pmts-20260630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


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

For the Quarterly Period Ended June 30, 2026


			o			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 x No o

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 x No o

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. o

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

Yes o No x

Number of shares of Common Stock, $0.001 par value, outstanding as of July 28, 2026: 11,530,669

Table of Contents


			Page
Part I — Financial Information

Item 1 — Condensed Consolidated Financial Statements (Unaudited)			3

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			18

Item 3 — Quantitative and Qualitative Disclosures About Market Risk			26

Item 4 — Controls and Procedures			26

Part II — Other Information

Item 1 — Legal Proceedings			27

Item 1A — Risk Factors			27

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			27

Item 3 — Defaults Upon Senior Securities			27

Item 4 — Mine Safety Disclosures			27

Item 5 — Other Information			27

Item 6 — Exhibits			27

Signatures			28

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PART I - Financial Information

Item 1. Financial Statements

CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)


	June 30, 2026		December 31, 2025
Assets
Current assets:
Cash and cash equivalents	$	21,368	$	21,700
Accounts receivable, net	88,363		95,436
Inventories, net	62,900		72,243
Prepaid expenses and other current assets	15,520		15,565
Total current assets	188,151		204,944
Plant, equipment, leasehold improvements and operating lease right-of-use assets, net	105,189		108,433
Intangible assets, net of accumulated amortization of $61,695 and $59,741, respectively	19,690		18,544
Goodwill	52,740		48,764
Other assets	24,638		22,506
Total assets	$	390,408	$	403,191
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	30,581	$	27,802
Accrued expenses	56,613		52,379
Deferred revenue and customer deposits	2,946		3,916
Total current liabilities	90,140		84,097
Long-term debt	262,139		286,668
Deferred income taxes	3,840		2,251
Other long-term liabilities	45,763		47,508
Total liabilities	401,882		420,524

Commitments and contingencies (Note 9)

Stockholders’ deficit:
Series A Preferred Stock; $0.001 par value—100,000 shares authorized; 0 shares issued and outstanding at June 30, 2026 and December 31, 2025
Common stock; $0.001 par value—100,000,000 shares authorized; 11,520,159 and 11,456,061 shares issued and outstanding at June 30, 2026 and December 31, 2025, respectively	12		11
Capital deficit	(100,329)		(102,091)
Accumulated earnings	88,843		84,747
Total stockholders’ deficit	(11,474)		(17,333)
Total liabilities and stockholders’ deficit	$	390,408	$	403,191

See accompanying notes to condensed consolidated financial statements

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CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

(in thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2026		2025		2026		2025
Revenue	$	149,181	$	129,753	$	296,289	$	252,514
Cost of goods sold	100,695		89,633		203,679		171,698
Gross profit	48,486		40,120		92,610		80,816
Selling, general and administrative expenses	36,622		30,697		69,752		57,289
Income from operations	11,864		9,423		22,858		23,527
Other expense, net:
Interest, net	(7,405)		(8,069)		(15,061)		(15,754)
Other (expense) income, net	(35)		(13)		(3)		5
Total other expense, net	(7,440)		(8,082)		(15,064)		(15,749)
Income before income taxes and equity in losses of unconsolidated affiliates	4,424		1,341		7,794		7,778
Income tax expense	(2,137)		(823)		(3,295)		(2,486)
Equity in losses of unconsolidated affiliates	(247)		—		(403)		—
Net income	$	2,040	$	518	$	4,096	$	5,292

Basic and diluted earnings per share:
Basic earnings per share	$	0.18	$	0.05	$	0.36	$	0.47
Diluted earnings per share	$	0.17	$	0.04	$	0.34	$	0.44

Basic weighted-average shares outstanding	11,486,626		11,297,785		11,472,100		11,271,815
Diluted weighted-average shares outstanding	12,039,657		11,927,943		11,957,587		11,969,909

Comprehensive income:
Net income	$	2,040	$	518	$	4,096	$	5,292
Total comprehensive income	$	2,040	$	518	$	4,096	$	5,292

See accompanying notes to condensed consolidated financial statements

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CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

(in thousands, except share amounts)

(Unaudited)


	Common stock			Capital deficit		Accumulated earnings		Stockholders deficit
	Shares	Amount
March 31, 2026	11,475,608	$	11	$	(100,824)	$	86,803	$	(14,010)
Shares issued under stock-based compensation plans	44,551	1		(433)		—		(432)
Stock-based compensation	—	—		928		—		928
Components of comprehensive income:
Net income	—	—		—		2,040		2,040
June 30, 2026	11,520,159	$	12	$	(100,329)	$	88,843	$	(11,474)

