PMTS - Earnings call transcript Q4 2024

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Operator

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

Michael Salop

Thanks, operator. Welcome to the CPI Card Group Fourth Quarter 2024 Earnings Webcast and Conference Call. X, March is date XXXX. Today's call And are Hochstadt, CPI Group from Lowe, on Chief President Officer. Jeff the John and and Card Officer; today Chief Financial Executive

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

For of CPI risks SEC. uncertainties, Card and Group's the a with such discussion please most see recent filings

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

a our results Jeff will open Slide more period, on our will December rates unless the year agenda strategies, performance ended website. for Form of XX, will financial with the call, addition, outlook, In on Investor today's XX-K business The comparisons noted. overview X. we brief call the the questions. refer on then growth for call John year XXXX Relations for be XXXX, CPI's provide detail On otherwise today's to prior will available our and CPI's and give is and

turn I'll John. Slide can X, We the and to call on start over

John Lowe

Thanks, we good to everyone. we morning, I are are and the highlight. Overall, in what pleased PEO. accomplished areas and There with results like important Mike, XXXX would fourth quarter several

advanced diversification. on First, intensifying customers also to includes verticals. providing on we expand efforts while and by delivering focus innovation our increasing and adjacent to our our solutions offerings refined emphasis customer This existing our and new customer markets existing strategy, maintaining and for new base quality into

the the $XXX We also of enhanced And card channel challenges million returning exceeding we stage our and business in year net good despite and to in sales. for delivered XX% growing growth. results, credit debit growth inventory requirements

was growth payment for adjacencies, our This driven expansion of vertical. X our healthcare by on strong packaging and prevention solutions of demand focused solutions fraud the

increased for contactless sales led debit the eco-focused Our second and X% business of strong year the by half in growth credit with cards.

more other plastic solutions to offerings addition and than space. focused our these $XXX certification in eco prepaid In card in our XXXX. ocean-bound debit In friendly packaging debit or and more contributing in prepaid more million Focus we card long, have than environmentally and total, to credit, million since Eco XXX paid sold credit recovered offerings the of

continue during we share the market year. our win we believe portfolio gained Overall, in XXXX business and to across

just actions its to our we believe extended over for the float secondary positioning. XXXX. new million that enhance completed We while which capital holdings public completed free during price We $XX And of market as of of cash strong common also view year flow, of offering million generated and shares brought stock our exceeding which at our key on in to our we an our maturities refinanced from issuing spending We increased the including several new $XX, shareholders. senior investment XX% strong share we $X shareholders. stock million investments. debt of increasing reduced a our a outstanding, purchased behalf debt, full average that our structure we million for And of year XX% $XXX notes majority X.X shareholder, capital

XXXX the single-digit currently led continue We is and to project it's year. inventory the We still Turning debit levels, normalize to to credit we which mid- outlook. net the our historical growth sales situation gain high market our above goal but improved, share. during much market business, believe to to reflects and our by expect to the channel for year, continue

for innovation which growth We well future, to diversification EBITDA adjusted our increased including in investments the for as strategies. XXXX reflects and expect of mid- digits high single

cash also We the provide by free a on in year-end. you results outlook more and net leverage reduce and will minutes. detail expect flow to generate few strong Jeff

But first, let X. our highlight on strategy Slide me

managing main Our X technology vision the customer that providing customer support focus, and our focus We we vision is trusted culture. efficiency, to diversification most be by for high-quality innovative partner strategic In to innovation aim and payments payment on solutions business, best-in-class solutions. and and pillars: service. people market-leading

by relative to customers continue and customer to existing better. The get by our we peers Scores, new have innovation and to expand our solutions addressable to existing on markets where offering our verticals. Net new consistently pillar to customer and is evidenced Promoter focus efforts diversification Our the solutions includes ranked high

our billion, approximately significant payment growth areas prepaid businesses progress new including strategies, from to increased market XXXX. in opportunity made $X.X contributed is addressable there market billion addressable our our more to in health which advancing come. traditional solutions, already increasing strong have we $X these and core The of expansion to related offerings to total have care our We

the packaging of many early or prepaid where support higher combat closed loop the investment in moves stages value U.S., are the market the are proactive in to solutions penetration to regulation shifting to We customers due of fraud. to security

app providers to broader the to services with market. and banking available advance mobile we more platforms, push continue as our provisioning more integrations mobile as with And such underway we for implementations to digitals, additional continue and our make wallets

