PMTS 10-K & 10-Q changes, risk factors and insider trading

Our business depends heavily on consumer and business spending. Our revenue is exposed to general economic conditions that affect consumer confidence, spending, discretionary income or purchasing habits. A sustained deterioration in general economic conditions, particularly in the United States, or increases in interest rates may adversely affect our financial performance by reducing the demand for our payment card solutions or reducing the purchase of our higher margin products.products If an economic downturn occurs,and credit card issuers may reduce credit limits, close accounts and become more selective in issuing credit cards. Certain of our customers, especially in the fintech space, could be severely impacted by a downturn in economic conditions limitingreduced credit card spending, or cease to exist altogether. Additionally, an economic downturn or anothera global health emergency similar to the COVID-19 pandemic could result in extended voluntary or mandated closure of retail locations that sell certain of our products to consumers, including our Prepaid Debit Cards. These and other changes in economic conditions could therefore adversely impact our future revenues and profits and cause a materially adverse effect on our business, financial condition and results of operations.

Inflation, which increased significantly during 2022 and 2023,Inflation has adversely affected us by increasing the costs of materials and labor needed to operate our business and could continue to adversely affect us in future periods. In response to inflation,response, we have increased in the past and may in the future increase, the sales prices of our products and related services in order to maintain satisfactory margins. However, such increases or maintaining suchSuch increases may result in customer pushback or attrition and be difficult or impossible in future periods, all of which may have an adverse effect on our financial condition and results of operations.

Our operating results are unpredictable and may vary significantly from quarter to quarter and annually,annually and may differ significantly from our expectations.

Furthermore, in periods of industry overcapacity or when our customers encounter difficulties, orders are more exposed to cancellations, reductions, price reductions or postponements, or changes in customer inventory management practices which in turn reduce our ability to forecast the next quarter or full-year production levels, net sales,revenue, profits and cash flows. For these reasons, our net salesrevenue and operating results and cash flows may differ materially from our expectations. This may have a material adverse effect on our business, financial condition and results of operations.

A substantial portion of our net salesrevenue is derived from several large customers. The Company had one customer that accounted for approximately 18%16% of total net salesrevenue for the year ended December 31, 2024.2025. We have been serving this customer for nearly 20 years. In addition, nearlymore two-thirdsthan half of our net salesrevenue for the year ended December 31, 20242025 were from our top 10 direct customers, which include certain Resellers. We have been serving these top 10 direct customers for an average of more than 10 years. If one or more of our key customer relationships ends, it could have a material adverse effect on our business and financial results. Our ability to provide products and services to these and other customers and meet very high-quality standards in a timely manner is critical to our success. For example, one of our key services is the prompt and timely production and delivery of replacement debit or credit cards. Orders for these replacement cards often are placed on short notice and may require personalization. Ifif we are unable to offer these and our other products and related services in a high quality and timely manner, our relationships with our customers may be adversely affected and customers may terminate their contracts with us.

In addition, our continuedcustomer business relationship with our customersrelationships may be impacted by several factors beyond our control, including changes in customer purchasing and inventory management practices, more attractive product offerings from our competitors, pricing and inflationary pressures, Resellers’ and program managers’ ability to retain existing or gain new customers, the financial health of our customers and macroeconomic conditions affecting the payment card industry or our customers. Our business practices may also be subject to periodic audits by customers as part of their third-party risk management programs, the outcome of which may result in customer loss or cause us to incur significant costs to satisfy customer requirements. Because our contractual arrangements with customers generally do not include exclusivity clauses or commitments to order specified quantities of products on a medium or long-term basis, there is no guarantee that we will receive orders on a consistent basis or on favorable terms, or be able to renew contracts or purchase orders in a given year on favorable terms or at all. Additionally, as a result of labor shortages and supply-chain constraints, the Company has in the past experienced, and may in the future experience, extended production lead times which may result in difficulty meeting some customers’ delivery expectations. While we continue to proactively monitor, assess and take steps to minimize disruptions and delays in production, these disruptions and delays have caused, and may continue to cause, the Company to lose or delay customer opportunities.

Some of our competitors have larger global customer bases and significantly greater financial, sales and marketing, production, distribution, technical and other capabilities than we do. These competitors may be able to adapt more quickly to new technological requirements and changes in customer and/or regulatory requirements to lower production costs and prices, and utilize their global footprint to win customers with card needs in multiple markets and by producing cards in lower cost geographies. In addition, some competitors are non-public companies and are not subject to the public company requirements and related expenses that we are. We also face competition from newly established competitors, suppliers of products and customers who develop their own products and related services.

Our future success depends upon our ability to develop, introduce and commercialize new products and related services which can be a lengthy and complex process. New and developing technology solutions and products could make our existing technology solutions and products obsolete or irrelevant. We may be unable to commercialize new or improved products and related services we may develop on a timely basis or at all.

Our ability to enhance our current products and related services and to develop and introduce innovative products and related services that address the increasingly sophisticated needs of our customers will significantly affect our future success. We may not be successful in developing, gaining market acceptance of, marketing or selling new or enhanced products and related services that meet these changing demands in a timely manner or at all. Our failure to do so would likely have a material adverse effect on our ability to retain existing customers or attract new ones.

Our ability to develop and deliver new products and related services successfully will depend on various factors, including our ability to:

The research and development of new or enhanced products and related services is a complex, time-consuming, costly and uncertain process requiring the accurate anticipation of technological, market and industry trends, as well as precise technical execution, and all such challenges could adversely affect our ability to meet customer demand for new or enhanced products. We have limited research and development resources compared to many of our competitors, which may result in an immature product development process and lengthy product roll-outs, and competitors may be able to develop and commercialize competing products more quickly and efficiently. Artificial intelligence and machine learning technologies have rapidly developed and if we cannot successfully integrate these technologies into our internal business processes and product and related service offerings in a timely, cost-effective, compliant and responsible manner, we may be at a competitive disadvantage. New or enhanced product and related service offerings may also expose us to additional risks, such as new sources of supplies, increased regulation or reputational harm. If we have difficulty producing innovative products, there could be a material adverse effect on our revenue, results of operations, reputation and business.

