CPI Card Group Inc. (Form: 10-Q, Received: 05/09/2023 07:16:46)

11424628113903550001641614--12-312023Q1false000001641614us-gaap:CommonStockMember2023-01-012023-03-310001641614us-gaap:RetainedEarningsMember2023-03-310001641614us-gaap:AdditionalPaidInCapitalMember2023-03-310001641614us-gaap:RetainedEarningsMember2022-12-310001641614us-gaap:AdditionalPaidInCapitalMember2022-12-310001641614us-gaap:RetainedEarningsMember2022-03-310001641614us-gaap:AdditionalPaidInCapitalMember2022-03-310001641614us-gaap:RetainedEarningsMember2021-12-310001641614us-gaap:AdditionalPaidInCapitalMember2021-12-310001641614pmts:StockOptionsEmployeesDirectorsConsultantsMemberpmts:CPICardGroupInc.OmnibusPlanMember2023-03-310001641614pmts:StockOptionsEmployeesDirectorsConsultantsMemberpmts:CPICardGroupInc.OmnibusPlanMember2023-01-012023-03-310001641614pmts:StockOptionsEmployeesDirectorsConsultantsMemberpmts:CPICardGroupInc.OmnibusPlanMember2021-05-270001641614us-gaap:RestrictedStockUnitsRSUMemberpmts:CPICardGroupInc.OmnibusPlanMember2023-03-310001641614us-gaap:RestrictedStockUnitsRSUMemberpmts:CPICardGroupInc.OmnibusPlanMember2023-01-012023-03-310001641614us-gaap:OperatingSegmentsMemberpmts:ServicesMemberpmts:USPrepaidDebitMember2023-01-012023-03-310001641614us-gaap:OperatingSegmentsMemberpmts:ServicesMemberpmts:USDebitAndCreditMember2023-01-012023-03-310001641614us-gaap:OperatingSegmentsMemberpmts:ProductsMemberpmts:USDebitAndCreditMember2023-01-012023-03-310001641614us-gaap:IntersegmentEliminationMemberpmts:ServicesMember2023-01-012023-03-310001641614us-gaap:IntersegmentEliminationMemberpmts:ProductsMember2023-01-012023-03-310001641614us-gaap:OperatingSegmentsMemberpmts:ServicesMemberpmts:USPrepaidDebitMember2022-01-012022-03-310001641614us-gaap:OperatingSegmentsMemberpmts:ServicesMemberpmts:USDebitAndCreditMember2022-01-012022-03-310001641614us-gaap:OperatingSegmentsMemberpmts:ProductsMemberpmts:USDebitAndCreditMember2022-01-012022-03-310001641614us-gaap:IntersegmentEliminationMemberpmts:ServicesMember2022-01-012022-03-310001641614us-gaap:IntersegmentEliminationMemberpmts:ProductsMember2022-01-012022-03-310001641614us-gaap:RetainedEarningsMember2023-01-012023-03-310001641614us-gaap:RetainedEarningsMember2022-01-012022-03-310001641614pmts:SmartPackagingSolutionsSVCpiCardGroupIncMemberus-gaap:PendingLitigationMember2023-03-310001641614srt:MinimumMemberus-gaap:RevolvingCreditFacilityMember2023-04-012023-04-010001641614srt:MinimumMemberpmts:SeniorRevolvingCreditFacilityMember2023-04-012023-04-010001641614srt:MaximumMemberus-gaap:RevolvingCreditFacilityMember2023-04-012023-04-010001641614srt:MaximumMemberpmts:SeniorRevolvingCreditFacilityMember2023-04-012023-04-010001641614srt:MaximumMemberus-gaap:RevolvingCreditFacilityMember2022-03-032022-03-030001641614us-gaap:SeniorNotesMember2023-01-012023-03-310001641614us-gaap:SeniorNotesMember2022-01-012022-12-310001641614us-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMember2023-03-310001641614us-gaap:FairValueInputsLevel2Memberus-gaap:RevolvingCreditFacilityMember2023-03-310001641614us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:SeniorNotesMember2023-03-310001641614us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:RevolvingCreditFacilityMember2023-03-310001641614us-gaap:FairValueInputsLevel2Memberus-gaap:SeniorNotesMember2022-12-310001641614us-gaap:FairValueInputsLevel2Memberus-gaap:RevolvingCreditFacilityMember2022-12-310001641614us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:SeniorNotesMember2022-12-310001641614us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:RevolvingCreditFacilityMember2022-12-310001641614us-gaap:SeniorNotesMember2023-03-310001641614us-gaap:RevolvingCreditFacilityMember2023-03-310001641614us-gaap:SeniorNotesMember2022-12-310001641614us-gaap:RevolvingCreditFacilityMember2022-12-310001641614us-gaap:SeniorNotesMember2021-03-150001641614srt:MinimumMemberus-gaap:RevolvingCreditFacilityMemberpmts:SecuredOvernightFinancingRateMember2023-04-012023-04-010001641614srt:MaximumMemberus-gaap:RevolvingCreditFacilityMemberpmts:SecuredOvernightFinancingRateMember2023-04-012023-04-010001641614srt:MinimumMemberus-gaap:RevolvingCreditFacilityMemberpmts:SecuredOvernightFinancingRateMember2022-03-032022-03-030001641614srt:MaximumMemberus-gaap:RevolvingCreditFacilityMemberpmts:SecuredOvernightFinancingRateMember2022-03-032022-03-030001641614us-gaap:IntersegmentEliminationMember2023-01-012023-03-310001641614us-gaap:IntersegmentEliminationMember2022-01-012022-03-310001641614pmts:ServicesMember2023-01-012023-03-310001641614pmts:ProductsMember2023-01-012023-03-310001641614pmts:ServicesMember2022-01-012022-03-310001641614pmts:ProductsMember2022-01-012022-03-310001641614us-gaap:CommonStockMember2023-03-310001641614us-gaap:CommonStockMember2022-12-310001641614us-gaap:CommonStockMember2022-03-310001641614us-gaap:CommonStockMember2021-12-3100016416142022-03-3100016416142021-12-310001641614us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001641614us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001641614us-gaap:MachineryAndEquipmentMember2023-03-310001641614us-gaap:LeaseholdImprovementsMember2023-03-310001641614us-gaap:FurnitureAndFixturesMember2023-03-310001641614us-gaap:ConstructionInProgressMember2023-03-310001641614pmts:OperatingRightOfUseAssetsMember2023-03-310001641614pmts:MachineryAndEquipmentUnderFinancialLeasesMember2023-03-310001641614us-gaap:MachineryAndEquipmentMember2022-12-310001641614us-gaap:LeaseholdImprovementsMember2022-12-310001641614us-gaap:FurnitureAndFixturesMember2022-12-310001641614us-gaap:ConstructionInProgressMember2022-12-310001641614pmts:OperatingRightOfUseAssetsMember2022-12-310001641614pmts:MachineryAndEquipmentUnderFinancialLeasesMember2022-12-310001641614us-gaap:RevolvingCreditFacilityMember2022-03-030001641614us-gaap:RevolvingCreditFacilityMember2021-03-150001641614pmts:SmartPackagingSolutionsSVCpiCardGroupIncMemberus-gaap:PendingLitigationMember2021-04-200001641614us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2023-01-012023-03-310001641614us-gaap:OperatingSegmentsMemberpmts:USPrepaidDebitMember2023-01-012023-03-310001641614us-gaap:OperatingSegmentsMemberpmts:USDebitAndCreditMember2023-01-012023-03-310001641614us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2022-01-012022-03-310001641614us-gaap:OperatingSegmentsMemberpmts:USPrepaidDebitMember2022-01-012022-03-310001641614us-gaap:OperatingSegmentsMemberpmts:USDebitAndCreditMember2022-01-012022-03-3100016416142022-01-012022-03-3100016416142023-03-3100016416142022-12-3100016416142023-05-0200016416142023-01-012023-03-31xbrli:sharesiso4217:USDpmts:itemiso4217:USDxbrli:sharesxbrli:pure

Table of Contents

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 March 31, 2023

☐

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 May 2, 2023: 11,426,670

Table of Contents

Table of Contents


		Page
Part I — Financial Information

Item 1 — Financial Statements (Unaudited)		3

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3 — Quantitative and Qualitative Disclosures About Market Risk		24

Item 4 — Controls and Procedures		24

Part II — Other Information

Item 1 — Legal Proceedings		25

Item 1A — Risk Factors		25

Item 6 — Exhibits		27

Signatures		28

Table of Contents

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)


	March 31,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	14,157	$	11,037
Accounts receivable, net		76,231		80,583
Inventories, net		69,715		68,399
Prepaid expenses and other current assets		8,229		7,551
Total current assets		168,332		167,570
Plant, equipment, leasehold improvements and operating lease right-of-use assets, net of accumulated depreciation of $64,580 and $61,922, respectively		60,215		57,178
Intangible assets, net of accumulated amortization of $48,864 and $47,897, respectively		17,021		17,988
Goodwill		47,150		47,150
Other assets		5,490		6,780
Total assets	$	298,208	$	296,666
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	25,915	$	24,371
Accrued expenses		29,430		40,070
Deferred revenue and customer deposits		2,115		3,571
Total current liabilities		57,460		68,012
Long-term debt		285,984		285,522
Deferred income taxes		6,537		6,808
Other long-term liabilities		18,959		18,401
Total liabilities		368,940		378,743
Commitments and contingencies (Note 11)
Series A Preferred Stock; $0.001 par value—100,000 shares authorized; 0 shares issued and outstanding at March 31, 2023 and December 31, 2022		—		—
Stockholders’ deficit:
Common stock; $0.001 par value—100,000,000 shares authorized; 11,424,628 and 11,390,355 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		11		11
Capital deficiency		(107,907)		(108,379)
Accumulated earnings		37,164		26,291
Total stockholders’ deficit		(70,732)		(82,077)
Total liabilities and stockholders’ deficit	$	298,208	$	296,666

See accompanying notes to condensed consolidated financial statements

Table of Contents

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 March 31,
	2023		2022
Net sales:
Products	$	75,790	$	68,316
Services		45,062		43,108
Total net sales		120,852		111,424
Cost of sales:
Products (exclusive of depreciation and amortization shown below)		45,980		43,094
Services (exclusive of depreciation and amortization shown below)		29,404		26,857
Depreciation and amortization		2,374		2,195
Total cost of sales		77,758		72,146
Gross profit		43,094		39,278
Operating expenses:
Selling, general and administrative (exclusive of depreciation and amortization shown below)		21,066		19,882
Depreciation and amortization		1,430		1,415
Total operating expenses		22,496		21,297
Income from operations		20,598		17,981
Other expense, net:
Interest, net		(6,781)		(7,865)
Other expense, net		(114)		(396)
Total other expense, net		(6,895)		(8,261)
Income before income taxes		13,703		9,720
Income tax expense		(2,830)		(3,718)
Net income	$	10,873	$	6,002

Basic and diluted earnings per share:
Basic earnings per share	$	0.95	$	0.53
Diluted earnings per share	$	0.91	$	0.51

Basic weighted-average shares outstanding		11,394,919		11,255,466
Diluted weighted-average shares outstanding		11,901,581		11,717,849

Comprehensive income:
Net income	$	10,873	$	6,002
Total comprehensive income	$	10,873	$	6,002

See accompanying notes to condensed consolidated financial statements

Table of Contents

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

(in thousands, except per share amounts)

(Unaudited)



	Common Stock			Capital		Accumulated
	Shares	Amount		deficiency		earnings		Total
December 31, 2022	11,390,355	$	11	$	(108,379)	$	26,291	$	(82,077)
Shares issued under stock-based compensation plans	34,273		—		(69)		—		(69)
Stock-based compensation			—		541		—		541
Components of comprehensive income:
Net income			—		—		10,873		10,873
March 31, 2023	11,424,628	$	11	$	(107,907)	$	37,164	$	(70,732)



	Common Stock			Capital		Accumulated
	Shares	Amount		deficiency		earnings (loss)		Total
December 31, 2021	11,255,466	$	11	$	(110,782)	$	(10,249)	$	(121,020)
Shares issued under stock-based compensation plans	—		—		—		—		—
Stock-based compensation			—		961		—		961
Components of comprehensive income:
Net income			—		—		6,002		6,002
March 31, 2022	11,255,466	$	11	$	(109,821)	$	(4,247)	$	(114,057)

See accompanying notes to condensed consolidated financial statements

Table of Contents

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Operating activities
Net income	$	10,873	$	6,002
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense		2,837		2,643
Amortization expense		967		967
Stock-based compensation expense		541		961
Amortization of debt issuance costs and debt discount		473		486
Loss on debt extinguishment		119		395
Deferred income taxes		(271)		642
Other, net		12		768
Changes in operating assets and liabilities:
Accounts receivable		4,335		(10,300)
Inventories		(1,464)		(12,579)
Prepaid expenses and other assets		310		(2,057)
Income taxes, net		550		932
Accounts payable		1,533		4,173
Accrued expenses and other liabilities		(11,358)		(8,310)
Deferred revenue and customer deposits		(1,456)		(684)
Cash provided by (used in) operating activities		8,001		(15,961)
Investing activities
Capital expenditures for plant, equipment and leasehold improvements		(4,145)		(3,154)
Other		50		5
Cash used in investing activities		(4,095)		(3,149)
Financing activities
Principal payments on Senior Notes		(7,903)		(20,000)
Proceeds from ABL Revolver		8,000		30,000
Payments on debt extinguishment and other		(69)		(862)
Proceeds from finance lease financing		—		2,074
Payments on finance lease obligations		(820)		(649)
Cash (used in) provided by financing activities		(792)		10,563
Effect of exchange rates on cash		6		—
Net increase (decrease) in cash and cash equivalents		3,120		(8,547)
Cash and cash equivalents, beginning of period		11,037		20,683
Cash and cash equivalents, end of period	$	14,157	$	12,136
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	12,608	$	13,553
Income taxes paid	$	28	$	94
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	168	$	816
Financing leases	$	2,169	$	3,541
Accounts payable and accrued expenses for capital expenditures for plant, equipment and leasehold improvements	$	422	$	2,293

See accompanying notes to condensed consolidated financial statements

Table of Contents

CPI Card Group Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(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 payment technology company and leading provider of comprehensive Financial Payment Card solutions in the United States. CPI is engaged in the design, production, data personalization, packaging and fulfillment of Financial Payment Cards, which the Company defines as credit, debit and Prepaid Debit Cards (defined below) issued on the networks of the Payment Card Brands (Visa, Mastercard^®, American Express^® and Discover^®). CPI defines “Prepaid Debit Cards” as debit cards issued on the networks of the Payment Card Brands, but not linked to a traditional bank account. CPI also offers an instant card issuance solution, which provides customers the ability to issue a personalized debit or credit card within the bank branch to individual cardholders.

