PMTS - Earnings call transcript Q2 2024

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Operator

Welcome to CPI Card Group's Second Quarter 2024 Earnings Call. My name is Eric, and 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. Please go ahead.

Michael Salop

Thanks, operator, and good afternoon, everyone. Card Quarter CPI and Earnings the Call. Conference to Group XXXX Second Webcast Welcome August and President X, today is Chief date Today's XXXX, Card Officer; Jeff are Financial Executive Officer. from on Group John Chief Lowe, and and Hochstadt, CPI call the

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

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

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

to over growth noted. like the Relations referred comparisons and On year John turn will I'd available Investor Lowe. be Executive Officer, XX-Q President are website. the otherwise In the XXXX, to unless prior addition, all on call, CPI's quarter call Chief now ended with for XX, to June period, Form today's CPI's rates

John Lowe

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

Let's start Slide on X.

our my very quarter President We up the and the wrap sales personalization was instant am and our as as complemented in our I performance by trends prepaid businesses CEO, growth I positive our and to segment with sales, secure in As leading and card business growth returned in second quarter of our improved teams. company issuance growth pleased continued in both segments. to card

we are being made business. channel while adjacencies Additionally, market improving, progress solutions. levels perspective, and believe further From worked we in we down, and are efforts still is inventory our a on winning diversification digital card

Secure Card of sales second were down in in the market first also only increases. which the networks. quarter, The quarter the growth growth another posting quarter based U.S. the quarter and healthy with to the data on sequential sequential circulation issuance represented slightly card remained latest strong. in the posted cards compared straight from

States. benefited business now market XX,XXX United as instant prepaid solutions from was of higher solution penetration while in Our our digital we value branches across by continued issuance our are than Software-as-a-Service-based aided more business the packaging

and drive reflect are declined growth. the in slightly our margins to future confident rates quarter, in in of increases growth which trends the second adjusted the better expect investments and in while we increased gross due in improved From Overall, year. business EBITDA to standpoint, business profitability SG&A, the in to margins a half people continue primarily

invest our to slight first debit our Based slight XXXX, and growth at full we in detail for but a to prepaid of a on sales adjusted in year's our expect increase continue financial while The outlook second improvement the have year, outlook in half you second half. compared expectations year sales outlook and and outlook strong EBITDA growth, year, is on half will mid-single-digit for more the For we credit few growth improvement and our of adjusted trends, increasing performance minutes. to the rest expected last strong driven growth. maintaining growth the we sales updated in performance being to our full as by for sales EBITDA long-term compared our Jeff XXXX give from

entering million to extends growth, removes the addition in secured and July, market enhance would The our allocation our replacing continued senior our we our new In structure. credit and refinancing of a previous support matured refinanced $XX performance, we've facility. In against notes business to in notes, million which XXXX. asset-based issuing risk long-term out debt further further into capital XXXX debt have priorities and to our capital to execute revolving maturities $XXX new our early

to the and cycle markets summer wanted this chose markets potential strong year. debt receptive and refinance this go have later that We been election have very favorable through as to as to the we less any the investors been we avoid become offerings,

repurchases, additional have since of the out In $X to million $XX addition, share our completed authorization. bringing we program our total million almost inception of

Jeff, the call strategies briefly on over to review Slide let our Before me turning X.

on in including our enhancing Our adjacent traditional while into and by growth strategies gaining solutions continue long the businesses markets, over share digital to expanding term. growing focus

by the strategy priority share following traditional in businesses meet our to to One our innovation. our markets leader and continue our service, listen to is needs our to is and in of the grow customer goal customers. to gain being in quality is of example Our current ongoing

on business, our tamper currently their focused our and to fraud evident and are prepaid In fraud-resistant solutions more very providing customers preventing customers.

employing mechanisms solutions help packaging fraud and our of reduction customers achieve packaging not customers their customers service, our our works solutions, and our gain Our that goals. innovations to benefiting quality This innovation. is prepaid also on require higher-value customer additional share example our one leadership but we just by These in portfolio create providing across focusing only sales. innovative demand, new team are closely develop counter and to fraudsters with how

verticals. to opportunities payment by core ongoing new In include mobile are for push our new of growth entering addition provisioning to the efforts including our markets, development our on digital solutions entry to Examples adjacent and services and expanding in more health products cards into care customer existing driving advancing and offering capitalize customers wallets. to business, existing we

We and adjacent long-term we of expect are these core making progress to drivers, over these across years. supplement opportunities both coming growth the

Slide Turning to X.

