William Blair Growth Stock Conferences21.q4cdn.com/968466851/files/doc_presentations/2017/06/CPI-Car… · The Market 2017 Market Conditions 7 Large and Growing Addressable Market

Copyright 2017 CPI Card Group

William Blair Growth Stock ConferenceJune 13, 2017


Disclaimer

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Forward-Looking StatementsStatements in this presentation that are not statements of historical fact are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by terms such as statements about our plans, objectives, expectations, assumptions or future events. Words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “continue”, “project”, “plan”, “foresee”, and other similar expressions are intended to identify forward-looking statements, which are generally not historical in nature. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. These risks and uncertainties include, but are not limited to: material breaches in the security of our systems; market acceptance of developing technologies that make Financial Payment Cards less relevant; a slower or less widespread adoption of EMV and dual-interface EMV technology than we anticipate; difficulties in production quality and process; defects in our software; our failure to operate our business in accordance with the PCI security standards or other industry standards such as Payment Card Brand certification standards; failure to accurately predict demand for our products and services; extension of card expiration cycles; a decline in U.S. and global market and economic conditions; failure to identify, attract and retain new customers or a failure to maintain our relationships with our major customers; potential imposition of tariffs and/or trade restrictions on goods imported into the United States; our substantial indebtedness; infringement on our intellectual property rights, or claims that our technology is infringing on third-party intellectual property; failure to meet our customers’ demands in a timely manner; competition and/or price erosion in the payment card industry; our dependence on licensing arrangements; inability to renew leases for our facilities; interruptions in our IT systems or production capabilities; the restrictive terms of our credit facility and covenants of future agreements governing indebtedness; non-compliance with, and changes in, laws in foreign jurisdictions in which we operate and sell our products; challenges related to our acquisition strategy; our dependence on specialized equipment from third party suppliers; and other risks and other risk factors or uncertainties identified from time to time in our filings with the SEC. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Reference is made to a more complete discussion of forward-looking statements and applicable risks contained under the captions “Cautionary Statement Regarding Forward-Looking Information” and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 2, 2017. CPI Card Group Inc. undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial InformationIn addition to financial results reported in accordance with U.S. generally accepted accounting principles (GAAP), we have provided the following non-GAAP financial measures in this presentation: Adjusted Net Income, Adjusted Diluted Earnings per Share, EBITDA, Adjusted EBITDA, and Free Cash Flow. Adjusted Net Income and Adjusted Diluted Earnings per Share exclude the impact of amortization of intangible assets, stock-based compensation expense, litigation and related charges incurred in connection with certain patent and shareholder litigation, impairment of intangible asset, performance bonuses in connection with the EFT Source acquisition, restructuring and other charges, accelerated amortization of debt issuance costs in connection with term loan payments, loss on debt modification and early extinguishment and other non-operational, non-cash or non-recurring items, net of their income tax impact. EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA, adjusted for stock-based compensation expense, litigation and related charges incurred in connection with certain patent and shareholder litigation, impairment of intangible asset, performance bonuses in connection with the EFT Source acquisition, restructuring and other charges, loss on debt modification and early extinguishment, foreign currency gain or loss, and other items that are unusual in nature, infrequently occurring or not considered part of our core operations, as set forth in the reconciliation located in the Appendix. EBITDA, Adjusted EBITDA and Adjusted Net Income should not be considered an alternative to net income, income before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP as those items are used to measure operating performance, liquidity or the ability to service debt obligations. The Company believes that EBITDA, Adjusted EBITDA and Adjusted Net Income present a transparent view of our recurring operating performance and allow management to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. Management also believes that these measures are useful to investors in their analysis of our results of operations and provide improved comparability between fiscal periods. EBITDA, Adjusted EBITDA and Adjusted Net Income, as CPI defines them, may not be comparable to EBITDA, Adjusted EBITDA and Adjusted Net Income or similarly titled measures used by other entities. We define Free Cash Flow as cash flow from operations less capital expenditures. We use this metric in analyzing our ability to service and repay our debt and to forecast future periods. However, this measure does not represent funds available for investment or other discretionary uses since it does not deduct cash used to service our debt. Investors are encouraged to review the reconciliation of these historical non-GAAP measures to their most directly comparable GAAP financial measures, and a reconciliation of non-GAAP measures contained in our 2017 guidance included in the Appendix. Additional information relating to certain of our financial measures, including our Non-GAAP financial measures, is available in our most recent earnings release and on our website at http://www.cpicardgroup.com/investor-relations.