Additionally, opportunities to combine or package products and related service offerings and the ability to cross-sell products and related services or expand into new customer verticals or markets are critical to remaining competitive in our industry. As a result, part of our business strategy is to develop new products and related services, including digital solutions, that may be used in conjunction with or in addition to our existing offerings. If we are unable to identify adequate opportunities to cross-sell our products and related services or successfully leverage our offerings to new customer verticals or markets, this may have a material adverse effect on our business, financial condition and results of operations.

Further, the markets for our products and related services are subject to technological changes, frequent introductions of new products and related services, evolving industry standards and changing customer preferences and demands, and our product and service offerings could be rendered obsolete. In particular, the rise in the adoption in digital payment systems or mobile payments may make physical cards less attractive as a method of payment. Certain merchants are also increasingly offering “buy now pay later” installment programs directly to consumers which may eliminate the use of a payment card to complete a transaction. Mobile payments, biometric payments and direct installment payment programs allow consumers to make purchases without the need to carry a physical card and could, if widely adopted, reduce the number of debit and credit cards issued to consumers. In addition, other new and developing technology solutions and products, including artificial intelligence and machine learning capabilities, could make our existing technology solutions and products obsolete or irrelevant. Any of these factors could have a material adverse effect on our business, financial condition and results of operations.

The reliability and security of our information technology (“IT”) infrastructure and our ability to protect sensitive and confidential information for our customers, which include many financial institutions, is critical to our business. We have been and may continue to be a target of cyber-attacks or cyber intrusions via the Internet, computer viruses, break-ins, malware, phishing attacks, ransomware attacks, hacking, denial-of-service attacks or other attacks and similar disruptions from unauthorized use of or access to computer systems (including from internal and external sources). In addition, increased attention on and use of artificial intelligence in general or by our employees increases the risk of cyber-attacks and data breaches, which can occur more quickly and evolve more rapidly when artificial intelligence is used.used, or unintentional disclosure of our proprietary information. A breach of our security defenses could result in a loss of our intellectual property, the release of sensitive cardholder information and customer, consumer or employee personal data, or the loss of production capabilities at one or more of our production facilities. Further, use of artificial intelligence by our employees, whether authorized or unauthorized, increases the risk that our intellectual property and other proprietary information will be unintentionally disclosed. We may also be at risk from cyber-attacks on third parties with whom we do business to the extent their compromised systems interact with our systems or employees. For example, our employees, contractors, customers or other users of our systems are from time-to-time subject to fraudulent inducements by parties attempting to gain access to our data. We have no control over the level of response offered by any third party whose systems have been impacted by a cyber-security breach and to the extent we are also impacted by interacting with compromised systems or bad actors, we could also experience system disruptions, financial loss, fines or penalties and potential damage to our reputation. In recent years these types of incidents have become more prevalent and pervasive across industries, including in our industry.

In addition, our encryption systems are at risk of being breached or decoded. We use encryption technology designed to protect sensitive data while in transit and at rest. Also, smart cards are equipped with keys that encrypt and decode messages intended to secure transactions and maintain the confidentiality of data. The security afforded by this technology depends on the integrity of the encryption keys and the complexity of the algorithms used to encrypt and decode information. Any significant advances in technology that enable the breach of cryptographic systems, malicious software infiltration or that allow for the exploitation of weaknesses in such systems could result in a decline in the security we are able to provide through this technology. Any material breach of our secured systems could harm our competitive position, result in a loss of customer trust and confidence, and cause us to incur significant costs to remedy the damages caused by system or network disruptions, which could ultimately have a material adverse effect on our business, financial condition and results of operations.

Changes in the financial or business condition of our suppliers, political instability, social or civil unrest, war or adverse market conditions in a supplier’s country, including any new global health emergency, climate change, extreme weather events, demand from other customers of such suppliers or failure to comply with our codes of conduct or other contractual requirements, could render our suppliers unable to provide us with, or render us unable or unwilling to accept, the components we need and thus subject us to losses or increased costs or adversely affect our ability to bring products to market. Further, the failure of our suppliers to deliver goods and services in sufficient quantities, in compliance with applicable standards, contract requirements, or laws and regulations, and in a timely manner could adversely affect our customer service levels, our reputation and our overall business. For example, during the COVID-19 pandemic, we experienced delays in the supply of, and increased costs of, materials necessary to operate our business, which made it difficult to produce our products in a timely manner. In addition, any increases in the costs of goods and services for our business, including because of inflationary pressures or tariffs, may adversely affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise achieve operational cost efficiencies. If a supplier engages in illegal, unethical or other questionable conduct, we may not have visibility into these practices, we may in certain circumstances be deemed to have concurrent responsibility with our supplier for such conduct, and we, and our customers, may face legal or reputational harm in addition to interruptions to our supply chain.

To serve our customers and operate certain aspects of our business, we depend on data centers and computing infrastructure that is both our own and provided by third party vendors. To the extent applications and data used in our business are hosted by third party vendors at their facilities, we do not control the operation of such facilities or in some cases the hardware and infrastructure within them. Any disruption of, interference with, or inability to keep up with our capacity needs by our third-party data centers or hosted infrastructure partners could interrupt our business operations. In addition, any problems faced by ourthose third-party data center operations or hosted infrastructure partnersthird-parties with their or our telecommunications network providers, or with the systems by which our telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our customers. Our ability to serve our customers also largely depends on the efficient and uninterrupted operation of our own computer information systems and complex production equipment, much of which relies on computer operating systems, residing at our leased facilities. The proper functioning of such systems can be adversely affected by the increasing age and usage of such systems, among other things. Any interruption in our business applications, systems or networks, including due to new system implementations, server downtime, failure to upgrade or patch software, facility issues, natural disasters or energy disruptions, could have a material adverse impact on our operations, sales and operating results. Additionally, we have a limited number of employees with the expertise required to operate such internal applications, systems and networks as well as remediate them in the event of a failure, and thus the attrition of such employees could result in our inability to quickly and effectively resolve future IT issues.

