CPI Card Group Inc. Q3 FY2025 earnings call

• Strategy execution focused on customer, quality, efficiency, innovation, diversification, and people/culture.
• Progress in expanding addressable markets, with tours of new Indiana production facility, expanding Arroweye solutions, strong growth in Software-as-a-Service instant issuance business, health care payment card expansion, value-based metal card interest, closed-loop prepaid production with shipments expected in Q4, and strategic relationship with Karta for prepaid solutions.
• Indiana facility now fully operational aiding efficiencies, and Arroweye synergies and cost management initiatives underway.

In the Debit and Credit segment, sales increased 16% due to the addition of Arroweye and strong growth in the instant issuance business. However, margin was impacted by an unfavorable sales mix and tariff expenses. The Prepaid segment saw sales decline 7% largely due to timing issues and comparisons to strong prior year sales. Debit and Credit segment contributed significantly to overall sales growth, while Prepaid was negatively affected by order timing and complexity. Revenue contribution details weren't explicitly given in absolute percentage but the impact on each segment's performance was outlined.

• Updated 2025 outlook: net sales to be low double-digit to low teens growth, down from prior low double-digit to mid-teens; adjusted EBITDA flat to low single-digit growth, down from mid- to high single digits due to sales mix margin impacts.
• Outlook reflects existing tariff rates and doesn't account for proposed semiconductor chip tariffs not yet enacted.

• Tariff impacts: Expected tariff charges in range of $4 million to $5 million, with efforts to push back on suppliers. Potential semiconductor tariffs could impact the industry, though providers may be exempt due to U.S. production facilities. Prepaid order timing can be lumpy, affecting revenue recognition.

Q: Provide more details around the impact of tariffs.

A: In Q3, tariffs were around $1.6 million, with expectation of $4 million to $5 million for the year, with efforts to push back on suppliers to reduce impact.

Q: Details on prepaid segment verticals and timing.

A: Prepaid is market leader but orders can be lumpy; credit side up quarter-to-quarter, debit side down slightly, but overall market growth seen with winning share; timing of prepaid shipments is a concern but not indefinite, more about when in Q4/early 2026.

Q: Details on Karta and safe to buy technology.

A: Karta is Australian prepaid program manager; their technology enables chips in payment cards with changing PAN to reduce fraud, piloted with large U.S. retailer, and benefits prepaid market and CPI's business long-term.

Q: Semiconductor tariffs and inventory positioning.

A: No new semiconductor tariff info yet; providers may be exempt; CPI has been buying chips at higher rate to maintain higher inventory balance for short-term help, expecting inventory balance to come down in Q4 but currently higher than average.

Q: Instant issuance business and public sector opportunities.

A: Instant issuance business is growing faster, higher margin, on track for record year, with value proposition in FI and other spots for spot card issuance, continuing to expand market and diversify.