global economy; adverse conditions in the banking system and financial markets, including the failure of banks and financial institutions; our failure to comply with environmental, health and safety laws and regulations that apply to our products and the raw materials we use in our production processes; (ii) risks relating to ownership of our common stock, such as those associated with concentrated ownership of our stock by our significant stockholders and potential conflicts of interests with other stockholders; the impact of concentrated ownership of our common stock and the sale or perceived sale of a substantial amount of common stock on the trading volume and market price of our common stock; potential conflicts of interest that may arise due to our board of directors being comprised in part of directors who are principals of or were nominated by our significant 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; 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 significant stockholders to change the composition of our board of directors; and (iii) general risks, such as relating to our ability to comply with a wide variety of complex evolving laws and regulations and the exposure to liability for any failure to comply; the effect of legal and regulatory proceedings and the adequacy of our insurance policies; and other risks that are described in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 4, 2025, in Part II, Item 1A, Risk Factors of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 filed with the SEC on May 7, 2025, and our other reports filed from time to time with the SEC.

We caution and advise readers not to place undue reliance on forward-looking statements, which speak only as of the date hereof. These statements are based on assumptions that may not be realized and involve risks and uncertainties that could cause actual results or other events to differ materially from the expectations and beliefs contained herein. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

Company Overview

CPI is a payments technology company providing a comprehensive range of payment cards and related digital solutions. We are a leader in several areas of the U.S. payment card solutions market, including debit and credit card production, personalization, and Software-as-a-Service-based (“SaaS-based”) instant issuance services. We are also a market leader in the production of “Prepaid Debit Cards,” defined as debit cards issued on the networks of the “Payment Card Brands” (Visa, Mastercard^®, American Express^® and Discover^®) but not linked to a traditional bank account, and related secure packaging solutions. We serve thousands of customers through direct and indirect sales channels and have maintained long-standing relationships with our top customers.

Our revenues are primarily generated from the production of and services related to secure debit and credit cards that are issued on the networks of the Payment Card Brands, including Prepaid Debit Cards.

On May 6, 2025, we acquired Arroweye Solutions, Inc. (“Arroweye”), a leading provider of digitally-driven on-demand payment card solutions for the U.S. market, based in Las Vegas, Nevada for a purchase price of $45.6 million, subject to customary post-closing working capital adjustments.

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Segment Overview

Our business consists of the following reportable segments: Debit and Credit, Prepaid Debit, and Other.

Debit and Credit Segment

Our Debit and Credit segment primarily produces secure debit and credit cards and provides card services, including digital services, for U.S. card-issuing financial institutions. Products produced by this segment primarily include payment cards, including contact, contactless, eco-focused, and magnetic stripe cards. Services include personalization; instant issuance, which provides customers the ability to issue an instant personalized debit or credit card on-demand within a customer location; and other payment solutions such as digital push provisioning for mobile wallets.

Prepaid Debit Segment

Our Prepaid Debit segment primarily provides integrated prepaid card services to prepaid program managers primarily in the U.S., including payment cards issued on the networks of the Payment Card Brands and related tamper-evident secure packaging.

Other

Our Other segment includes corporate expenses.

Trends and Uncertainties That May Affect our Financial Performance

Macroeconomic Trends and Uncertainty

We continue to monitor macroeconomic trends and uncertainties such as the effects of recently implemented tariffs, and the potential imposition of modified or additional tariffs, which have had and may have adverse effects on net sales and profitability. As a result of the tariffs announced by the U.S. presidential administration in the first half of 2025, and potential tariff modifications or the imposition of tariffs or export controls by other countries, we have experienced and anticipate further increased supply chain challenges and fluctuations in the costs of raw materials and components used in our products. In addition, tariffs or other trade restrictions caused and may lead to continuing economic uncertainty, which has and may continue to reduce demand for our products and services, and negatively affect our net sales and profitability. We are continuing to evaluate these factors and their possible effects as well as our ability to potentially offset all or a portion of the impacts through pricing actions and cost savings efforts for the rest of fiscal year 2025 and in the future.

