PMTS - Earnings call transcript Q1 2024

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Operator

Welcome to the CPI Card Group's First Quarter 2024 Earnings Call. My name is Kathleen, I will be your operator today. [Operator Instructions] Now I would like to turn the call over to Mike Salop, CPI's Head of Investor Relations.

Michael Salop

Today's date is May 7, 2024.

On the call today from CPI Card Group are John Lowe, President and Chief Executive Officer; and Jeff Hochstadt, Chief Financial Officer.

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

slide undertake to, well most made press presentation discussion presentation leverage the we adjusted margin, as the Reconciliations SEC. update with during website, EBITDA, cash today's flow. to of most uncertainties, release discussing we call. company today EBITDA and adjusted morning. are ratio events For financial measures investor.cpicardgroup.com. to that only, this filings occur these the our no GAAP today's free CPI's risks included a obligation expectations non-GAAP please limited press non-GAAP see forward-looking measures net be any statements recent and such CPI of this reflect EBITDA, issued conference current Card Investor reflect Group's in the accessible All measures, directly but call statement as after Relations financial will the including, one more this call, Also, or of course the and on to and not release are Copies the accompanies that of comparable

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

Lowe. to Chief turn over Officer, President John like to I'd Now and the call Executive

John Lowe

into detail our strategies. the will overview on Jeff the I outlook, brief questions. call will then XXXX for call, will and financial of today's and we quarter open up and On a results our ongoing more the go give

on adjusted are net X. financial we outlook. our to puts performance, quarter which with Slide us EBITDA on year sales start Let's and first track the solidly achieve pleased Overall, full

work quarter fourth first reported year inventory we challenging of when this be discussed results, their our will half to the levels. we we As down continue card anticipated customers as

declined sales businesses quarter the quarter EBITDA. the growth business net adjusted net margins from This net solid as partially Compared impact and debit year relatively sequential EBITDA adjusted was in and generated to personalization a first resulted and services by prior the and and X% delivered from compared card as While this we fourth to and income in our credit. sales decline strong as instant our card quarter, margin also flow. growth within expected, in issuance prepaid well offset of improvement stable cash gross sales, total

significant in results we will share strategies progress Additionally, a detail Jeff go our program. more and on made into few repurchase executing our minutes. our advancing financial

X. First, on review like our strategies briefly would Slide I to

traditional grow to while digital over growth the opportunities term. also share in Our the strategies our markets, including expanding enhancing by reflect businesses solutions gain and into long adjacent

includes Our on personalization traditional and trends cards, portfolio secure prepaid services, solutions, instant solutions. issuance card demand

example over is gain which Our customer relationship recent expand designed quarter contract to of quality by the the business, XXXX. in our being sales markets to runs continue leader customers, and the and and growth in take larger years. which first result to goal agreement incremental is one was transition several service, will It to this our the share in contract, aid innovation.One with these the over the but the incremental in share life time increased next XXXX the in through some of will should

parties users, for help ability two their is customers path their Enterprises, businesses to let push personalization. quarter, payment base third physical are a existing card complementary their which credentials today. An the their customers. supplement a XXX of step push services in providing small agreement expansion. There additional through payment app both including over and existing of will their onto we offerings can to To software agreement, our digital provide core we This services. institutions, thousands their one most customer many new customers referral believe our for the we the where medium opening our growth the needs. financial U.S. with solutions is mobile provision, to expanding the to are next offer MEA's this signing a adjacent and offering include years quarter, initiative, last few offer Through rely solutions in which of we to serves on customers national institutions. provisioning paths financial to approximately MEA first can up the service financial this digital banking institutions. app, additional One this to example with advanced markets who discussed by leaders of are into seamlessly we service As issuers to card push we which wallet mobile have that leveraging one as ability Financial core is to of In

to opportunities we The market. for such and we existing near instant taking new health time core some beyond of overall the confident Many customer years. few term, substantial customers second our drive U.S. financial of over solutions adoption, remain expansion there as to next cards path health the supplement in growth develop issuance but types, to believe the adjacent and savings the these take the customer In products will and are institution card involves areas space. account payment