Mastercard. continue cards markets We this Visa see to On the trends core you from our in latest solid expect to can long-term growth. and provide U.S. slide, circulation

also For The the the XX% CAGR. prior year X cards healthy. compared XX% increased in circulation Circulation U.S. trends XX, a remain in March Cards & the ending years up to were quarter. issuance first at And

debit value expect recurring market other cards ongoing as to credit adoption pay XX% nature and penetration growth aided be contactless, industry ongoing the has towards in higher preferences also and the U.S. for trends eco-friendly well contactless U.S. We transactions of as by and to consumer surpassed reported the demonstrate cards. just its in of tap the Visa of recent call, To earnings the

like now Jeff turn second outlook would our and over call discuss quarter XXXX Jeff? results to to to in financial the detail. I more

Jeffrey Hochstadt

Thanks, results. Overall, the are will John, we everyone. my quarter X. on overview Slide begin and second pleased with I good afternoon,

net X%. Compared card prepaid, EBITDA John slightly businesses decreased and year As negatively our adjusted sales net EBITDA as to income impacted our levels net quarters. second and to our the personalization net cash income margins issuance to slightly leverage increased year at the end SG&A, while the with in ongoing and CEO was Gross prior recent some increased X% instant Year-to-date, by X.Xx. and sustained expected, flow and costs the trends investments is decreased prior of X% quarter, than were and adjusted including quarter transition. related sales free increased mentioned, improved less ratio compared growth and card

in credit, sales reflected The debit quarter trend prior prepaid The John increase compared continued and a a in X% and versus overall compared growth. other slightly focused from card quarters, second the demand packaging reflects our fraud declined Slide in instant our increase The to an Card@Once solutions mentioned personalization prepaid both solutions, however, issuance segment earlier. the sales X% from customers X% only sales, segment. change which detailed improvement for increase the card credit quarter. increase first delivered major existing our quarter increase previous to year, strong on to came as debit services Turning Within good in and X. results in and

growth Gross quarter costs, to increased CEO the a XX.X%. to profit in slight sales compensation from XX.X% in due stock grants from including issued from increased in the $X.X amortization, related and compensation prior increase to X% margin depreciation the from increased the the and year year primarily driven transition. XXXX million including special by prior SG&A,

people in this had tightening unfavorable future, for prior the operating we SG&A invest the including for prepaid also comparisons in XXXX. with year. significantly planned spending had We increase low expenses as year to We in after

increase, and XX.X% $X year's to of was EBITDA deductibility growth the in tax and tax by lower down prior XX.X% retention reflected due quarter margin offset last in in the as was to due compared SG&A in SG&A first rate quarter second XX.X% Our year compensation adjusted Adjusted income $XX.X the to last limitations the to award. expenses. of decreased partially the sales due of rate quarter CEO million, to executive from the X% primarily rate the decreased the X% million. Net to on higher which XX.X%, year EBITDA