While believe us allow time take in gain generally to opportunities strengths, future. our into further turn to expand meaningful market will adoption these and revenue, they the new and total addressable leverage existing solutions we

We growth payment in U.S. also issuance to confident card in the markets continues long-term traditional the as of grow remain our

XXXX solutions other advantage up term balance good XXXX We market various progress in year opportunities profitability make our of to near Indiana investments with growth. on long-term to also be we through our expect loop Overall, in these factory strong and a closed generating to plan investment we accelerating we are initiatives, our take strong the includes digital expansion initiatives. in stepping both and capabilities This prepaid for CapEx developing OpEx. as among and

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

Jeffrey Hochstadt

good volumes we services. XX% for as higher cash in more performance year card Free everyone. and by credit on well my generated strong Thanks, than capital sales flow than growth from morning, overview John, very increased the X. $XX personalization Adjusted I begin as Net great and Slide million increased prepaid XX% more will as debit and quarter, led EBITDA was fourth net income in doubled. and the spending. despite

segment increase margins fraud driven as including focused gross customer by increased card as fourth results growth was for from well the was on in overall contactless by while payment strong debit increase credit reflected decreased in in prior strong solutions Turning quarter, eco-focused by year higher-priced solutions. leverage and care prepaid cards. and to negative operating growth our offset mix. incremental Debit profit our quarter XX.X% growth Slide in credit continued product demand some a XX.X% sales to was our packaging the verticals, detailed health XX% led a quarter and XX% XX% The from with segment. Gross as XX% from increase growth the X. Prepaid nonfinancial

growth, higher to related XX.X% tax EBITDA benefits SG&A, from rate including to expenses, increased from The retention year. offset Adjusted depreciation XX.X%. compensation lower the employee to Net rate statute expense $XX.X quarter CEO million, agreement by to and of declined expiration. the to impact year tax increased effective the previous adjusted compensation partially sales reflected a related year. due expense, retention prior in primarily amortization, the the by of in XXX% $X.X XX% performance-based income in of increased expense prior margins incentive XX.X% EBITDA and the limitation CEO prior while increased the including a driven million

Prepaid to our which sales credit year, results X. now expectations. Net reflected XX% exceptional of Slide our XX% just eco was credit. prepaid chip growth represented in original by services. personalization The XX% well an segment Turning instant year cards strong the and year, the up delivered the full for and overall from increase approximately contactless on debit from and segment Card@Once increased debit full by in from and X% and above XXXX, growth contactless Card volume led card was growth year. from cards, issuance prior contactless focused performance driven in over X% our

year recorded compensation $X.X the increased to to a Full $X prior XXXX increased notes million as expense premium to in in debt prior medical challenging paid the due million SG&A compensation employee realized extinguishment, sales increased third loss $XX.X increased million compensation gross rate quarter. year, operating as range margin deductibility year to benefits in driven statute driven increased Other increased rate XX.X% the mid- the The of XX.X% performance-based profit from growth. and limitations high XX.X%, from the as by XX% in executive gross a leverage was quarter. to a the from year by tax incentive we the prior people year. deductibility moving declined stock the to forward. senior expiration third as in of the increased which year, also following expense full year be to well in XXXX, Interest due on XXXX million versus growth Expect $X.X the XX% reflects on XX% to due redeem related investments costs. primarily our and in call for in returned rate

performance-based gross the income effective Net in year from sales EBITDA Adjusted of growth, due partially margin $XX.X refinancing lower to by margin debt increased declined with increased the million incurred a expense. million XX.X% for employee increased $XX.X primarily XX.X%, rate. X% reduction adjusted compensation costs incentive XX% to $X tax and EBITDA expansion and offset due SG&A, primarily pretax million to to full to the and XXXX decreased

and increased product sales expansion from in mix impact the the and from XXX% operations expenses. of debit compensation-related by earlier, debit increased for XX. profitability discussed X% Slide on decreased segments fourth and I Income from segment will our quarter, operations for negative to credit on to drivers this margin the sales year, the for quarter growth slide. I Prepaid the primarily segment operating in driven so year and by XX% due the segment now Turning segment X% primarily highlight income driven the leverage.