CPI serves its customers through a network of high-security production and card services facilities in the United States, each of which is audited for compliance with the standards of the Payment Card Industry Security Standards Council (the “PCI Security Standards Council”) by one or more of the Payment Card Brands. CPI’s network of high-security production facilities allows the Company to optimize its solutions offerings and serve its customers.

The Company’s business consists of the following reportable segments: Debit and Credit, Prepaid Debit and Other. The Debit and Credit segment primarily produces Financial Payment Cards and provides integrated card services for card-issuing financial institutions primarily in the United States. The Prepaid Debit segment primarily provides integrated card services to Prepaid Debit Card program managers primarily in the United States. The Company’s “Other” segment includes 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, 2022 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, 2022.

Use of Estimates

Management uses estimates and assumptions relating to the reporting of assets and liabilities at 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 and uncertain tax positions. Actual results could differ from those estimates.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the criteria under which credit losses on financial instruments (such as the Company’s trade receivables) are measured. The ASU introduces a new credit reserve model known as the Current Expected Credit Loss (“CECL”) model, which replaces the incurred loss impairment methodology previously used under GAAP with an expected loss

Table of Contents

methodology. Effective January 1, 2023, the Company adopted the CECL model. The adoption of the model did not have a material impact on the Company’s consolidated financial position or results of operations.

2. Net Sales

The Company disaggregates its net sales by major source as follows:


	Three Months Ended March 31, 2023
	Products		Services		Total

	(dollars in thousands)
Debit and Credit	$	76,032	$	25,953	$	101,985
Prepaid Debit		—		19,130		19,130
Intersegment eliminations		(242)		(21)		(263)
Total	$	75,790	$	45,062	$	120,852

	Three Months Ended March 31, 2022
	Products		Services		Total

	(dollars in thousands)
Debit and Credit	$	68,348	$	23,667	$	92,015
Prepaid Debit		—		19,461		19,461
Intersegment eliminations		(32)		(20)		(52)
Total	$	68,316	$	43,108	$	111,424

Products Net Sales

“Products” net sales are recognized when obligations under the terms of a contract with a customer are satisfied. In most instances, this occurs over time as cards are produced for specific customers and have no alternative use and the Company has an enforceable right to payment for work performed. For unbilled work performed but not completed, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts. Items included in “Products” net sales are the design and production of Financial Payment Cards, including contact-EMV^®, contactless dual-interface EMV, contactless and magnetic stripe cards, CPI’s eco-focused solutions, including Second Wave^® and Earthwise^® cards made with upcycled plastic, metal cards, private label credit cards and retail gift cards. Card@Once^® printers and consumables are also included in “Products” net sales, and their associated revenues are recognized at the time of shipping. The Company includes gross shipping and handling revenue in net sales, and shipping and handling costs in cost of sales.

EMV^® is a registered trademark in the U.S. and other countries and an unregistered trademark elsewhere. The EMV trademark is owned by EMVCo, LLC.

Services Net Sales

Net sales are recognized for “Services” as the services are performed. Items included in “Services” net sales include the personalization and fulfillment of Financial Payment Cards, providing tamper-evident secure packaging and fulfillment services to Prepaid Debit Card program managers, and software-as-a-service personalization of instant issuance debit cards. As applicable, for unbilled work performed but not completed, 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, Revenue from Contracts with Customers, is the length of time it takes to deliver the goods or services promised under the purchase order or statement of work. As such, the Company's contracts are generally short term in nature.

Table of Contents

3. Accounts Receivable

Accounts receivable consisted of the following:


		March 31,		December 31,
		2023		2022

	(dollars in thousands)
Trade accounts receivable	$	64,910	$	68,886
Unbilled accounts receivable		11,556		11,915
		76,466		80,801
Less allowance		(235)		(218)
	$	76,231	$	80,583

4. Inventories

Inventories consisted of the following:


		March 31,		December 31,
		2023		2022

	(dollars in thousands)
Raw materials	$	63,739	$	61,434
Finished goods		9,459		10,300
Inventory reserve		(3,483)		(3,335)
	$	69,715	$	68,399

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:


		March 31,		December 31,
		2023		2022

	(dollars in thousands)
Machinery and equipment	$	68,575	$	64,786
Machinery and equipment under financing leases		16,733		15,717
Furniture, fixtures and computer equipment		3,005		3,072
Leasehold improvements		15,032		14,703
Construction in progress		3,764		3,304
Operating lease right-of-use assets		17,686		17,518
		124,795		119,100
Less accumulated depreciation and amortization		(64,580)		(61,922)
	$	60,215	$	57,178

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.

Table of Contents

● 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 March 31, 2023
	March 31,		March 31,		(Using Fair Value Hierarchy)
	2023		2023		Level 1		Level 2		Level 3

	(dollars in thousands)
Liabilities:
Senior Notes	$	277,000	$	272,499	$	—	$	272,499	$	—
ABL Revolver	$	13,000	$	13,000	$	—	$	13,000	$	—


	Carrying		Estimated
	Value as of		Fair Value as of		Fair Value Measurement at December 31, 2022
	December 31,		December 31,		(Using Fair Value Hierarchy)
	2022		2022		Level 1		Level 2		Level 3

	(dollars in thousands)
Liabilities:
Senior Notes	$	285,000	$	281,438	$	—	$	281,438	$	—
ABL Revolver	$	5,000	$	5,000	$	—	$	5,000	$	—

The aggregate fair value of the Company’s Senior Notes (as defined in Note 8, “Long-Term Debt”) was based on bank quotes. The fair value measurement associated with the ABL Revolver (as defined in Note 8, “Long-Term Debt”) approximates its carrying value as of March 31, 2023, given the applicable variable interest rates and nature of the security interest in Company assets.

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:


	March 31,		December 31,
	2023		2022

	(dollars in thousands)
Accrued payroll and related employee expenses	$	9,552	$	7,727
Accrued employee performance bonuses		2,391		8,576
Employer payroll taxes		217		1,092
Accrued rebates		1,997		2,668
Estimated sales tax liability		716		622
Accrued interest		1,076		7,275
Current operating and financing lease liabilities		6,034		5,697
Other		7,447		6,413
Total accrued expenses	$	29,430	$	40,070

Other accrued expenses as of March 31, 2023 and December 31, 2022 consisted primarily of sales and income tax accruals, miscellaneous accruals for invoices not yet received, and other items such as self-insurance claims that have yet to be reported and accrued royalties.

Table of Contents

8. Long-Term Debt

At March 31, 2023 and December 31, 2022, long-term debt consisted of the following:


	Interest		March 31,		December 31,
	Rate ⁽¹⁾		2023		2022

			(dollars in thousands)
Senior Notes	8.625	%	$	277,000	$	285,000
ABL Revolver	6.387	%		13,000		5,000
Unamortized deferred financing costs				(4,016)		(4,478)
Total long-term debt				285,984		285,522
Less current maturities				—		—
Long-term debt, net of current maturities			$	285,984	$	285,522

(1)

The Senior Notes bear interest at a fixed rate and the ABL Revolver bears interest at a variable rate.

Senior Notes

On March 15, 2021, the Company completed a private offering by its wholly-owned subsidiary, CPI CG Inc., of $310.0 million aggregate principal amount of 8.625% Senior Secured Notes due 2026 (the “Senior Notes”) and related guarantees. The Senior Notes bear interest at a rate of 8.625% per annum and mature on March 15, 2026. Interest is payable on the Senior Notes on March 15 and September 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, certain asset sales and based on an annual excess cash flow calculation. The annual excess cash flow calculation is determined pursuant to the terms of that certain Indenture, dated as of March 15, 2021, by and among CPI CG Inc., the Company, the subsidiary guarantors and U.S. Bank National Association, as trustee, with any required prepayments to be made after the issuance of the Company’s annual financial statements. No such payment is required to be made in 2023 based on the Company’s operating results for the year ended December 31, 2022.

During the three months ended March 31, 2023, the Company used cash on hand and available borrowing capacity under the ABL Revolver (defined below) to retire a portion of the Senior Notes totaling $8.0 million of the principal amount thereof plus accrued and unpaid interest thereon to the retirement dates.

ABL

On March 15, 2021, the Company and CPI CG Inc., as borrower, entered into a Credit Agreement with Wells Fargo Bank, National Association, as lender, administrative agent and collateral agent, providing for an asset-based, senior secured revolving credit facility of up to $50.0 million (the “ABL Revolver”). The ABL Revolver matures on the earliest to occur of March 15, 2026 and the date that is 90 days prior to the maturity of the Senior Notes. On March 3, 2022, the Company and CPI CG Inc. entered into Amendment No. 1 to the Credit Agreement (the “Amendment”), which amended the ABL Revolver. The Amendment, among other things, increased the available borrowing capacity under the ABL Revolver to $75.0 million, increased the uncommitted accordion feature to $25.0 million from $15.0 million, and revised the interest rate provisions to replace the prior LIBOR benchmark with updated benchmark provisions using the secured overnight financing rate (“SOFR”) as administered by the Federal Reserve Bank of New York. On October 11, 2022, the Company and CPI CG Inc. entered into Amendment No. 2 to the Credit Agreement, which amended the ABL Revolver to adjust certain monthly document delivery terms and to clarify the treatment of certain inventory.

Borrowings under the amended ABL Revolver bear interest at a rate per annum equal to the applicable term SOFR adjusted for a credit spread, plus an applicable interest rate margin. The Company may select a one, three or six month term SOFR, which is adjusted for a credit spread of 0.10% to 0.30% depending on the term selected. Through March 31, 2023, the applicable interest rate margin ranges from 1.50% to 1.75% depending on the average excess availability of the facility for the most recently completed quarter. The unused portion of the ABL Revolver commitment accrues a monthly unused line fee, 0.50% per annum through March 31, 2023, multiplied by the aggregate amount of Revolver commitments less the average Revolver usage during the immediately preceding month. The interest rate

Table of Contents

margin and unused line fee percentage changed, effective April 1, 2023, to between 1.25% and 1.75% (interest rate margin) and 0.375% and 0.50% (unused line fee).

Deferred Financing Costs and Discount

Certain costs and discounts 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 using the effective-interest rate method. The remaining unamortized debt issuance costs recorded on the Senior Notes were $4.0 million and are reported as a reduction to the long-term debt balance as of March 31, 2023. The remaining unamortized net discount and debt issuance costs on the ABL Revolver and related Amendment were $1.4 million and are recorded as other assets (current and long-term) on the condensed consolidated balance sheet as of March 31, 2023.

9. Income Taxes

The Company’s effective tax rate on pre-tax income was 20.7% and 38.2% for the three months ended March 31, 2023 and 2022 respectively. The Company’s effective tax rate decreased as a result of increased deductibility of interest costs due to a tax election made by the Company in the third quarter of 2022 and the reduction of a valuation allowance in the first quarter of 2023 related to state taxes.

For the three months ended March 31, 2023 and 2022, the effective tax rate differs from the U.S. federal statutory income tax rate as follows:


	March 31,
	2023		2022
Tax at federal statutory rate	21.0	%	21.0	%
State taxes, net	4.7		8.9
Valuation allowance	(5.2)		6.3
Permanent items	1.2		1.7
Other	(1.0)		0.3
Effective income tax rate	20.7	%	38.2	%

10. Earnings per Share

Basic and diluted earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. For the three months ended March 31, 2023 and 2022, 28,831 and 54,050 potentially dilutive securities, respectively, are excluded from the calculation of diluted earnings per share because their inclusion would be anti-dilutive.