XX. half first our to now Turning Slide results on

segment issuance credit year, X% contactless offset from as for the cards partially and margin X% sales the prepaid first impact half XX.X% Gross XX.X% decline. card declining eco-focused Within decreased and were sales increasing X% For by as with contact growth instant an debit and in ongoing of growth in profit other credit, personalization as debit from and well first of the sales XX%. card in the both improvement contactless and declines to was half the the services. flat offset

driven CEO's year transitioned prior primarily SG&A prepaid tax to last and XXXX year's the in from down the gross of severance. quarter from workforce improvement The executive quarter temporary permanent. when some XX.X% to was period, award $X year-to-date with second million we the as well the The facility factors the former from retention of slightly higher was production by increased comparisons margin first other expenses due as XX.X%. as rate our same

the adjusted in impact higher Adjusted Net prior gross sales XX.X% year income $XX.X $XX.X margins EBITDA decreased margins. the operating million improved X% first in as XX.X% and million. decreased by partially to and expenses was lower from offset of down to the EBITDA half of was XX%

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

decline which discussed now the on segment segment and operations decreased expenses our operations related labor operations drivers segment Turning so XX. income for lower sales by I facility the Income increased and to Slide with million increased comparisons prior to XX%, slide. the Prepaid $XX.X expenses due the in to increase from and million profitability quarter. basis, on quarter, compensation year second including from XX% half prior will sales the expenses. to the prepaid On X% the in Credit in by second segment to increased X% highlight driven first improvement, quarter. our from quarter, decreased a the this was I in driven of and prepaid $X.X income Debit Debit growth year-to-date production the operating segments gross earlier, the sales year due to the sales transition in impact first margin staffing in

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

million the retention this period capital customer the partially driven CEO working operating $X.X million. the and and cash payment generation The award activities our to initial flow new of of we million income first we in announced from This usage, included offset in capital first million by cash capital million cash lower half net expenditures, half. usage prior compared spending. former for the year year's flow in the of which of the cash free capital flow contract and of For decline the $X.X lower $X.X generated year, and quarter. resulted by operating in million invested $X.X for was free increased incentive $XX.X Working $X of last

of ramp secured production new to of we the buildout spending second capital in our advance the the expect in Indiana. We year half as facility card

on X.Xx. On quarter secured at a our $XXX net borrowings of of million the leverage end, senior ratio of million balance outstanding had ABL of we and $X.X cash, notes revolver, sheet, $X million

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

the As from due replacing used notes the facility, a the facility. Concurrently, our we revolving existing XXXX ABL our coupon mentioned new issuing XXXX including million million of of XX% We completed notes into entered debt, call July, offering earlier, $XXX due senior premium. payment to we debt senior in the also proceeds our of $XX existing refinancing at in secured par. redeem in

slightly the net expect the the net associated the reflecting ratio the and in We premium cash quarter debt our up with costs outflow on payment third new deal move leverage call to refinance, of due to and offering.

in early refinancing which capital XXXX. This market refinancing and in our stability our risk gives us removes notes, matured would have on structure

We agreement shareholder of purchase to quarter. in additional year. July, July, we in share We shares $XXX,XXX XXX,XXX program. of market million our repurchase Through announced fourth have XX,XXX an of to million completed our program since our inception pursuant And also back continue $X.X majority open in the to quarter $XX second the our second for million $X common the execute in the approximately stock authorization of shares approximately stock in repurchase spent last bought against purchase March. the the we from

the stock a shareholder open majority Under the open for the shareholder to X:X called agreement, the the ratio a from repurchased market the we of shares agreement agreement In additional At our our of at a to price. XXX,XXX repurchased pursuant of June price price in market open ratio our over quarter, purchase number committed remainder price that at shares of to from XX% the period. March repurchases to open December. to in that for purchase X:X for repurchase through $X.X number we completed announced we That of to purchase shares year. market us also time, at not at from in April of expect a market majority this the we from of do the shares we share December of of majority the also million XX% the second average repurchase from shareholder