	Common stock			Capital deficit		Accumulated earnings		Stockholders deficit
	Shares	Amount
December 31, 2025	11,456,061	$	11	$	(102,091)	$	84,747	$	(17,333)
Shares issued under stock-based compensation plans	64,098	1		(569)		—		(568)
Stock-based compensation	—	—		2,331		—		2,331
Components of comprehensive income:
Net income	—	—		—		4,096		4,096
June 30, 2026	11,520,159	$	12	$	(100,329)	$	88,843	$	(11,474)

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

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

See accompanying notes to condensed consolidated financial statements

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CPI Card Group Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Six Months Ended June 30,
	2026		2025
Operating activities
Net income	$	4,096	$	5,292
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	10,792		7,815
Amortization expense	1,954		1,947
Stock-based compensation expense	2,717		3,038
Amortization of debt issuance costs	656		658
Deferred income taxes and other, net	1,889		850
Changes in operating assets and liabilities:
Accounts receivable, net	7,048		7,451
Inventories	9,678		(7,769)
Prepaid expenses and other assets	(2,356)		2,253
Income taxes, net	57		(3,154)
Accounts payable	2,972		4,977
Accrued expenses and other liabilities	3,734		(13,471)
Deferred revenue and customer deposits	(1,088)		50
Cash provided by operating activities	42,149		9,937
Investing activities
Capital expenditures for plant, equipment and leasehold improvements, net	(6,098)		(9,112)
Cash paid for acquisition, net of cash acquired	(6,300)		(42,442)
Other	291		50
Cash used in investing activities	(12,107)		(51,504)
Financing activities
Proceeds from borrowings on debt	—		35,000
Payments on debt	(25,000)		(5,000)
Payments on financing lease obligations	(4,805)		(3,776)
Taxes withheld and paid on stock-based compensation awards	(569)		(1,077)
Cash (used in) provided by financing activities	(30,374)		25,147
Net decrease in cash and cash equivalents	(332)		(16,420)
Cash and cash equivalents, beginning of period	21,700		33,544
Cash and cash equivalents, end of period	$	21,368	$	17,124
Supplemental disclosures of cash flow information
Cash paid (refunded) during the period for:
Interest paid	$	15,172	$	15,453
Income taxes paid	$	2,140	$	6,381
Income taxes refunded	$	(529)	$	(60)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	187	$	10,844
Financing leases	$	4,073	$	8,761
Accounts payable and accrued expenses for capital expenditures for plant, equipment and leasehold improvements	$	616	$	1,815
Non-cash equity in losses of unconsolidated affiliates	$	(403)	$	—

See accompanying notes to condensed consolidated financial statements

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CPI Card Group Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

1. Business Overview and Summary of Significant Accounting Policies

Business Overview

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

CPI’s revenues are primarily generated from the production of and related offerings of secure debit and credit cards that are issued on the networks of the Payment Card Brands, including Prepaid Debit Cards. In connection with the Company’s increased strategic focus on expanding and developing additional proprietary integrated technological solutions for its customer base and to reflect the manner in which the Company’s Chief Operating Decision Maker (“CODM”), the Chief Executive Officer (“CEO”), manages the Company’s business, the Company implemented a revised segment structure to assess performance and allocate resources, beginning in the first quarter of 2026. The changes in the Company’s segment structure primarily relate to the separation of the results of the Company’s proprietary integrated technological related solutions into a separate segment from the former Debit and Credit segment. As of June 30, 2026, the Company’s business consists of the following reportable segments:

•Secure Card Solutions: primarily produces secure debit and credit cards and provides card personalization services for U.S. card-issuing financial institutions, including highly customizable, on-demand payment card solutions acquired through the purchase of Arroweye Solutions, Inc. (“Arroweye”) during the second quarter of 2025;

•Prepaid Solutions: primarily provides prepaid debit cards and secure packaging solutions and other integrated prepaid card services to prepaid program managers in the U.S.; and

•Integrated Paytech: primarily provides cloud-based and on-premise solutions, which give customers the ability to issue an instant personalized debit or credit card within a customer location; and other digital payment solutions such as push provisioning for mobile wallets.

On June 23, 2026, the Company entered into an asset purchase agreement to acquire an on-premise instant issuance solution, which includes the development, marketing, sale, licensing, and servicing of on-premise instant payment card issuance software solutions. The financial results of the acquired business are included in the Company's Integrated Paytech segment.

Refer to Note 11, “Segment Reporting,” for segment results for the three and six months ended June 30, 2026 and 2025 under the revised segment structure.

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, 2025 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, 2025.

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Use of Estimates

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

Revenue Recognition

During the second quarter of 2025, the Company reassessed certain aspects of its revenue recognition practices under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), and the legal enforceability of certain contract terms based on evolving business practices where the Company and a customer deviate from contract terms after an order is placed but before it is shipped. This assessment highlights the Company’s approach relating to goods that are in production but have not yet shipped, reflecting its emphasis on maintaining long-term customer relationships.

