• Net Sales Increase: 22% increase in Q4, driven by prepaid (59% increase) and debit/credit segments (12% increase).
• Prepaid Segment Growth: 26% growth for the year, exceeding $100 million in net sales.
• Debit and Credit Segment Growth: 4% increase for the year, with strong growth in eco-focused contactless cards.
• Free Cash Flow: Exceeded $34 million for the full year.
• Stock Repurchase: $9 million of stock repurchased at an average price of over $18.
• Debt Refinancing: Issued $285 million of new senior notes, extending debt maturity to 2029.
• Net Income Increase: More than doubled in Q4.
• Adjusted EBITDA: Increased 10% in Q4 to $21.9 million; full year increase of 3% to $91.9 million.
• Gross Margin: Decreased slightly in Q4 from 34.4% to 34.1%; full year increased from 35.0% to 35.6%.
• Net Leverage Ratio: Reduced to 3.0 times from 3.1 times at the end of 2023.
• 2025 Outlook: Mid to high single-digit net sales and adjusted EBITDA growth expected.

• Warning! GuruFocus has detected 3 Warning Sign with BSE:TLV.

Release Date: March 04, 2025

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 a 22% increase in net sales for the fourth quarter, driven by strong performance in both prepaid and debit/credit segments.
• The prepaid business grew by 26% for the year, exceeding $100 million in net sales, with significant contributions from healthcare payment solutions and eco-friendly card offerings.
• The company generated strong free cash flow, exceeding $34 million for the full year, despite higher capital spending.
• CPI Card Group Inc (NASDAQ:PMTS) successfully refinanced its debt, extending maturity to 2029, and reduced its majority shareholder's holdings, increasing public float.
• The company projects mid to high single-digit net sales growth for 2025, led by the debit and credit segment, and expects to reduce net leverage by year-end.

Negative Points

• Gross margins decreased slightly from 34.4% to 34.1% in the fourth quarter due to negative product mix.
• Net income for the full year decreased by 19% to $19.5 million, primarily due to debt refinancing costs and increased SG&A expenses.
• Adjusted EBITDA margins declined from 20.1% to 19.1% for the full year, impacted by increased employee performance-based incentive compensation expenses.
• The company anticipates adjusted EBITDA to be slightly down in the first quarter of 2025 due to timing of spending and mix.
• Free cash flow for 2025 is expected to be slightly below 2024 levels due to increased cash interest expenses and higher capital spending.

Q & A Highlights

Q: Could you provide more details on the strong prepaid results, particularly regarding gross margins and the performance of specific verticals like healthcare payments and eco-friendly cards? A: John Lowe, President and CEO, explained that the prepaid team excelled in 2024, with significant progress in higher-value packaging due to fraud protection. The healthcare vertical has been a strong adjacency, contributing to the growth, especially in Q4. Eco-friendly initiatives have also been significant, with a focus on FSC-certified products. Jeff Hochstadt, CFO, added that gross margins increased by 60 basis points due to operating leverage, although some lower-margin sales affected the mix.

Q: Can you provide more insight into the inventory clearance and expectations for the second half of 2025? A: Jeff Hochstadt, CFO, noted that the inventory balance is influenced by a long-term chip purchasing agreement. While inventory might increase slightly in 2025, it is expected to decrease by year-end, similar to 2024, due to the timing of committed purchases.

Q: What are the company's plans and expectations for entering the prepaid closed-loop market? A: John Lowe, President and CEO, stated that the closed-loop market is significantly larger than the open-loop market and presents a long-term opportunity. Investments are being made to expand into this market, with capabilities expected to be operational by late 2025. The company is well-positioned due to existing relationships with open-loop customers who also operate in the closed-loop space.

Q: Could you update us on the Indiana facility and related capital expenditures? A: Jeff Hochstadt, CFO, confirmed that the Indiana facility is on track to be operational in the second half of 2025. Capital expenditures related to this facility and the closed-loop market expansion are expected to be higher, contributing to a higher CapEx range in 2025.

Q: Can you elaborate on the healthcare market's contribution to the prepaid segment and its margin impact? A: John Lowe, President and CEO, highlighted that the healthcare vertical, including FSA and HSA cards, is a growing and recurring market. While specific margins were not disclosed, the prepaid business, including healthcare, maintains strong margins due to its value proposition.

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