Slide Turning to our XX. outlook on XXXX financial

of have and the for increase both reflects from share the trends and primarily The growth by we card and our is expected performance driven increasing previous debit our sales financial slight updated mentioned, business John our gains. and of anticipated market sales outlook expectation As mid-single-digit to prepaid XXXX, outlook strong the improved credit recovery growth. in

in which EBITDA at still growth first the outlook growth as good half half. We second adjusted EBITDA are X% maintaining the our implies down XXXX, of in slight year compared to adjusted the was

to grow due second low growth to faster to EBITDA performance-based in We adjusted compensation in future higher expect sales the XXXX. levels compared primarily than and half, investments for

for technology growth Indiana Investments include business, investments digital future in the people. and our secured card facility, production

outlook pass John XXXX have XX. free to We and for flow approximately we to remarks will year-end half be and now year closing call maintained our our to leverage ratio Slide the the between level John? back X.Xx. cash net X full on continue I some at expect

John Lowe

sales secure our We've quarter trends. we improvement affirmed are sales remain complemented debit and outlook growth see to To to the to we as in for summarize, and growth and in Jeff. card half by confident services for in in prepaid was adjusted businesses sales long-term Thanks, the pleased we return second growth our credit as continued of and for the CPI. will the continue full outlook EBITDA year invest second for accelerated growth increased our

also further our strategies We our against in refinancing July. executed notes senior by capital

addressable in leading in innovation share We remain through adjacencies, strategies including continue our market increasing solutions issuance to time. healthy and and U.S. into customer focused by executing on to and quality trends digital gain card over see expansion service, our

will the for call we Operator, up questions. open now

Operator

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

Jaeson Schmidt

is to be inventory you? out solid the QX? an fully worked on inventory about still behind think you here the Congrats the thinking to mentioned that how there. going going Do when Curious you in be you're issue is excess excess results. issue John, is down fully

Operator

now The technical your we and conference Ladies with gentlemen, by. for some your difficulties. Could remain standing Schmidt you gentlemen, Street Jaeson will resume. seem Markets. online will experiencing please Capital Ladies conference to question? and thank for one Please moment. you Lake continue. repeat be and

Jaeson Schmidt

given it's it curious John, over reported. to will Obviously, the end by guys headwinds. you Do like issue still behind is significant you. you going be QX? creating be it noted of doesn't seem just fully think what you that you think that when But some

John Lowe

you, to apologize difficulties, challenges in here our I with there's good Polycom room to Jaeson, like the little good in. talk we're technical of the and for in momentum bit the We market. feel

they think XX% information out. That's are last up over and the If card you years, in Mastercard few circulation trends, about issuance time cards the an actually improvement quarter-over-quarter. put just last from Visa XX%

QX sequential internal to saw you QX. card growth about we If think volume volumes, our card

We if we've a customers about of customer also down saw large talking from think customers. perspective, smallest to QX. been the And QX to you to

we but period. in more And still No have move levels. are would higher they're we're than inventory normalization closer brainer, us card what say, I what seeing they is that to normalization, historically, been seeing

So about line digits back wouldn't guidance we say it's a of over are, of where are but perfectly to company healthy we positive. part we that when and is to for good the we reason performance growth our normalcy, the things feel are there's raised bright that mid-single and revenue markets and the and feel the

So with we're happy things.

Jaeson Schmidt

the push sort a a beyond new be opportunities health early do or really but verticals, as you provisioning, story, That's it it's then And early, cards, markets of looking can contributor? new these such that? XXXX Okay. digital helpful. or I care XXXX meaningful the think when at know Is payment

John Lowe

I mean, Yes. to think come. I it's over years

side meaningful enough gig there's adjacencies those some and been to care, the positive, play. long-term areas. That economy, have if said, health a and our give business, gaining that businesses. share look true not it's digital in been those they're we're you while we numbers, momentum, for a we've have at you the If in of about think revenue growing but and They're broadly,

digital you we've U.S. our Software-as-a-Service solution, years. perspective, our We're think been if exceeded solution, XX,XXX in. about just we across it, branches think we're in we you Card@Once a the way from the Software-as-a-Service about If a market and XX leader first will, that

lot So when had in our broadly, growth you think market. well a right dollars but digital we're on base. reception ready great small very issuance to is in broader years coming you we'll to start the side feel we about digital card customer see any now be positioned any numbers if come, really But days, a from the the materialize. those in But and in, We've early relation business. share especially to to like it's more

