Earnings call transcript Q1 2023

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Operator

Welcome to the CPI Card Group's First Quarter 2023 Earnings Call. My name is Bailey and I will be your operator today. [Operator Instructions].

Now, I will turn the call over to Mike Salop, CPI's Head of Investor Relations.

Mike Salop

Thanks, operator. everyone. morning, good And CPI call. first the webcast XXXX and conference Card to quarter Group earnings Welcome is X, date Today's May XXXX. Officer; Chief And on Scheirman, Executive Scott Card Group Amintore the call today President from and Officer. Financial CPI are and Schenkel, Chief

to risks everyone cause XXXX. Before may materially this forward-looking subject These differ are under statements contain to Litigation actual Securities certain they call the as are that Private expressed we and statements Reform those like could in begin, defined statements. I'd results uncertainties remind that forward-looking Act from to of the

uncertainties, For filings a reflect the discussion update please forward-looking our of see occur SEC. we that the events only, Card such statements recent to this risks undertake most expectations statements today call. obligation reflect and current any Group's to All after made CPI with and no

EBITDA the directly Also, will adjusted measures, but during measures measures not company limited we non-GAAP most these release to and non-GAAP Reconciliations presentation be are financial of morning. GAAP discussing adjusted net issued today's course and EBITDA, financial of the or more free press cash in including, margin, slide the the this to, included flow. comparable leverage ratio call, one EBITDA,

that release well press investors.cpicardgroup.com. website, today's on of Copies CPI's Relations conference as accompanies the as call presentation this Investor accessible are

on Investor website. Relations In addition, CPI's will Form XX-Q for the CPI's XXXX be quarter ended March available XX,

Scott Executive like I'd Officer, Chief now, to And Schierman. and over turn call President the to

Scott Scheirman

And Mike. Thanks, morning, everyone. good

financial more questions. performance, and year our review strategy. up and open Amintore review During term today's will for first results detail call for outlook our call, I in full the we'll CPI's the reiterate then the discuss long quarter will

quarter significant first We sales. XXXX, and on which pleased from first with start eco-focused sales X% with large instant benefited strong a quarter I'm upgrade issuance very by will orders slide Overall, comparisons despite card We in performance. very increased X. the printer

cards contactless sales delivered growth by was our and from ongoing good strength across this other portfolio. of year's led quarter first credit in areas we Growth in also and debit

EBITDA EBITDA by million adjusted leverage. basis to adjusted grew $XX driven XX.X%, points increased and the operating XX% XX We margin to

net lower tax nearly as cash our by expense, operating aided we've million, lower and flow rate leverage, growth, XX% average income We a interest to increased utilized $XX by borrowings. to reduce sales

We also leverage nearly at quarter, million senior position flow, retiring positive quarter-end. million additional cash overall reducing ratio our our improved X.X to net $X financial in up times generating the free $X notes of an of our and

the increase to of in in As strategies, we and against grow the continuing win We reduce demonstrated we're believe our good on progress first mentioned business, the share these goals. quarter each March, focused execute this marketplace, year, cash flow leverage.

of As of our share year, end-to-end products services our portfolio we look and gaining service. the and to differentiated the will on with quality sales market and focused solutions leading remain rest customer efforts innovative and

drive outlook X. end-to-end the penetration will sales additional Today, the slide believe affirming growth outlook continued performance cards, We Turning our solutions, we provided sales to on instance of March. year. financial in contactless of full further strong and from for we issuance are

uncertainty in Bank environments in Silicon of more issuers. cautious March banking has more to the following was spending the there emerged However, collapse The and that stress Valley risk contributed industry market. among

as have three and our Although recently the banks major quarter expect segment have in and, to results any not quarter. do Debit direct first seen to we as not have demand the second strong softening be do Credit exposure customer significant consequently, that we failed,

us. difficult Near continue term, of extent to will the it's long impact the banking industry stress project it how or to

sales various implemented more the new However, and initiatives expenses drive have XXXX. to manage tightly given uncertainty, we in

full today we what year have the performance, quarter in affirmed strong March. first know we provided the and on outlook Based we

