PMTS - Earnings call 3 2023 | CPI Card Group Inc.

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Operator

Welcome to CPI Card Group's Third Quarter 2023 Earnings Call. My name is Chris, and I'll be your operator today. [Operator Instructions].

Now I'd like to turn the call over to Michael Salop, CPI's Head of Investor Relations.

Michael Salop

Thanks, operator, and good morning, everyone. Card Quarter CPI and Earnings the Call. Conference to Group XXXX Third Webcast Welcome November and Solutions. President X, today is Vice Financial date Today's XXXX, Lowe, John Card Officer; Hochstadt, Executive are Officer; Executive and from NBN on Group Scott Chief Scheirman, Payment and President, Jeff Chief CPI call the

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

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

course Relations more this cash adjusted to be net call, directly of investor.cpicardgroup.com. press the adjusted EBITDA, ratio presentation the slide EBITDA during included release measures, are the presentation this website, GAAP conference today's non-GAAP of accompanies release that financial on Copies in press limited these EBITDA, Reconciliations Investor will we not free and financial accessible the but non-GAAP leverage company comparable of most to, Also, or flow. margin, as CPI's measures well one the measures issued morning. today's discussing and as are call including,

today's the noted. period, growth refer addition, otherwise XX, website. on ended Investor XXXX, all September Form will rates the On available for with CPI's unless prior quarter comparisons In be Relations to year CPI's XX-Q call,

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

Scott Scheirman

and good Mike, morning, Thanks, everyone.

we in full open overview. will before discuss for call results outlook review the the John During questions. brief financial I third and and performance updated give a CPI's for more and will our then year, quarter will strategic up business detail the today's call, Jeff

on X. start will We Slide

the continue third prior customers to their to we second As industry last in and in up due to supply than the our remain stocking the stated results as their chain significant quarter call, we challenges after cautious spending XXXX in work down year. be expect levels inventory lower quarter across earnings year

also are year the We XX%. net quarter increased very challenging facing comparisons prior with sales third when

and in timing third this some XX%, declined backdrop, card driven this in Given reduction year debit by quarter prepaid. credit and impacts sales volumes in a segments our

the and EBITDA our As quarter expect rest now as adjusted and have we assess the customer year, expected than digits fourth in levels the as in will taking be the of the spending at it adjusted net believe an year. sales new EBITDA similar for rebound mid-single quarter as to we to the impact. longer is initiatives decline sales for for range to Consequently, well as sales we third

in have The report few programs circulation bigger large grow certainly look in out continued to XXXX. card believe we healthy. issuers cards picture, appears market in industry to more expected have a minutes. and for we the their will importantly, John continued strength in be card has back step difficult than if at turned to But overall the production more Most and discuss which card

with remain customer and we're our believe health we services positioned strong high-quality and long-term well Consequently, in we and confident market, the focus. products of the innovative, future for

of a repurchasing XXXX. shares of this program. is We indicator one our the great we share business, a our morning, the As run shareholders, million and through for authorization believe investment belief this $XX announced will repurchase in end

our John, I on to like the ongoing would focus highlight turning Before strategic Slide to over call X.

market gain successfully we believe service, business softness employed strategies having in have innovation continue to share and nature. customer we committed is and As XXXX continuous temporary quality The focus, be our sales competitive market-leading are a deep experiencing we model. market products the to customer since remain we cornerstone, and discussed, to grow and

our we by we focusing to believe term, solid will long gain market strategic share and will growth, believe we return on priorities. the Over these

I'd to Lowe current third to John? turn the outlook to results environment, further now discuss like over our the call quarter XXXX. our and John for

John Lowe

on the I good Thanks, Scott, is market. morning, health of the and good a which everyone. overall start will Slide of indicator X,

and latest and XX, the compared at The years the Scott increased in issued X MasterCard X% consumers cards up with As for June to prior cards mentioned, Visa U.S. show continue circulation the ending payment to a figures quarter. in were grow. from CAGR XX% year

reports earnings issuance consumers. big banks with and from usage to recent also card trends U.S. point the Additionally, healthy

few Wells Fargo's a new account XX% examples, cards Citi's that quarter, [ outstanding As strong noted account and ] acquisitions by third year-over-year acquisition. account driven Chase in this increased increased new increased X% XX%. growth

other and strong the has relatively production where So to been participate side issuance the the But XXXX. issuers market we has of been card in soft. where side participate banks consumer

you to are However, broadly CPI years line ] consumers. if more look in X with our [ together, the sales last at issuance trends

given delivered to our the average market. as the growth limited with we back and XX% well Debit had demand customers segment increasing high above for supply Looking and XXXX, Credit cards in

on industry and in of updated of months pulled a and expected we banking lead supply for inventory, the chain combination stress, As targeting decline resulting have year this down times our mid-single-digit XXXX, stabilized came with lower economic more outlook in their back ordering and in customers for uncertainty than sales are the supply year.

