CORRECTING and REPLACING CPI Card Group Inc. Reports Third Quarter 2024 Results
Net Sales Increased 18% to $125 Million and Full Year Sales Outlook Increased
Growth Across Portfolio, Led by Strong Sales of Debit and Credit Cards
Net Income Decreased 66% to $1 Million, Impacted by Debt Refinancing Costs; Adjusted EBITDA Increased 18% to $25 Million
Full Year Adjusted EBITDA and Free Cash Flow Outlooks Increased
LITTLETON, Colo.--(BUSINESS WIRE)--November 05, 2024--
In the Conference Call and Webcast section, the first sentence should read: CPI Card Group Inc. will hold a conference call on November 5, 2024 at 9:00 a.m. Eastern Time $(ET)$ to review its third quarter results (Instead of CPI Card Group Inc. will hold a conference call on November 5, 2024 at 4:30 p.m. Eastern Time (ET) to review its third quarter results.).
The updated release reads:
CPI CARD GROUP INC. REPORTS THIRD QUARTER 2024 RESULTS
Net Sales Increased 18% to $125 Million and Full Year Sales Outlook Increased
Growth Across Portfolio, Led by Strong Sales of Debit and Credit Cards
Net Income Decreased 66% to $1 Million, Impacted by Debt Refinancing Costs; Adjusted EBITDA Increased 18% to $25 Million
Full Year Adjusted EBITDA and Free Cash Flow Outlooks Increased
CPI Card Group Inc. (Nasdaq: PMTS) ("CPI" or the "Company"), a payments technology company providing a comprehensive range of payment card and digital solutions, including Software-as-a-Service-based instant issuance, today reported financial results for the third quarter ended September 30, 2024 and updated its financial outlook for 2024.
Third quarter net sales increased 18% to $124.8 million compared to the prior year period, with strong growth in both the Debit and Credit and Prepaid segments. Net income decreased 66% to $1.3 million, reflecting the impact of $8.8 million of pre-tax debt refinancing costs, and Adjusted EBITDA increased 18% to $25.1 million, driven by net sales growth.
Sales performance in the quarter was driven by strong growth in debit and credit card sales, as well as continued growth from Prepaid, instant issuance solutions and other card personalization services. Product sales increased 25% in the third quarter, led by sales of contactless cards, while services sales increased 10%. For the first nine months of the year total net sales increased 4%.
"We are very pleased to deliver strong growth in the quarter, including 19% growth in our Debit and Credit segment, even as channel inventories continue to be worked down," said John Lowe, President and Chief Executive Officer. "We are maintaining momentum with our solutions across the CPI portfolio and believe we are winning business in the market."
Lowe added, "We are advancing CPI's growth strategies and continue to offer our customers additional products and services as we gain more traction with our digital solutions and in adjacent markets."
The Company updated its financial outlook for 2024, increasing its full-year expectations for net sales to mid-to-high single-digit growth and for Adjusted EBITDA to low single-digit growth. The previous outlook was a mid-single digit net sales increase and a slight increase in Adjusted EBITDA. The Company also increased its Free Cash Flow outlook for the year.
CPI is a top payment solutions provider in the U.S. serving thousands of banks, credit unions and fintechs, as well as major bank platforms and prepaid program managers. The Company is a leader in the U.S. markets for eco-focused payment cards, personalization and Software-as-a-Service-based instant issuance solutions for small and medium U.S. financial institutions and retail prepaid debit card solutions.
The Company believes long-term growth trends for the U.S. card market remain strong, led by consumer card growth, widespread adoption of eco-focused cards and the ongoing conversion to contactless cards. Based on figures released by the networks, Visa and Mastercard$(R)$ U.S. debit and credit cards in circulation increased at a compound annual growth rate of 9% for the three-year period ending June 30, 2024.
2024 Business Highlights
-- CPI continues to be a leading provider of eco-focused payment card
solutions in the U.S. market, with more than 100 million eco-focused
debit and credit cards sold since launch.
-- CPI continues to be a leading provider of Software-as-a-Service-based
instant issuance solutions in the U.S., with more than 16,000
Card@Once(R) installations across more than 2,000 financial institutions.
-- The Company continued to advance its market expansion strategies, adding
new digital solutions offerings for its customers including push
provisioning capabilities for mobile wallets.
-- The Company executed $9 million of share repurchases through the third
quarter of 2024.
