GPGI, Inc. (GPGI Q1 FY2024 earnings call

• Continued growth in domestic business with a record quarterly net sales.
• Launch of new high-profile card programs like Robinhood Gold Card and Delta Reserve card.
• Positive outlook from card issuers regarding consumer and payment card marketing spend.
• Arculus platform showing positive momentum with continued net investment expected to be lower than 2023 and turning positive for fiscal 2025.
• Declaration of a special cash dividend of $0.30 per share for Class A shareholders and corresponding distribution to Class B unitholders, reflecting confidence in cash flow generation and commitment to rewarding shareholders.
• Reiteration of full-year guidance for net sales between $408 million and $428 million and adjusted EBITDA between $147 million and $157 million.

Net sales in the first quarter of 2024 increased 9% to a record $104 million. Domestic net sales were strong at $93 million, up 26% year-over-year, while international net sales were $11 million, down from $22 million in the comparable period last year. Gross margin for the quarter was 53% compared to 56% in the prior year. Adjusted EBITDA in Q1 increased 6% to $37.8 million. Domestic business contributed significantly to the sales growth, with international business being more variable due to customer mix and a smaller sales base, expected to account for roughly 20% of annual total net sales mix.

• Reiterated full-year guidance with net sales expected to range between $408 million and $428 million.
• Adjusted EBITDA expected to range between $147 million and $157 million.
• Confidence in achieving these ranges as the business executes on growth and profitability objectives.

• Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations.
• Factors affecting actual results include those discussed in the annual report on Form 10-K and other SEC filings, which could impact financial performance.

Q: Congrats on the quarter. One, the domestic growth kind of surprised you, was there -- when we think about this quarter versus the rest of the year, I guess just trying to understand, can we expect kind of more growth there again? And to almost frame it differently, international bounces back, do you beat the guide that you're issuing? Second, any color on the multifactor authentication outside of the Arculus wallet or crypto?

A: In terms of the domestic business, domestic growth was strong and they feel good about it, with international expected to account for roughly 20% of sales over time and some timing issues with international business. With respect to the second question on Arculus authenticate, there is momentum with the authentication solution as well as the cold storage solution and continuing to manage investments on that side.

Q: A couple of questions. First of all, just a follow-up on the international front. Is there -- is it the case that some of your customers there seeing what's going on in the macro environment are simply deferring or delaying the launch of different programs such that they could be coming online in the second half, hence, your confidence in approaching the 20% of total sales from international?

A: Thanks for the question, yes, somewhat. They think they have good visibility with opportunities and know that helps give the view on the rest of the year, with international expected to be approximately 20% and some years having different percentages but normalizing over time.

Q: A couple of questions. First on the Robinhood Card program. I was hoping if you could provide any color on the details there. And ultimately, if you see this as an opportunity to maybe leverage Arculus products as well on the cold storage front?

A: On the broader program, they made a big splash with the gold card launch. With regard to the second, he's not going to comment specifically on Robinhood but can presume they are talking to all customers and prospects about both card capabilities and authentication solutions or cold storage where appropriate.

Q: Congrats on the quarter. I had a question kind of housekeeping. But I was curious for a deal like Robinhood, I would imagine it was [inked] a while ago. Thinking about the revenues, I'm curious if there was anything -- I guess, is it episodic like the launch of programs like that and were revenues recognized both in the fourth quarter of last year and maybe the first quarter of this year. Maybe talk a little bit about how those reads, I guess, for the initial shipment kind of flow through? And secondarily to that, I know you guys mentioned a couple of pretty exotic card forms. I think you mentioned like the gold that's actually in the Robinhood card and in the Delta card that was made from recycled airplanes. And I also noticed that the gross margins were a little lower this quarter. Is there any relationship between those two factors or appreciable difference in like how the margins on some of the more exotic cards compared to your, I guess, I'd say, classic metal cards?

A: On the gross margin, they believe gross margins should be north of 50% and 53% is in line with expectations. The decrease is due to inflationary pressures on wages and product mix when launching new card constructs. With respect to Robinhood, generally, when ramping up a program, there are different ways revenues can be recognized, and they're excited about the program but not going to comment specifically on how revenues are recognized for Robinhood.

Q: Congrats on the quarter. I've known you long and if I know you never [site to] raise guidance after the first quarter, so I'm not going to ask you about that. But I guess thinking about where results came in first quarter versus your expectations any -- maybe in the pipeline, maybe you could talk a little bit about how both of those are today relative to what you were thinking when we spoke 2 months ago?

A: They are right where they wanted to be and expected to be with the business, right on track with the guidance ranges issued, and pleased with the start they're off to.