Any serious disruption at any of our facilities, including as a result of public health emergencies, severe weather conditions, climate change, natural disasters, hostilities, political instability, social unrest, network outages, or terrorist activities, or our inability to successfully relocate our Fort Wayne, Indiana operations to a new location as anticipatedactivities could impair our ability to use our facilities and have a material adverse impact on our revenues and increase our costs. In the event of a disruption at one of our facilities, our other facilities may not have sufficient capacity or necessary specialized equipment, may have higher production costs, may take significant time to increase production or may fail to meet our customers’ requirements, any of which could negatively impact our business, results of operations and financial condition. Production disruptions may cause our customers to seek alternative supply, which could further adversely affect our profitability.

Additionally, all of our production facilities are currently leased, and we are subject to risks associated with our current and future real estate leases. As each lease expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, we may be unable to find replacement locations with adequate capacity for our unique equipment and both current and future operational needs, and we may experience disruption or significant cost in relocating, any of which could have an adverse effect on our operations, customer relationships and financial performance. Moreover, we are working to relocate the operations at our Fort Wayne, Indiana facility to a new location. We may not be able to successfully relocate our operations in a timely manner or do so without experiencing business interruption. Our other production facilities may not have the ability to support the production needs serviced by this facility, and we do not have contractual arrangements with any other manufacturers in the event this facility ceases to be available to us for any reason. Also, a substantial investment in improvements and equipment is necessary to facilitate the relocation. These costs may exceed our expectations or we may face delays for the relocation of the facility, which could have an adverse effect on our operations, customer relationships and financial performance.

In addition, we rely, in part, on the accumulated knowledge, skills and experience of our key personnel, including our executive officers. The loss of the services of any of our key personnel could have a material adverse effect on our business, financial condition and results of operations because we may not be able to replace them on a timely basis or without incurring increased costs, or at all. If our key personnel were to leave us without adequate succession plans in place we may be unable to maintain continuity in key business functions. We may not succeed in recruiting sufficient personnel to support our production needs or may fail to effectively replace current personnel who depart with qualified or effective successors. Personnel shortages have resulted, and may in the future result, in extended production lead times and difficulty in meeting customers’ delivery expectations, which could result in the loss of customers and damage to our reputation and have a material adverse effect on our business, financial condition and results of operations.

If we are unable to generate or borrow sufficient cash to make payments on our indebtedness, our financial condition could be materially harmed. We may not be able to refinance our existing long-term debt if necessary, or we may only be able to do so at a higher interest rate or on other less favorable terms.

Our ability to repay or refinance our borrowings will depend on our financial and operating performance, which will be affected by economic, financial, competitive, business and other factors, some of which are beyond our control. We cannot guarantee that our business will generate sufficient cash flow from operations to service our indebtedness or to fund our other liquidity needs. If we are unable to meet our debt obligations or fund our other liquidity needs, we may need to restructure or refinance all or a portion of our indebtedness on or before maturity or sell certain of our assets. In 2024, we refinanced our existing indebtedness that was due to mature in March 2026, and extended our maturity dates for both our long-term debt and senior secured revolving credit facility to July 2029. We may be unable to refinance or renew our existing long-term debt and our failure to repay all amounts due on the maturity date would cause a default under the long-term debt and our credit facility. Amounts borrowed and outstanding under our long-term debt agreement and credit facility are required to be repaid in full, together with any accrued and unpaid interest, no later than July 15, 2029 (and may be subject to earlier mandatory prepayment upon certain events). Alternatively,We cannot guarantee that we will be able to restructure or refinance any of our indebtedness on commercially reasonable terms, if at all, which could cause us to default on our debt obligations and impair our liquidity. Further, any renewal or refinancing may occur on less favorable terms for both the long-term debt and credit facility. If we refinance on terms less favorable to us than the current terms, our interest expense may increase significantly, which could impact our results of operations and impair our ability to use our funds for other purposes.

We may not be able to successfully execute our acquisition strategy or integrate acquisitions or strategic investments successfully, or successfully enter into, maintain and leverage business relationships, which could adversely affect our financial condition and results of operations.

We have sought and intend to continue to seek acquisition opportunitiesopportunities, strategic investments, and business relationships to potentially expand into new markets and to enhance our position in existing markets. We may not be able to successfully identify suitable acquisition or relationship opportunities, prevail against competing potential acquirers or business partners, negotiate appropriate acquisition terms, obtain financing that may be needed, extend our product or service offerings into areas in which we have limited experience, enter into new geographic markets, complete proposed acquisitions or successfully integrate acquired businesses into our existing operations. Regularly considering strategic acquisitionsacquisitions, investments, or relationships can also divert management’s attention from other business concerns and lead to significant negotiation, due diligence and other expenses, regardless of whether we pursue or consummate any transaction or arrangement. Even if an acquisitionacquisition, investment, or business partnership is successfully integrated, it could result in unforeseen liabilities, cause us to lose key employees or other business relationships or may not otherwise perform as planned. If any of these or other factors limit our ability to achieve the anticipated benefits of a transaction or relationship, or if we encounter other unexpected costs and liabilities in connection with the foregoing, our business, financial condition and results of operations could be materially and adversely affected.

There have also been changing consumer concerns and perceptions (whether accurate or inaccurate) regarding the potentially adverse environmental effects or sourcing of certain substances and components the Company uses in its products, including PVC plastic. Potential consumer concerns may also extend to the sourcing of certain materials and labor and other conditions in those locations. Further, our customers may request that changes be made to our products, operations, or production processes. We may be unable to produce or procure our products in conformity with these preferences and concerns, or doing so may require significant research and development costs, increased costs to procure alternative raw materials and components, and additional capital expenditures.

Furthermore, customer, investor and consumer ESG expectations have been varied, rapidly evolving and increasing. Specifically, certain customers are beginning to request that the Company provide information on its plans relating to certain environmental related matters such as greenhouse gas (“GHG”) emissions, waste sent to landfills and energy usage. The enhanced stakeholder focus on ESG issues requires the continuous monitoring of various and evolving standards, which is time consuming and costly. In addition, if we communicate certain ESG initiatives or goals, we could fail, or be perceived to fail, to meet them, or we could be criticized for the scope of such initiatives or goals or our approach to meeting those goals. A failure to adequately meet various stakeholder expectations and standards may result in reputational damage, the loss of business, diluted market valuation, an inability to attract customers or an inability to attract and retain top talent.