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


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Numerator:
Net income	$	10,873	$	6,002

Denominator:
Basic weighted-average common shares outstanding		11,394,919		11,255,466
Dilutive shares		506,662		462,383
Diluted weighted-average common shares outstanding		11,901,581		11,717,849

Basic earnings per share	$	0.95	$	0.53

Diluted earnings per share	$	0.91	$	0.51

11. Commitments and Contingencies

Commitments

During the normal course of business, the Company enters into non-cancellable agreements to purchase goods and services, including production equipment and information technology systems. The Company leases real property

Table of Contents

for its facilities under non-cancellable operating lease agreements. Land and facility leases expire at various dates between 2023 and 2029 and contain various provisions for rental adjustments and renewals. The leases typically require the Company to pay property taxes, insurance and normal maintenance costs. The Company’s financing leases expire at various dates between 2023 and 2028 and contain purchase options which the Company may exercise to keep the machinery in use.

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.

Smart Packaging Solutions SA v. CPI Card Group Inc.

On April 20, 2021, Smart Packaging Solutions, SA (“SPS”) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware seeking an unspecified amount of damages and equitable relief. In the complaint, SPS alleges that the Company infringed four patents that SPS has exclusively licensed from Feinics AmaTech Teoranta. The patents all relate to antenna technology. SPS alleges that the Company incorporates the patented technology into its products that use contactless communication. The Company does not produce antennas; it purchases certain antenna-related components from SPS and a number of other suppliers. The Company’s motion to dismiss the complaint is currently pending. Additionally, a third party, Infineon, has filed requests for Inter Parties Review (“IPR”) proceedings concerning each of the four patents. As a result, the Delaware District Court stayed the case pending resolution of the requests for review. The United States Patent Office has instituted proceedings with respect to all of the IPR requests. The current proceedings in the patent office are scheduled to run through September 2023. Should the patents survive review by the United States Patent Office, the Company intends to defend the suit vigorously. However, no assurance can be given that this matter will be resolved favorably. Due to the stage of this matter, the Company is unable to predict the outcome or the possible loss or range of loss, if any, associated with this matter, and no liability has been recorded as of March 31, 2023.

In addition to the matter described above, the Company may be subject to routine legal proceedings in the ordinary course of business. The Company believes that the ultimate resolution of any such matters will not have a material adverse effect on its business, financial condition or results of operations.

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 intends 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.

12. Stock-Based Compensation

In October 2015, the Company adopted the CPI Card Group Inc. Omnibus Incentive Plan (the ‘Omnibus Plan”) pursuant to which cash and equity-based incentives may be granted to participating employees, advisors, and directors. On May 27, 2021, the Company’s stockholders approved an amendment and restate of the Omnibus Plan, to among other things, increase the total number of shares of the Company’s Common Stock reserved and available for issuance, resulting in a total of 2,200,000 shares of Common Stock issuable under the Omnibus Plan.

Table of Contents

Beginning in the first quarter of 2023, certain of the Company’s employees are eligible to receive a quarterly grant comprising one-fourth of the annual equity-based incentive component of their total compensation. These awards will be in the form of a mix of restricted stock units and stock options granted under the Omnibus Plan. The number of shares awarded will be determined based on the grant-date fair value for options and on a value tied to the monthly average closing price of the Company’s common stock for restricted stock awards. All equity awards are contingent and issued only upon quarterly approval by the compensation committee of the Company’s board of directors. The Company accounts for stock-based compensation pursuant to ASC 718, Share-Based Payments. All stock-based compensation to employees is measured at fair value and expensed on a straight-line basis over the requisite service period for each tranche of the award.

During the three months ended March 31, 2023, the Company granted 8,307 options at a weighted average exercise price of $45.01. As of March 31, 2023, there were 783,769 options outstanding at a weighted average exercise price of $18.40.

During the three months ended March 31, 2023, the Company granted 24,003 restricted stock units at a weighted average grant date fair value of $45.01, and as of March 31, 2023 there were 88,576 outstanding restricted stock units at a weighted average grant date fair value of $29.54.

13. Segment Reporting

The Company has identified reportable segments that represent 10% or more of its net sales, EBITDA (as defined below) or total assets, or when the Company believes information about the segment would be useful to the readers of the financial statements. The Company’s chief operating decision maker is its Chief Executive Officer, who is charged with 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 measures, such as net sales and EBITDA.

EBITDA is the primary measure used by the Company’s chief operating decision maker to evaluate segment operating performance. 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 March 31, 2023, 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 Financial Payment Cards and provides integrated card services for card-issuing financial institutions primarily in the United States. Products produced by this segment primarily include EMV and non-EMV Financial Payment Cards, including contact and contactless cards, and Earth Elements^TM Eco-Focused Cards. The Company also sells Card@Once instant card issuance solutions, and private label credit cards that are not issued on the networks of the Payment Card Brands. The Company provides print-on-demand services, where images, personalized payment cards, and related collateral are produced on a one-by-one, on demand basis for customers. This segment also provides a variety of integrated card services, including card personalization and fulfillment services and instant issuance services. The Debit and Credit segment facilities and operations are audited for compliance with the standards of the PCI Security Standards Council by multiple Payment Card Brands.

Prepaid Debit Segment

The Prepaid Debit segment primarily provides integrated prepaid card services to Prepaid Debit Card program managers primarily in the United States, including tamper-evident security packaging. This segment also produces Financial Payment Cards issued on the networks of the Payment Card Brands that are included in the tamper-evident

Table of Contents

security packages. The Prepaid Debit segment facilities and operations are audited for compliance with the standards of the PCI Security Standards Council by multiple Payment Card Brands.

Other

The Other segment includes corporate expenses.

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 months ended March 31, 2023 and 2022, were as follows:


	Three Months Ended March 31, 2023
	Debit and Credit		Prepaid Debit		Other		Intersegment Eliminations		Total

	(dollars in thousands)
Net sales	$	101,985	$	19,130	$	—	$	(263)	$	120,852
Cost of sales		63,801		14,220		—		(263)		77,758
Gross profit		38,184		4,910		—		—		43,094
Operating expenses		8,158		1,233		13,105		—		22,496
Income from operations	$	30,026	$	3,677	$	(13,105)	$	—	$	20,598

EBITDA by segment:
Income from operations	$	30,026	$	3,677	$	(13,105)	$	—	$	20,598
Depreciation and amortization		2,161		624		1,019		—		3,804
Other income (expenses)		5		—		(119)		—		(114)
EBITDA	$	32,192	$	4,301	$	(12,205)	$	—	$	24,288


	Three Months Ended March 31, 2022
	Debit and Credit		Prepaid Debit		Other		Intersegment Eliminations		Total

	(dollars in thousands)
Net sales	$	92,015	$	19,461	$	—	$	(52)	$	111,424
Cost of sales		59,785		12,413		—		(52)		72,146
Gross profit		32,230		7,048		—		—		39,278
Operating expenses		8,120		1,080		12,097		—		21,297
Income from operations	$	24,110	$	5,968	$	(12,097)	$	—	$	17,981

EBITDA by segment:
Income from operations	$	24,110	$	5,968	$	(12,097)	$	—	$	17,981
Depreciation and amortization		1,980		598		1,032		—		3,610
Other income (expenses)		4		(2)		(398)		—		(396)
EBITDA	$	26,094	$	6,564	$	(11,463)	$	—	$	21,195


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Total segment EBITDA	$	24,288	$	21,195
Interest, net		(6,781)		(7,865)
Income tax expense		(2,830)		(3,718)
Depreciation and amortization		(3,804)		(3,610)
Net income	$	10,873	$	6,002

Table of Contents

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 March 31, 2023. This 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, 2022 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 March 31, 2023 (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 words “believe,” “estimate,” “project,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “continue,” “committed,” “attempt,” “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: adverse conditions in the banking system and financial markets, including the failure of banks and financial institutions; a deterioration in general economic conditions, including rising inflation and resulting in reduced consumer confidence and business spending, and a decline in consumer credit worthiness impacting demand for our products; a disruption or other failure in our supply chain, including as a result of the Russia-Ukraine conflict and with respect to single source suppliers, or the failure or inability of suppliers to comply with our code of conduct or contractual requirements, or political unrest in countries in which our suppliers operate, resulting in increased costs and inability to pass those costs on to our customers and extended production lead times and difficulty meeting customers’ delivery expectations; our failure to retain our existing customers or identify and attract new customers; the unpredictability of our operating results, including an inability to anticipate changes in customer inventory management practices and its impact on our business; our status as an accelerated filer and complying with Section 404 of 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; our inability to recruit, retain and develop qualified personnel, including key personnel; the potential effects of COVID-19 and responses thereto on our business, including our supply chain, customer demand, workforce, operations; system security risks, data protection breaches and cyber-attacks; 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; our inability to develop, introduce and commercialize new products; our substantial indebtedness, including inability to make debt service payments or refinance such indebtedness; 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; disruptions in production at one or more of our facilities; defects in our software; environmental, social and governance preferences and demands of various stakeholders and our ability to conform to such preferences and demands and to comply with any related regulatory requirements; the effects of climate change, negative perceptions of our products due to the impact of our products and production processes on the environment and other ESG-related risks; disruptions in production due to weather conditions, climate change, political instability or social unrest; our inability to adequately protect our trade secrets and intellectual property rights from misappropriation, infringement claims brought against us and risks related to open source software; our limited ability to raise capital; problems in production quality, materials and process; costs and impacts to our financial results relating to the obligatory collection of sales tax and claims for uncollected sales tax in states that impose sales tax collection requirements on out-of-state businesses or unclaimed property, as well as potential new U.S. tax legislation increasing the corporate income tax rate and challenges to our income tax positions; our inability to successfully execute on our divestitures or acquisitions; our inability to realize the full value of our long-lived assets; costs relating to product defects and any related product liability and/or warranty claims; our inability to renew licenses with key technology licensors; the highly competitive,

Table of Contents

saturated and consolidated nature of our marketplace; the effects of restrictions, delays or interruptions in our ability to source raw materials and components used in our products from foreign countries; the effects on the global economy of the ongoing military action by Russia in Ukraine; costs and potential liabilities associated with compliance or failure to comply with regulations, customer contractual requirements and evolving industry standards regarding consumer privacy and data use and security; 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; quarterly variation in our operating results; our failure to operate our business in accordance with the Payment Card Industry Security Standards Council security standards or other industry standards; 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; risks associated with the majority stockholders’ ownership of our stock; potential conflicts of interest that may arise due to our board of directors being comprised in part of directors who are principals of our majority stockholders; the influence of securities analysts over the trading market for and price of our common stock; failure to meet the continued listing standards of the Nasdaq Global Market; the impact of stockholder activism or securities litigation on the trading price and volatility of our common stock; certain provisions of our organizational documents and other contractual provisions that may delay or prevent a change in control and make it difficult for stockholders other than our majority stockholders to change the composition of our board of directors; our ability to comply with a wide variety of complex laws and regulations and the exposure to liability for any failure to comply; the effect of legal and regulatory proceedings; 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, 2022 filed with the SEC on March 8, 2023, in Part II, Item 1A – Risk Factors of this Quarterly Report on Form 10-Q 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.

Overview

We are a payment technology company and leading provider of comprehensive Financial Payment Card solutions in the United States. We define “Financial Payment Cards” as credit, debit and Prepaid Debit Cards (as defined below) issued on the networks of the “Payment Card Brands” (Visa, Mastercard^®, American Express^® and Discover^®). We define “Prepaid Debit Cards” as debit cards issued on the networks of the Payment Card Brands, but not linked to a traditional bank account. We also offer an instant card issuance solution, which provides customers the ability to issue a personalized debit or credit card within the bank branch to individual cardholders. We have established a leading position in the Financial Payment Card solutions market through more than 20 years of experience.

We serve a diverse set of several thousand customers which includes direct customers and indirect customer relationships, whereby CPI provides Financial Payment Card solutions to a customer through a Group Service Provider (as defined below). Our customers include some of the largest issuers of debit and credit cards in the United States, the largest Prepaid Debit Card program managers in the United States, numerous financial technology companies (“fintechs”), as well as independent community banks, credit unions and Group Service Providers. We define “Group Service Providers” as reseller or card processor organizations that assist small card issuers, such as credit unions, with managing their credit and debit card programs, including managing the Financial Payment Card issuance process, core banking operations and other financial services.

We serve our customers through a network of high-security production and card services facilities in the United States, each of which is audited for compliance with the standards of the Payment Card Industry Security Standards Council (the “PCI Security Standards Council”) by one or more of the Payment Card Brands. Many of our customers require us to comply with PCI Security Standards Council requirements that relate to the provision of our products and services. Our network of high-security production facilities allows us to optimize our solutions offerings and to serve the needs of our diverse customer base.

