• Net Sales Growth: Increased 18% in the third quarter.
• Product Sales Growth: Debit and credit cards sales grew 25%.
• Prepaid Business Growth: Delivered 13% growth in the quarter.
• Gross Margin: Increased by 170 basis points compared to the prior year.
• Adjusted EBITA Growth: Increased 18% to $25.1 million.
• Net Income: Declined 66% due to debt refinancing costs.
• Free Cash Flow: Generated $12.5 million for the first 9 months.
• Net Leverage Ratio: 3.2 times at quarter end.
• Segment Sales Growth: Debit and Credit segment increased 19%, Prepaid segment increased 13%.
• Year-to-Date Net Sales Growth: Increased 4% for the first 9 months.
• Year-to-Date Adjusted EBITA: Increased 1% to $70 million.
• Capital Expenditures: $4.2 million invested in the first 9 months.
• Debt Refinancing: Issued $285 million senior secured notes due 2029.
• Share Repurchase: Approximately $9 million repurchased since inception.
• Updated 2024 Outlook: Increased net sales range to mid to high single-digit growth.

• Warning! GuruFocus has detected 8 Warning Signs with FBRT.

Release Date: November 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• CPI Card Group Inc (NASDAQ:PMTS) reported nearly 20% growth in both net sales and adjusted EBITA, marking the second largest sales quarter in the company's history.
• The company saw a 25% increase in product sales, primarily driven by strong sales of eco-focused contactless cards.
• Gross margins improved by 170 basis points compared to the prior year, reflecting enhanced profitability.
• CPI Card Group Inc (NASDAQ:PMTS) successfully issued new senior notes, extending maturities to 2029, which supports financial stability.
• The company increased its full-year outlook for 2024, raising expectations for net sales, adjusted EBITA, and free cash flow due to portfolio strength.

Negative Points

• Net income declined by 66% in the quarter due to debt refinancing costs, impacting overall profitability.
• Channel inventory levels remain elevated, which could pose challenges despite improvements.
• Increased performance-based employee incentive compensation expenses affected adjusted EBITA margins.
• The company is carrying more contactless chip inventory than normal, which has increased working capital usage.
• The new production facility in Indiana will not be operational until mid-next year, delaying potential capacity benefits.

Q & A Highlights

Q: Is the excess inventory issue completely behind CPI Card Group now? A: John Lowe, President and CEO, stated that while the situation is improving, it is not completely resolved. The market remains strong with cards in circulation growing at a 9% CAGR over the last three years. The company anticipated growth in the second half of the year, and the third quarter reflects this with strong performance across various segments, including eco-focused cards and digital solutions.

Q: How will the integration of the chip and antenna design impact ASPs or gross margins in the long term? A: John Lowe explained that the new "all-in-one" chip design, which integrates the antenna within the chip, offers more design flexibility and reduces the carbon footprint. However, it is still in the early stages, and it will take years to ramp up. The financial impact is not yet clear, but CPI Card Group is excited to be an early adopter.

Q: Can you discuss the momentum in the push provisioning service and the MEA partnership? A: John Lowe noted that while the financial impact is currently minor, there is strong interest in push provisioning. The partnership with MEA allows CPI to work with their 300 financial institutions, and there is a pipeline of interest. The company has been in the card-at-once business for over 10 years, which is a high-margin business, similar to their broader digital solutions.

Q: What drove the strong performance in the prepaid segment this quarter? A: John Lowe attributed the 13% year-over-year growth in the prepaid segment to increased demand for fraud protection solutions and expansion into new areas like healthcare. The team in Minnesota has been instrumental in driving this growth by innovating with partners to enhance fraud protection in their packaging solutions.

Q: How does CPI Card Group view the seasonality of its Debit and Credit versus Prepaid Debit segments for the fourth quarter? A: John Lowe mentioned that the company does not experience significant seasonality in these segments. Both businesses are expected to continue their positive momentum into the fourth quarter, with no significant seasonal fluctuations anticipated.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.