Jaeson Schmidt

Got then standpoint? one just me, queue, at And back you. much for volume from a I'll last you not in general, in pricing looking the discounts, but just and seeing are so what the jump

John Lowe

mean, in is pricing Yes, a right? proposition. think was in upon the be today you're that existential for of our equilibrium. impact I I I our I the nothing cause is an markets would market pricing of know look healthy. There's you mean based that market choppy we the to in equilibrium. that pricing looking if value kind very But operate broadly near all is term, time markets, if in, equity out just

our contactless our our great well Software-as-a-Service what instant as eco-focused our strategy execute to side even that's as as we we solution. prepaid or have to of or whether products, a we issuance in the innovation, on customer solutions And value quality, do continue prevention or continue fraud as proposition long focusing

great and we So value to markets. provide our we for competitive we provide, feel what is pricing

Operator

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

Andrew Scutt

Congrats on the year-over-year growth.

can growth. was a talked of stronger increasing kind previously in prepared for SG&A? a in guys It -- this bit growth little the You growth. than increase kind talk it revenue -- there of the bit the touched remarks. about little on did was about headcount But you You

just So be parse would kind of details help very if you helpful. out kind of the could that there,

John Lowe

Yes.

our right, encountered me top the you into jump the think step bottom. let XXXX for if belt We 'XX challenging significantly. to we significantly, and a back you tightened We back we broadly a Jeff 'XX. Let But market. on before go the just about both second are and growing too. business, I'll on in came

into see swing continue we so from broader uptick. across pendulum And we as see And healthy we performance XXXX. markets, now our We perspective. come starting business to inventory the a see card to

the are We in investing business.

solutions, investments we're XXXX that or and whether or back So those strategies in a go-to-market maybe that's lot people. we back bringing of dialed technology digital

noise see just also you noise you there. lot everything see some So And transition through and a year-over-year. it of the around do CEO

is So would our as growth that not EBITDA happy and while it the term. make growth fast growth, are you? business we're our in revenue, revenue growing may seem investing to and odd about we're Jeff, the sure revenue EBITDA as there longer But that

Jeffrey Hochstadt

add Yes. on Andrew. to your that. to voice, No, Good hear just I'll

some or plan. key the around company. CEO the that also the some his company retention If of that is mostly It in some half million, And the equity final then some increase accruals for transition. to payments adjusted of you company look actually half $X more related little purposes. than executives And includes performance A for the at first for back year. really some includes for about added is the left the employees bit for to -- that CEO that that severance EBITDA. $X and also final gave million SG&A the for And former the the to retention

and is $X XXXX, remaining had transition. our that a part, that it relates than item in little than prepaid for really a XXXX to we million So one of an piece business. the half little to some of CEO profit bit less relates favorability operating it really half of in The more in

different areas. in that we bit And a the growth business addition mentioned XXXX. in mentioned, so He we that. of investing have as to that, And little a in John in are of

performance the really feel John tightening the going year, when the are for we what XXXX. meet to -- you'll where and we business, was so in investing about it did not is our said, XXXX, that half, terms see for compensation forward not especially we $X second our our we of But expectations lies, about compensation million. in our was And also going in in the it not as quite continue, think that. performance-based we're where in the good accounts of was a after performance And normally belt rest bit below

we're bit growth XXXX, get get little more that So see the a a to we half you'll a of to as when going well. of level performance where normal in of second to comp,

So hopefully, that, Andrew, color. that some gives you

Andrew Scutt

No. great there. was That color

me. for question Second

You guys kind kind strong about out quarter and the locations. talked of for guys the you see seemed appetite in a product on question, it kind a growth called and Card@Once had you Can talk slides like runway previous about that there of now in for XX,XXX the of Card@Once? you