Visa to and MasterCard eco-focused continue should US XX% the in growth we the challenges, as annual attractive compounded Secular year and continue contactless long the to healthy, trends growth cards for term and believe near evidenced markets. have by circulation the in aid term we remained rate movement on card cards operate December three ongoing cards towards XX, period XXXX, growth. ending Despite

and reoccurring I support you the there cards card business that being would also remind approximately for is nature, payment over issuance market time. the XX% for is with historically in of where reissuance replacements

focusing strategies, successfully continue to share we over in expect and five those the on gained have by markets be foundation key We past the growing our growth. years to our for

focus, market our competitive slide market customer strategic leading further We advances quarter priorities. business demonstrated results key remain continuous and turning innovation deep first products service, against believe model. Specifically, quality X, customer priorities these to a and the

a space. sales card made from recovered ocean-bound leader compared of in quarter to US the the some eco-focused orders to still were be and card million in cards very Although year, down we X sold prior eco-focused the continue in our large nearly core innovative plastic

to solutions, and We high quality success driving issuance services the Prepaid new customer with down continue Card@Once instant contactless was personalization in slightly but in have to also quarter, cards, types. continue growth did business. end-to-end leverage SaaS-based, our our we

we And costs despite model. customer to term pricing long continue We with demonstrated relationships. operating competitive ongoing material impacts generated and inflationary on managing business a leverage balance key

plan business share. prospects We confident and growth our and the our and market priorities cases gain to digital against grow strategic of we complementary share, to as term additional prepaid development continue use pursue remain such will of market, long expansion four also ability grow our our to and to execute opportunities offerings. in in These for the actions to key market guide in and strategies win

call the detail. results in quarter Amintore? Amintore our over turn our will and first to outlook more I to review Now

Amintore Schenkel

Thank you, Scott. X. everyone. And overview good my I will begin slide morning on

million and led net quarter, increased Debit segment First to the compared quarter $XXX.X increased which prior XX%. sales to the by X% Credit year

solutions. personalization services As also contributed and growth issuance cards Credit strong sales Scott did mentioned, as Debit growth, contactless driven sales solid by and sales Card@Once instant was of

decreased continue the and to with segment year, we sales compared prior Debit expect net to X% to year full Prepaid XXXX prepaid similar be sales levels.

quarter, of actions of half implemented little sales primarily a contributed XXXX. course the pricing in the growth than the over to pricing less due Overall,

gross quarter related change XX.X%, XX% from the driven from gross of our First margin sales million price growth, operating while production expenses profit year, and on increased offset to by by impacts staffing benefits inflation from leverage in of segment. costs XX.X% materials increases, Prepaid prior profit to model partially increased $XX.X including a from incurred the

execution, increased a services reduction headcount the expenses and costs compensation in expenses, incurred related and $X to SG&A offset in quarter to compared approximately third-party increased primarily in to partially the primarily due by expenses year. professional the related our growth by strategic year, million prior prior to SOX support

which change rate to currently XX.X% tax Our normalized We to in compared including tax the lower of expect would in between reflect higher XXXX quarter expense at law. and be deductibility to due end adjustment the XX%, in and was overall project a year of quarter, any but adjustment benefit, rate prior state rate XX% that adjustment XX.X% excluding items the we the a a QX interest to the favorable range.

million. from first and the also lower Adjusted adjusted prior while and XX.X%, quarter Net pricing benefits, million driven increased $XX.X tax increased $XX.X operating to to year interest the XX% EBITDA from income net in from income benefited XX% lower sales, by to growth XX.X% leverage EBITDA rate in margin expense. improved including the

to now segments segments I our X. Turning on earlier. the sales mentioned slide drivers

driven benefits $XX will slide. in million, increased segment increases. just the segment net this and for I to XX% operations price discuss on of Debit quarter So the profitability sales operating higher by including the from Income and leverage, Credit the

segment incurred by conversion Prepaid in negatively was full a was at related sales. prepaid Debit to production $X the also in the from from facility Prepaid temporary $X.X negatively to to costs operations income by staffing and quarter reduction impacted decreased million approximately income the time impacted XX% model first our million.

the to and prepaid as stronger more mix leverage. be and over benefit margins the the we expect from from labor beneficial year operating remainder efficiencies of conversion the gain We

which our in $X.X liquidity first position substantial XX. Turning of quarter to quarter. cash financial invested on the activities to reduced the working and flow of $XX.X the strong in flow million period, usage cash generated the the million flow in with We balance operating expenditures, net prior-year sheet, cash We usage. in capital made flow free million the This income free on progress $X increased compared cash slide capital and million. of from $X.X improvement by with resulted and driven

the balances from less decreased receivable high sales collected receivables as million increased inventories quarter the million or to only related in and levels than fourth we Accounts X%. $X the year-end $X

second secured million sheet, $XX of cash outstanding the XX, We borrowings had to we $X and market senior as million million the the On million in an we of quarter-end, quarter-end $XX additional repurchased on at at quarter. of balance first outstanding notes $X had in in quarter. $XXX $XX we notes ABL Subsequent of the open revolver. repurchased million our March million

structure capital and liquidity, the acquisitions, sheet balance and maintaining to including focused the stockholders. in investing returning priorities on potentially deleveraging allocation Our ample remain possible strategic business, funds

quarter results and strong, we Overall, full-year affirmed XXXX our were the first outlook. have