U.S. momentum consistent trends Card continue most X% are positive demonstrated circulation replenish hearing X% quarterly compared the the CAGR eventually recent banks on and the card our to December have cards see from continue earnings up will issuance were indications to in in that three MasterCard XX can programs. X, circulation year issuers the cards grow. for customers. prior their quarter. U.S. from the years figures ending a us with give for you As at from to is latest show to confidence inventories, which large also The and increased Slide in reports need Visa we The

expect preferences the credit for industry ongoing trends grow term, to well other We and and aided eco-friendly recurring higher market and the contactless by debit U.S. nature will as of cards as cards. towards over the long continue value the

recent from data of in the in the Visa. Who on Another of report, cards sale point adoption contactless is latest stated XX%. tap-to-pay nearly point at came earnings its ongoing the penetration U.S.

would continue will discuss results Jeff turn you over I and We our like to in market XXXX to detail. to first call our quarter progress. of more to outlook keep and trends apprised strategic the now financial

Jeffrey Hochstadt

on I will X. my Slide overview begin

to levels. our Overall results as their we compared strong inventory generally environment card work down in first to was card personalization The quarter continue partially what volumes card trends services. were prepaid, improved as and other expected by recent issuance growth offset for customers declines

declined net income decrease gross previously XX% tax CEO prior net award also was accrual impacted transition to declined EBITDA We the executive and and other rate in the final adjusted the as generated income related period. increased by costs year the for compared announced quarter. first prior and solid well flow cash period. X%, in the margins retention as lower The year decreased the to net sales quarter X% Overall,

the adjusted posted we income ratio fourth thanks with the leverage services to and businesses. EBITDA quarter, growth at net in compared other Sequentially, was X.Xx. sales, primarily net prepaid to increases consistent Our year-end and net in

and was of to and Slide contact on first installation XX% year Those our prior issuance in quarter. segment prepaid. aided detailed solutions continue as sales quarter Turning offset the Card@Once to decreased fees from X. comprised Increases results our solution compared Within both growth sales processing first XX% expected services. were overall card declines The the a base. X% as card in we by and and other both personalization decrease increase strong credit grow Card@Once debit and instant and to a sales credit, in partially decline debit contactless

from services incremental in to from tamper-evident strong the While strong services to year tax retailers our timing fintech for services refund existing both business, decline. customers, increase card reflects The solutions between demand for our personalization from profit X% declined packaging quarter fraud in print our the and as other prior prepaid to demand on-demand and including benefited quarters. some related leading including continue cards. Gross sales sales combat due

expenses, margin permanent. year production XXXX. related depreciation increased the costs, costs over compensation The amortization, retention previous to fees. million final prior the temporary in we year by other severance including workforce executive compensation expense to well the primarily SG&A items incurred services profit and primarily special $X increased when the amortization also prior that medical includes due and as primarily from to lower lower prior production from offset related million efficiencies of transition-related labor quarter professional expense and from in stock Compared as costs due the the award increased $X year, gross quarter, to the to some costs compensation issued period, and should compensation year Our reflects to partially XX.X%â€“XX.X% to facility come grants transitioned down accrual CEO improved our salary from expenses. course relating prepaid CEO's

strategic the was be driven offset by While the benefit expect growth majority quarter decrease items coming should that to SG&A that by the quarters. we in over of increase partially of in some compensation investments the time,

million in a XX.X% year Net quarter rate increased favorable prior the year from as margins. in last decreased quarter million. first the the EBITDA tax Adjusted and the slightly was offset of from quarter the item. from decreased the sales of of was expenses lower benefited EBITDA X%â€“$XX largely first XX.X% improved Our income XX%â€“$X.X to in down gross period impact prior margin adjusted XX.X% operating as year and XX.X% in by higher adjustment

a accrual CEO which also net the higher in and of retention other EBITDA transition-related the mentioned, executive adjusted As tax included not award the rate. are costs, reflects income decline impact and