-- CPI completed a debt refinancing in the third quarter, issuing $285
million aggregate principal amount of 10.000% Senior Secured Notes due
2029 and entering into a new $75 million ABL revolving credit facility,
while redeeming the $268 million aggregate principal amount of 8.625%
Senior Secured Notes due 2026.
-- The Company completed a secondary offering of 1.38 million shares of
common stock sold by its majority stockholder group, reducing the
stockholder group's ownership position from 56% of shares outstanding to
43%.
Third Quarter 2024 Financial Highlights
Net sales increased 18% year-over-year to $124.8 million in the third quarter of 2024.
-- Debit and Credit segment net sales increased 19% to $99.8 million, driven
by strong contactless card sales led by eco-focused cards, as well as
continued growth in Card@Once(R) instant issuance solutions and other
card personalization services.
-- Prepaid Debit segment net sales increased 13% to $25.2 million,
reflecting strong sales to existing customers.
Third quarter gross profit increased 24% to $44.7 million and gross profit margin of 35.8% increased from 34.1% in the prior year third quarter, driven by operating leverage from sales growth.
Third quarter income from operations increased 37% to $17.8 million, driven by strong sales growth and gross margin improvement. Net income decreased 66% to $1.3 million, or $0.11 diluted earnings per share, due to pre-tax debt refinancing costs of $8.8 million, or approximately $0.55 per share after-tax, including interest expense related to a call premium on the $268 million of 8.625% Senior Notes due 2026 redeemed in the third quarter, partially offset by a tax benefit recorded in the quarter. Adjusted EBITDA increased 18% to $25.1 million.
Year-to-date 2024 Financial Highlights
Net sales increased 4% year-over-year to $355.5 million in the first nine months of 2024.
-- Debit and Credit segment net sales increased 2% to $283.3 million, driven
by increased sales of contactless cards, led by eco-focused cards, and
growth in Card@Once(R) instant issuance solutions and other card
personalization services, partially offset by lower sales of other cards.
-- Prepaid Debit segment net sales increased 16% to $73.2 million,
reflecting strong sales to existing customers.
Year-to-date gross profit increased 7% to $128.6 million and gross profit margin increased from 35.1% in the prior year to 36.2%.
Year-to-date income from operations decreased 8% to $46.9 million due to increased compensation expenses, including CEO transition-related expenses and increased performance-based employee incentive compensation expense. Net income decreased 40% to $12.7 million, or $1.08 diluted earnings per share, primarily due to debt refinancing costs. Adjusted EBITDA increased 1% to $70.0 million.
Balance Sheet, Liquidity and Cash Flow
The Company generated cash from operating activities of $16.7 million in the first nine months of 2024, which compared to $22.3 million in the 2023 period, and Free Cash Flow of $12.5 million, which compared to $16.2 million in the prior year. The decrease in cash generation compared to the prior year was primarily driven by increased working capital usage, including increased inventory purchases of contactless chips, partially offset by lower capital expenditures.
As of September 30, 2024, cash and cash equivalents was $14.7 million. There were $285 million of 10% Senior Secured Notes due 2029 and no borrowings from the ABL revolving credit facility outstanding at quarter-end.
In the third quarter, the Company completed a refinancing of its debt, issuing $285 million of new 10% Senior Secured Notes due 2029 and entering into a new $75 million ABL revolving credit facility. The Company used the proceeds from the notes offering to redeem the remaining $267.9 million principal balance of its 8.625% Senior Secured Notes due 2026 and to pay related fees and expenses. Refinancing costs recorded in the third quarter totaled $8.8 million, including $5.8 million of interest expense related to the 2.156% early redemption premium on the Company's retired 8.625% Senior Notes due 2026 and a $3 million loss on debt extinguishment related to unamortized deferred financing costs in connection with the redemption of the notes and the termination of the prior ABL revolving credit facility.
Also in the third quarter, the Company spent $2.2 million to purchase 120,534 shares of its common stock from its majority stockholder group pursuant to a Stock Repurchase Agreement announced in March, which committed the Company to purchase shares from its majority stockholder group at a 3 to 1 ratio to the number of shares repurchased in the open market in the second quarter.
The Company continues to focus its capital structure and allocation priorities on investing in the business, including strategic acquisitions; deleveraging the balance sheet; and returning funds to stockholders.
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November 05, 2024 08:39 ET (13:39 GMT)
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