X.X in Specifically, for and and XXXX, cash we environment; adjusted from stable levels; capital leverage XXXX growth, and mid-to-high and strong Credit optimize level improvement than in ratio between our net the double sales Prepaid free balance. as similar mid-single flow notes the flow segment supply with as working reduce and higher X continue more sales single-digit senior to Debit to times growth, chain we XXXX and digit grow earnings EBITDA to continue growth generate we cash more to net to expect a

in the does worsen more second turmoil return affects the over and year. of the course the we normalized banking industry but to quarter assumes outlook Our a results, not environment

remarks to Scott? pass XX. some Scott I on for call will the closing now slide back

Scott Scheirman

Thanks, Amintore.

Before had I new that Financial We our Officer Hochstadt become would Amintore, plans his to declared CPI personal XXXX Jeff to family opening to welcome in the questions, XX, related replacing Jeff like previously reasons. the for announced effective team. to resign Chief due who May will call today

brings of proven and and own roles President consulting services, Union Senior Officer of providing a Chief and followed Global through Planning. strategic vast career from experience Vice had diverse He XXXX, financial Head business Strategy to background strategic at and his financial XXXX Jeff who as CPI. which recently is most including Western his company Financial a leader

for Pricewaterhouse, to as and others. Morgan IBM strategic and again with the his thank for Jeff positions and want has CPI time a then stay also transition. and time. ensure held period will Data, second CPI will financial full commitment smooth to Amintore quarter to many contributions of Amintore a the I end among continue of First an with advisor Stanley, his through various

a cash improvements EBITDA margins driving adjusted we sales, quarter, summarize had free in performance To call, further leverage strong our and net increasing and the first today's ratio. in flow

new turmoil risks full some seen arise from have and affirmed industry have Although weeks, actions we're the recent taking outlook. we responsive banking of our year

win net we continuing cash the increase marketplace, focused the and remain in XXXX. to on our leverage execute grow share Overall, in flow business, reduce strategies,

Thank And for open our any up questions. you for call joining we will today. now call the

Operator

question [Operator Schmidt. come Instructions]. Jaeson And your will first from

Jaeson Schmidt

Scott, to to your nice to softening or Is well? really start caution a the on Congrats push-outs into year. QX. more related around are just as you the want demand dig cancellations seeing

Scott Scheirman

would is, we April, through saw orders coming describe What or of move just I demand it customer in. softening the as customer in month

Some not might to, quarter. fourth order that quarter customers the some the be say, order, customers pushing third an might that or placing be

turmoil, from back maybe use about So, tied tightening see Bank spending have it future. that weeks, Valley probably believe where the to unroll customers how Jaeson, Silicon to over going feel subsequent, uncertain We the really things they're months or will the and standpoint. come to the the just to banking to I'm word seems

at of have a grow, in term of a are I lot cash. growing business. trends payments place in for Cards expense long again, card continue But, the secular There's sure. confidence of lot to the

market opportunity are As that'll we think grown cards a three We believe at ending Visa, be good in XX% We XX% December script, the was by contactless last circulation over MasterCard at the us. for end to XX% contactless. really the in still XX, XXXX. XXXX, converted to have cards years CAGR of think the I XX% over shared XXXX.

the with also And more emphasize million. are cards, issuers, everybody's definitely consumers, user to trying then a XX our be market broadly The just And cards, the leader eco we right? – eco-focused issuing sustainable. networks, I'd over banks, end

believe there there's think term but on to challenges, So gain over I the and the positive long term, long very I'm opportunity term. some grow and business are near continued share

Jaeson Schmidt

resumed this simply you've second air really that kind think environment, to my sort I noting would a what simply of is these going answered on. that was into next been due pocket delayed customers probably to launches you of more have question have this is and The half? QX be just to confidence normalized the

Scott Scheirman

happening say to I would banks. government of to some things and take the continuing over. right? and banks with things in of view, things the in where right get them that, consumers There's recapitalized say the more regulators confidence to market end provide that are these the or do done, there's are my They've try I some would to user

but banking will out have hopefully, the that banking comments, but year, we'll coming in more the the the April, has turmoil will. industry believe but course return or months, script And to it again, does as we not from So, turmoil release out environment normalized been month we soft. in this affects the the of that over so if the weeks play far in assume subside customer second to the in standpoint, you the a called of or worsen. we'll earnings demand quarter, But we