Turning growth in decline sales increased now operations in the expenses. I related segment production from to the by reflected from highlight labor the Income drivers to driven the expenses XX%â€“$XX.X so including increased first will debit profitability our discussed on our and lower segment decreased this the as operations Prepaid XX. driven million, quarter, efficiencies Slide sales segment first staffing sales prepaid and transition earlier, year and additional I for quarter credit production costs, compensation by million income the XXX%â€“$X.X slide. facility. prior segments debit segment on

balance the and sheet, cash on to Turning XX. Slide liquidity flow

the generation during year's invested which million $X.X For the capital in further to in capital course of flow we as in operating by working free higher the million CapEx year ramp operating cash and flow and million expect million in spending $X.X net The activities from driven of expenditures, first capital year. period flow the cash cash This first lower net was and resulted improvement free quarter. prior compares we million. of of $X.X $X.X generated of $X cash to quarter, this flow of

of million on and consistent our million a with and no $XX.X of had we year-end the was end $XXX level. sheet, ratio quarter X.Xx outstanding of cash, borrowings secured balance ABL the net revolver On senior leverage $XX notes million outstanding at

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

that good we in made $X.X the shareholder repurchase on December. repurchase shares our the committing additional our average announced back to million spent of to the of of XXX,XXX from common number $X the repurchased agreement progress from to repurchase stock at second December quarter, an authorization share our open million early have open committed a the market pursuant end shares We in and $X.XX shares million March of in a the quarter approximately shareholder shares market over the of stock against the agreement, the period. in we We price market repurchase ratio XX,XXX in majority through we to our open buying million for purchase $XX Under from at completed the first that to majority purchase program, X:X of purchase or quarter. price first XX% of to

the We have in a March. agreement that signed similar quarter second for was

and Turning provided affirming full financial sales Slide to the XX. outlook our XXXX financial adjusted on Today, March. year are EBITDA net in we outlook

second for in adjusted growth will market year anticipated declines to gradually which half share of EBITDA. continue that reflect we the sales the the the and We year, over the increases course year project the sales be to maintain in view of will also by offset slight growth net both our first the and return to half, gains. we for Specifically, expect

as will next flow provide mentioned, John one half full to the will This incentives increased our the well March won business discussed we to in recently several and share that year cash be contract. our flow our incentives which share we requires related of level with greater of adjusted contract years. this approximately incremental spending the certain million, XXXX as free As reflects have customers upfront outlook large in negatively XXXX. Consequently, the cash capital over us impact that we $XX.X

year-end closing remarks We X.X pass call continue ratio to for some and expect X.Xx. I to net will the between John our be back on now leverage Slide XX. to

John Lowe

pleased are we performance. first summarize, with To quarter the

Our offset overall credit once card declines improved other fourth prepaid results the and personalization card sequentially card helped and quarter expected the and debit compared businesses in quarter. to

to inventories still While grow, challenges net our innovation while will return service, industry continue market outlook. the remain adjacencies gaining time. up sales questions. track gives the healthy through in open on more have market as and to trends confidence affirmed to full market, increasing addressable Operator, are into Card down. the remains expansion leading focus U.S. continue our the in businesses we worked normalized and issuance are once circulation traditional for on our in by the EBITDA will cards and us strong, customer in and call we in adjusted we now share which will quality dynamics Long-term over year are for

Operator

the Instructions] of Street. [Operator Schmidt Jaeson Lake of line comes question first from Your

Jaeson Schmidt

contract. to contract? levels of other opportunities minimum is that want over contracts How this? of relatedly, are we guess volume pursue Just each life the that Or and multiyear the with there start scope to year? about there customers? Is think the a long-term I size with should

John Lowe

of a our through about goes five-year It's customers. XXXX. we're one No, It's actually deal good little than with a a larger it. more bit deal excited

debit the values Just for had This We At back and provide five-plus large have number same the ultimately, benefit front years. business. end a our side context, on over will time, volumes of big us. to years five-plus with a committed we fairly the win deal. the over do It's across for committed our getting this and next next on a to credit large, it's does small contracts we're the incentives of customers, business provide the gain end. the share and one win

Jaeson Schmidt

was with the driven customer a Was like sounds by prepaid broad expected. a little than a this It segment more single stronger based?