we about for of the indications on coupled we of will when combined growth and the but strong trends company. with the ongoing sales more improve our the from higher-priced Relative existing issued consistent significant which the be exactly would than XXXX. term, would and over replacement contactless X-year gradually spending issuance, towards ongoing cards normalize, be to the should the don't in customers, growth believe course business, the relates issuance the consumers. to to higher cards, Long believe eco-focus XX% of the know this though, recurring XXXX We market levels in will card based consumer majority nature support of in trends and projected XXXX, card customer year's adoption growth still with

We expectations we more more and visibility XXXX next release fourth will have when results our early quarter our on provide color year.

But few Slide let's a return to provide now our quarter X. and few will results detail into comments, I more will third high-level on go in a minutes. Jeff

declined still the to attributed or prepaid year-to-date a down to similar sales and to were prepaid be year we sales XX% sales slightly segment year's quarters can the between on full above The declined last Credit only be quarter, decline as slightly For and XX%. Debit segment expect basis levels. and timing

increases Not as and in should processing in new decline, but customers future. instant larger contact to Despite the the was Card@Once prepaid. in we the business. and decline Debit the cards, fees segment, us be base card contactless opportunities with on revenue in across driven personalization business cards quarter, In by Card@Once have Credit issuance focused reductions increased eco-focus, with working services, by spending due declined a inventory while slightly, sales that installation card and our driven in ] only continue continued in secure help services to and the [ down levels. volumes primarily cautious Card volumes to win

adjusted in in third results. our despite reductions margin and expenses. sales operating decline quarter a leverage From impacted net operating standpoint, the negatively income leading to declines EBITDA in the profitability

declined a As quarter third to EBITDA year declined period. income and XX% the result, net adjusted XX% prior compared

net decline, year, slightly For the while X% the with declined a EBITDA adjusted down first were X income X%. sales months XX% and of decreased

as Based on expected and fourth expect Slide to we based X has shows our quarter year. in the to soon as recent the expected. not activity third our previously customer on had for the We sales fourth customer be quarter. improvement demand that discussions summer. quarter in But revised overall the outlook quoting similar feedback, levels materialized

various we And market on new after implemented results. earlier will we minimal to initiatives have consequently, expected. year's In longer taken addition, the results year, seeing in sales this the than have get impact the softness

benefit, We expect XXXX. in see to however,

as posted comparisons sales quarter has fourth year's growth net quarter. year's of we fourth in XX% This also last challenging

fourth sales declines in do for expect the we translates outlook XXXX adjusted double card be fourth but sales EBITDA. expectation year would and level, be and XXXX cash flow quarter net We approximately declines leverage segment quarter year-end Credit both to to We now prepaid ratio consistent the net The year-end full Debit expect in of mid-single-digit the Xx improve. a due free a volumes, which the to ratio. with into approximately of expect reduced and

patterns. able Although strong to normal the believe once position coming have marketplace expectations and resume purchasing customers our XXXX quickly continue should the U.S. in the capitalize outlook below year, be a to we overall we is into

more to and the in turn to year-to-date Jeff? quarter and now will I our call detail. over review Jeff results third outlook

Jeffrey Hochstadt

will Thanks, John, everyone. morning, good XX. begin and on I review Slide

the debit as the with sales. in and Credit XX% XX% sales our decreased primary quarter segment, sales credit XX%. prepaid of reduced declining card and driver and decline sales mentioned, Debit Within is the Net declining

costs and and to material negatively XX.X%. within to sales sales chips gross by fixed costs, of margin margin XX.X% XX% levels the quarter The decreased higher partially cost [ freight ], on Third from lower profit profit offset by also gross the lower costs. impacted was impact affected decreased due primarily margin

as lower executive $X.X primarily amortization short-term employee announced lower and million to incentive related costs. offset million expenses, quarter, and headcount decreased by SG&A awards including salaries. professional $X depreciation declined of retention and previously expenses the services to in accruals higher Compensation the compensation due

the in year-to-date decreased for retention The on XX.X%. included compensation year Net to and reflects compared million is Adjusted The declined to the levels expense. related of offset to which $X.X adjusted the reduced income our decline reflects retention prior due million. tax in increased and limitations lower Our EBITDA rate partially deductibility executive year rate in margins. lower to the quarter interest XX.X% rate to adjusted executive gross sales in higher income XX.X% a the and third award executive $XX.X XX.X% related the from by increased quarter impact to XXXX XX% brought margin net primarily of not tax EBITDA tax package. accrual, to XX% also EBITDA the decreased XX.X% rate, prior of expected