Business SummarySteve Montross

President and CEO


Company OverviewCPI is a Leader in Payment Card Solutions

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Leading Market Positions

• U.S. large issuer market

• U.S. small and mid-sizedissuer market

• U.S. prepaid debit card market

4,000+ CustomersLong-term, trusted

relationships

Large and Growing Addressable Market

Attractive Financial Profile

• Diversity across payment card markets

• Operating leverage

• Strong free cash flow conversion

~1,300 Employees 10 Production Facilities

• 8 high-secure facilities inNorth America

• Certified by one or more ofthe payment card brands

CPI is a Market Leader with over 20 Years of Experience


Company OverviewMarkets Served

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Company OverviewComprehensive End-to-End Payment Solutions and Services

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Instant Card Issuance Systems

EMV Financial Payment Cards

Non-EMV Payment Cards

Personalization and Print on Demand

PrepaidCards

• Feature a chip that interfaces with an EMV payment terminal

• Utilize magnetic stripe, RFID contactless technology, or both

• Encoding information on financial cards

• Technology driven B2B and B2C personalization solutions

• Data integration with thousands of U.S. banks

• In branch financial card issuance

• SaaS-based solution

• Installed base of more than 6,000 units at bank branches

• Solutions designed for feature and anti-fraud function for Prepaid Debit Cards

• Tamper-evident security packaging solutions

Substantial Cross-Selling Opportunities


The Market2017 Market Conditions

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• Expect EMV card production in the U.S. in 2017 to be similar to 2016 levels

• Demand outlook for value-added services for debit and credit financial card market remains solid

• Strong growth in the enterprise B2B and B2C prepaid markets

• Expect volume growth in U.S. retail prepaid market


Innovation and Product Enhancement

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Metal Cards• Received certification from Visa, MasterCard and

Discover for two metal EMV card products

Card@Once®

• Continued strong new installation growth• Beta testing next generation printer with customers

Drivers of Growth

Deepens Existing Customer Penetration and Attracts New Customers

Print on Demand• Strong initial demand • Pipeline continues to ramp


CPIStrategic Focus

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Continued Focus on Quality and Superior Execution

• Capitalize on secular growth of the Financial Payment Card market

• Expand within our broad and attractive customer base by focusing on our entire suite of end-to-end products and solutions

• Boost revenue growth through offering new and innovative products and services

• Focus on profitable growth through productivity, cost efficiency, and process excellence initiatives


Financial SummaryLillian EtzkornChief Financial Officer


Financial SummaryAnnual Financial Performance

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Net Sales Adjusted EBITDA* Adjusted Net Income*

($ in millions) ($ in millions) ($ in millions)

$85 $95 $102$132 $140

$99$101

$159

$242$169

$184$196

$261

$374

$309

2012 2013 2014 2015 2016 2017E**

Services Products

$315 -

$340

* See Appendix for definitions of our Non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures.** Represents 2017 guidance.