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Results of Operations

The following table presents the components of our condensed consolidated statements of operations and comprehensive income for each of the periods presented:


	Three Months Ended June 30,								Six Months Ended June 30,
	2025		2024		$ Change		% Change		2025		2024		$ Change		% Change

	(dollars in thousands)
Net sales: ⁽¹⁾
Products	$	80,950	$	63,844	$	17,106	26.8	%	$	150,125	$	122,002	$	28,123	23.1	%
Services		48,803		54,974		(6,171)	(11.2)	%		102,389		108,752		(6,363)	(5.9)	%
Total net sales		129,753		118,818		10,935	9.2	%		252,514		230,754		21,760	9.4	%
Cost of sales ⁽¹⁾		89,633		76,430		13,203	17.3	%		171,698		146,848		24,850	16.9	%
Gross profit		40,120		42,388		(2,268)	(5.4)	%		80,816		83,906		(3,090)	(3.7)	%
Operating expenses		30,697		27,479		3,218	11.7	%		57,289		54,852		2,437	4.4	%
Income from operations		9,423		14,909		(5,486)	(36.8)	%		23,527		29,054		(5,527)	(19.0)	%
Other expense, net:
Interest, net		(8,069)		(6,530)		(1,539)	23.6	%		(15,754)		(12,955)		(2,799)	21.6	%
Other income (expense), net		(13)		(78)		65	*	%		5		(143)		148	*	%
Income before taxes		1,341		8,301		(6,960)	(83.8)	%		7,778		15,956		(8,178)	(51.3)	%
Income tax expense		(823)		(2,300)		1,477	(64.2)	%		(2,486)		(4,500)		2,014	(44.8)	%
Net income	$	518	$	6,001	$	(5,483)	(91.4)	%	$	5,292	$	11,456	$	(6,164)	(53.8)	%

Gross profit margin		30.9%		35.7%						32.0%		36.4%

* Calculation not meaningful.

(1)For the three months ended June 30, 2025 and 2024, net sales and cost of sales each include $0.2 million and $0.6 million of intersegment eliminations, respectively. For the six months ended June 30, 2025 and 2024, net sales and cost of sales each include $0.7 million and $0.9 million of intersegment eliminations, respectively.

The following discussion of our consolidated results of operations and segment results refers to the three and six months ended June 30, 2025, compared to the corresponding prior year period. 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 condensed consolidated statements of operations and comprehensive income.

Net Sales:

Net sales increased for the three and six months ended June 30, 2025, primarily due to increased Products net sales in our Debit and Credit segment, which included contributions from the acquisition of Arroweye, partially offset by decreased Services net sales in our Debit and Credit and Prepaid Debit segments. The decrease in Services net sales in the Prepaid Debit segment was attributable to a change in accounting resulting in reduced revenue recognition related to work-in-process orders as discussed in Note 1, “Business Overview and Summary of Significant Accounting Policies” of the condensed consolidated financial statements in this report.

Gross Profit and Gross Profit Margin:

Gross profit decreased for the three and six months ended June 30, 2025, primarily due to negative impacts from a change in accounting resulting in reduced revenue recognition related to work-in-process orders, primarily in our Prepaid Debit segment.

Gross profit margin decreased for the three and six months ended June 30, 2025, as negative sales mix and increases in production costs, including increased tariffs, were partially offset by increases in net sales.

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Operating Expenses:

Operating expenses increased for the three and six months ended June 30, 2025, primarily due to increased professional service fees related to acquisition and integration costs associated with the acquisition of Arroweye.

Interest, net:

Interest expense increased for the three and six months ended June 30, 2025, primarily due to impacts from higher interest rates and higher average borrowing on the 10.000% Senior Secured Notes due 2029 (defined below) entered into on July 11, 2024, compared to the 8.625% Senior Secured Notes due 2026 outstanding in the prior year period.

Other Income (Expense), net:

Other income (expense), net, was relatively consistent for the three and six months ended June 30, 2025.

