CPI Card Group PMTS Form 10-Q filing Q3 FY2025

Item 1. — Condensed Consolidated Financial Statements (Unaudited)

Item 1**. Financial Statements**

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CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

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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)

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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)

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See accompanying notes to condensed consolidated financial statements

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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)

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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.

Revenue Recognition

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During the second quarter of 2025, 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 have not yet shipped, reflecting its emphasis on maintaining long-term customer relationships.

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Such deviations may impact the legal enforceability of payment terms for goods that are in the process of being produced but have 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 began recognizing 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.

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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.

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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 Adopted Accounting Pronouncements

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In September 2025, the Financial Accounting Standards Board issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), to clarify and modernize the accounting for costs related to internal-use software. Although adoption of this accounting standard would have been effective for the Company for fiscal years beginning after December 15, 2027, the Company elected to early adopt the standard in the third quarter of 2025. The application of ASU 2025-06 does not have a material impact on the Company’s consolidated financial position and results of operations.

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Recently Issued Accounting Pronouncements

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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:

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3. Inventories

Inventories consisted of the following:

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4. Acquisition

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Arroweye Acquisition

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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 $45.8 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. Additionally, the Company incurred $4.1 million of acquisition and integration costs during the nine months ended September 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 purchase price allocation is subject to 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.

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

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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.

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

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The fair values of the trademark and customer relationships were determined using the relief from royalty and excess earnings methodologies of the income approach, respectively. 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

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

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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.

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• 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.

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• 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.

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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:

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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 September 30, 2025, given the applicable variable interest rates.

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

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Accrued expenses consisted of the following:

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Other accrued expenses as of September 30, 2025, and December 31, 2024, consisted primarily of miscellaneous accruals for invoices not yet received, accrued sales and use tax, and self-insurance claims incurred but not yet reported.

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8. Long-Term Debt

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

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Senior Notes

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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.

On July 15, 2025, the Company used available capacity under the ABL Revolver (defined below) to redeem $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 Senior Notes, at a redemption price of 103.000% of par plus accrued and unpaid interest to the date of redemption.

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 (“JPMorgan”), 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.

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

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 September 30, 2025, the Company had $47.0 million of outstanding borrowings on the ABL Revolver.

Deferred Financing Costs

Certain costs incurred with borrowings are amortized as an adjustment to interest expense over the life of the borrowing. As of September 30, 2025, the remaining unamortized debt issuance costs recorded on the Senior Notes were $3.6 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 September 30, 2025.

9. Income Taxes

The Company’s effective tax rates on pre-tax income were 38.3% and (57.9)% for the three months ended September 30, 2025 and 2024, respectively, and 34.0% and 24.0% for the nine months ended September 30, 2025 and 2024, respectively. The increase in the Company’s effective tax rate for the three months and nine months ended September 30, 2025, compared to the prior year related to limitations on deductibility of executive compensation and non-deductible acquisition-related costs, decreased deductibility of stock-based compensation realized upon certain stock option exercises and restricted stock unit vesting and increased state tax expenses related to the acquisition of Arroweye.

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

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(1) Includes the deductibility limitations on excess compensation.

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As part of the acquisition of Arroweye completed on May 6, 2025, the Company acquired net operating loss (NOL) carryforwards of over $86.1 million, net of a valuation allowance of $55.7 million. The utilization of these NOLs will be subject to applicable limitations and include both NOLs with a 20-year carryover period ($72.4 million), as well as NOLs with no expiration period ($13.7 million).

During the nine months ended September 30, 2025, the Company utilized $2.9 million of these NOL carryforwards to offset a portion of its taxable income for the period. The remaining unutilized DTA, net of valuation allowance, specifically related to acquired NOLs is $6.0 million, which the Company expects to use in future periods, subject to applicable limitations.

10. Stockholders’ Deficit

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Share Repurchases

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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 nine months ended September 30, 2024, the Company repurchased 473,284 shares of its common stock at an average price of $18.16 per share, excluding commissions, or $8.6 million in aggregate, on a trade date basis. This amount included 364,848 shares purchased from one of the Company’s significant stockholders at an average price of $18.09 per share, in accordance with the stock repurchase agreements with Tricor Pacific Capital Partners (Fund IV) US, LP. The Company did not repurchase any shares of its common stock during the nine months ended September 30, 2025.