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

Customer Contracts

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

Costs to Obtain a Contract with a Customer

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

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

In December 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The amendments are effective for the Company for interim reporting periods in fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is evaluating the impact of adoption of this standard and does not anticipate that it will have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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

2. Inventories

Inventories consisted of the following:


	June 30, 2026		December 31, 2025
Raw materials	$	49,761	$	61,564
Work in process	4,555		3,868
Finished goods	8,584		6,811
Total inventories, net	$	62,900	$	72,243

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

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


	June 30, 2026		December 31, 2025
Machinery and equipment	$	84,300	$	85,835
Machinery and equipment under financing leases	51,234		48,194
Furniture, fixtures and computer equipment	9,698		5,795
Leasehold improvements	33,101		32,892
Construction in progress	5,999		4,746
Operating lease right-of-use assets	27,334		27,390
	211,666		204,852
Less accumulated depreciation and amortization	(106,477)		(96,419)
Total plant, equipment, leasehold improvements and operating lease right-of-use assets, net	$	105,189	$	108,433

4. Fair Value of Financial Instruments

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

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

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

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

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


	Carrying Value as of June 30, 2026		Estimated Fair Value as of June 30, 2026		Fair Value Measurement at June 30, 2026 (Using Fair Value Hierarchy)
					Level 1		Level 2		Level 3
Liabilities:
Senior Notes	$	265,000	$	278,250	$	—	$	278,250	$	—
ABL Revolver	$	—	$	—	$	—	$	—	$	—


	Carrying Value as of December 31, 2025		Estimated Fair Value as of December 31, 2025		Fair Value Measurement at December 31, 2025 (Using Fair Value Hierarchy)
					Level 1		Level 2		Level 3
Liabilities:
Senior Notes	$	265,000	$	281,616	$	—	$	281,616	$	—
ABL Revolver	$	25,000	$	25,000	$	—	$	25,000	$	—

The aggregate fair value of the Company’s Senior Notes (defined in Note 6, “Long-Term Debt”) was based on quoted prices for identical or similar liabilities in markets that are not active and, as a result, they are classified as Level 2 inputs. The fair value measurement associated with the ABL Revolver (defined in Note 6, “Long-Term Debt”) approximates its carrying value as of December 31, 2025, given the applicable variable interest rates.

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

5. Accrued Expenses

Accrued expenses consisted of the following:


	June 30, 2026		December 31, 2025
Accrued payroll and related employee expenses	$	11,877	$	13,634
Accrued employee performance-based incentive compensation	3,013		2,664
Employer payroll taxes	749		845
Accrued rebates	5,740		2,819
Accrued interest	12,337		12,792
Current operating and financing lease liabilities	13,039		12,457
Other	9,858		7,168
Total accrued expenses	$	56,613	$	52,379

Other accrued expenses as of June 30, 2026, and December 31, 2025, consisted primarily of accrued restructuring and severance, miscellaneous accruals for invoices not yet received, accrued sales and use tax and self-insurance claims incurred but not yet reported.

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6. Long-Term Debt

As of June 30, 2026, and December 31, 2025, long-term debt consisted of the following:


	June 30, 2026		December 31, 2025
Senior Notes	$	265,000	$	265,000
ABL Revolver	—		25,000
Unamortized deferred financing costs	(2,861)		(3,332)
Total long-term debt	262,139		286,668
Less current maturities	—		—
Long-term debt, net of current maturities	$	262,139	$	286,668

Senior Notes

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

The Company has obligations to make an offer to repay the Senior Notes requiring prepayment in advance of the maturity date upon the occurrence of certain events, including a change of control and certain asset sales.

ABL Revolver

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

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

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

Deferred Financing Costs

Certain costs incurred with borrowings are reflected as a reduction to the long-term debt balance. These costs are amortized as an adjustment to interest expense over the life of the borrowing. As of June 30, 2026, the remaining unamortized debt issuance costs recorded on the Senior Notes were $2.9 million and were reported as a reduction to the long-term debt balance.

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7. Income Taxes

The Company’s effective tax rates on pre-tax income were 48.3% and 61.4% for the three months ended June 30, 2026 and 2025, respectively, and 42.3% and 32.0% for the six months ended June 30, 2026 and 2025, respectively. The decrease in the Company’s effective tax rate for the three months ended June 30, 2026, compared to the prior year was primarily due to deferred state tax expense recognized as part of the Arroweye Solutions, Inc. acquisition in the prior-year period. The increase in the Company's effective tax rate for the six months ended June 30, 2026, compared to the prior year was primarily attributable to the write off of a deferred tax asset associated with vested stock options that expired unexercised, as well as an increase in the valuation allowance related to a certain state decoupling from various favorable federal tax provisions.