flow higher timing, partially $X cash million. offset million note XXXX. Turning improved driven primarily debt and the XX. flow of The We working which from operating XXXX $XX resulted were $X.X senior invested capital cash in including $XX.X increase refinance expenditures, and balance free excluding of and million activities to interest This cash generated in payments cash sheet, of by spending. costs increased and liquidity due $XX.X $XX.X on a income million lower flow the of in capital in cash free million operating generation flow in XXXX million refinancing by to net compares capital, Slide in to

of the senior no borrowings our ABL had cash, of notes we at year-end, sheet, million and $XX.X revolver On on outstanding. million $XXX balance

was ratio cash year-end share from of X.Xx, for debt outflows X.Xx Our leverage the and refinancing. net the despite the year repurchase during down level XXXX

structure XXXX, funds acquisitions, our expired strategic returning our possible the to business, at capital and $X balance deleveraging common and investing and In stock million Our authorization we the allocation on focused remain bought approximately in back including year-end. stockholders. priorities sheet of

U.S. have latest Before on Mastercard and Visa trends from cards and circulation outlook, our on Slide we we to move XXXX provided XX. the

in ending For in XX, U.S. CAGR. the the X years X% increased cards September circulation a at

the growth as both of credit large report X% total purpose cards This the and remaining data the year, at in of driven issuance stood than XXXX. prepaid as The in well. predominant trends which XXXX. indicated the in cards X.X% number for continues card In cardholders Nielsen cards cards credit show positive addition, indicated credit healthy growth U.S. general card for reports X dynamic. of cardholder, in-person in the February form cards. the holder the as outlooks account including further to number increased of per in supporting increase payment was a U.S., increase in in the transactions well reported number number total from The by have of growth general-purpose also earnings Nielsen the debit the latest bank issuers a cards more per and business X% and

to Turning XXXX our outlook Slide XX. now on

good We XXXX. year a expect in

cards down, to Although market expect worked channel still than debit we being and better are inventories of year, credit normalize. and positions to last the are continue

projects mid- by segment. led high XXXX, growth for and outlook sales Our credit to single-digit our net debit

not planning inroads closed do growth reached some in expect are our the become We capabilities our segment prepaid but as off late levels the we in XXXX, year significant the into loop coming from to make market record operational.

strongest expect year. digits growth. also in a the We areas drive and to Indiana in adjusted as sales to be growth single expect we we the ramp investments EBITDA other digital, net to up perspective, be of half EBITDA growth our long-term adjusted factory mid- second high quarterly to and From

currently we spending For and quarter, adjusted the be to to down anticipate but timing of first mix. EBITDA increase slightly due to sales expect

full our increased higher expect to driven the XXXX flow be and the increased year timing rates spending. last due slightly cash by interest capital refinancing cash level We XXXX expense, free year and of below our to

machinery XXXX XXXX million by expect does other The our of sales production and XXXX, expense amortization in impact $X sales-related depreciation and our P&L increase and to Indiana also for we cost this in EBITDA. will increased CapEx and in and other not impact approximately D&A facility

reduce strong below year-end our by generation. ratio to by X.Xx growth expect flow leverage we Finally, net adjusted to EBITDA in and cash driven

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

John Lowe

Thanks, summarize, progress made and good finished Jeff. in the generated results year lot To a strategic of XXXX, strong. we

was business prepaid outstanding. Our

the and challenges credit Our debit and cash future. strong business we grew for while free despite generated investing flow

which significant benefit future company should completed in activities, also and years. We our capital shareholders

growth. share markets We execute and gain addressable in and look are our expand progress. to our reporting year our long-term forward to we'll projecting a We to continue strategies XXXX, good and drive

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

Operator

question ROTH comes [Operator Instructions] first Partners. Scutt Our Capital from from Andrew

Andrew Scutt

But the first here, I'm couple -- of going prepaid were X a results the one. into So trying to to very strong. questions

bit kind you also dig of which some in gross cards. Could as more the those of And you detail sales the on kind eco also into health chunky. care some well touched give payments guys and You including, some little margins, you on a there. that as are think very around touched were of then well of said prepaid, verticals friendly your performing I drivers kind