year-to-date our XX. Slide Turning on now results to

down very lower X%. of first segment For sales year, in offset and contactless with orders Debit personalization decreased card sales reflect growth and prepaid declines eco-focus card X% months compared services. the cards in debit net solution issuance instant Card@Once volumes and of the in Debit to and credit by other Credit partially X% XXXX, primarily down X large and sales increases the

as in executive reduced decreased Price the reflects related and adjusted slightly taken the from decreased X% more freight. months increase The benefited were million. in from professional largely operating XX.X% to impact Year-to-date in XX% lower XX.X%, in driven decreasing year EBITDA declines. sales tax expenses. Pricing also $XX.X net of higher to with XX.X% the primarily of margins, in points million by X to increases contributed by increased net the driven partially costs, profit million, lower XX.X%, SG&A to interest increased approximately first expense. compensation by the profit from reduced a material year $X.X XXXX. than growth in decreased retention negative X offset expenses gross partially offset margin by offset expense. expenses Total the award gross offset prior percentage rate, margin X an actions income services by months, but decline by total Adjusted decreased income EBITDA X% $XX.X to Year-to-date first

and the decline million by partially income the expenses. to income segment I XX% to operations and the quarter higher the by third slide. in incurred X% sales first will at $XX.X lower Prepaid decreased the prepaid Year-to-date quarter Debit costs labor operating now were this by down from and segments in decreased so labor just operations segment for labor X by gross of segment costs. sales driven due was Debit to higher segment Income decreased XX. the from operating periods operations offset material sales XX% in XX% drivers the I on in driven impact Income from million, which discussed for months. earlier, first and conversion to profit, on declines $X.X lower Credit lower expenses. to the profitability higher facility Turning Slide partially quarter related costs and both our the includes offset costs, production discuss our

$X.X flow of and year's improvement million. on cash free flow $XX.X $XX.X the a Turning This period by of compared to the resulted balance million last reduced flow generated capital free cash sheet, the and cash in On compared liquidity year-to-date in we on to working XX. the X first invested from million million capital with of flow operating Slide usage $X.X which usage expenditures year cash months. to prior basis, driven activities

XX, of the senior million at million total outstanding quarter sheet, on of September open and million On our our borrowings we We revolver. of the ABL balance $XXX of at million market million we $X quarter, $XX $XX.X bringing secured in cash as repurchased had to the end $XX notes notes outstanding in had million year-to-date. $X

Our net X.Xx third leverage in of of end at X.Xx year-end compared X.Xx the quarter. quarter ratio the and year the at prior to

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

the Despite expiring full with mentioned generate are cash chain more million management by XXXX. year focus net flow As tight capital announce well the free and earlier, for in our adjusted outlook as end program repurchase spending driven updated supply sales still $XX we to improvement, stable on EBITDA, to pleased we projects. as the working and expect at of of environment Scott lower a authorization share strong discretionary a

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

Scott Scheirman

will National an to Financial Thanks, and and like we Officer experience also Board as and thanks Revi Direct Mallela, hard Holdings, bring all Member. of as to is for financial welcome our Audit would work to forward to who Committee. Jeff, Chief of Inc. and Board business Ravi well. in customers Independent employees our our serving of and he the our look Mortgage your joining I dedication

the call, cautious on customers inventory with today's industry challenging to well focused we banking more down spending than summarize turned to as XXXX being XXXX. working in has their out as after purchases uncertainties economic have be To more and as levels expected, contributed more substantial stress

payment demand expect our exact improve in gain trends timing share Although long-term to ability long customer and time, cleared, cards we the we term. secular to to for in is continue not over believe the over and

million announced We are it share repurchase $XX this pleased beneficial to put shareholders. a be for will believe in place morning and program

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

Operator

Instructions]. [Operator

Jaeson Schmidt from is Street. question Lake First with

Jaeson Schmidt

guidance, Just looking if at I'm mainly Or cancellations? the year seeing just these curious are updated to full just you're outs? due any push

Scott Scheirman

some for joining Scott. call. the would of it's it's Jaeson, pushouts. you I say Hi, Thank

the bit. a example, For had that subprime a we've customer in that's are tightening

So there's largely, cancellation of markets. are I growing But a in say there. think operate attractive a I We the important would is intact what's bit trends secular in our and business.