$31

$38

$54

$96

$57

17% 20% 21%

26%

19% 21%

2012 2013 2014 2015 2016 2017E**

$64 -

$73

$10

$13

$23

$47

$16

2012 2013 2014 2015 2016 2017E**


Financial SummaryQ1 2017 Results

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($ in millions, except EPS)

2017 2016 Change

Net sales:

Products 29.8$ 55.0$ (25.2)$

Services 26.2 31.4 (5.2)

Total net sales 56.0$ 86.4$ (30.4)$

Gross Profit 16.1$ 29.7$ (13.6)$

gross margin 28.7% 34.4%

(Loss) Income from operations (1.8)$ 13.7$ (15.5)$

Net (Loss) Income (4.5)$ 5.7$ (10.2)$

GAAP Diluted EPS (0.08)$ 0.10$ (0.18)$

Adjusted EBITDA* 3.9$ 18.8$ (14.9)$

adj. ebitda margin 6.9% 21.7%

Adjusted Net (Loss) Income* (3.0)$ 7.1$ (10.1)$

Adjusted diluted EPS* (0.05)$ 0.13$ (0.18)$

Cash provided by operating activities (5.0)$ 16.8$ (21.8)$

Capital Expenditures (3.3)$ (3.8)$ 0.5$

Free Cash Flow (8.3)$ 13.0$ (21.3)$

First Quarter

* See Appendix for definitions of our Non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures.


$40

$313

2017 2018 2019 2020 2021 2022

CPI Debt Maturities

(Undrawn)

Revolver

Term Loan$(Millions)

($ in millions) First Quarter

2017 2016

Cash $25.9 $37.0

Debt $312.5 $312.5

Net Debt $286.6 $275.5

Weighted Average Interest Rate 5.8% 5.5%

LTM Adj. EBITDA* $42.3 $98.4

Net Debt Leverage Ratio 6.8X 2.8X

Financial SummaryDebt and Liquidity

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Term Loan Has No Leverage Covenants Borrowing Under Revolver limited to $20 million above 7.0x Net Debt / LTM Adjusted EBITDA



Financial Summary2017 Guidance

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($ in millions, except EPS)

Low High

Revenue $315.0 $340.0

Adjusted EBITDA* $64.0 $73.0

GAAP EPS $0.22 $0.32

Non-GAAP EPS* $0.35 $0.46

• Card Manufacturing

Volume

• Services Volume

o Card@Once

o Print on Demand

o Prepaid Retail

• Cost Reductions

H/(L) than

2016

~$10 million

Assumptions


CPIInvestment Highlights

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Leading Market Positions


Large Base of Customers with Long & Trusted Relationships

Attractive Financial Profile with Diverse Revenue Streams Across Payment Card Markets

Attractive Valuation


Appendix


Non-GAAPReconciliation

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($ in millions)Year Ended Dec 31, LTM March 31,

2012 2013 2014 2015 2016 2016 2017

Net Income (loss) from Continuing

Operations$8.7 $11.2 $16.0 $31.3 $5.4 $31.0 $(4.8)

Depreciation and Amortization 10.5 11.6 13.3 16.0 16.9 16.0 17.3

Interest,

net5.8 7.8 7.5 18.3 20.0 21.5 20.1

Provision (benefit) for Income Taxes 5.9 7.0 10.3 17.8 3.1 16.7 (2.0)

EBITDA $30.9 $37.6 $47.0 $83.4 45.5 85.2 30.6

Foreign Currency (Gain) / Loss 0.3 0.2 0.1 (0.1) 0.4 0.2 0.2

Loss on Debt Modification -- -- 0.5 0.7 -- 0.7 --

Gain on Purchase of ID Data (0.6) -- -- -- -- -- --

Non-cash Compensation Expense -- 0.6 4.5 9.6 3.6 9.8 3.4

EFT Source Performance Bonuses -- -- -- 1.0 1.0 1.0 0.8

Investment Banking and Related Fees -- -- 2.1 0.4 -- -- --

Other One-Time / Non-Recurring Item

Adjustments-- 1.1 6.7 1.5 7.3

Total Non-GAAP Adjustments ($0.3) $0.8 $7.2 $12.8 11.7 13.2 11.6

Adjusted EBITDA $30.6 $38.4 $54.2 $96.2 $57.2 $98.4 $42.3

Net Income from Continuing Operations $8.7 $11.2 $16.0 $31.3 $5.4

Non-cash Compensation Expense -- 0.6 4.5 9.6 3.6

Amortization of Acquired Intangibles 2.0 2.0 3.4 4.6 4.6

Other One-Time / Non-Recurring Item

Adjustments(0.3) 0.1 2.6 9.3 7.7

Tax Effect of Adjustments (0.7) (1.1) (3.7) (7.5) (5.6)