Income Tax Expense:

Our effective tax rates on pre-tax income were 61.4% and 27.7% for the three months ended June 30, 2025 and 2024, respectively, and 32.0% and 28.2% for the six months ended June 30, 2025 and 2024, respectively. The increase in the Company’s effective tax rate for the three months and six months ended June 30, 2025, compared to the prior year related to limitations on deductibility of executive compensation and non-deductible acquisition-related costs and increased state tax expenses related to the acquisition of Arroweye.

Segment Discussion

Debit and Credit:


	Three Months Ended June 30,								Six Months Ended June 30,
	2025		2024		$ Change		% Change		2025		2024		$ Change		% Change

	(dollars in thousands)
Net sales	$	110,757	$	95,620	$	15,137	15.8	%	$	207,277	$	183,593	$	23,684	12.9	%
Gross profit	$	34,649	$	34,164	$	485	1.4	%	$	65,903	$	65,659	$	244	0.4	%
Income from operations	$	23,053	$	25,389	$	(2,336)	(9.2)	%	$	44,756	$	48,143	$	(3,387)	(7.0)	%

Gross profit margin		31.3%		35.7%						31.8%		35.8%

Net Sales:

Net sales for Debit and Credit increased for the three and six months ended June 30, 2025, primarily due to increased Products net sales, including contributions from the Arroweye acquisition, partially offset by decreased Services net sales. The increase in Products net sales was driven by higher volumes of contactless cards, including metal cards, as well as increased Card@Once printer sales. The decrease in Services net sales was driven by lower personalization services.

Gross Profit and Gross Profit Margin:

Gross profit for Debit and Credit was relatively consistent for the three and six months ended June 30, 2025, primarily due to increased net sales, including additional net sales from the Arroweye acquisition. Gross profit margin decreased primarily due to negative sales mix and increased production costs, including increased tariffs.

Income from Operations:

Income from operations for Debit and Credit decreased for the three and six months ended June 30, 2025, primarily due to relatively consistent gross profit and increased operating expenses, including increased compensation-related expenses, driven by increased headcount including the Arroweye acquisition.

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Prepaid Debit:


	Three Months Ended June 30,								Six Months Ended June 30,
	2025		2024		$ Change		% Change		2025		2024		$ Change		% Change

	(dollars in thousands)
Net sales	$	19,222	$	23,815	$	(4,593)	(19.3)	%	$	45,935	$	48,013	$	(2,078)	(4.3)	%
Gross profit	$	5,471	$	8,224	$	(2,753)	(33.5)	%	$	14,913	$	18,247	$	(3,334)	(18.3)	%
Income from operations	$	4,171	$	6,909	$	(2,738)	(39.6)	%	$	12,170	$	15,654	$	(3,484)	(22.3)	%

Gross profit margin		28.5%		34.5%						32.5%		38.0%

Net Sales:

Net sales for Prepaid Debit decreased for the three and six months ended June 30, 2025, primarily due to a change in accounting resulting in reduced revenue recognition for work-in-process orders, partially offset by increased sales of higher-priced packaging solutions and healthcare payment solutions.

Gross Profit and Gross Profit Margin:

Gross profit and gross profit margin for Prepaid Debit decreased for the three and six months ended June 30, 2025, primarily due to negative impacts from a change in accounting resulting in reduced revenue recognition for work-in-process orders; partially offset by increased net sales to existing customers.

Income from Operations:

Income from operations for Prepaid Debit decreased for the three and six months ended June 30, 2025, primarily due to the factors discussed in “Gross Profit and Gross Profit Margin” above.

Other:

As the Other segment is comprised entirely of corporate expenses, income from operations for Other consists of operating expenses shown below.


	Three Months Ended June 30,								Six Months Ended June 30,
	2025		2024		$ Change		% Change		2025		2024		$ Change		% Change

	(dollars in thousands)
Operating expenses	$	17,801	$	17,389	$	412	2.4	%	$	33,399	$	34,743	$	(1,344)	(3.9)	%

Operating Expenses:

Other operating expenses increased for the three months ended June 30, 2025, primarily due to increased professional service fees related to acquisition and integration costs associated with the acquisition of Arroweye, as well as increased severance expense. These increases were partially offset by decreased compensation-related expenses, including decreased stock compensation and employee performance-based incentive compensation.