Driven by a combination of our strong relationships, quality, technology, innovation, and supply-chain management, we believe we have strong positions in the following markets:

●

the U.S. prepaid debit market, including the largest U.S. Prepaid Debit Card program managers;

Table of Contents

●

the U.S. small-to mid-sized financial institutions market, which includes independent community banks and credit unions;

●

the U.S. large issuer market, serving some of the largest U.S. debit and credit card issuers; and

●

the U.S. fintech market, where we produce and personalize Financial Payment Cards for financial technology companies.

Our business consists of the following reportable segments:

●

Debit and Credit, which primarily produces Financial Payment Cards and provides integrated card services to card-issuing financial institutions primarily in the United States;

●

Prepaid Debit, which primarily provides integrated prepaid card services to Prepaid Debit Card program managers primarily in the United States; and

●

“Other,” which includes corporate expenses.

Trends and Key Factors Affecting our Financial Performance

We believe the following key factors may have a meaningful impact on our business performance and may negatively influence our financial and operating results:

●

We believe some customers have reduced demand for our products and services and we may experience reduced demand from customers in the future due to the following:

o

Certain economic indicators continue to point towards the likelihood that the U.S. economy will experience a recession in the near future, which may cause our customers to have concerns about the broader economic environment and reduce overall spending, including on card programs or other products and services we offer.

o

Certain banks have recently experienced negative liquidity events, including some being taken over by industry regulators and others experiencing deposit outflows, deteriorating share prices and limited access to capital, leading to cautionary signals and uncertainty in the financial services industry. Following these events, we experienced reduced demand in the Debit and Credit segment.

o

Some of our customers may have anticipated supply-chain-related delays and correspondingly increased their own inventory of the Company’s products on hand during 2022.

●

We have experienced inflationary pressure in our supply chain, as well as delays and difficulties in sourcing key materials and components needed for our products. We have seen improvements in many areas and our production lead times have improved significantly, however we continue to have challenges in some areas which have resulted in increased costs of certain raw materials and components, longer supplier lead times and unpredictability. We continue to take actions to limit the impact of these dynamics.

Table of Contents

Results of Operations

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


	Three Months Ended
	March 31,
	2023		2022		$ Change		% Change

	(dollars in thousands)
Net sales: ⁽¹⁾
Products	$	75,790	$	68,316	$	7,474	10.9	%
Services		45,062		43,108		1,954	4.5	%
Total net sales		120,852		111,424		9,428	8.5	%
Cost of sales ⁽¹⁾		77,758		72,146		5,612	7.8	%
Gross profit		43,094		39,278		3,816	9.7	%
Operating expenses		22,496		21,297		1,199	5.6	%
Income from operations		20,598		17,981		2,617	14.6	%
Other expense, net:
Interest, net		(6,781)		(7,865)		1,084	(13.8)	%
Other expense, net		(114)		(396)		282	(71.2)	%
Income before taxes		13,703		9,720		3,983	41.0	%
Income tax expense		(2,830)		(3,718)		888	(23.9)	%
Net income	$	10,873	$	6,002	$	4,871	81.2	%

Gross profit margin		35.7%		35.3%

(1)

For the three months ended March 31, 2023 and 2022, net sales and cost of sales each include $0.3 million and less than $0.1 million of intersegment eliminations, respectively.

The following discussion of our consolidated results of operations and segment results refers to the three months ended March 31, 2023 compared to the corresponding period in the prior year. 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 Income.

Net Sales:

Net sales increased $9.4 million, or 8.5%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year, driven by the Debit and Credit segment. The increase was primarily due to increased sales of higher-priced contactless card products and personalization services and includes benefits from price increases.

Gross Profit and Gross Profit Margin:

Gross profit increased $3.8 million, or 9.7%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year. Gross profit margin was 35.7%, compared to 35.3% in the corresponding period in the prior year. The increase in gross profit was primarily due to operating leverage from higher net sales, including benefits from price increases, partially offset by inflationary impacts on materials costs and expenses associated with a production staffing model change in our Prepaid business.

Operating Expenses:

Operating expenses increased $1.2 million, or 5.6%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year, primarily due to a $1.9 million increase in compensation expenses, mainly in the “Other” segment, as a result of increased employee headcount and salary increases, partially offset by a $0.7 million decrease in professional services and other costs.

Table of Contents

Interest, net:

Interest expense decreased $1.1 million, or 13.8%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year, primarily due to lower outstanding principal balances on our borrowings.

Other Expense, net:

Other expense, net decreased $0.3 million, or 71.2%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year, primarily due to lower unamortized deferred financing cost write-offs as a result of reduced retirements of our 8.625% Senior Secured Notes due 2026 (the “Senior Notes”) compared to the corresponding period in the prior year.

Income Tax Expense:

Our effective tax rate on pre-tax income was 20.7% and 38.2% for the three months ended March 31, 2023 and 2022, respectively. The decrease in our effective tax rate for the three months ended March 31, 2023 compared to the corresponding period in the prior year, was a result of increased deductibility of interest costs due to a tax election made by the Company in the third quarter of 2022 and the reduction of a valuation allowance in the first quarter of 2023 related to a state’s law change.

Segment Discussion

Debit and Credit:


	Three Months Ended
	March 31,
	2023		2022		$ Change		% Change

	(dollars in thousands)
Net sales	$	101,985	$	92,015	$	9,970	10.8	%
Gross profit	$	38,184	$	32,230	$	5,954	18.5	%
Income from operations	$	30,026	$	24,110	$	5,916	24.5	%

Gross margin		37.4%		35.0%

Net Sales:

Net sales for Debit and Credit increased $10.0 million, or 10.8%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year. Products net sales increased primarily due to increased sales from existing customers, including benefits from the transition to contactless cards and price increases. Services net sales increased as a result of higher personalization sales due to higher sales from existing customers, including benefits from prices increases, and higher Card@Once services driven by a higher printer install base.

Gross Profit and Gross Profit Margin:

Gross profit for Debit and Credit increased $6.0 million, or 18.5%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year, primarily due to the net sales increase described above. Gross profit margin increased to 37.4% during the three months ended March 31, 2023, compared to 35.0% in the corresponding period in the prior year. The increase in gross margin was primarily due to operating leverage from higher net sales, including the benefit of price increases, partially offset by inflationary impacts on materials costs.

Income from Operations:

Income from operations for Debit and Credit increased $5.9 million, or 24.5%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year, due primarily to the factors discussed in “Gross Profit and Gross Profit Margin” above.

Table of Contents

Prepaid Debit:


	Three Months Ended
	March 31,
	2023		2022		$ Change		% Change

	(dollars in thousands)
Net sales	$	19,130	$	19,461	$	(331)	(1.7)	%
Gross profit	$	4,910	$	7,048	$	(2,138)	(30.3)	%
Income from operations	$	3,677	$	5,968	$	(2,291)	(38.4)	%

Gross margin		25.7%		36.2%

Net Sales:

Net sales for Prepaid Debit decreased $0.3 million, or 1.7%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year, primarily due to decreased volumes partially offset by the benefit of price increases.

Gross Profit and Gross Profit Margin:

Gross profit for Prepaid Debit decreased $2.1 million, or 30.3%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year. Gross profit margin for Prepaid Debit decreased to 25.7% for the three months ended March 31, 2023 compared to 36.2% in the corresponding period in the prior year. The decreases were primarily due to expenses incurred related to a change in our production staffing model, as we transitioned positions staffed with temporary workers to permanent employees, and lower net sales.

Income from Operations:

Income from operations for Prepaid Debit decreased $2.3 million, or 38.4%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year, primarily due to lower gross profit and an increase in operating expenses due to increased compensation costs.

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
	March 31,
	2023		2022		$ Change		% Change

	(dollars in thousands)
Operating expenses	$	13,105	$	12,097	$	1,008	8.3	%

Operating Expenses:

Other operating expenses increased $1.0 million, or 8.3%, for the three months ended March 31, 2023 compared to the corresponding period in the prior year, primarily due to a $1.5 million increase in compensation expenses due to the factors described in the consolidated discussion above, partially offset by a $0.5 million decrease in professional services and other costs.

Liquidity and Capital Resources

At March 31, 2023, we had $14.2 million of cash and cash equivalents.

Our ability to make investments in and grow our business, service our debt and improve our debt leverage ratios, while maintaining strong liquidity, will depend upon our ability to generate excess operating cash flows through our operating subsidiaries. Although we can provide no assurances, we believe that our cash flows from operations,

Table of Contents

combined with our current cash levels, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations and working capital needs.

Senior Notes

On March 15, 2021, we completed a private offering of $310.0 million aggregate principal amount of the Senior Notes and related guarantees at an issue price of 100%. The Senior Notes bear interest at a rate of 8.625% per annum and mature on March 15, 2026. Interest is payable on the Senior Notes on March 15 and September 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, certain asset sales and based on an annual excess cash flow calculation. The annual excess cash flow calculation is determined based on an adjusted net income calculation pursuant to the terms of the indenture, and varies based on the Company’s annual net leverage ratio. The Company is required to offer to pay 50% of excess cash flow if the net leverage ratio exceeds 4.5 to 1; 25% if the net leverage ratio is between 4 to 1 and 4.5 to 1, and 0% if the net leverage ratio is no more than 4 to 1. Any required prepayments are to be made within 125 days after the issuance of the Company’s annual financial statements. No such payment was required to be made in 2023 based on the Company’s operating results for the year ended December 31, 2022.

As permitted by the indenture governing the Senior Notes, the Company may from time to time repurchase some or all of the Senior Notes in open market transactions, in privately negotiated transactions or otherwise. The Company may redeem some or all of the Senior Notes pursuant to the terms of the indenture at a redemption price initially set at 104.313% of the principal amount of the notes to be redeemed, and reducing over time to 100%, in each case plus accrued and unpaid interest. The timing and amount of any such redemptions or repurchases will depend upon market conditions, contractual commitments, the Company’s capital needs and other factors.

As of the three months ended March 31, 2023, the Company had $277.0 million aggregate principal amount outstanding on the Senior Notes, plus accrued and unpaid interest.

ABL

On March 15, 2021, we entered into a Credit Agreement with Wells Fargo Bank, National Association providing for an ABL Revolver of up to $50.0 million. On March 3, 2022, we entered into Amendment No. 1 to the Credit Agreement, which amended the ABL Revolver to among other things, increased the available borrowing capacity to $75.0 million, increased the uncommitted accordion feature to $25.0 million and revised the interest rate provisions to replace the prior LIBOR benchmark with updated benchmark provisions using the secured overnight financing rate (“SOFR”) as administered by the Federal Reserve Bank of New York. On October 11, 2022, we entered into Amendment No. 2 to the Credit Agreement, which amended the ABL Revolver to adjust certain monthly document delivery terms and to clarify the treatment of certain inventory.

Borrowings under the amended ABL Revolver bear interest at a rate per annum equal to the applicable term SOFR adjusted for a credit spread, plus an applicable interest rate margin. We may select a one, three or six month term SOFR, which is adjusted for a credit spread of 0.10% to 0.30% depending on the term selected. Through March 31, 2023, the applicable interest rate margin ranges from 1.50% to 1.75% depending on the average excess availability of the facility for the most recently completed quarter. The unused portion of the ABL Revolver commitment accrues a monthly unused line fee, 0.50% per annum through March 31, 2023, multiplied by the aggregate amount of Revolver commitments less the average Revolver usage during the immediately preceding month. The interest rate margin and unused line fee percentage changed, effective April 1, 2023, to between 1.25% and 1.75% (interest rate margin) and 0.375% and 0.50% (unused line fee).

Amounts borrowed and outstanding under the ABL Revolver are required to be repaid in full, together with any accrued and unpaid interest, on the earliest to occur of March 15, 2026 and the date that is 90 days prior to the maturity of the Senior Notes (and may be subject to earlier mandatory prepayment upon certain events).

As of the three months ended March 31, 2023, the Company had $13.0 million in ABL Revolver borrowings outstanding, plus accrued and unpaid interest.

Table of Contents

Operating Activities

Cash provided by operating activities for the three months ended March 31, 2023 was $8.0 million compared to cash used in operating activities of $16.0 million during the three months ended March 31, 2022. Cash generated from earnings for the three months ended March 31, 2023 was partially offset by a decrease in accrued expenses of $11.4 million, primarily related to payments on accrued interest and employee performance incentive compensation during the period, and an increase in inventories by $1.5 million. These changes were partially offset by a decrease in accounts receivable of $4.3 million primarily due to lower net sales in the first quarter of 2023 compared to the fourth quarter of 2022.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2023 was $4.1 million, compared to $3.1 million during the three months ended March 31, 2022. Cash used in investing activities was related primarily to capital expenditures, including investments to support the business, such as machinery and information technology equipment. As presented in our supplemental disclosures of non-cash information on the statement of cash flows, finance leases were executed for the acquisition of right-of-use machinery and equipment assets totaling $2.2 million during the three months ended March 31, 2023, compared to $3.5 million during the corresponding period in the prior year.

Financing Activities

During the three months ended March 31, 2023, cash used in financing activities was $0.8 million. Proceeds from the ABL Revolver were $8.0 million, we retired $8.0 million of Senior Notes and we paid $0.8 million of principal on financing leases.