Companies in our industry aggressively protect their intellectual property rights. Our products often contain technology provided to us by other parties such as suppliers or customers, and we compete in an industry that is highly active in generating intellectual property. We may have little or no ability to determine in advance whether such technology infringes the intellectual property rights of a third party. From time to time, we receive notices or are named in litigation that claim we have infringed upon, misappropriated or misused other parties’ proprietary rights or that challenge the validity of our patents. In addition to the costs and distraction that result from intellectual property litigation and infringement claims, an adverse outcome in these types of disputes could prevent us from offering some of our products and related services or from enforcing our intellectual property rights. Settlements can involve royalty or other payments that could reduce our profit margins and may have a material adverse effect on our financial results. Our suppliers, customers and licensors may not be required to fully indemnify us for the costs of defending against infringement claims. In addition, we may be required to indemnify some customers and strategic partners related to allegations, regardless of merit, that our products infringe on the intellectual property rights of others.

We also face risks related to open sourceopen-source software. Certain of our software is derived from open sourceopen-source software, which is generally made available to the public by its authors and/or other third parties. Open sourceOpen-source software is often made available under licenses, which impose certain obligations in the event we distribute derivative works of the open sourceopen-source software. These obligations may require us to make source code for the derivative works available to the public and/or license such derivative works on terms different from those customarily used to protect our intellectual property and we may incur additional costs to the extent we use open sourceopen-source software that is subject to licensing. With respect to our proprietary software, we generally license such software under terms that prohibit combining it with open sourceopen-source software. Despite these restrictions, parties may combine our proprietary software with open sourceopen-source software without our authorization, in which case we might nonetheless be required to release the source code of our proprietary software. Usage of open sourceopen-source software can lead to greater risks than the use of third partythird-party commercial software, as open source licensors generally do not provide warranties, controls on the origin or development of the software or remedies against the licensors. Many of the risks associated with open sourceopen-source software cannot be eliminated and could have a material adverse effect on our business, financial condition and results of operations.

In addition, the rise of artificial intelligence and machine learning technologies may expose us to increasing risk with regard to both protecting of our intellectual property and defending against misappropriation claims. Such technologies are imperfect and the use of artificial intelligence or machine learning technologies by us, our customers or parties with whom we conduct business, and by unrelated third parties could inadvertently cause us to infringe upon other parties’ intellectual property ownership or rights,rights or could alternatively infringe upon our intellectual property rights. As a result, we may be subject to claims we have infringed upon, misappropriated or misused other parties’ intellectual property. We may also have to resort to litigation to enforce our intellectual property rights, either of which could result in substantial costs and diversion of our resources.

Many of our products integrate third-party technologies that we license or otherwise obtain the right to use, including software relating to smart card operating systems. As part of our strategy, we have entered into licensing agreements with other leading industry participants that provide us with access to technology owned by third parties. For example, we license card technology for use in certain of our products, and we rely on our commercial arrangements with the licensors of such technology for the continued use of these platforms. These licensors may not continue to renew their licenses with us on similar terms or at all, which could negatively impact our net sales.revenue. We have also entered into cross-licensing agreements with certain of our competitors that provide for an exchange of intellectual property, including the sharing of certain patent rights in our respective portfolios, and we continue to do so as we pursue additional growth initiatives. If we are unable to enter into new cross-licensing agreements or continue to successfully renew existing cross-licensing agreements, we may lose our access to certain technologies that we rely upon to develop certain of our products and or be forced to cease or delay certain growth initiatives, which could have a material adverse effect on our business.

In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. The terms of our outstanding indebtedness and the low trading volume and fluctuating trading price of our common stock may adversely affect our ability to access capital marketsmarkets, and any such financing may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. We may be unable to access capital due to unfavorable market conditions or other market factors outside of our control, and we may not be able to raise additional capital when needed. Any failure to achieve adequate funding will delay our products and related services innovation and development and could lead to abandonment of one or more of our strategic initiatives. Any of these events could materially harm our business, financial condition and prospects.

SeveralWe statesare have adopted legislation requiring out-of-state sellersrequired to collect and remit sales tax onin salesmultiple transactionsU.S. intostates. thoseChanges statesin wherea theystate’s have no physical presence. States seeking to expand applicability of sales taxeconomic “nexus” laws or sales tax rates could result in additional tax expenses in the event we are unable to pass these expenses along to our customers and additional administrative burden to collect and remit sales tax in such jurisdictions.

We are also subject to unclaimed property (escheat) laws in various states which require us to turn over to certain government authorities the property of others held by us that has been unclaimed for a specified period of time. We are subject to audit by individual U.S. states with regard to our escheatment practices. Such audits may cause us to incur significant costs related to outside professional fees and divert management’s time away from business operations. Additionally, we may be subject to assessments, penalties or fines that could adversely affect our financial results. The legislation and regulations related to tax and unclaimed property matters tend to be complex and subject to varying interpretations by both government authorities and taxpayers.

Current and prospective regulations, changes in our product offerings and customer contractual requirements addressing consumer privacy and data use and security could increase our costs of operations, increase the risk of regulatory enforcement, or claims, which could adversely affect our operations, results of operations and financial condition.

In operating a payment card business, we manage large amounts of personally identifiable information of cardholders, including cardholder names, account numbers, healthcare provider names and health savings account numbers, and similar information and are thus subject to laws and requirements relating to data privacy and security, which continue to evolve and may become increasingly difficult to comply with. For example, the California Consumer Privacy ActAct, andas amended by the California Privacy Rights ActAct, generallyimposes requireobligations on companies like ours, which process consumer personal information on behalf of their customers, including to use, retain or disclose consumer personal information solely for certain limited purposes, including to provide services to our customers according to the terms of our customer contracts. Other states have enacted or amended similar data privacy laws and regulations. Furthermore, to the extent these laws apply to our customers, our customers have imposed, and may continue to impose additional, privacy related contractual obligations on us, adherence to which may require additional investment in resources and internal processes. Additionally, as we continue to innovate our products and related services offerings, including potentially leveraging the use of artificial intelligence and machine learning capabilities, and expand into new lines of business, and as the number of jurisdictions enacting privacy and related laws increases and the scope of these laws and enforcement efforts expand, we have and may continue to become subject to additional data privacy and security legal requirements and regulations such as HIPAA.regulations. The legal, political and business environments in these areas are rapidly changing, and subsequent legislation, regulation, litigation, court rulings or other events could expose the Company to increased program costs, liability and reputational damage. New products and related services we develop may also require that we obtain and retain more personally identifiable information for a longer period of time than we have done historically. We have incurred significant expenses to meet the obligations of current privacy-related laws and requirements, and we expect to continue to incur these as well as additional expenses if we become subject to additional privacy-related laws and regulations, which will continue to necessitate us making changes to our internal processes, procedures and systems. Failure to comply with existing or future data privacy and security laws, regulations and requirements could result in fines, sanctions, penalties, civil lawsuits or other adverse consequences as well as loss of customer and consumer confidence, which could materially adversely affect our results of operations, overall business and reputation.