Jaeson Schmidt

The me back for last and one I'll into queue. jump

curious these new sales? to you that Just some drive of could you've initiatives if on expand implemented

Scott Scheirman

of reasons, the line, for ideas a the have be a competitive don't they've come to into demand I week last to But of lot some over You'll top XX days, with the up want here. I teams and will that drive detail incent probably appreciate, the Jaeson, meeting believe helpful to in marketplace. number been get

right decisions probably some managing expenses pushed XXXX. many expenses are maybe are now, on we our some the that just off Also, in in later closely be or to making to closely, year and can just like, companies

of don't of combination competitive demand. a lot it's reasons, want for detail how we're So those. again, a But I driving get to on into

Operator

Your Leanne next question comes from Hayden.

Edward Najarian

is EF Hayden Leanne This Hutton. Ed Najarian at and

So questions. two quick

us over on the one, Could some on seeing you the Number next give couple about of par. year relative kind how two. or down kind paying just to a First that, senior I senior quickly purchase of contemplating you're of on the are notes you guess, on secondarily secured notes. And things. context that what costs secured

arbitrage to It on of looks like some X.X% sort revolver some is that to of rate there extent. you secured getting the replacing some Are the ABL relative debt notes? the

Scott Scheirman

our our outstanding. I First, we've sheet, and been the to flow both would to through committed profitability cash balance deleveraging using say reduce growing our debt

back real value of below so to so XXXX, million going As it, our we think specifics, a debt. tad a do the without think shareholders we about been good a getting that. call I'm $X into bought it's good thing far, we've $XX and for par, to bit or it's below

think somewhere up end times. we've We X.Xx. X X.X we will is guided, in the at XXXX, and QX leverage between Where as closed

balance I broadly, committed continue the say So would be we to to deleverage sheet.

about the do senior Amintore, speak to the want rate revolver? you and the between notes

Amintore Schenkel

on that if rate versus the the on positive of the guys by senior outstanding is differential bit little on we've the notes. But we of do senior in rate a terms the got the those math you there I'll between at notes. There's a a still ABL two the borrow let remain ABL having looking our balances disclosures and versus differential

X.X do we repurchases, utilizing And future, relates capital mantras, we that we as what been repurchases structure hit other our do will on one strategy, at below activities either the the notes to ratio forward we've clearly, sense relates our it here between we par. leverage out look forward to look and going time as terms makes have be to as there. by cash what in for do balance of we of able it indicated And deleveraging sheet. to we those clearly, the our end repurchasing key to the have And our to the we'll But continue in year. of or at X

Edward Najarian

the could leverage the range the I'm You're in mouth. on think it little at that putting to be X.X get I maybe bit X we words by trying end reasonable to now. of year? X.X guess the your to ratio end Would of lower a

Scott Scheirman

we've give Again, make I or and you business, But We if answer. in flexibility, the just the to you help think will balance so about uses sheet. as an CapEx gave that's we capital try a range, that we've we to want got will got or to committed us There's of deleveraging cash we're will. invest the whether that business but ample also working sure things grow the our through liquidity, term. capital. long it-depends

return deploy the we shareholders the do how at has at looking best it our so end the actively We're cash, of day. to that

if look that can make a year, there's so we hard best So shareholders. just opportunities, our of there, move that's those the why bit take the there's we a and for as decisions through range at a

Edward Najarian

don't maybe Just with a situation in guess, here second relative one context any broader to more regional magnitude? sales know to banks, range to revenue ability the but or or of any willing parameters think standpoint if around in bit that us quick to to a whole a question. of not, about I kind or how or of terms weakness, give of I any you're go just quarter the that from put

Scott Scheirman

quarter, be so depends not part right. And the second strong is go just the forth. don't results we I to through we've of been really of are But timing around would and has want tell down, quarter as there. color but full-year progress results as actually you outlook. just how you're we our due second quarter just that to to Yeah, orders reaffirmed that expect QX what upon first that I demand. softening the

trends There's here. in eco a cards. with will Again, in on got, get instant solution we opinion. potential lot long-term the to best our In cards our of investors issuance, investors grow to SaaS-based our Clearly, business, we've want Card@Once – our far, about cards, business, to secular continue great spoke opportunities by the that I contactless focus really marketplace. the

lot term, to So and opportunities share I over – a just market as for there's share us grow we gain long to the historically. have possibly gain of believe continue market

Operator

that earnings first quarter further call. joining. And Card concludes with no you today's questions, Group's CPI Thank for

CPI Card (PMTS) 9 May 232023 Q1 Earnings call transcript