During the three months ended March 31, 2022, cash provided by financing activities was $10.6 million. Proceeds from the ABL Revolver were $30.0 million and in connection with the ABL Amendment, we paid $0.3 million of debt issuance costs. A portion of the proceeds from the ABL Revolver were used to redeem $20.0 million of Senior Notes and to pay $0.6 million of early redemption costs. We received $2.1 million under financing leases and we paid $0.6 million of principal on financing leases.

Working Capital

Our working capital as of March 31, 2023 was $110.9 million, compared to $99.6 million as of March 31, 2022. The increase in our working capital as of March 31, 2023 was primarily due to a decrease in accrued expenses of $10.6 million, an increase in cash of $3.1 million and increased inventories of $1.3 million, partially offset by decreased accounts receivable of $4.4 million. Our working capital needs are typically highest in the first and third quarters due to the timing of payments for interest on outstanding borrowings and employee incentive compensation. The majority of our interest payments are due in the first and third quarters.

Material Cash Requirements

Our material cash requirements include interest payments on our long-term debt, operating and finance lease payments, and purchase obligations to support our operations.

Debt Service Requirements

As of March 31, 2023, the total projected principal and interest payments on our borrowings were $363.5 million, primarily related to the Senior Notes, of which $25.0 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 2026, 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, no early voluntary or required repayment of the borrowings under the ABL Revolver within the next twelve months, and no debt issuances or renewals upon the maturity dates of our notes. 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.

Table of Contents

Leases

We lease real property for production and services, in addition to equipment. 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, 2022 for details on our leasing arrangements, including future maturities of our operating lease liabilities.

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 March 31, 2023, 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, 2022.

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, 2022, for which there were no material changes as of March 31, 2023, 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2023, 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 March 31, 2023, 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 Securities and Exchange Commission, 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

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.

Table of Contents

PART II – Other Information

Item 1. Legal Proceedings

Smart Packaging Solutions SA v. CPI Card Group Inc.

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, 2022 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. As of the date of this Quarterly Report on Form 10-Q, there have been the following material changes with respect to such risk factors.

Conditions in the banking system and financial markets, including the failure of banks and financial institutions, could have an adverse effect on our business, financial condition and results of operations.

Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10 and March 12, 2023, the Federal Deposit Insurance Corporation took control and was appointed receiver of Silicon Valley Bank and Signature Bank, respectively, after each bank was unable to continue their operations, and more recently, assisted with the assumption of First Republic Bank’s deposits and assets by JP Morgan Chase. These events exposed vulnerabilities in the banking sector, including uncertainties, significant volatility and contagion risk, any or all of which could have an adverse effect on our business, financial condition and results of operations.

In addition to the market-wide impacts, our reliance on financial institutions and non-traditional financial service providers such as fintechs as our primary customers expose us to additional risk from adverse events affecting the industry. The failure of financial institutions, the migration of deposits from smaller financial institutions to larger ones due to reduced confidence in or concerns about the stability of smaller financial institutions or non-traditional financial service providers, as well as consumers opening fewer new accounts at these institutions, may impact the quantity and timing of orders for our products. Additionally, the recent uncertainty in the banking sector, as well as broader economic conditions in general, may cause banks and financial institutions to implement precautionary measures such as reducing spending on card programs or being more selective about issuing or renewing cards to customers. Any of the foregoing events could result in lower demand for our products, which in turn could have a material adverse effect on our business, financial condition and results of operations.

Critical vendors, third-party manufacturers, or other third parties on which we rely, could also be adversely affected by the liquidity and other risks related to bank failures, which in turn could result in material adverse impacts on our business, financial condition and results of operations. These could include, but may not be limited to, delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets and difficulty in accessing commercial financing on acceptable terms or at all due to tightening credit markets, covenant terms and higher interest rates. Any third-party bankruptcy or insolvency, or any breach or default by a third party on which we rely, or the loss of any significant supplier relationships, could result in material adverse impacts on our business, financial condition and results of operations.

Table of Contents

Item 5. Other Information

(a) The Board of Directors (the “Board”) of the Company has approved the appointment of Jeffrey Hochstadt as the Company’s Chief Financial Officer (“CFO”), effective as of May 15, 2023. Mr. Hochstadt will succeed Amintore Schenkel, who previously notified the Company of his desire to step down due to family related reasons.

Prior to joining CPI, Mr. Hochstadt, 51, provided financial and strategy consulting services to clients in various industries from October 2021 to May 2023. Prior to that, beginning in 2006, Mr. Hochstadt held roles of increasing responsibility at The Western Union Company (“Western Union”), a multinational financial services company, including Global Head of Financial Planning and Analysis and most recently served as Chief Strategy Officer from January 2018 to March 2021. Prior to joining Western Union, Mr. Hochstadt held numerous financial and strategy roles for First Data Corporation, Morgan Stanley Capital International (MSCI), IBM, A.G. Edwards and Price Waterhouse. Mr. Hochstadt graduated with honors from the Olin School of Business at Washington University in St. Louis and received an MBA from the Wharton School of Business at the University of Pennsylvania.

Mr. Hochstadt does not have any family relationship with any director or executive officer of the Company, or any person nominated or chosen to become a director or executive officer of the Company, and there are no applicable transactions that would require disclosure under Item 404(a) of Regulation S-K.

In connection with Mr. Hochstadt’s appointment as CFO, he will receive an annual base salary of $400,000 and will be eligible for an annual bonus under the Company’s Short-Term Incentive Plan (“STIP”), with a STIP target opportunity of $325,000. STIP bonuses are based on individual and Company performance results and require recipients to be continuously employed through the date of the payout. For the 2023 STIP plan year, Mr. Hochstadt’s target bonus opportunity will be pro-rated from his start date. Additionally, Mr. Hochstadt will receive sign-on bonus consisting of an equity award with a grant date fair value of $250,000. He will also have an annual long-term incentive target award opportunity of $250,000, which will be prorated for 2023 and is expected to be granted quarterly. Mr. Hochstadt’s equity award will be granted under the Company’s Amended and Restated Omnibus Incentive Plan (the “Omnibus Plan”) in such form and on such terms as approved by the Compensation Committee of the Board. Mr. Hochstadt will be entitled to other benefits generally available to other executive officers of the Company, including severance benefits. The offer letter between the Company and Mr. Hochstadt is filed as Exhibit 10.1 to this report.

As part of the transition of the CFO duties to Mr. Hochstadt, Mr. Schenkel will remain with the Company as a full-time employee through June 30, 2023 and shall receive his base salary and other benefits through that time. The Company expects to enter into a consulting agreement effective July 1, 2023 with Mr. Schenkel, pursuant to which he may continue to provide advisory services to the Company’s Chief Executive Officer and the CFO for a period of time thereafter. Mr. Schenkel is also entitled to payment under the STIP of any short-term incentive compensation earned for the second quarter of 2023 and the pro-rata portion of any “annual performance incentive” that would be payable to Mr. Schenkel based on the Company’s 2023 annual performance.

Table of Contents

Item 6. Exhibits

Exhibit Number		Exhibit Description
10.1		Offer Letter, dated May 3, 2023 by and between CPI Card Group Inc. and Jeffrey Hochstadt.
10.2		Form of Nonqualified Stock Option Agreement by and between CPI Card Group Inc. and Lane Dubin.
10.3		Form of Restricted Stock Unit Agreement by and between CPI Card Group Inc. and Lane Dubin.
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).

Table of Contents

SIGNATURES

Pursuant to the requirement 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.
May 9, 2023	/s/ Scott Scheirman
	Scott Scheirman
	Chief Executive Officer
	(Principal Executive Officer)

May 9, 2023	/s/ Amintore Schenkel
	Amintore Schenkel
	Chief Financial Officer
	(Principal Financial Officer)


May 9, 2023	/s/ Donna Abbey
	Donna Abbey
	Chief Accounting Officer
	(Principal Accounting Officer)

Exhibit 10.1

10368 W. Centennial Road|Littleton, CO 80127|Tel: (303) 973-9311|Fax: (303) 973-8420

May 2, 2023

Jeffrey Hochstadt Greenwood
Village, Colorado

Dear Jeff:

Thank you for your time over the past few weeks to get to know more about CPI and meeting with members of our leadership team. Through these discussions, you have impressed us with your accomplishments, expertise and your personal attributes. We believe you would be an excellent addition to the leadership team at CPI. As a result of our recent discussions, we are pleased to present you with the following offer:

Title:	Chief Financial Officer
Hiring Manager:	Scott Scheirman, President & CEO
Salary:	Your base salary paid bi-weekly in this position will be $15,384.
	This amount annualized equals $400,000 per year.
Tentative Start Date:	May 4, 2023, and assuming CFO role on May 15, 2023

As an employee of CPI, you will be eligible for coverage under the Company’s health and welfare benefits package effective the first of the month following thirty days of service. Some benefits from CPI will be available to you at no cost, while others will require a contribution on your part. Briefly, these benefits consist of the following:

Medical coverage which includes a prescription drug program

Dental and Vision coverage

Company-paid Short- and Long-Term Disability Insurance

Flexible Spending Accounts

Life and Accidental Death and Dismemberment Insurance

401(k) plan with a company match of 100% of the first 3% of employee deferral and 50% on the 4th and 5th percent of employee deferral. (401(k) eligibility is the 1st of the quarter following 90 days of service.)

4 weeks of vacation (accrued per pay period)

6 scheduled holidays

3 floating holidays (pro-rated based on hire date)

40 hours of paid personal time (pro-rated based on hire date)

You will be eligible for CPI’s Short-Term Incentive Plan (STIP). Your total target opportunity is $325,000 for 2023, or approximately 81% of your base pay. The STIP is paid quarterly and is based on Company and individual performance results. Your manager will provide additional information on the STIP after your Start Date. For 2023, this amount will be prorated for the portion of the year you are employed at CPI.

You will also receive a long-term incentive award in the form of a combination of restricted stock units and stock options, with the value of the award split 75%/25% between these equity vehicles, under the Company’s Omnibus Incentive Plan. Your annual target for 2023 will be $250,000, and you will

10368 W. Centennial Road|Littleton, CO 80127|Tel: (303) 973-9311|Fax: (303) 973-8420

receive a new hire grant of $250,000 on May 15, 2023. You will also receive grants in 2023, granted in earnings release months (May, August and November), which will be a prorated portion of your $250,000 annual target, each at one-quarter of your annual target.

Also, note that our intent over time is to rebalance the weighting between our STIP and LTIP plans, with a heavier balance moving to LTIP/equity. We anticipate that the weighting between STIP and LTIP value for your role will be approximately 40% to STIP and 60% to LTIP. The specific timing of achieving this mix will be determined by the Compensation Committee of the Board of Directors.

This offer of employment is conditioned on the following:

Satisfactory completion of the application, and your ability to furnish CPI with the identification required to demonstrate that you are legally permitted to work in the United States, and you signing the CPI Card Group Confidentiality, Trade Secret Protection, Unfair Competition, Non-Solicitation, and Invention Assignment Agreement for Executives, and acknowledgment of the attached Drug and Substance Abuse Policy.

Satisfactory completion of a customary background investigation, drug test and completion of the reference process is also required.

Your relationship with CPI is one in which employment is “at will.” With this, CPI reserves the right to set and modify your terms and conditions of employment up to and including the termination of your employment. Conversely, you have the right to terminate your employment relationship with CPI at any time.

We would like to confirm your decision regarding this offer on or after Wednesday, May 3, 2023, but no later than Friday, May 5, 2023. If you have any questions, do not hesitate to contact me. We at CPI are looking forward to you joining the organization!

Sincerely,

/s/ Sonya Vollmer

Sonya Vollmer

Chief Human Resources Officer

Accepted:

Signed: /s/ Jeffrey Hochstadt

Date: May 3, 2023

Exhibit 10.2

CPI CARD GROUP INC.

AMENDED AND RESTATED OMNIBUS INCENTIVE PLAN

NONQUALIFIED STOCK OPTION AGREEMENT

This NONQUALIFIED STOCK OPTION AGREEMENT (this “Agreement”) is made effective as of ___ (the “Grant Date”) by and between CPI Card Group Inc., a Delaware corporation (the “Company”), and Lane Dubin (the “Participant”), pursuant to the CPI Card Group Inc. Amended and Restated Omnibus Incentive Plan (the “Plan”). Capitalized terms that are not defined herein shall have the meanings given to such terms in the Plan.

WHEREAS, the Company desires from time to time to grant options to purchase Shares to certain key Employees, Directors and Consultants of the Company and its Subsidiaries or Affiliates;

WHEREAS, the Company has adopted the Plan in order to effect such grants; and

WHEREAS, the Participant is an Eligible Recipient as contemplated by the Plan, and the Committee has determined that it is in the interest of the Company to make this grant to the Participant.

NOW, THEREFORE, in consideration of the premises and subject to the terms and conditions set forth herein and in the Plan, the parties hereto agree as follows:

1.Shares Subject to Option; Exercise Price.

(a)Shares Subject to Option. The Company shall grant to the Participant, effective as of the Grant Date, an option to purchase ___ Shares from the Company, which shall become exercisable, if at all, as provided in Section 2(a) (the “Option”).