Many of our customers issue their cards on the networks of the Payment Card Brands that are subject to the standards of the PCI Security Standards Council or other standards and criteria relating to service providers’ and producers’ facilities, products and physical and logical security which we must satisfy to be eligible to supply products and related services to such customers. Most of our contractual arrangements with our customers may be terminated, or customers may cease doing business with us, if we fail to comply with these standards and criteria.

We make significant investments in our high-security facilities to meet these standards and criteria and changes in them. Further investments may be costly, and if we are unable to continue to meet these standards and criteria, we may become ineligible to provide products and related services that have been an important part of our revenue and profitability. For the year ended December 31, 2024,2025, the vast majority of our products and related services were subject to compliance with the standards of one or more of the Payment Card Brands. If we fail to comply with one or more of the standards of the Payment Card Brands or of the PCI Security Standards Council for one or more of our facilities, we may lose the ability to produce cards for or provide services to banks issuing credit or debit cards on the Payment Card Brand networks. Additionally, certain of our facilities operate under variances of certain of these standards. If such variances are not granted in the future or if we are required to move or alter a facility in order to maintain compliance, we may incur significant costs and delays, or may lose our ability to offer services in that facility, which would be disruptive to our business and have an adverse effect on our customer relationships and financial results. If, as a result of noncompliance with standards of the PCI Security Standards Council or the Payment Card Brands, we are not able to produce cards for or provide services to any or all of the issuers issuing debit or credit cards on such networks, we could lose a substantial number of our customers, which could have a material adverse effect on our business, financial condition and results of operations.

In early 2022, Russian forces launched significant military action against Ukraine, and the region has since experienced sustained conflict and disruption, which may continue in 2025 and beyond. Governments in the United States, United Kingdom and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia.Russia due to the Russia-Ukraine war. Additionally, hostilities in several parts of the Middle East are ongoing and could develop to have a more widespread economic and geopolitical effect in the Middle East, Europe or other regions, and could result in economic sanctions between or among countries. The continuation or escalation of geopolitical tensions or military action related to the conflict and the imposition of additional economic sanctions could continue to adversely affect the global economy and financial markets, disrupt trade and accelerate inflationary pressures, among other things, which could negatively affect the demand for our products and further intensify problems in the global supply chain. Although we do not have any operations in the affected areas, we believe we have experienced shortages in raw materials and increased costs for transportation and energy due in part to the negative impact of the foreign military conflicts on the global economy, which impacts may persist or worsen as these conflicts continue or escalate. Such conflicts also increase the risk of retaliatory acts impacting U.S. companies, which may include disruptions to our or our customers’ or suppliers’ technology infrastructure, including through cyberattack, ransom attack or cyber-intrusion. The extent and duration of any military action, sanctions and resulting market and economic disruptions are impossible to predict but could be substantial.

Our former controllingCertain stockholders continue to own a significant percentage of our common stock, and such stockholders may influence major corporate decisions of the Company and our interests may conflict with the interests of other holders of our common stock.

Parallel49 Equity, through management of the Tricor Pacific Capital Partners (Fund IV), Limited Partnership and Tricor Pacific Capital Partners (Fund IV) US, Limited Partnership (collectively, the “Tricor Funds”), affiliated with Parallel49 Equity (formerly known as Tricor Pacific Capital) (“Parallel49”), were formerly our controlling stockholdersstockholder, and ownowned approximately 43%24% of our common stock, in the aggregate, as of December 31, 2024.2025. Tricor Pacific Capital Inc. (the “Tricor Family Office”) owned approximately 19% of our common stock, in the aggregate, as of December 31, 2025.

As a result of their ownership, Parallel49 and the Tricor Funds,Family Office, may have the ability to influence the outcome of matters submitted to a vote of all stockholders and, through our boardBoard of directors,Directors, the ability to influence decision-making with respect to our business direction and policies. Matters over which Parallel49 and the Tricor Funds,Family Office, directly or indirectly, may exercise influence include the election of directors, approval of business combinations or dispositions and other extraordinary transactions. TheParallel49 and the Tricor FundsFamily Office may also have interests that differ from the interests of other holders of our securities and may vote in a way that may be adverse to other stockholders’ interests. The concentration of ownership may have the effect of delaying, preventingpreventing, or deterring a change of control of the CompanyCompany, which could materially and adversely affect the market price of our securities.

AlthoughParallel49 our former controlling stockholders,and the Tricor Funds,Family reduced their ownership in our common stock from 56% as of September 30, 2024 to 43% as of December 31, 2024, they continue toOffice maintain a significant ownership position in the Company. Continued concentrated ownership could result in a limited number of shares being available to be traded in the market, resulting in reduced liquidity, and historically the price of our common stock has experienced volatility due to the limited number of shares available to trade on the open market.

Additionally, sales of substantial amounts of our common stock in the public market, including sales by our significant stockholders, or the perception that these sales could occur, could adversely affect the market price of our common stock and could materially impair our ability to raise capital through equity offerings in the future. The shares of our common stock held by Parallel49 and the Tricor FundsFamily areOffice may be registered for resale, which means that they may be offered and sold to the public now or in the future without regard to the volume limitations under Rule 144 of the Securities Act,Act. and the Tricor FundsParallel49 sold a portion of theseits shares through an underwriter in 2024.2024, and another portion to the Tricor Family Office in a privately negotiated transaction in 2025. If some or all of the remaining shares are sold by the Tricor FundsParallel49 or the participants in their funds,funds or the Tricor Family Office, either through sale on the open market, through privately negotiated transactions or through a distribution to the participants in their funds, or if it is perceived that they will be sold, the market price of our common stock could decline.