John Lowe

few we prepaid challenge greater has been as years. well happening things it business see There's there. pretty over fraud of prepaid last The performing used than less the One, It's seasonal number to do be. the market. a a in

packages does Our That can that those a good benefits us. charge fraud. job building prices protect against slightly We out team of for higher packages. types of

We Keep did prepaid There's that for customers. with of have prepaid bit The have That's benefiting been well. space. one our business. adjacencies prepaid our performance of business savings a health expanding We as in business is good in we strong was been lumpy but do quarter mind, timing larger strong. which out one business, little the a a there, it's of our account of our us. in

Jaeson Schmidt

excess inventory the will you situation resolved? When think do be fully

John Lowe

be see card to worked certain normalized. point Card QX. slightly were on in We there in met are businesses our in QX. performance or to put mind, up specific Keep will susceptible down hard less when other inventories in terms time did say, in that completely extent. QX let's a actually are, of a expectations It's from volumes

Both instant better that's of expected. services, personalization Our as than personalization those well side. our as Card@Once issuance issuance side our performed

that and specific years The market on hard over date about circulation last we'll cards Visa also market, healthy. see We some the down, occur. when X% tax really will to still on stats. work if the normalize. in season you side. they a that Mastercard had from benefits broader cards the It's We a think are three inventories, card for perspective put that as CAGR ultimately, feel still become growth

Operator

Your of from Andrew the from question comes line Scutt next Capital. ROTH

Andrew Scutt

me here for gross one First margin. on is

in other drive some if had to helped margin expansion was growth? there I wondering or guys was that quarter. efficiencies due You were the healthy mixed in that if primarily mix the there

Jeffrey Hochstadt

a a really efficiencies. our have from related and was it quarter primarily margin labor production Most good did really due perspective. costs to We to of

our Obviously, last margins We've have times sales, with grow improve year, we workforce. we labor to in costs those when that QX across leverage from recall, to transitioned some board. at had operating the a been When we permanent facility costs just were you Year-over-year, quarter. efficiencies don't of you some standpoint. get Also this temporary from If that We we associated on that, lot more in realization move. and Minnesota workforce prepaid, focusing in some a able that look of QX. benefit. we see you

there prepaid so some board, and the debit When the margin margin. our we really you and look and credit, If those debit the a at credit. it drove efficiencies and you have the decline, look in growth labor sales leverage. business, year-over-year year-over-year lower takes. generated operating had at that are strong Ultimately, have and you was we puts Across

Andrew Scutt

is, you provisioning. your strong. those one card that been guys push here seems second services a once of provide lot and ancillary like areas have My at It

the some space similar Just for financial you to there for market ramp want one, partnership about the other to opportunities MEA that sign agreements? Are partnership how in a talk take does revenues? signed it meaningful see to to long

John Lowe

financial they about provisioning institutions app mobile being services. good them is Another creates in about there. market financial good on that addressable institutions What we're push service of working have XXX solutions provider They we're excited a for agreement them MEA the a software provider to is our with that specifically our U.S.

to will, years. in side what context, little we've what side from issuance the instant similar over bit is you a if Just market Card@Once do push for our perspective, the we provisioning addressable on done

U.S. business, our about the Card@Once XX,XXX branches reminder, in a across we're As

that good it's Xâ€“XX that. far. us X,XXX us and if for we've broader taken business will, to but we're as penetrated about That's excited digital strong going but years about a customers, solutions for our slow about deal the have financial a on It's value growth to what penetration, we're proposition institutions This and a is margin our well. excited MEA it's thus We with you early days, fairly do do side.

Andrew Scutt

can Indiana early you any on seems might it the facility we're in CapEx here guys in the the there little days but know a like guys just Is us year. have I expansion, more facility? new visibility on give you update

Jeffrey Hochstadt

Yes. of Indiana this million we back expect still the than We have of the that what That's that to expected year. last case. the worth line, beginning CapEx call, some of so but mentioned about also far, nothing different we'll expected that's what OpEx the SG&A related half we the $X probably in the In we year, at hits year.

Operator

As like would to there the further questions over I call in turn are Instructions] for Lowe the no John queue, now remarks. back closing to [Operator

John Lowe

Thanks, operator.

want acknowledge do all I they every Before thank and single and our to for our we day. CPI off, sign employees everything company for customers of our

and have we and our We results. and Thank our business great passionate are for have who you morning, this hope a outstanding all you joining about call dedicated teams day.

Operator

Ladies and joining. today's all gentlemen, you that Thank concludes for call.

You may now disconnect.

CPI Card (PMTS) 7 May 242024 Q1 Earnings call transcript