John Lowe

Yes, built. mean, that I a great solution Andrew, we've it's

we're it's reason in the a are solution. our are instant institutions and issuance Echo cores, we provider, because plug-and-play branch we're with out providers so developed the there one the leading is and a And like whether payment differentiated that the across We solution processors, that's U.S. Software-as-a-Service say only we is of integrated that's the when system, the financial solution within in

So very quickly. we can running be up and

It's a on side for as for secure win exciting personalization with our side ultimately customers their generally speaking, leads solution which on new and us well. wins customers, new to way card wins our to

to will any solution perspective. win with win there's us And believe not market the our grow. with help we don't digital us to customers we to only same ways from exact it by definitely go saturated core to a help solutions, but means, So the is also continue think

see we're excited see and solution what's it to and for So us, it's excited to good come. grow to

Andrew Scutt

me, then one And I if Awesome. may. last for

decision that I just of prepaid talk to you think Can from turn the went mentioned you decision about kind made temporary what guys the to through workforce permanent. there?

John Lowe

in you're the all businesses, at variation looking is mean, versus in I always doing our who I seasonality the think Yes. of work.

back And the there was go our the an seasonality so been seasonality business, less businesses, most business. than prepaid has X X, other prepaid business. significant there example, if the But across in years, as of you

us gap of from we perspective. that to when help point variable have So the hit we did kind would a that bridge a workforce high seasonality

it temporary after even workforce. Now X for to is year X doing we've the the to been what right permitted have than so to, say was of all after that, year X workers year temporary years workforce like full who we where And would move quarters, from work year. of ago. of across time able lot more I we much felt kind were a because same we of work to partially And after have us the a been flow

So a the we've occurred and was that added last That we team feel about. that to that the we people extent, to that easy. great performed happy well certain achieved also conversion have gains actually year. through efficiency we're like And our that really

back, like prepaid So feel the right business looking And we the felt made decision. as like has normalized, was we it decision. we a great

Andrew Scutt

Great. Congrats again on the strong results.

Operator

Goetsch with Please Securities. go Your next of B. question comes from ahead. Hal Riley line the

Harold Goetsch

this, a total of but for onetime an given year? -- have figure give from you I miss the CEO for transition. the the expenses us I hope you kind didn't was aggregate number I Could

Jeffrey Hochstadt

Yes.

retention it and cash that end about the cash of about -- ones in we've and was CEO last former It in year. I a of million in mean, equity place the year. out and was about was million -- was the So package are paid the really this And for took $X last disclosed QX QX $X $X total. million that

for the package CEO. retention the was outgoing that So

John Lowe

accrued Yes, last that first into of quarter year the throughout was the of this year. middle

quarter. this of for million year, $X that was first in the the So impact

Harold Goetsch

Okay.

then. of behind kind All So right. that's you

Jeffrey Hochstadt

Yes. Yes.

Harold Goetsch

Excellent.

it follow-up services a could I is ask your embedded relates in source revenue that if revenue, And Card@Once, to Okay. right? question is that

John Lowe

whether services it's technology. shares solution the is hardware depending between on the or products actual enables That that and but correct, it the

Harold Goetsch

you becomes of gross or any your faster just with the the what curious a that recurring profit just kind mix, that nice can your margin. business growing of was level I And color give XXs generally if for line margins or fast-growing of part us less revenues? because SaaS the gross more in or XXs that's Is at it on maybe the are business service faster upper in part

if curious is that of kind just there? So possible

Jeffrey Hochstadt

haven't profile. Yes, the generally, there high-margin Card@Once, for our it color. can as any business help specific scales, we benefits But margin some but business that to a us. are given It's

Operator

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

John Lowe

operator. Thanks,

our and of all a CPI as hope for to day. everything our great values always, forward. you to continue all and As have call I acknowledge single for strategies they our for you vision, drive customers our do execute on business joining every We company they and Thank and want our employees this day our thank afternoon.

Operator

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

You may now disconnect.

CPI Card (PMTS) 5 Aug 242024 Q2 Earnings call transcript