(b)Exercise Price. The Option shall have an Exercise Price of $___ per Share, which is not less than the Fair Market Value per Share on the Grant Date.

(c)Option Subject to Plan. By electronically accepting this Agreement in accordance with the administrative procedures established by the Company, the Participant acknowledges that the Plan has been made available to the Participant and the Participant has had the opportunity to review such Plan.

(d)Character of Option. The Option granted hereunder is not intended to be an “incentive stock option” within the meaning of Code Section 422.

2.Vesting and Exercisability; Expiration.

(a)Vesting and Exercisability. The Option shall vest and become exercisable in installments as follows:

Shares Granted

The vesting of the Option is subject to the Participant’s continuous service with the Company or a Subsidiary or Affiliate thereof, as applicable, whether as an Employee, Director, or Consultant (“Service”), from the Grant Date through the applicable vesting date. Notwithstanding the foregoing, all or a portion of the Option shall vest and become exercisable at the times and under the circumstances described in Sections 4 and 5.

(b)Normal Expiration Date. Unless the Option earlier terminates in accordance with Sections 2 or 4, the Option shall terminate on the seventh anniversary of the Grant Date (the “Normal Expiration Date”). Once a portion of the Option has become exercisable pursuant to this Section 2, such portion of the Option may be exercised, subject to the provisions hereof, at any time and from time to time until the Normal Expiration Date or the earlier termination of the Option in accordance with Sections 2 or 4.

3.Method of Exercise and Payment.

Subject to the limitations set forth in this Agreement, the Option, to the extent vested, may be exercised by Participant (a) by delivering to the Company an exercise notice in the form prescribed by the Company specifying the number of whole shares of Common Stock to be purchased and by accompanying such notice with payment therefor in full (or by arranging for such payment to the Company’s satisfaction) either (i) in cash, (ii) by authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the date of exercise, equal to the amount necessary to satisfy such obligation, (iii) except as may be prohibited by applicable law, in cash by a broker-dealer acceptable to the Company to whom Participant has submitted an irrevocable notice of exercise or (iv) by a combination of (i) and (ii), and (b) by executing such documents as the Company may reasonably request. Any fraction of a share of Common Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by Participant. No certificate representing a share of Common Stock shall be issued or delivered until the full purchase price therefor and any withholding taxes thereon, as described in Section 6.1, have been paid. As soon as practicable after payment in full of the Exercise Price of any exercisable portion of the Option in accordance with this Section 3, but subject to Section 8 below, the Company shall deliver to the Participant (or such other person or entity) a certificate, certificates or electronic book-entry notation representing the Shares acquired upon the exercise thereof, registered in the name of the Participant (or such other person or entity), provided that, if the Company, in its sole discretion, shall determine that, under applicable securities laws, any certificates issued under this Section 3 must bear a legend restricting the transfer of such Shares, such certificates shall bear the appropriate legend.

4.Termination of Service.

(a)Termination due to Death or Disability. In the event that the Participant’s Service terminates by reason of the Participant’s death or Disability, then any unvested portion of the Option held by the Participant shall immediately vest in full, and the Option may be exercised by the Participant or the Participant’s beneficiary as designated in accordance with Section 9, or if no such beneficiary is named, by the Participant’s estate, at any time prior to one (1) year following the Participant’s termination of Service or the Normal Expiration Date of the Option, whichever period is shorter. The Option shall terminate immediately thereafter.

(b)Termination due to Retirement. In the event that the Participant’s Service terminates by reason of the Participant’s Retirement, (i) any portion of the Option held by the Participant that is not then exercisable shall terminate and be cancelled immediately upon such termination of Service and (ii) any then vested portion of the Option may be exercised by the Participant at any time prior to the Normal Expiration Date of the Option.

(c)Termination for Cause. In the event that the Participant’s Service terminates for Cause, the entire Option held by the Participant, whether or not then vested and exercisable, shall terminate and be cancelled immediately upon such termination of Service.

(d)Termination due to Severance Termination Event. In the event that the Participant’s Service terminates by reason of a “Severance Termination Event” as defined in that certain Employment Agreement, dated December 13, 2022, by and between Participant and the Company (the “Employment Agreement”), (i) any portion of the Option held by the Participant that is not then exercisable shall remain outstanding through the two-year anniversary of the end of the Severance Period as defined in the Employment Agreement and vest in accordance with Section 2 above and (ii) any then vested portion of the Option may be exercised by the Participant any time up to the two-year anniversary of the end of the Severance Period or the Normal Expiration Date of the Option, whichever period is shorter. The Option shall terminate immediately thereafter.

(e)Other Termination of Service. Except as may otherwise be provided in that certain Employment Agreement, dated December 13, 2022, by and between Participant and the Company (the “Employment Agreement”), in the event that the Participant’s Service terminates for any reason other than (i) death or Disability, (ii) Retirement, (iii) for Cause or (iv) a Severance Termination Event, then (A) any portion of the Option held by the Participant that is not then exercisable shall terminate and be cancelled immediately upon such termination of Service and (B) any portion of the Option held by the Participant that is vested and exercisable as of the date of the Participant’s termination of Service shall be exercisable at any time up until 90 days after the Participant’s termination of Service or the Normal Expiration Date of the Option, whichever period is shorter. The Option shall terminate immediately thereafter.

5.Qualifying Terminations Following a Change in Control.

(a)Qualifying Termination. Notwithstanding any language in the Plan or the Employment Agreement, to the contrary, the Option will not vest solely upon a Change in Control unless such Option is not assumed by the Company’s successor or converted to an equivalent value award upon substantially the same terms effective immediately following the Change in Control, in which case the Option shall vest in full upon such Change in Control. In the event the Options are effectively assumed in a Change in Control, the Participant will be immediately entitled to exercise the entire Option, whether vested or unvested, if the Participant experiences a Qualifying Termination. A “Qualifying Termination” occurs if, on or prior to the two (2) year anniversary of a Change in Control, the Participant’s Service is terminated (i) by the Company without Cause or (ii) by the Participant for Good Reason.

(b)Good Reason. For purposes of this Agreement, “Good Reason” shall have the same meaning set forth in the Employment Agreement.

The Participant will provide the Company with written notice describing which of the circumstances is cause for the Good Reason termination within thirty (30) calendar days after the occurrence of the event giving rise to the notice. The Company will have thirty (30) calendar days from the receipt of such notice to cure the event prior to the Participant exercising his or her right to terminate for Good Reason and, if not cured, the Participant’s termination will be effective upon the expiration of such cure period.

6.Tax Withholding.

(a)As a condition precedent to the issuance of Common Stock following the exercise of the Option, Participant shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares, such amount as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to such exercise of the Option. If Participant shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to Participant.

(b)Participant may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (i) a cash payment to the Company; (ii) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered to Participant upon exercise of the Option having an aggregate Fair Market Value, determined as of the date on which such withholding obligation arises, equal to the Required Tax Payments; (iii) except as may be prohibited by applicable law, a cash payment by a broker-dealer acceptable to the Company to whom Participant has submitted an irrevocable notice of exercise or (iv) any combination of (i) and (ii). Shares of Common Stock to be delivered or withheld may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a share of Common Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by Participant. No share of Common Stock or certificate representing a share of Common Stock shall be issued or delivered until the Required Tax Payments have been satisfied in full.

7.Restrictive Covenants.

(a)In exchange for good and valuable consideration, including the Option granted herein, the sufficiency of which is acknowledged, the Participant agrees as follows (the “Restrictive Covenants”):

Participant’s duties to the Company; (iii) keep in strictest confidence any Confidential Information; and (iv) not disclose or divulge, or allow to be disclosed or divulged by any person within the Participant’s control, to any person, firm, or corporation, or use directly or indirectly, for the Participant’s own benefit or the benefit of others, any Confidential Information.

(ii)Non-Disclosure. At all times during the Participant’s Service and thereafter, the Participant shall not, without the Company’s prior written consent: (i) use or exploit for any purpose not related to the Participant’s duties as an employee of the Company, or (ii) disclose to any person or entity, other than an officer, director, or employee of the Company to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Participant of his or her duties for the Company, or

(A) which is under a duty of confidentiality to the Company to maintain the confidentiality of the Company’s information or

(B) to which the Company was instructed by a third party to disclose such third party’s Confidential information,

any Confidential Information belonging to the Company or its clients or business partners or marketing partners; provided, however, that Confidential Information shall not include any information known or readily available to the public (other than as a result of an unauthorized disclosure by the Participant).

(iii)Trade Secrets; Whistleblower Protection.

(A)18 U.S.C. § 1833(b) provides: “An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that—(A) is made—(i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” Nothing in this Agreement is intended to conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are expressly allowed by 18 U.S.C. § 1833(b). Accordingly, the parties to this Agreement have the right to disclose in confidence trade secrets to federal, state, and local government officials, or to an attorney, for the sole purpose of reporting or investigating a suspected violation of law. The parties also have the right to disclose trade secrets in a document filed in a lawsuit or other proceeding, but only if the filing is made under seal and protected from public disclosure.

of federal law or regulation. The Participant does not need the prior authorization of the Company to make any such reports or disclosures and the Participant shall not be required to notify the Company that such reports or disclosures have been made.

(iv)Non-Competition and Non-Solicitation. Non-Competition and Non-Solicitation. During the period of the Participant’s Service and for two (2) years following the termination thereof (the “Restricted Period”), the Participant shall not commit any of the acts described in that certain Confidentiality, Trade Secret Protection, Unfair Competition, Non-Solicitation, and Invention Assignment Agreement, by and between the Participant and CPI Card Group-Colorado, Inc., effective as of April 8, 2019, without the Company’s prior written consent.

(v)Participant’s Duties on Termination. In the event of termination of Service with the Company, regardless of the circumstances of the termination, the Participant agrees to deliver promptly to the Company all of its property and all Confidential Information, in whatsoever form, including, but not limited to equipment, software, data files, databases, notebooks, documents, memoranda, reports, files, samples, books, correspondence, lists, or other written or graphics records relating to the Company which are or have been in his/her possession or under his/her control.

(vii)Other Covenants. For the avoidance of doubt, the Restrictive Covenants are in addition to, and not in lieu of, any restrictive covenants to which the Participant may otherwise be subject, whether under the terms of his or her employment or services agreement or otherwise.

(viii)Acknowledgement. The Participant acknowledges that these Restrictive Covenants are reasonably necessary to protect the Company’s and its clients’ and business partners’ legitimate business interests. The Participant also acknowledges that by serving in the position of Executive Vice President and Chief Development and Digital Officer, he is in an executive/management level position and has been entrusted with access to trade secrets and confidential information that, if made available to non-Company employees, would cause the Company to suffer damages which will be difficult if not impossible to calculate because of the significant time, effort and expense the Company expended in developing such trade secrets and confidential information. The Participant shall confirm, in writing, that he is complying with the terms of this provision in response to any inquiry by the Company.

(b)Reasonableness of Restrictions. The Participant agrees that the scope and duration of the Restrictive Covenants are reasonable and necessary to protect the legitimate business interests of the Company. The Participant also agrees that these Restrictive Covenants will not preclude the Participant from obtaining other gainful employment in his or her profession.

(c)Remedies for Breach.

(i)Forfeiture of Option. In the event of the Participant’s breach of any of the Restrictive Covenants, the Option (whether vested or unvested) shall immediately be forfeited.

(ii)Recovery of Shares. In the event of the Participant’s breach of any of the Restrictive Covenants, the Company shall be entitled to recover any Shares acquired upon the exercise of the Option and, if the Participant has previously sold any Shares derived from the Option, the Company shall also have the right to recover from the Participant the economic value thereof, determined as of the date of exercise.

(iii)Other Relief. In the event of the Participant’s actual or threatened breach of this Agreement, the Participant agrees that the Company will be entitled to provisional and injunctive relief in addition to any other available remedies at law or equity.

8.Nontransferability of Awards.

The Option granted hereunder may not be sold, transferred, pledged, assigned, encumbered or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or, on such terms and conditions as the Committee shall establish, to a permitted transferee. All rights with respect to the Option granted to the Participant hereunder shall be exercisable during his or her lifetime only by such Participant or, if permitted by the Committee, a permitted transferee. Following the Participant’s death, all rights with respect to the Option that were exercisable at the time of the Participant’s death and have not terminated shall be exercised by his or her designated beneficiary, his or her estate or, if designated by the Committee, a permitted transferee.

9.Beneficiary Designation.

The Participant may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) by whom any right under the Plan and this Agreement is to be exercised in case of his or her death. Each designation will revoke all prior designations by the Participant, shall be in a form reasonably prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his or her lifetime.

10.Transfer of Data.

The Participant consents to the Company or any Affiliate thereof processing data relating to the Participant for legal, personnel, administrative and management purposes and in particular to the processing of any sensitive personal data relating to the Participant. The Company may make such information available to any Affiliate thereof, those who provide products or services to the Company or any Affiliate thereof (such as advisers and payroll administrators), regulatory authorities, potential purchasers of the Company or the business in which the Participant works, and as may be required by law.