So any would there be great. details

John Lowe

in I'll let our seen a So prepaid yes, our due your space our with me part innovation protection off happy we're of team the in terms in up pass cover But -- We've of great that lot about it I'll progress performance. Jeff. packaging team to did the working X questions, that really fraud Minnesota and of And of and job. prepaid then us to and customers. higher-value a benefited XXXX in

adjacency really a for part vertical in In progress nearly in QX, especially couple been ago years that's that and of us. verticals, saw has health believe, That's XXXX. our great was definitely reason care terms for of XX%. growth started the a a been prepaid, of the up I We

kudos to So team. the

into of In taken been certified moving what most along that. under that rest certification some really in from eco, a time, actually shape perspective prepaid doing produce company, became we've eco our XXXX. point in or paper FSC has of in position way, And a with We the since form. we focused

eco-focus card Happy in they've to as our well. along significantly manufacturing we side. so And about with what production contributed our that do

the gross me side. cover let But margin let Jeff

Jeffrey Hochstadt

year, points. margin margins gross right, You're by the to the basis able we were XX increase gross for in

time. QX more We about some and in as particularly perspective. how QX, to continue kind just generate operating good business model time operating that feel but sales reinvest think to we much in There in about we and were you gross strong in time from had a from operating much to this credit, but obviously growth we I issues. little leverage debit to a time future, of balancing, how So in In are leverage prepaid grow, really QX continuing mix an margins to prepaid lower strong operating segment. had talked our we EBITDA the in that leverage. sales, of that back be bit the able In more to from margin happens gain and it's couple unusual, that's about leading

Andrew Scutt

Second X me. from

like gave some there. inventory should guys 'XX we second You half see the really clearance. details some It sounds progress around of

You guys looked great. you around remarks did it be prepared the additional liquidate, any from color -- provided $XX million would just you Can inventory. in what like in

Jeffrey Hochstadt

balance, if talking inventory to you the what I our on Yes, you're balance look sheet. think that's at

You goes we purchasing this have did through It commitment the that of see XXXX. chips. longer-term of beginning agreement,

like the inventory has up really might to in of down. but a to it purchasing. of that inventory We the balance -- XXXX, timing bring by throughout do -- happened go what it what saw we balance able the do year, with similar end So the XXXX, feel that -- be you little balance should bit, might to

So it's timing committed the about really purchases. of

Operator

next Our D.A. Heckmann comes Peter from Davidson. from

Peter Heckmann

a But that a where those you're yes, of you assume could already you the a need -- Could the talk more about do And closed-loop marketing little on that size side. in loop if about market. bit I talked be? what to a open prepaid we way? closed lot big penetrate company customers of about efforts might you the and about would and little entering that And a how as working to start? it kind just significant mean of bit with you talk loop I more

John Lowe

larger open following just for closed as reminder those us. side it is the than loop. is And loop a The Yes. -- definitely

gift number Starbucks, loop a can cards. to for lower our packaging you predominantly see Starbucks. bread open years. need walk It's been you closed butter into value. the environment, X in opportunity only that and are of is size believe us. been you of is to than market that protection, the in Starbucks get open for a a Xx That's when loop greater we you change which for longer-term But historically has will, We loop a get if secure in bleeding into the Closed what opportunity. the good given in as fraud regulatory actually it's a given well, It's side loop market, card

your loop relationships on selling that customers loop closed have And the open into Pete, point, we to also are our side.

benefits So that us well. as

are closed-loop into to we So making move investments expansion.

We U.S. on have been the us doing market. those and And small capitalize to positioned impact we But to expect because gift that, But 'XX. is secure small punchline in perspective great is the closed expand from for a would closed market very loop XXXX. loop give us, scale. are capabilities leader won't capacity the some market necessarily well and in arrive on of until on feel late we're investments like the we the the a a a We in packaging card and closed-loop

Peter Heckmann

then That's And to to an update to good hear. That's facility go later just year? good this Okay. Indiana hear. on in here online the

John Lowe

our -- track. The Yes. is Indiana on facility

add that? and would 'XX. the expect running be But to to second half you We of up in any color Jeff,

Jeffrey Hochstadt

No. Yes.

and looking some to excited getting talked the some past, I of some automation, new about efficiencies. gain in the some think online. able putting being to we're production new about equipment, facility forward really buying it the we're we're facility We've the through

be There we're of half year. we on should significant excited. hiccups, like and the So John second schedule. no now, it's pretty quite Right said, much operational, are

Peter Heckmann

Okay. Great.

that related think? be CapEx you do would that, the likely to any half, in So first

Jeffrey Hochstadt

with just there this Yes. some closed year, mean, And the opportunity more some will CapEx more some will about CapEx equipment be that yes, specialized there more opportunity. -- loop John associated Indiana. some was have will to talking closed-loop we capacity, to be there be will right, the I buy you're

a you little in a has the at last been to from of just feel million look lumpy, year CapEx, if $X So million we our $XX anywhere few do year. terms years, bit a -- like CapEx

closer If XXXX X back equipment terms in years, the X some of you be X because to and mainly CapEx areas of well. that the these these of last end we're of we'll because purchasing go higher as other just probably in --

Peter Heckmann

down the level Okay. Great. you flow bit had to free release would of XXXX, cash close correct? little the be I in a just that or said And expect press think to maybe you

Jeffrey Hochstadt

In paid, have to interest had not XXXX, only we we you just But refi. XXXX, relative mentioned. will, CapEx the do actually do. Yes, just higher a that on based if we we cash

So XXXX. offsets that of we'll more interest an a months a relative in cash the kind also normal expense But to has XXXX profitability in on back basis. higher of go XX impact. That

Operator

[Operator Jacob Street. Instructions] Our from next question Stephan comes from Lake

Jacob Stephan

you're to I QX. when into quarter. health to color, that some I the a the bit. you programs, I health donor care verticals gave Obviously, prepaid think strength growth on little of Congrats care? But care, incentives, off, co-pay Maybe wanted just the what good in start within XX% the within market delve health are kind kind seeing of of think

John Lowe

Other clear. all a But it's card and around receiving to make ours. just been contributor card prepaid has that marketing about when it. of the strong mail, HSA FSA in health materials got an the Think the you're business

in reason do to throughout year, they that the something year. accuracy another variability, payment them. benefits volume, the the that high in for high And market of need people what in companies to where You've frame sense that's or card got broader to U.S. their high a late then replacement cards, new time lose

been So you look go that's haven't historically. if a vertical in, us that at back and we

the with the it do once we much addition, that economy. into us. and very And in entered it's well. a for market couple good a growing get you last It's in of broader in And it's So years. market a you

since ]. we you types issuance annually high these again, occur and excel, in have quasi-prepaid of [ cycles of high That's are or, variability where be accurate. to set and lot volume, that cards a So they highly

Jacob Stephan

to given bit really And or of maybe packaging care the of and of a margin ]? credit prepaid of [ higher that the of the secured kind margins little health business. helpful. on slightly just kind That's deeper Understood. similar kind and impact nature kind Are relatively dig estimization to it. Got debit

John Lowe

health vertical Margins if to to specifically pricing, the into. margins Yes. well based know what customers. I commented it's care proposition we've general, mean, you're as move in on I but it's your as good don't upon a value of providing for all

Our business But to and our number differentiated value the proposition strong broadly margins prepaid margin. goal provide is that and to provide solutions our innovative, have hold there. the strong does across a because of business. customers of It years, that's has we for

Operator

will question Goetsch last Our come B. Harold from from Riley.

Harold Goetsch

For the segment the I outlook. to ask and QX. about prepaid quarter in wanted

I what's to volume higher commentary trade-off value-added just curious You this, and understand XX%? The it. just like customers might value-added XX% that package packaging the have that to revenue to between the of pricing? had price implies and existing higher the you in covered I was has make kind And of up to sales sure get want higher

John Lowe

Yes.

say driven, clarify, just how care we was more was health volume I'd XX% value the A to Just versus lot driven. value units. full Yes, break of customers. out don't other business higher volume That's our solutions is incremental value, year. with for necessarily the the

Harold Goetsch

packaging, that? inventory security the you more largely completely the things channel pricing and is -- point and Okay. some Or in installed the is And the there mentioned still maybe better for in secure the you'll how at were lap many in the a base shift is that more complete? you've where early that in -- that is like higher retail all

John Lowe

retail protect actions the frauds. There today. been to replacements it's good did And Yes, said, there we've transition pockets there comment fair market the fueled to where what's pockets necessarily That that, out we were question. we [ as market are of that XXXX, against higher haven't even a we ]. doing prepaid moving entire in were packaging a value in also on

quantified. term, market XXXX. But are So that higher-value point the which at a to Prepaid we occurred had necessarily against that is flat market will, prepaid for market continues that's most packaging well the But sturdiness to if great protect to little the year look In 'XX, how of that, be it's entire further. we of 'XX. bit much in you will it longer haven't we say you saw fraud. expect positioned move part, a you my penetration in transition from broadly, onetime, to because But if and hard the probably if of to relatively

Operator

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

John Lowe

great want forward. Thanks, our do and for ] strategies execute all morning, and CPOEs on to business our I day. a of thank [ to and vision, again values drive they operator. acknowledge day our for everything have and Thank customers we company you our our continue as they this every and hope you

Operator

Thank conference This call. for you participation. your concludes today's

disconnect. now You may

CPI Card (PMTS) 4 Mar 252024 Q4 Earnings call transcript