Other operating expenses decreased for the six months ended June 30, 2025, primarily due to decreased compensation-related expenses, including the impact of costs in the prior year period related to the prior-Chief Executive Officer (“CEO”) retention agreement, and decreased stock compensation. These decreases were partially offset by increased professional service fees related to acquisition and integration costs associated with the acquisition of Arroweye.

Liquidity and Capital Resources

At June 30, 2025, we had $17.1 million of cash and cash equivalents. Our primary source of liquidity has been cash generated from our operating activities, which has been driven by net income and fluctuations in working capital. Our working capital fluctuates primarily due to the timing and size of tax payments, collections from customers, inventory purchases, payments of employee incentive programs, and interest payments on our outstanding Senior Notes, with the interest payments being due in the first and third quarters of the year.

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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. Although we can provide no assurances, we believe that our cash flows from operations, combined with our current cash levels and our senior secured revolving credit facility (the “ABL Revolver”) with available borrowing capacity of $42.9 million as of June 30, 2025, 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. Our future cash flows could be impacted by a variety of factors, some of which are beyond our control. Factors include, but are not limited to, demand from some of our customers for certain products and services; changes in economic conditions, especially those impacting our customers; the pricing, terms and availability of goods and services that we purchase; and financings that we enter into.

Cash Flows from Operating Activities

Cash provided by operating activities for the six months ended June 30, 2025, increased to $9.9 million from $4.1 million for the six months ended June 30, 2024, primarily due to reduced working capital usage, partially offset by lower net income. Working capital benefited from increased collections on accounts receivable, lower inventory purchases, and lower payments related to the prior-CEO retention agreement, partially offset by incentive payments related to a customer contract originally entered into in the first quarter of 2024, higher employee performance-based incentive compensation payments in 2025, and higher cash paid for interest on our Senior Notes due to a higher coupon rate and higher average borrowings.

Investing Activities

Arroweye Acquisition

On May 6, 2025, we acquired Arroweye for initial cash consideration of $42.4 million, which is net of cash acquired of $1.6 million and an initial working capital adjustment. Final cash consideration is subject to customary post-closing working capital adjustments. The acquisition was funded through a combination of cash on hand and our available capacity under the ABL Revolver. Refer to Note 4, “Acquisition” of the condensed consolidated financial statements in this report for information regarding the acquisition.

Capital Expenditures

During the six months ended June 30, 2025, capital expenditures, including investments to support the business, such as machinery and information technology equipment, totaled $9.1 million, primarily related to the new production facility in Indiana.

Financing

As of June 30, 2025, and December 31, 2024, we had the following outstanding borrowings:


	June 30,		December 31,
	2025		2024

	(dollars in thousands)
Senior Notes	$	285,000	$	285,000
ABL Revolver		30,000		—
Unamortized deferred financing costs		(4,089)		(4,595)
Total long-term debt	$	310,911	$	280,405

Senior Notes

On July 11, 2024 (the “Closing Date”), we completed a private offering by our wholly-owned subsidiary, CPI CG Inc., of $285.0 million aggregate principal amount of 10.000% Senior Secured Notes due 2029 (the “Senior Notes”) and related guarantees at an issue price of 100%. The Senior Notes mature on July 15, 2029 and interest is payable on January 15 and July 15 of each year.

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 and certain asset sales.

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ABL Revolver

On the Closing Date, the Company and CPI CG Inc. as borrower (the “Borrower”), entered into a credit agreement with JPMorgan Chase Bank, N.A., as lender, administrative agent and collateral agent, providing for an asset-based, senior secured revolving credit facility (the “ABL Revolver”) of up to $75.0 million. The ABL Revolver matures on the earliest to occur of July 11, 2029 and the date that is 91 days prior to the maturity of the Senior Notes. We primarily utilize our ABL Revolver to provide general liquidity and to support shorter term financing requirements.

As of June 30, 2025, we had $30.0 million of outstanding borrowings on the ABL Revolver.

