CPI Card Group has been hit with class action shareholder lawsuits in regard to its October 2015 IPO and 1Q/16 earnings report.
On May 11, CPI reported disappointing financial results for the first quarter, stating “primary impact resulting from lower than expected EMV card shipments,” according to President and CEO Steve Montross.
On the news, CPI stock plummeted 48%, to close at $4.01 on May 12, 2016.
The class action complaint, filed Bragar Eagel & Squire, alleges that at the time of the IPO, unbeknownst to investors, the company had shipped upwards of 100 million more cards to its larger issuer customers than they were using in the second quarter and first part of the third quarter of 2015, resulting in the buildup of a massive backlog with those customers, which was significantly reducing the demand for additional card shipments in the fourth quarter of 2015 and fiscal 2016. The adverse events and uncertainties associated with CPI’s largest customers’ inventory levels was reasonably likely to have a material impact on CPI’s profitability and, therefore, was required to be disclosed in the Registration Statement, but was not.
According to another class action complaint, filed by Robbins Arroyo CPI’s Registration Statement represented that CPI had a “leading market position with long-term customer relationships” and that it believed it earned the #1 market position in the U.S. by unit volume. CPI further stated that it often has a “deep process and technology integration” with certain of its customers. In addition, the company reported positive financial results for the first six months of 2015, noting that net sales had increased by 80.5% and net income increased 408% compared to the six months ended June 30, 2014. CPI also reported that the demand for EMV cards increased sharply in the second half of 2014, and predicted that U.S. EMV conversion would increase the size of the financial payment card market.
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