11.Adjustment in Capitalization.

The aggregate number of Shares subject to outstanding Option grants and the respective prices applicable to outstanding Options, shall be proportionately adjusted to reflect, as deemed equitable and appropriate by the Committee, any stock dividend, stock split or share combination of, or extraordinary cash dividend on, the Common Stock, or any recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares affecting the Common Stock, or any issuance of any warrants or rights offering (other than any such offering under the Plan) to purchase Common Stock at a price materially below Fair Market Value, or any other similar event affecting the Common Stock. All determinations and calculations required under this Section 12 shall be made in the sole discretion of the Committee.

12.Requirements of Law.

The issuance of Shares pursuant to the Option shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. No Shares shall be issued upon exercise of any portion of the Option granted hereunder, if such exercise would result in a violation of applicable law, including the U.S. federal securities laws and any applicable state or foreign securities laws.

13.No Guarantee of Continued Service.

Nothing in this Agreement shall interfere with or limit in any way the right of the Company or an Affiliate thereof to terminate the Participant’s Service at any time or confer upon the Participant any right to continued Service.

14.No Rights as Stockholder.

Except as otherwise required by law, the Participant shall not have any rights as a stockholder with respect to any Shares covered by the Option granted hereunder until such time as the Shares issuable upon exercise of such Option have been so issued.

15.Interpretation; Construction.

Any determination or interpretation by the Committee under or pursuant to this Agreement shall be final and conclusive on all persons affected hereby. Except as otherwise expressly provided in the Plan, in the event of a conflict between any term of this Agreement and the terms of the Plan, the terms of the Plan shall control. Notwithstanding Section 3(c) or any other provision of the Plan, in the event of any dispute over the reason for the termination of the Participant’s employment, or over whether the Participant has violated any of the Restrictive Covenants or any provision of the Employment Agreement, the determination of the Administrator (or any other committee or agent of the Company) shall not be final and conclusive, or entitled to a presumption of correctness, but such dispute shall be resolved in accordance with the provisions of the Employment Agreement.

16.Amendments.

The Committee may, in its sole discretion, at any time and from time to time, alter or amend this Agreement and the terms and conditions of the unvested portion of any Option (but not any previously granted vested Options) in whole or in part, including without limitation, amending the criteria for vesting and exercisability set forth in Section 2 hereof, substituting alternative vesting

and exercisability criteria and imposing certain blackout periods on Options; provided that such alteration, amendment, suspension or termination shall not materially impair the rights of the Participant under the Option without the Participant’s consent. The Company shall give written notice to the Participant of any such alteration or amendment of this Agreement as promptly as practicable after the adoption thereof. This Agreement may also be amended by a writing signed by both the Company and the Participant.

17.Miscellaneous.

(a)Notices. All notices, requests, demands, letters, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (A) delivered personally, (B) mailed, certified or registered mail with postage prepaid, or (C) sent by next-day or overnight mail or delivery, as follows:

(i)

If to the Company:

CPI Card Group Inc.
10368 West Centennial Road
Littleton, CO 80127
Attention: Chief Human Resources Officer

(ii)

If to the Participant, to the Participant’s last known home address,

or to such other person or address as any party shall specify by notice in writing to the Company. All such notices, requests, demands, letters, waivers and other communications shall be deemed to have been received (x) if by personal delivery on the day after such delivery, (y) if by certified or registered mail, on the fifth business day after the mailing thereof, or (z) if by next-day or overnight mail or delivery, on the day delivered.

(b)Binding Effect; Benefits. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.

(c)No Guarantee of Future Awards. This Agreement does not guarantee the Participant the right to or expectation of future Awards under the Plan or any future plan adopted by the Company.

(d)Waiver. Either party hereto may by written notice to the other (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement, (ii) waive compliance with any of the conditions or covenants of the other contained in this Agreement or (iii) waive or modify performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of either party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by either party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or

privilege hereunder shall be deemed a waiver of such party’s rights or privileges hereunder or shall be deemed a waiver of such party’s rights to exercise the same at any subsequent time or times hereunder.

(e)Code Section 409A Compliance. This Option is intended to be exempt from the requirements of Code Section 409A and this Agreement shall be interpreted accordingly. Notwithstanding any provision of this Agreement, to the extent that the Committee determines that any portion of the Option granted under this Agreement is subject to Code Section 409A and fails to comply with the requirements of Code Section 409A, notwithstanding anything to the contrary contained in the Plan or in this Agreement, the Committee reserves the right to amend, restructure, terminate or replace such portion of the Option in order to cause such portion of the Option to either not be subject to Code Section 409A or to comply with the applicable provisions of such section.

(f)Applicable Law. This Agreement shall be governed by and construed in accordance with the law of the State of Delaware, regardless of the law that might be applied under principles of conflict of laws. The Company and the Participant agree that the jurisdiction and venue for any disputes arising under, or any action brought to enforce (or otherwise relating to), this Agreement shall be exclusively in the courts in the State of Colorado, County of Arapahoe or Denver, including the Federal Courts located therein (should Federal jurisdiction exist), and the Company and the Participant hereby submit and consent to said jurisdiction and venue.

(g)Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

(h)Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

(i)Erroneously Awarded Compensation. Notwithstanding any provision in the Plan or in this Agreement to the contrary, this Award shall be subject to any compensation recovery and/or recoupment policy adopted and amended from time to time by the Company to comply with applicable law, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or to comport with good corporate governance practices.

— Signature page follows —

Notwithstanding anything in this Agreement or in the Plan to the contrary, the Committee hereby reserves the right, in its sole discretion, to terminate and cancel this Award if the Participant fails to accept this Agreement on or prior to ______.

IN WITNESS WHEREOF, the Company and the Participant have duly executed this Agreement as of the date first above written.

CPI CARD GROUP INC.

By:	Amintore Schenkel, Chief Financial Officer

Signature:

PARTICIPANT

Name:		Lane Dubin

Signature:

Exhibit 10.3

CPI CARD GROUP INC.

AMENDED AND RESTATED OMNIBUS INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

This RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”) is made effective as of _____ (the “Grant Date”) by and between CPI Card Group Inc., a Delaware corporation (the “Company”), and Lane Dubin (the “Participant”), pursuant to the CPI Card Group Inc. Amended and Restated Omnibus Incentive Plan (the “Plan”). Capitalized terms that are not defined herein shall have the meanings given to such terms in the Plan.

WHEREAS, the Company desires from time to time to grant Awards with respect to Shares to certain key Employees, Directors and Consultants of the Company and its Subsidiaries or Affiliates;

WHEREAS, the Company has adopted the Plan in order to effect such Awards; and

WHEREAS, the Participant is an Eligible Recipient as contemplated by the Plan, and the Committee has determined that it is in the interest of the Company to grant this Award to the Participant.

NOW, THEREFORE, in consideration of the premises and subject to the terms and conditions set forth herein and in the Plan, the parties hereto agree as follows:

1. Grant and Vesting of Restricted Stock Units.

(a) As of the Grant Date, the Participant will be credited with ___ Restricted Stock Units. Each Restricted Stock Unit is a notional amount that represents the right to receive one Share, subject to the terms and conditions of the Plan and this Agreement, if and when the Restricted Stock Unit vests.

(b) The Restricted Stock Units shall vest in equal installments on the first and second anniversaries of the Grant Date, with 50% vesting on the first anniversary and 50% vesting on the second anniversary. Such vesting period is subject to the Participant’s continuous service with the Company or a Subsidiary or Affiliate thereof, as applicable, whether as an Employee, Director or Consultant (“Service”), from the Grant Date through such vesting date, except as may otherwise be provided in Sections 3 and 4 hereof.

2. Rights as a Stockholder.

Except as otherwise required by law, the Participant shall not have any rights as a stockholder with respect to any Shares covered by the Restricted Stock Units granted hereunder unless and until a Restricted Stock Unit has vested and the Share underlying it has been distributed to the Participant and the Participant is recorded as the holder of such Share on the records of the Company; provided, however, that if the Company declares a cash dividend on its Shares, then, on the payment date of the dividend, the Participant will be credited with dividend equivalents equal to the amount of the cash dividend per Share multiplied by the number of Restricted Stock Units credited to the Participant through the record date. The dollar amount credited to the

Participant under the preceding sentence will be credited to an account on the books of the Company (“Account”) established for the Participant for bookkeeping purposes only. The balance in the Account will be subject to the same terms regarding vesting and forfeiture as the Participant’s Restricted Stock Units awarded under this Agreement, and will be paid in cash in a single sum at the time that the Shares associated with the Participant’s Restricted Stock Units are delivered (or forfeited at the time that the Participant’s Restricted Stock Units are forfeited).

3. Termination of Service.

(a) Continuous Service Required. Except as may otherwise be provided in the Participant’s employment or other services agreement with the Company or any of its Affiliates and which is in effect on the Grant Date, the Participant shall forfeit the unvested Restricted Stock Units upon a termination of Service occurring for any reason prior to the vesting of the Restricted Stock Units as described in Section 1(b) (including for or without Cause or due to the Participant’s voluntary resignation) other than due to the Participant’s (i) termination due to death or Disability, (ii) Retirement, (iii) Severance Termination Event or (iv) Qualifying Termination (as defined below). For purposes of this Agreement, the terms “Cause”, “Disability”, “Severance Termination Event” and “Severance Period” shall have the meanings set forth in that that certain Employment Agreement by and between the Participant and the Company, dated December 13, 2022 (the “Employment Agreement”).

(b) Termination due to Death or Disability. Notwithstanding the foregoing, in the event that the Participant’s Service terminates by reason of the Participant’s death or termination by the Company due to Disability prior to the vesting of the Restricted Stock Units as described in Section 1(b), the unvested Restricted Stock Units shall vest in full as of the date of such termination of Service.

(c) Termination due to Retirement. In the event that the Participant’s Service terminates by reason of the Participant’s Retirement, then any unvested Restricted Stock Units the Participant holds as of the date of such Retirement shall vest in full as of the date of such Retirement.

(d) Termination due to Severance Termination Event. Notwithstanding the foregoing, in the event that the Participant’s Service terminates on or after December 31, 2023 by reason of a Severance Termination Event as set forth in the Employment Agreement prior to the vesting of the Restricted Stock Units as described in Section 1(b), the unvested Restricted Stock Units shall remain outstanding and continue to vest pursuant to Section 1(b) through the two-year anniversary of the end of the Severance Period as defined in the Employment Agreement.

4. Qualifying Terminations Following a Change in Control.

(a) Qualifying Termination. Notwithstanding any language in the Plan or the Participant’s employment or other services agreement with the Company or any Affiliate to the contrary, the Restricted Stock Units will not vest solely upon a Change in Control unless the Restricted Stock Units are not assumed by the Company’s successor or converted to an equivalent value award upon substantially the same terms effective immediately following the Change in

Control in which case the unvested Restricted Stock Units shall vest in full upon such Change in Control, provided that if the Restricted Stock Units constitute nonqualified deferred compensation within the meaning of Section 409A of the Code and the settlement of the Restricted Stock Units would not be permitted under Section 409A of the Code without subjecting the Restricted Stock Units to additional taxes under Section 409A, then the Restricted Stock Units shall vest upon such Change in Control but shall be settled in accordance with Section 1(b) or, if earlier, the Participant’s termination of Service. In the event the Restricted Stock Units are effectively assumed in a Change in Control, if the Participant experiences a Qualifying Termination, the unvested Restricted Stock Units will immediately vest in full upon such Qualifying Termination. A “Qualifying Termination” occurs if, within six (6) months prior to or two (2) years following a Change in Control, the Participant’s Service is terminated (i) due to a Severance Termination Event or (ii) by the Participant for Good Reason.

(b) Good Reason. For purposes of this Agreement, “Good Reason” shall have the same meaning set forth in the Employment Agreement.

5. Timing and Form of Payment.

Once a Restricted Stock Unit vests, the Participant will be entitled to receive a Share in its place. Subject to Section 16(e), delivery of the Share will be made as soon as administratively feasible following the vesting of the associated Restricted Stock Unit (but in any event no later than the March 15^thimmediately following the year in which the substantial risk of forfeiture with respect to the Restricted Stock Units lapses). Shares will be credited to an account established for the benefit of the Participant with the Company’s administrative agent. The Participant will have full legal and beneficial ownership of the Shares at the time such Shares are credited to such account.

6. Tax Withholding.

As a condition precedent to the delivery to the Participant of any shares of Common Stock upon vesting of the Restricted Stock Units, the Participant shall, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to the Restricted Stock Units. If the Participant shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Participant or withhold shares of Common Stock. The Participant may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (i) a cash payment to the Company; (ii) authorizing the Company to withhold from the shares of Common Stock otherwise to be delivered to the Participant pursuant to this Agreement, a number of whole shares of Common Stock having an aggregate Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with this Agreement, equal to the Required Tax Payments; or (iii) any combination of (i) and (ii). Shares to be delivered or withheld may be withheld up to the maximum statutory tax rates in the applicable jurisdictions. Any fraction of a share of Common Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in

cash by the Participant. No shares of Common Stock shall be issued or delivered until the Required Tax Payments have been satisfied in full.