on mentioned Visa circulation call, John a As the are cards in CAGR. XX% MasterCard from and the at growing

very year-on-year card on We XXX also million of reoccurring, think stolen. about, over it's there's in in meaning those reoccurring it's are a much lost We average, average, about on produced. business out, reissuance, or are it's that XX% cards

cards for the to million They're The sure. Both sound. secular we So contactless more feel with and higher-priced over in want market in marketplace. the the win be eco-focus the XXXX. good trends consumers environmentally business. to banks there, out We're are continue leader $XXX since cards tailwinds about long-term are there

basis we difference, expected So just a I bit we're between repurchase grow market of cash announced think The cards But expense has a a to win program believe to at issuance, $XX cap. million clearly, XX% as to difference than been purchases share. on believe spending, of the for with the long-term production seeing And robust have a continuing what winning health over large we chain. opportunities of softer sure. in a in are share cautious temporary card represents we The market just our issuers which is we that. some usage, continue we cards, result the card business, XXXX are timing a of of supply long-term

more as again, what very seeing. cancellations John let much believe have more you spent with we're he in than give I So or color pushouts the so I some customers of time But on business. long-term as John. can me far some do,

John Lowe

in an of from back example credit kind business. over issuer customer it. about example, current feel are just perspective. a that if our to you have to like of Scott of That's and color a flow they're across position morning, spending add [ year, still ] book business. a We the Things covered they're large good take we talk share base. as their they're to see subprime the still time. part, most But for going cutting where account that They're in growing good most but in is The the Jaeson, one space. you the I'd of this still where they And example. tightening, only of same book happen the their our

we Continue good things continue really, from in positioned we're really to to customers. market. execute feel our So good the strategy, where our hear on about

some would they're our say thing their only the probably the is And spending. market, I medium still delayed in other is cautious there small in to space, reissuances

So as are into We slowdowns growing last a Visa a the years. the right? growth Scott continuing overall from But over QX. at card market, see X% said, quarter-over-quarter saw CAGR and that MasterCard. you definitely some You're X XX%

a the So the we in strongly about feel position the we still self-growing market CAGR. very and decent market at are

Jaeson Schmidt

Okay. the has environment current constraints, you coming think of curious That's the inventory And it levels? supply just handle lasting their out do helpful. on any then if impact chain you how really think customers

John Lowe

one. that I'll take

right? of XXXX, industries I think ton that supply there tight. go this, impacted was to were back The chain by XXXX, and if you were a

times. historical lead has but would visibility down down to getting have is Our more I what lead come as times times in say business our come are really The back long. we're

historical But see to are it's banks, Our whether the lead medium broader don't large the banks, than small necessarily a changing tighter their times patterns. little history. we bit

to amount a top do over card everything to what built to is more of inventory going patterns. will they're goal back hold see sure is what X.X see not make is to last of their course right we the a we customers' really hold on they they to risk the I in of meet starting day up that amount they small wallet and don't so I and of consumers. the optimize end cards one inventory be really, that banks say to issuing But what normalize risk always would of taking their needs. and the years, normal only and general, where they're down think Their they at

Jaeson Schmidt

Okay. I'll color. Appreciate the in that jump back queue.

Operator

next with from Goetsch Instructions]. The [Operator Hal question is Riley B. Securities.

Harold Goetsch

this I'll that stay XXXX again? XX%. Because over if was is in also this to looking maybe pretty growth now, But And at think market kind that. very, where can and rightsized a XX%. line maybe -- be to And full you wanted anticipate year. your like figure revenues get going over kind kind there if like, I your not least card is a how how growing we basis was out thoughts exit inventories fill I channel us to would now -- question take? a channel high topic. needs on big mean at consumption to how that that on in Is it get much like single-digit. X-year is like up by the very it basis, help like long we your that going period would strong to you the it was on X-year the thoughts the seem look may be guidance of about are a was you're for I up you looks what much the can roughly drawn to the be -- wanted getting you you're year X-year My of said inventory the down? pretty exit QX. get on and like It going seem if it of year

John Lowe

again. John Hal, Yes.

You're right.

lead Right 'XX, and be more in inventory X-year then fully based now, look compare times of are a the normalize. at standpoint you take seeing we're right, market, that things that will If still what of continue upon line. 'XX, low. to over the growth to overall 'XX the From period, when

if Our still think it customers, give could your zero, up but I fully than think back. and go in come normalize the way August, continuing matches months exactly will I back said, to they early is to banks to sit that we the don't I say it going supply are You in that will for about tell about when card we've carrying a go market. strong you spot optimize. where less That general, think, guidance and can't expected, we're when where of to are in will right? XXX feel thought the in date circulation, it, on. years, million produced think in next X of every we production to you one's roughly the exactly is. market regardless year. over we and are we million analysis except issuance turning I cards that the That's expiration lot are million cards wallets here of XXX the today we're every every more But exactly are to what X year,

-- So -- guidance market in we'll will the going gradually improve next we it's feel of 'XX over the early year. more course give overall but to

Operator

XXXX and this CPI Earnings There Call. for conclude joining, are further Thank Quarter questions will Card Group this have Third And at good today's day. you no time. a

CPI Card (PMTS) 7 Nov 232023 Q3 Earnings call transcript