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 September 30, 2025 and 2024, 22,751 and 5,728 potentially dilutive securities, respectively, and for the nine months ended September 30, 2025 and 2024, 15,589 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.

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

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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.

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. In October 2025, the Company reached a preliminary settlement to resolve the matter for an immaterial amount.

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 September 30, 2025, there were 727,878 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, with changes recognized as stock-based compensation expense.

During the nine months ended September 30, 2025, the Company granted 181,169 restricted stock units at a weighted average grant date fair value of $21.41. As of September 30, 2025, there were 534,679 outstanding restricted stock units at a weighted average grant date fair value of $21.49.

As of September 30, 2025, there were 730,364 options outstanding at a weighted average exercise price of $21.33. No options were granted during the nine months ended September 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.

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 September 30, 2025, the Company’s reportable segments were as follows:

• Debit and Credit,
• Prepaid Debit, and
• Other.

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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

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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 nine months ended September 30, 2025 and 2024, were as follows:

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* Calculation not meaningful.

(1) Exclusive of depreciation and amortization.

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Reconciliation of Net Income to EBITDA

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Balance Sheet Data of Reportable Segments

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

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Capital Expenditures of Reportable Segments

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

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15. Subsequent Events

On October 7, 2025, the Company acquired a 20% equity interest in Gift Card Co Pty Ltd, doing business as “Karta,” a digital card technology company and prepaid program manager based in Australia. Total consideration for the transaction was $10.0 million, with $2.5 million paid in cash upon closing, and the remaining $7.5 million will be recorded as contingent consideration. The Company determined it will exercise significant influence and therefore the investment will be accounted for as an equity method investment.

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

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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 September 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”).

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 for a purchase price of $45.8 million.

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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, metal 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 nine months of 2025, and potential tariff modifications or the imposition of tariffs or export controls by other countries, we have experienced and may experience 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 increased costs and may 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:

• Calculation not meaningful.

(1) For the three months ended September 30, 2025 and 2024, net sales and cost of sales each include $0.6 million and $0.2 million of intersegment eliminations, respectively. For the nine months ended September 30, 2025 and 2024, net sales and cost of sales each include $1.3 million and $1.0 million of intersegment eliminations, respectively.

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The following discussion of our consolidated results of operations and segment results refers to the three and nine months ended September 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 months ended September 30, 2025, primarily due to contributions of Products net sales from the acquisition of Arroweye, partially offset by lower Services net sales in our Prepaid Debit segment.

Net sales increased for the nine months ended September 30, 2025, primarily due to higher Products net sales, including increased volumes of contactless cards and 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 for the nine months ended September 30, 2025 was attributable to a change in accounting in the second quarter of 2025 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 and gross profit margin decreased for the three and nine months ended September 30, 2025, primarily due to negative sales mix and increased production costs, including increased tariff and depreciation expenses; partially offset by increases in net sales.

Operating Expenses:

Operating expenses increased for the three and nine months ended September 30, 2025, primarily due to increased professional service fees and other costs associated with the acquisition and integration of Arroweye. These increases were partially offset by decreased compensation-related expenses, including decreased employee performance-based incentive compensation. The three months ended September 30, 2025 was also impacted by decreased executive severance, while the nine months ended September 30, 2025 was also impacted by costs that were incurred in the prior year period in accordance with the former Chief-Executive Officer’s (“CEO”) retention agreement.

Interest, net:

Interest expense decreased for the three and nine months ended September 30, 2025, primarily due to payment in the prior year period of an early redemption premium of $5.8 million related to the redemption in full of the $267.9 million 8.625% Senior Secured Notes due 2026 (the “2026 Senior Notes”), as compared to payment in the current period of a $0.6 million premium related to the redemption of $20.0 million 10.000% Senior Secured Notes due 2029.

Loss on Debt Extinguishment:

During the three and nine months ended September 30, 2024, we recorded a $3.0 million loss on debt extinguishment relating to the unamortized deferred financing costs in connection with the redemption of the 2026 Senior Notes and the refinancing of our ABL Revolver Credit Agreement in July 2024.

Other Expense, net:

Other expense, net, was relatively consistent for the three and nine months ended September 30, 2025.