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

NetRevenue sales reflect our revenueis generated from the sale ofto productsour andcustomers, services. Product net sales includeincluding the design and production of payment cards, including contact and contactless payment cards, which includes our eco-focused cards. Contactless cards have additional technology to process contactless transactions and generally have a higher selling price than contact-only cards. We also generate product revenue from the sale of our Card@Once® instant issuance system and consumables, private label credit cards and retail gift cards. Services net sales include revenue fromcards, the personalization and fulfillment of payment cards, tamper-evident secure packaging, fulfillment services, SaaS-based personalization of instant issuance payment cards and other digital offerings. See Part II, Item 8, Financial Statements and Supplementary Data, Note 2 “Summary of Significant Accounting Policies” and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Critical Accounting Policies and Estimates—Revenue Recognition” in this Annual Report on Form 10-K for further information and timing of revenue recognition for net sales. We include revenue from gross shipping and handling revenue in net sales.revenue.

Cost of SalesGoods Sold

Cost of salesgoods sold includes the direct and indirect costs of the products we sell and the related services that we provide. Product costsCosts include the cost of raw materials, including microchips for all applicable cards and antennas for contactless cards, labor costs, equipment and facilities costs, operation overhead, depreciation and amortization, leases and transport costs. ProductThese costs also include Card@Once instant issuance hardware and consumable product costs. ServicesAdditionally, costs include the cost of labor, raw materials in the case of tamper-evident secure packaging, equipment and facilities costs, operation overhead, depreciation and amortization, leases and transport costs. Cost of salesgoods sold can be impacted by many factors, including volume, operational efficiencies, procurement costs, promotional activity, and employee relations. We include the costs of shipping and handling related to customer sales in cost of sales.goods sold.

Gross profit consists of our net salesrevenue less our cost of sales.goods sold. Gross margin is gross profit as a percentage of net sales.revenue.

Operating expenses are primarily comprised of selling,Selling, general and administrative expenses (“SG&A”) which generallyprimarily consist of expenses for executive, finance, sales, marketing, legal and compliance, information technology, procurement, customer service, human resources, research and development and administrative personnel, including payroll, benefits and stock-based compensation expense, bad debt expense and outside legal and other advisory fees, including consulting, accounting, and software related fees. OperatingSelling, expensegeneral and administrative expenses also includes depreciation and amortization expense and may include impairment charges on tangible and intangible assets, when necessary.

Income from operations consists of our gross profit less our net operatingselling, general and administrative expenses. Operating margin is income from operations as a percentage of net sales.revenue.

Other (Expense) Income,Expense, net

Other (expense) income,expense, net consists primarily of interest expense and other non-operating items.

Gross profit and gross profit margin increaseddecreased for the year ended December 31, 2024,2025, primarily due to higher netunfavorable sales described abovemix and theincreased resultingproduction costs, including increased depreciation and tariff expenses, partially offset by benefits of operating leverage.leverage from increased revenue.

OperatingSelling, general and administrative expenses increased for the year ended December 31, 2024,2025, primarily due to increased compensation-relatedprofessional expenses,service including employee performance-based incentive compensation related to stronger 2024 company performance compared to 2023fees and salaryother expenses.costs of $6.0 million associated with the acquisition and integration of Arroweye.

Interest expense increaseddecreased for the year ended December 31, 2024,2025, primarily due to payment in the prior year period of an early redemption premium of $5.8 million related to the redemption in full of the $267.9 million 8.625% Senior Secured Notes due 2026 (the “2026 Senior Notes”), as wellcompared asto impactspayment from higher interest rates onin the current period of a $0.6 million premium related to the redemption of $20.0 million of our 10.000% Senior Secured Notes due 2029. The decrease was partially offset by impacts of higher average borrowings on the Senior Notes due 2029 and ABL Revolver (defined below) enteredfor intothe onyear Julyended 11,December 2024.31, 2025.

During the year ended December 31, 2024, we recorded a $3.0 million loss on debt extinguishment relating to the unamortized deferred financing costs in connection with the redemption of the 2026 Senior Notes and the refinancing of our ABL Revolver Credit Agreement in July 2024.

Other (Expense) Income,Expense, net:

Our effective tax rates on pre-tax income were 22.0%30.6% and 30.4%22.0% for the years ended December 31, 20242025 and 2023,2024, respectively. The increase in the Company’s effective tax rate for the year ended December 31, 2025 related to non-deductible acquisition-related costs and increased state tax expenses related to the acquisition of Arroweye. The effective tax rate for the year ended December 31, 2024 benefitedwas fromimpacted by the increased deductibility of stock-based compensation realized upon certain stock option exercises and restricted stock unit vesting, and benefits recognized due to the lapse of the statute of limitations related to specific uncertain tax benefit positions. The effective tax rate for the year ended December 31, 2023 was impacted by limitation of executive compensation deductibility related to the former Chief Executive Officer’s (“CEO’s”) retention agreement.vesting.

Net salesRevenue for Debit and Credit increased for the year ended December 31, 2024,2025, primarily due to increasedcontributions Servicesfrom netthe sales.Arroweye The increase in Services net sales was driven by higher personalization and Card@Once services. Products net sales were relatively consistent, asacquisition, higher volumes of contactless cardscards, wereincluding metal cards, and increased Card@Once instant issuance sales, partially offset by volumedecreased declinessales inof contact-onlyother cards and otherpersonalization cards.services.

Gross profit increased for Debit and Credit was relatively consistent and gross profit margin decreased for the year ended December 31, 20242025, asprimarily due to the increase in netrevenue salesdiscussed was offset by a higher volume of lower margin products sold compared to the prior year period.above.

Income from operations for Debit and Credit decreased for the year ended December 31, 2024,2025, primarily due to increased employeeselling, performance-basedgeneral incentiveand compensationadministrative relatedexpenses driven by increased compensation-related expenses resulting from increased headcount due to strongerthe 2024Arroweye company performance compared to 2023acquisition, and salaryincreased expenses.technology costs; partially offset by increased gross profit.