Amounts borrowed and outstanding under the ABL Revolver and Senior Notes are required to be repaid in full, together with any accrued and unpaid interest, no later than July 15, 2029 and may be subject to earlier mandatory prepayment upon certain events.

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.

Debt Service Requirements

As of June 30, 2025, the total projected principal and interest payments on our borrowings were $451.9 million, primarily related to the Senior Notes, of which $29.5 million of interest is expected to be paid in the next 12 months.

The remaining interest payments are expected to be paid over the remaining term of the Senior Notes, which mature in 2029, and the principal is due upon maturity. We have estimated our future interest payments including an additional $32.0 million of borrowings under the ABL Revolver and early redemptions of principal of $20.0 million on the Senior Notes, both of which occurred on July 15, 2025. This also assumes no debt issuances or renewals upon the maturity dates of our notes. However, we may borrow additional amounts under the ABL Revolver, redeem principal on the Senior Notes early, or refinance all or a portion of our borrowings in future periods.

Leases

We lease equipment and real property for production and services. Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 9, “Financing and Operating Leases,” in our Annual Report on Form 10-K for the year ended December 31, 2024, for details on our leasing arrangements, including future maturities of our operating lease liabilities.

In February 2024, we entered into a build-to-suit lease agreement to relocate and modernize our operations at our Fort Wayne, Indiana production facility, which commenced in the first quarter of 2025, and payments beginning in 2026. Under this lease agreement, we will pay an annual base rent of $0.9 million, subject to an annual rent increase of 2.0%. The lease is for 10 years and includes two consecutive options to extend the term of the lease by five years for each such option.

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 June 30, 2025, there have not been any material changes to the purchase obligations disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements and accompanying notes. Actual results could differ from those estimates. Our Critical Accounting Policies and Estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, for which there were no material changes as of June 30, 2025, included:

●

Revenue recognition, including estimates of work performed but not completed, and

●

Income taxes, including estimates regarding future compensation for covered individuals, valuation allowances and uncertain tax positions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required due to smaller reporting company status.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our controls and procedures related to our reporting and disclosure obligations (as defined by Rules 13a-15(e) and 15d-15(e) within the Exchange Act of 1934) as of June 30, 2025, which is the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2025, the disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported, as applicable, within the time periods specified in the rules and forms of the SEC, and are designed to ensure that information required to be disclosed by us in the reports that we file or submit is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

On May 6, 2025, the Company acquired Arroweye. We are currently in the process of integrating Arroweye's controls and processes into our control environment and will incorporate Arroweye in our assessment of the effectiveness of our internal control over financial reporting as of the end of 2026. Other than the change related to the integration of Arroweye, there were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – Other Information

Item 1. Legal Proceedings

Refer to Note 12, “Commitments and Contingencies” of the condensed consolidated financial statements in this report for information regarding legal proceedings.

Item 1A. Risk Factors

The risk factors disclosed in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024 and our Quarterly Report on Form 10-Q for the three months ended March 31, 2025, set forth information relating to various risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Such risk factors continue to be relevant to an understanding of our business, financial condition and operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three and six months ended June 30, 2025, no directors or officers of the Company adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (each as defined in Item 408(a) of Regulation S-K).

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Item 6. Exhibits


Exhibit Number		Exhibit Description
10.1*		Form of 2025 Executive Short-Term Incentive Plan.
10.2		Amendment No. 1 to Credit Agreement, by and among CPI Card Group Inc., CPI CG Inc., the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative and collateral agent (incorporated by reference to the Company’s Current Report on Form 8-K filed on July 7, 2025).
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	CPI CARD GROUP INC.
August 8, 2025	/s/ John Lowe
	John Lowe
	President and Chief Executive Officer
	(Principal Executive Officer)

August 8, 2025	/s/ Jeffrey Hochstadt
	Jeffrey Hochstadt
	Chief Financial Officer
	(Principal Financial Officer)

August 8, 2025	/s/ Donna Abbey Carmignani
	Donna Abbey Carmignani
	Chief Accounting Officer
	(Principal Accounting Officer)

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CPI Card (PMTS) 10-Q2025 Q2 Quarterly report

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