Income Tax (Expense) Benefit:

Our effective tax rates on pre-tax income were 38.3 % and (57.9)% for the three months ended September 30, 2025 and 2024, respectively, and 34.0% and 24.0% for the nine months ended September 30, 2025 and 2024, respectively. The increase in the Company’s effective tax rate for the three months and nine months ended September 30, 2025, compared to the prior year related to limitations on deductibility of executive compensation and non-deductible acquisition-related costs, deductibility of stock-based compensation realized upon certain stock option exercises and restricted stock unit vesting and increased state tax expenses related to the acquisition of Arroweye.

Segment Discussion

Debit and Credit:

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Net Sales:

Net sales for Debit and Credit increased for the three months ended September 30, 2025, primarily due to increased Products net sales, including contributions from the Arroweye acquisition and increased Card@Once printer sales; partially offset by lower volumes of contact-only EMV cards.

Net sales for Debit and Credit increased for the nine months ended September 30, 2025, primarily due to increased Products net sales, including contributions from the Arroweye acquisition, higher volumes of contactless cards, including metal cards, and increased Card@Once printer sales, partially offset by decreased sales of other cards and personalization services.

Gross Profit and Gross Profit Margin:

Gross profit for Debit and Credit decreased for the three and nine months ended September 30, 2025, primarily due to negative sales mix and increased production costs, including increased tariff and depreciation expenses, partially offset by increases in net sales.

Income from Operations:

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

Prepaid Debit:

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Net Sales:

Net sales for Prepaid Debit decreased for the three months ended September 30, 2025, primarily due to decreased sales from existing customers.

Net sales for Prepaid Debit decreased for the nine months ended September 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 months ended September 30, 2025, primarily due to decreased net sales. Gross profit and gross profit margin for Prepaid Debit decreased for the nine months ended September 30, 2025, primarily due to a change in accounting that was implemented in the second quarter 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 nine months ended September 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.

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Operating Expenses:

Other operating expenses decreased for the three and nine months ended September 30, 2025, primarily due to decreased compensation-related expenses, including employee performance-based incentive compensation and executive severance; partially offset by increased professional service fees related to acquisition and integration costs associated with the acquisition of Arroweye. Other operating expenses for the nine months ended September 30, 2025, also decreased due to the impact of costs that were incurred in the prior year period in accordance with the former CEO’s retention agreement.

Liquidity and Capital Resources

At September 30, 2025, we had $16.0 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.

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 $50.2 million as of September 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 nine months ended September 30, 2025, increased to $19.9 million from $16.7 million for the nine months ended September 30, 2024, primarily due to reduced working capital usage. 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.

Investing Activities

Arroweye Acquisition

On May 6, 2025, we acquired Arroweye for initial cash consideration of $42.4 million. In October 2025, we made a final payment of $1.8 million resulting in a final purchase price of $45.8 million, which includes a final net working capital adjustment. The final cash consideration paid was $44.2 million, which is net of cash acquired of $1.6 million. 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 nine months ended September 30, 2025, capital expenditures, including investments to support the business, such as machinery and information technology equipment, totaled $13.8 million, primarily related to our new production facility in Indiana.

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Financing

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

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Senior Notes

On the Closing Date, we completed a private offering of 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.

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 Senior Notes, at a redemption price of 103.000% of par plus accrued and unpaid interest to the date of redemption.

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, the Borrower, and JPMorgan entered into the ABL Revolver. 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.

On July 2, 2025, the Company, the Borrower, and JPMorgan entered into 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 ABL Revolver nor the interest rate.

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 September 30, 2025, we had $47.0 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 September 30, 2025, the total projected principal and interest payments on our borrowings were $422.3 million, primarily related to the Senior Notes, of which $29.1 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 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. 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 was made available for our use in the first quarter of 2025, and payments beginning in the fourth quarter of 2025. 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 commenced on August 1, 2025, for an initial term of 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 September 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.

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 September 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 September 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 September 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.

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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 nine months ended September 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

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).

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SIGNATURE****S

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​ CPI CARD GROUP INC. ​ ​

November 4, 2025 /s/ John Lowe

​ John Lowe

​ President and Chief Executive Officer

​ (Principal Executive Officer)

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November 4, 2025 /s/ Jeffrey Hochstadt

​ Jeffrey Hochstadt

​ Chief Financial Officer

​ (Principal Financial Officer)

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November 4, 2025 /s/ Donna Abbey Carmignani

​ Donna Abbey Carmignani

​ Chief Accounting Officer

​ (Principal Accounting Officer)

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