For the six months ended June 30, 2026 and 2025, the effective tax rates differ from the U.S. federal statutory income tax rate as follows:


	June 30,
	2026		2025
Tax at federal statutory rate	21.0	%	21.0	%
State taxes, net	7.4		9.0
Valuation allowance	2.5		—
Permanent items (1)	11.1		3.6
Tax credits	(1.1)		(1.6)
Other	1.4		—
Effective income tax rate	42.3	%	32.0	%

____________________________________________

(1)Includes the deductibility limitations on excess compensation.

8. Earnings per Share

Basic and diluted earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of restricted stock have vested. For the three months ended June 30, 2026 and 2025, 19,248 and 9,363 potentially dilutive securities, respectively, and for the six months ended June 30, 2026 and 2025, 35,348 and 10,693 potentially dilutive securities, respectively, were excluded from the calculation of diluted earnings per share. The effect of these shares was anti-dilutive under the treasury stock method, as the assumed proceeds of the options and restricted stock per unit were above our average share price during the periods.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2026		2025		2026		2025
Numerator:
Net income	$	2,040	$	518	$	4,096	$	5,292

Denominator:
Basic weighted-average common shares outstanding	11,486,626		11,297,785		11,472,100		11,271,815
Dilutive shares	553,031		630,158		485,487		698,094
Diluted weighted-average common shares outstanding	12,039,657		11,927,943		11,957,587		11,969,909

Basic earnings per share	$	0.18	$	0.05	$	0.36	$	0.47

Diluted earnings per share	$	0.17	$	0.04	$	0.34	$	0.44

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9. Commitments and Contingencies

Contingencies

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

10. Stock-Based Compensation

In October 2015, the Company adopted the CPI Card Group Inc. Omnibus Incentive Plan (as amended and supplemented, the “Omnibus Plan”) pursuant to which cash and equity-based incentives may be granted to participating employees, advisors, and directors. Effective January 30, 2024, the Company’s stockholders approved an amendment to the Omnibus Plan to increase the total number of shares of the Company’s common stock reserved and available for issuance thereunder by 1,000,000 shares, resulting in a total of 3,200,000 shares issuable under the Omnibus Plan. As of June 30, 2026, there were 649,465 shares of common stock available for grant under the Omnibus Plan.

In 2026, the Company granted certain executives two performance cash awards (PCAs) with a total grant date fair value of $3.1 million using a Monte Carlo simulation model. These PCAs will vest on December 31, 2026 and December 31, 2028 and are expected to settle in the first quarters of 2027 and 2029, respectively, subject to continuous employment and the achievement of certain Company performance goals including the Company’s relative total shareholder return of stock against the Russell 2000 index. As the awards are liability-classified, the awards are remeasured at fair value at each reporting date and at settlement, with changes recognized as stock-based compensation expense.

During the six months ended June 30, 2026, the Company granted 165,235 restricted stock units at a weighted average grant date fair value of $16.29. As of June 30, 2026, there were 565,320 outstanding restricted stock units at a weighted average grant date fair value of $18.99.

As of June 30, 2026, there were 570,166 options outstanding at a weighted average exercise price of $15.44. No options were granted during the six months ended June 30, 2026. Options have seven-year terms and are issued with exercise prices equal to the fair market value of the Company’s common stock on the grant date.

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

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11. Segment Reporting

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

As the Company uses the term, “EBITDA” is defined as income before interest expense, income taxes, depreciation and amortization. The Company’s CODM 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 CODM uses EBITDA to perform periodic reviews and comparison of operating trends and to identify strategies to improve the allocation of resources amongst segments.

Effective for the quarter ended March 31, 2026, the Company implemented a change in the structure of its reportable segments to align with its internal management reporting and operating structure and consistent with the Company’s increased strategic focus on expanding and developing additional proprietary integrated technological solutions for its customer base. This change was made to reflect the revised manner in which the Company’s CODM manages the Company’s business, including for performance assessment and resource allocation. Operating results for prior periods have been recast to conform to the current period presentation. The updated information reflects only reclassification of prior period segment data and does not represent a restatement of previously issued financial statements.

As of June 30, 2026, the Company’s reportable segments were as follows:

•Prepaid Solutions: primarily provides prepaid debit cards and secure packaging solutions and other integrated prepaid card services to prepaid program managers in the U.S.; and

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Performance Measures of Reportable Segments

Revenue and EBITDA of the Company’s reportable segments, as well as a reconciliation of total segment EBITDA to income from operations and net income for the three and six months ended June 30, 2026 and 2025, were as follows:


	Three Months Ended June 30, 2026
	Secure Card Solutions		Prepaid Solutions		Integrated Paytech		Total Reportable Segments		Intersegment Eliminations		Corporate		Consolidated
Revenue	$	110,867	$	22,645	$	20,141	$	153,653	$	(4,472)	$	—	$	149,181
Cost of goods sold