7. Non-Competition, Non-Solicitation and Non-Disparagement.

(a) Restrictive Covenants. In exchange for good and valuable consideration, including the Restricted Stock Units granted herein, the sufficiency of which is acknowledged, the Participant agrees as follows (the “Restrictive Covenants”):

(i) Duties of Confidentiality. In recognition of the Confidential Information as outlined below, the Participant agrees that until the earlier of the date that the Confidential Information becomes publicly available (other than through a breach by the Participant or by anyone else who has a legal obligation to maintain confidentiality) or five years from the date hereof, the Participant shall: (i) hold and safeguard all Confidential Information in trust for the Company and its successors and assigns; (ii) not appropriate or disclose or make available to anyone for use outside of the Company’s organization at any time, either during the Participant’s Service with the Company or subsequent to the Participant’s termination of Service with the Company for any reason, any Confidential Information, whether or not developed by the Participant, except as required in the performance of the Participant’s duties to the Company; (iii) keep in strictest confidence any Confidential Information; and (iv) not disclose or divulge, or allow to be disclosed or divulged by any person within the Participant’s control, to any person, firm, or corporation, or use directly or indirectly, for the Participant’s own benefit or the benefit of others, any Confidential Information.

(ii) Non-Disclosure. At all times during the Participant’s Service and thereafter, the Participant shall not, without the Company’s prior written consent: (i) use or exploit for any purpose not related to the Participant’s duties as an employee of the Company, or (ii) disclose to any person or entity, other than an officer, director, or employee of the Company to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Participant of his or her duties for the Company, or

(A) which is under a duty of confidentiality to the Company to maintain the confidentiality of the Company’s information or

(B) to which the Company was instructed by a third party to disclose such third party’s Confidential information,

(iii) Trade Secrets; Whistleblower Protection.

a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.” Nothing in this Agreement is intended to conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are expressly allowed by 18 U.S.C. § 1833(b). Accordingly, the parties to this Agreement have the right to disclose in confidence trade secrets to federal, state, and local government officials, or to an attorney, for the sole purpose of reporting or investigating a suspected violation of law. The parties also have the right to disclose trade secrets in a document filed in a lawsuit or other proceeding, but only if the filing is made under seal and protected from public disclosure.

(B) Notwithstanding anything to the contrary contained herein, no provision of this Agreement shall be interpreted so as to impede the Participant (or any other individual) from reporting possible violations of federal law or regulation to any governmental agency or entity, including, but not limited to, the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures under the whistleblower provisions of federal law or regulation. The Participant does not need the prior authorization of the Company to make any such reports or disclosures and the Participant shall not be required to notify the Company that such reports or disclosures have been made.

(iv) Non-Competition and Non-Solicitation. During the period of the Participant’s Service and for two (2) years following the termination thereof (the “Restricted Period”), the Participant shall not commit any of the acts described in that certain Confidentiality, Trade Secret Protection, Unfair Competition, Non-Solicitation, and Invention Assignment Agreement, by and between the Participant and CPI Card Group-Colorado, Inc., effective as of April 8, 2019, without the Company’s prior written consent.

(v) Participant’s Duties on Termination. In the event of termination of Service with the Company, regardless of the circumstances of the termination, the Participant agrees to deliver promptly to the Company all of its property and all Confidential Information, in whatsoever form, including, but not limited to equipment, software, data files, databases, notebooks, documents, memoranda, reports, files, samples, books, correspondence, lists, or other written or graphics records relating to the Company which are or have been in his/her possession or under his/her control.

(vi) Other Covenants. For the avoidance of doubt, the Restrictive Covenants are in addition to, and not in lieu of, any restrictive covenants to which the Participant may otherwise be subject, whether under the terms of his or her employment or services agreement or otherwise.

(vii) Acknowledgement. The Participant acknowledges that these Restrictive Covenants are reasonably necessary to protect the Company’s and its clients’ and business partners’ legitimate business interests. The Participant also acknowledges that by serving in the position of Executive Vice President and Chief Development and Digital Officer, he is in an executive/management level position and has been entrusted with access to trade secrets and confidential information that, if made available to non-Company employees, would cause the Company to suffer damages which will be difficult if not impossible to calculate because of the significant time, effort and expense the Company expended in developing such trade secrets and confidential information. The Participant shall confirm, in writing, that he/she is complying with

the terms of this provision in response to any inquiry by the Company. The Participant further acknowledges and agrees that the Participant’s award of the Restricted Stock Units pursuant to this Agreement shall satisfy the Company’s obligations with respect to 2023 pursuant to Section 2.3(c) of the Employment Agreement.

(b) Reasonableness of Restrictions. The Participant agrees that the scope and duration of the Restrictive Covenants are reasonable and necessary to protect the legitimate business interests of the Company. The Participant also agrees that these Restrictive Covenants will not preclude the Participant from obtaining other gainful employment in his or her profession.

(i) Forfeiture of Award. In the event of the Participant’s material breach of any of the Restrictive Covenants, the Restricted Stock Units (whether vested or unvested) shall immediately be forfeited.

(ii) Recovery of Shares. In the event of the Participant’s material breach of any of the Restrictive Covenants, the Company shall be entitled to recover any Shares acquired upon the vesting of the Restricted Stock Units and, if the Participant has previously sold any Shares derived from the Restricted Stock Units, the Company shall also have the right to recover from the Participant the economic value thereof, determined as of the date of vesting.

(iii) Other Relief. In the event of the Participant’s actual or threatened breach of this Agreement, the Participant agrees that the Company will be entitled to seek provisional and injunctive relief in addition to any other available remedies at law or equity.

8. Nontransferability of Restricted Stock Units.

The Restricted Stock Units granted hereunder may not be sold, transferred, pledged, assigned, encumbered or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution or, on such terms and conditions as the Committee shall establish, to a permitted transferee.

9. Beneficiary Designation.

10. Transfer of Data.

Company or any Affiliate thereof (such as advisers and payroll administrators), regulatory authorities, potential purchasers of the Company or the business in which the Participant works, and as may be required by law.

11. Securities Law Requirements.

(a) The Restricted Stock Units are subject to the further requirement that, if at any time the Committee determines in its discretion that the listing or qualification of the Shares subject to the Restricted Stock Units under any securities exchange requirements or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the issuance of Shares under it, then Shares will not be issued under the Restricted Stock Units, unless the necessary listing, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee.

(b) No person who acquires Shares pursuant to the Restricted Stock Units reflected in this Agreement may, during any period of time that person is an affiliate of the Company (within the meaning of the rules and regulations of the Securities and Exchange Commission under the Securities Act of 1933 (the “1933 Act”)) sell the Shares, unless the offer and sale is made pursuant to (i) an effective registration statement under the 1933 Act, which is current and includes the Shares to be sold, or (ii) an appropriate exemption from the registration requirements of the 1933 Act, such as that set forth in Rule 144 promulgated under the 1933 Act. With respect to individuals subject to Section 16 of the Exchange Act, transactions under this Agreement are intended to comply with all applicable conditions of Rule 16b-3, or its successors under the Exchange Act. To the extent any provision of this Agreement or action by the Committee fails to so comply, the Committee may determine, to the extent permitted by law, that the provision or action will be null and void.

12. No Guarantee of Continued Service.

Nothing in the Plan or in this Agreement shall interfere with or limit in any way the right of the Company or an Affiliate thereof to terminate the Participant’s Service at any time or confer upon the Participant any right to continued Service.

13. No Rights as a Stockholder.

Except as provided in Section 2 above or as otherwise required by law, the Participant shall not have any rights as a stockholder with respect to any Shares covered by the Restricted Stock Units granted hereunder prior to the date on which he or she is recorded as the holder of those Shares on the records of the Company.

14. Interpretation; Construction.

Any determination or interpretation by the Committee under or pursuant to this Agreement shall be final and conclusive on all persons affected hereby; provided that any dispute over the reason for the Participant’s termination of employment, or whether the Participant has violated any provision of Section 7 of this Agreement, shall be resolved as if such dispute had arisen under the Employment Agreement. Except as otherwise expressly provided in this Agreement or the

Plan, in the event of a conflict between any term of this Agreement and the terms of the Plan, the terms of the Plan shall control.

15. Amendments.

The Committee may, in its sole discretion, at any time and from time to time, alter or amend this Agreement and the terms and conditions of the unvested portion of the Restricted Stock Units (but not any portion of the Restricted Stock Units that has previously vested) in whole or in part, including without limitation, amending the criteria for vesting set forth in Section 1 hereof and substituting alternative vesting criteria; provided that such alteration, amendment, suspension or termination shall not materially impair the rights of the Participant under the Restricted Stock Units without the Participant’s consent. The Company shall give written notice to the Participant of any such alteration or amendment of this Agreement as promptly as practicable after the adoption thereof. This Agreement may also be amended by a writing signed by both the Company and the Participant.

16. Miscellaneous.

(a) Notices. All notices, requests, demands, letters, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (A) delivered personally, (B) mailed, certified or registered mail with postage prepaid, or (C) sent by next-day or overnight mail or delivery, as follows:

(i) If to the Company:

CPI Card Group Inc.
10368 West Centennial Road
Littleton, CO 80127
Attention: Chief Human Resources Officer

(ii) If to the Participant, to the Participant’s last known home address,

(b) Binding Effect; Benefits. This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.

(c) No Guarantee of Future Awards. This Agreement does not guarantee the Participant the right to or expectation of future Awards under the Plan or any future plan adopted by the Company.

(d) Waiver. Subject to Section 409A of the Code, either party hereto may by written notice to the other (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement, (ii) waive compliance with any of the conditions or covenants of the other contained in this Agreement and (iii) waive or modify performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of either party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by either party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party’s rights or privileges hereunder or shall be deemed a waiver of such party’s rights to exercise the same at any subsequent time or times hereunder.

(e) Code Section 409A Compliance. The Restricted Stock Units are intended to be exempt from or comply with the requirements of Code Section 409A and this Agreement shall be interpreted accordingly, and each payment hereunder shall be considered a separate payment. Notwithstanding any provision of this Agreement, to the extent that the Committee determines that any portion of the Restricted Stock Units granted under this Agreement is subject to Code Section 409A and fails to comply with the requirements of Code Section 409A, notwithstanding anything to the contrary contained in the Plan or in this Agreement, the Committee reserves the right to amend, restructure, terminate or replace such portion of the Restricted Stock Units in order to cause such portion of the Restricted Stock Units to either not be subject to Code Section 409A or to comply with the applicable provisions of such section. To the extent this Agreement provides for the Award to become vested and be settled upon the Participant’s termination of employment, the applicable Shares shall be transferred to the Participant or his or her beneficiary upon the Participant’s “separation from service,” within the meaning of Section 409A of the Code; provided that if the Participant is a “specified employee,” within the meaning of Section 409A of the Code, then to the extent the Award constitutes nonqualified deferred compensation, within the meaning of Section 409A of the Code, such Shares shall be transferred to the Participant or his or her beneficiary upon the earlier to occur of (a) the six-month anniversary of such separation from service and (b) the date of the Participant’s death.

(f) Applicable Law. This Agreement shall be governed by and construed in accordance with the law of the State of Delaware, regardless of the law that might be applied under principles of conflict of laws. The Company and the Participant agree that the jurisdiction and venue for any disputes arising under, or any action brought to enforce (or otherwise relating to), this Agreement shall be exclusively in the courts in the State of Colorado, County of Arapahoe or Denver, including the Federal Courts located therein (should Federal jurisdiction exist), and the Company and the Participant hereby submit and consent to said jurisdiction and venue.

(g) Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

(h) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

(i) Erroneously Awarded Compensation. Notwithstanding any provision in the Plan or in this Agreement to the contrary, this Award shall be subject to any compensation recovery and/or recoupment policy adopted and amended from time to time by the Company to comply with applicable law, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or to comport with good corporate governance practices.

(a) Award Subject to the Plan. By electronically accepting this Agreement in accordance with the administrative procedures established by the Company, the Participant acknowledges that the Plan has been made available to the Participant and the Participant has had the opportunity to review such Plan.

— Signature page follows —

IN WITNESS WHEREOF, the Company and the Participant have duly executed this Agreement as of the date first above written.


CPI CARD GROUP INC.
By:	Amintore Schenkel, Chief Financial Officer
Signature:
PARTICIPANT
Name:		Lane Dubin
Signature:

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Scheirman, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of CPI Card Group Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2023


	/s/ Scott Scheirman
	Scott Scheirman
	President and Chief Executive Officer
	(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Amintore Schenkel, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of CPI Card Group Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2023

	/s/ Amintore Schenkel
	Amintore Schenkel
	Chief Financial Officer
	(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of CPI Card Group Inc. (the “Company”) for the period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott Scheirman, President and Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Scott Scheirman
	Scott Scheirman
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: May 9, 2023

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of CPI Card Group Inc. (the “Company”) for the period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Amintore Schenkel, Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Amintore Schenkel
	Amintore Schenkel
	Chief Financial Officer
	(Principal Financial Officer)

Date: May 9, 2023