Total Non-GAAP Adjustments $1.0 $1.7 $6.8 $16.0 $10.3

Adjusted Net Income $9.7 $12.9 $22.8 $47.3 $15.7



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EBITDA and Adjusted EBITDA:

Net (loss) income $ (4.5) $ 5.7

Interest expense, net 5.1 5.0

Income tax (benefit) expense (2.3) 2.8

Depreciation and amortization 4.5 4.1

EBITDA $ 2.8 $ 17.7

Adjustments to EBITDA

Stock-based compensation expense 0.5 0.7

Litigation and related charges 0.6 —

EFT Source acquisition performance bonuses — 0.3

Foreign currency (gain) loss (0.1) 0.1

Subtotal of adjustments to EBITDA 1.1 1.1

Adjusted EBITDA $ 3.9 $ 18.8

Adjusted net (loss) income and (loss) earnings

per share:

Net (loss) income $ (4.5) $ 5.7

Amortization of intangible assets 1.2 1.1

Stock-based compensation expense 0.5 0.7

Litigation and related charges 0.6 —

EFT Source acquisition performance bonuses — 0.3

Tax effect of above items (0.8) (0.7)

Adjusted net (loss) income $ (3.0) $ 7.1

(in millions)

2017 2016

Three Months Ended March 31,



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Weighted-average number of shares outstanding:

Basic 55.4 56.5

Effect of dilutive equity awards — 0.3

Weighted-average diluted shares outstanding 55.4 56.8

Reconciliation of diluted (loss) earnings per share

(GAAP) to adjusted diluted (loss) earnings per

share:

Diluted (loss) earnings per share (GAAP) $ (0.08) $ 0.10

Impact of net income adjustments 0.03 0.03

Adjusted diluted (loss) earnings per share $ (0.05) $ 0.13

2017 2016


2017 2016

(in millions)



2017 Guidance:Non-GAAP Reconciliation

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(in millions, except per share amounts)

Net income (GAAP)(1)(2)

$ 12.3 $ 18.1

Amortization 4.5 4.5

Stock-based compensation(2)

3.9 3.9

Litigation and related charges(3)

3.0 3.0

Tax effect (4.0) (4.0)

Adjusted net income $ 19.7 $ 25.5

Weighted-average diluted shares

outstanding(4)

55.7 55.7

Diluted earnings per share (GAAP) $ 0.22 $ 0.32

Adjusted diluted earnings per share $ 0.35 $ 0.46

Net income (GAAP)(1)(2)

$ 12.3 $ 18.1

Depreciation 13.7 13.7

Amortization 4.5 4.5

Interest expense(1)

20.0 20.0

Taxes 6.6 9.8

EBITDA $ 57.1 $ 66.1

Stock-based compensation(2)

3.9 3.9

Litigation and related charges(3)

3.0 3.0

Adjusted EBITDA $ 64.0 $ 73.0

Range

Low High

(1) Does not include adjustments to interest expense for

potential debt repayments, including the impact of

accelerated amortization of debt issuance cost and discount.

(2) Does not give effect to the impact to stock-based

compensation expense for any future grants, forfeitures or

modifications of stock-based awards.

(3) Represents legal costs incurred in connection with certain

patent and shareholder litigation.

(4) Does not give effect to the impact of any 2017 share

repurchases under the repurchase program announced on

May 11, 2016.

Documents

William Blair Growth Stock Conferences21.q4cdn.com/968466851/files/doc_presentations/2017/06/CPI-Car… · The Market 2017 Market Conditions 7 Large and Growing Addressable Market