Gross profit and gross profit margin for Prepaid Debit increaseddecreased for the year ended December 31, 2024,2025, primarily due to higherdecreased netrevenue, sales discussed above andincluding the impact of the change in accounting that was implemented in the second quarter resulting operatingin leverage.reduced revenue recognition for work-in-process orders.

Income from operations for Prepaid Debit increaseddecreased for the year ended December 31, 2024,2025, primarily due to the factors discussed in “Gross Profit and Gross Profit Margin” above, partially offset by increased employee performance-based incentive compensation related to stronger 2024 company performance compared to 2023 and salary expenses.above.

As the Other segment is comprised entirely of corporate expenses, income from operations for Other consists of operatingselling, general and administrative expenses shown below.

Other operatingselling, general and administrative expenses increaseddecreased for the year ended December 31, 2024,2025, primarily due to an increase indecreased compensation-related expenses, including employee performance-based incentive compensation and prior year costs associated with the factorsprior-CEO discussedretention inagreement; consolidatedpartially “Operatingoffset Expenses”by above.increased professional service fees related to acquisition and integration costs associated with the acquisition of Arroweye.

At December 31, 2024,2025, we had $33.5$21.7 million of cash and cash equivalents. Our primary source of liquidity has been cash generated from our operating activities, which has been driven fromby net income and fluctuations in working capital. Our working capital fluctuates primarily due to thetiming timingand size of tax payments, timing of receiptscollections from customers, inventory purchases, payments of employee incentive programsprograms, and interest payments on our outstanding Senior Notes, with the interest payments being due in the first and third quarters of the year.

Our ability to make investments in and grow our business, service our debtdebt, and improve our debt leverage ratios, while maintaining strong liquidity, depends on our ability to generate excess operating cash flows through our operating subsidiaries.flows. Although we can provide no assurances, we believe that our cash flows from operations, combined with our current cash levels,levels and our senior secured revolving credit facility (the “2029 ABL Revolver”) with available borrowing capacity of $72.8$74.7 million as of December 31, 2024,2025, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations,obligations and working capital needs. Our future cash flows could be impacted by a variety of factors, some of which are beyond our control. Factors include, but are not limited to, demand from some of our customers for certain products and services,related services; changes in economic conditions, especially those impacting our customers, andcustomers; the pricing, terms and availability of goods and services that we purchase,purchase; and financings that we enter into.

On July 11, 2024 (the “Closing Date”), we completed a private offering by our wholly-owned subsidiary, CPI CG Inc. (the “Issuer”), of $285.0 million aggregate principal amount of 10.000% Senior Secured Notes due 2029 (the “2029 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 notes and related guarantees were offered and sold in a private transaction exempt from the registration requirements of the Securities Act of 1933, as amended, to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States to certain non-U.S. persons in compliance with Regulation S under the Securities Act.

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 MarchJune 31,30, 2026. 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, 2025 filed with the Securities and Exchange Commission (“SEC”).

Certain statements and information in this Quarterly Report on Form 10-Q for the quarter ended MarchJune 31,30, 2026 (as well as information included in other written or oral statements we make from time to time) may contain or constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “estimate,” “project,” “expect,” “anticipate,” “affirm,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “continue,” “committed,” “attempt,” “aim,” “target,” “objective,” “guides,” “seek,” “focus,” “provides guidance,” “provides outlook” or other similar expressions are intended to identify forward-looking statements, which are not historical in nature. These forward-looking statements, including statements about our strategic initiatives and market opportunities, are based on our current expectations and beliefs concerning future developments and their potential effect on us and other information currently available. Such forward-looking statements, because they relate to future events, are by their very nature subject to many important risks and uncertainties that could cause actual results or other events to differ materially from those contemplated.

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

In connection with our increased strategic focus on expanding and developing additional proprietary integrated technological solutions for itsour customer base and to reflect the manner in which the Company’s Chief Operating Decision Maker (“CODM”), the Chief Executive Officer (“CEO”), manages our business, we implemented a revised segment structure to assess performance and allocate resources, beginning in the first quarter of 2026. The changes in our segment structure primarily relate to the separation of the results of our proprietary integrated technological related operations into a separate segment from the former Debit and Credit segment. Our business consists of the following reportable segments:

* Calculation not meaningful.

(1)For the three months ended MarchJune 31,30, 2026 and 2025, revenue and cost of goods sold each include $4.2$4.5 million and $4.8$3.5 million of intersegment eliminations, respectively. For the six months ended June 30, 2026 and 2025, revenue and cost of goods sold each include $8.6 million and $8.3 million of intersegment eliminations, respectively.

The following discussion of our condensed consolidated results of operations and segment results refers to the three and six months ended MarchJune 31,30, 2026, compared to the corresponding prior year period. The results of operations should be read in conjunction with the discussion of our segment results of operations, which provide more detailed discussions concerning certain components of the condensed consolidated statements of operations and comprehensive income.

Revenue increased for the three months ended MarchJune 31,30, 2026, primarily due to increased revenue in our Secure Card Solutions segment,segment excluding contributions from Arroweye, driven by contributions of $16.1 million from the acquisition of Arroweye, increased volumes of contactless cards, including metal cards,cards and higher personalization services; partiallyas offsetwell byas lowerhigher revenue in our Prepaid Solutions segment. Additionally, revenue partially increased in our Secure Card Solutions segment due to contributions from the acquisition of Arroweye.

Gross profit increased for the three and six months ended MarchJune 31,30, 2026, primarily due to increasedthe revenue,factors discussed above and net tariff refunds totaling approximately $3.5 million and $2.5 million, respectively, partially offset by negativeunfavorable changes in sales mix between segments and increased production costs, including increased depreciation expenses and tariffs totaling $3.0 million.expenses. Additional changes in tariff rates could further impact our results of operations during 2026.

Gross profit margin decreasedincreased for the three months ended MarchJune 31,30, 2026, primarily due to negativeincreased sales mixrevenue and increasedtariff production costs, including increased depreciation expenses and tariffs,refunds, partially offset by operatingunfavorable leveragechanges fromin sales mix between segments and increased revenue.depreciation expenses.

Interest expense was relatively consistent for the three and six months ended MarchJune 31,30, 2026.

