CPI Card Group Inc. ((PMTS)) has held its Q4 earnings call. Read on for the main highlights of the call.
The latest earnings call from CPI Card Group Inc. conveyed an overall positive sentiment, marked by significant growth in the prepaid segment and strong sales growth. The company successfully refinanced its debt and reported robust free cash flow. However, challenges such as declining EBITDA margins, higher SG&A and interest expenses, and ongoing channel inventory issues were also highlighted.
Exceptional Prepaid Business Performance
The prepaid business segment of CPI Card Group Inc. demonstrated remarkable performance, growing by 26% for the year and surpassing $100 million in net sales. This growth was primarily driven by a strong demand for fraud-prevention solutions and expansion into the healthcare payment solutions vertical.
Strong Sales Growth
CPI Card Group reported a 22% increase in net sales during the fourth quarter. The prepaid segment saw a 59% increase, while the debit and credit segment rose by 12%. Overall, net sales increased by 8% for the full year, showcasing the company’s strong market presence.
Successful Debt Refinancing and Share Repurchase
The company successfully refinanced its debt by issuing $285 million of new senior notes, extending maturities to 2029. Additionally, CPI Card Group repurchased $9 million of stock at an average price of over $18, reflecting confidence in its market position.
Strong Free Cash Flow
Despite higher capital spending, CPI Card Group generated over $34 million in free cash flow for the full year, underscoring its financial strength and operational efficiency.
Eco-Focused Product Success
CPI Card Group’s eco-focused credit, debit, and prepaid cards have been a success, with sales exceeding 350 million units since launch. The prepaid segment alone contributed over 200 million units, highlighting the company’s commitment to sustainable solutions.
Decline in Adjusted EBITDA Margin
The adjusted EBITDA margin declined from 20.1% to 19.1% for the full year. This decline was primarily attributed to increased employee performance-based incentive compensation expenses.
Challenges with Channel Inventory
The company faces challenges with channel inventory levels for credit and debit cards, which remain above historical levels, potentially impacting growth potential.
Higher SG&A Expenses
SG&A expenses increased by $14.5 million due to higher employee performance-based incentive compensation, investments in personnel, and rising medical costs.
Higher Interest and Debt Refinancing Costs
Interest expenses rose by $7.2 million, and the company incurred $8.8 million in pretax debt refinancing costs, reflecting the financial implications of its recent refinancing activities.
Forward-Looking Guidance
For fiscal year 2025, CPI Card Group projects mid to high single-digit net sales growth, primarily driven by their debit and credit business. The company expects adjusted EBITDA growth in similar mid to high single digits, supported by increased investments in innovation and diversification strategies. It anticipates strong free cash flow and aims to reduce its net leverage ratio below 3.0 times by year-end. The company also plans to further penetrate the closed-loop prepaid market in the US.
In summary, CPI Card Group Inc.’s earnings call highlighted a positive outlook with strong growth in the prepaid segment and successful financial maneuvers. While there are challenges such as declining EBITDA margins and higher expenses, the company’s strategic initiatives and forward-looking guidance indicate a promising future.