Other income, net, was relatively consistent for the three and six months ended MarchJune 31,30, 2026.

Our effective tax rates on pre-tax income were 34.4%48.3% and 25.8%61.4% for the three months ended MarchJune 31,30, 2026 and 2025, respectively, and 42.3% and 32.0% for the six months ended June 30, 2026 and 2025, respectively. The increasedecrease in the Company’sour effective tax rate for the three months ended MarchJune 31,30, 2026, compared to the prior year relatedwas primarily due to deductibilitydeferred state tax expense recognized as part of stock-basedthe compensationArroweye realizedSolutions, uponInc. certainacquisition in the prior-year period. The increase in our 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 optionoptions exercisesthat andexpired restrictedunexercised, stockas unitwell vesting andas an increase in the valuation allowance related to statesa certain state decoupling from recentvarious favorable federal tax legislation changes.provisions.

Revenue for Secure Card Solutions increased for the three and six months ended MarchJune 31,30, 2026, primarily due to contributions from the acquisition of Arroweye,Arroweye as described above, increased volumes of contactless cards, including metal cards,cards and higher personalization services.

Gross profit and gross profit margin for Secure Card Solutions increased for the three and six months ended MarchJune 31,30, 2026, primarily due to increased revenue,revenue and tariff refunds, partially offset by increased production costs, including increased depreciation expenses and tariffs.expenses.

Income from operations for Secure Card Solutions increased for the three and six months ended MarchJune 31,30, 2026, primarily due to increased gross profit, partially offset by increased selling, general and administrative expenses driven by increasedhigher compensation-relatedcompensation and related expenses resulting from increased headcount and otherinvestments costsin technology primarily due to the Arroweyeacquisition acquisition.of Arroweye.

Revenue for Prepaid Solutions decreasedincreased for the three months ended MarchJune 31,30, 2026, primarily due to the change in accounting that was implemented in the second quarter of 2025 resulting in reduced revenue recognition for work-in-process orders, partially offset by comparisons with strong sales of higher-value packaging solutions in the prior year period,period. partiallyExcluding offsetthe bychange salesin ofaccounting, closedrevenue loopwould paymenthave cards.decreased $1.6 million, or 6.7%.

Gross profit and gross profit margin for Prepaid Solutions decreasedincreased for the three months ended MarchJune 31,30, 2026, primarily due to lowerincreased operatingrevenue, leverageincluding fromthe decreasedchange in accounting that was implemented in the second quarter of 2025 resulting in reduced revenue andrecognition for work-in-process orders; partially offset by unfavorable sales mix.

Income from operations for Prepaid Solutions decreasedincreased for the three months ended MarchJune 31,30, 2026 and decreased for the six months ended June 30, 2026, primarily due to the factors discussed in “Gross Profit and Gross Profit Margin” above.

Revenue for Integrated Paytech was relatively consistent for the three and six months ended MarchJune 31,30, 2026.

Gross profit and gross profit margin for Integrated Paytech were relatively consistent for the three and six months ended MarchJune 31,30, 2026.

Income from operations for Integrated Paytech decreased for the three and six months ended MarchJune 31,30, 2026, primarily due to increased selling, general and administrative expenses driven by increased compensation-related expenses resultingand fromtechnology increased headcount.costs.

At MarchJune 31,30, 2026, we had $19.3$21.4 million of cash and cash equivalents. Our primary source of liquidity has been cash generated from our operating activities, which has been driven by net income and fluctuations in working capital. Our working capital fluctuates primarily due to timing and size of tax payments, collections from customers, inventory purchases, payments of employee incentive programs, and interest payments on our outstanding Senior Notes, with the interest payments being due in the first and third quarters of the year.

Our ability to make investments in and grow our business, service our debt, and improve our debt leverage ratios, while maintaining strong liquidity, depends on our ability to generate excess operating cash flows. Although we can provide no assurances, we believe that our cash flows from operations, combined with our current cash levels and our senior secured revolving credit facility (the “ABL Revolver”) with available borrowing capacity of $81.8$92.3 million as of MarchJune 31,30, 2026, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations and working capital needs. Our future cash flows could be impacted by a variety of factors, some of which are beyond our control. Factors include, but are not limited to, demand from some of our customers for certain products and related services; changes in economic conditions, especially those impacting our customers; the pricing, terms and availability of goods and services that we purchase; and financings that we enter into.

Cash provided by operating activities for the threesix months ended MarchJune 31,30, 2026, increased to $13.6$42.1 million from $5.6$9.9 million for the threesix months ended MarchJune 31,30, 2025, primarily due to reduced working capital usage. Working capital benefited from decreased incentive payments related to a customer contract originally entered into in the first quarter of 2024, lower inventory purchases, decreased employee performance-based incentive compensation and severance payments in 2026,payments, and lowerdecreased inventorytax purchases.payments. These benefits were partially offset by timing of collections in accounts receivable and payments on accounts payable and prepaid expense balances.

During the threesix months ended MarchJune 31,30, 2026, capital expenditures, including investments to support the business, such as machinery and information technology equipment, totaled $3.5$6.1 million.

As of MarchJune 31,30, 2026, and December 31, 2025, we had the following outstanding borrowings:

As of MarchJune 31,30, 2026, the total projected principal and interest payments on our borrowings are $368.4$355.3 million, primarily related to the Senior Notes, of which $26.8$26.1 million of interest is expected to be paid in the next 12 months.

The remaining interest payments are expected to be paid over the remaining term of the Senior Notes, which mature in 2029, and the principal is due upon maturity. We have estimated our future interest payments assumingincluding noan additional $30.0 million of borrowings under the ABL Revolver,Revolver noand early redemptions of principal of $26.5 million on the Senior Notes, andboth of which occurred on July 15, 2026. This also assumes no debt issuances or renewals upon the maturity dates of our notes. However, we may borrow additional amounts under the ABL Revolver, redeem principal on the Senior Notes early, or refinance all or a portion of our borrowings in future periods.

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

A purchase obligation is an agreement to purchase goods or services that is enforceable, legally binding, and specifies all significant terms. As of MarchJune 31,30, 2026, 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, 2025.

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, 2025, for which there were no material changes as of MarchJune 31,30, 2026, included: