CPI Card Group Inc. Q2 FY2026 earnings call

• Overall Business & Market Position

  • CPI gained market share in Q2, now serving all top U.S. prepaid program managers, strengthening its position as the leading provider of prepaid secure packaging solutions
  • The joint pilot with Carta for chip-embedded, anti-fraud prepaid packages at a large U.S. national retailer shows encouraging adoption, particularly in closed-loop prepaid (a market estimated to be 5x the size of open-loop prepaid)
  • CPI’s three core growth pillars are its proprietary technology platform, large customer base across the payments ecosystem, and ability to deliver innovative solutions aligned with evolving market needs

• Acquisition of TRISM Instant Issuance

  • The acquisition expands CPI’s U.S. instant issuance leadership by adding on-premise solutions for larger financial institutions, doubling the segment’s addressable market
  • Post-acquisition, CPI now has instant issuance presence across nearly 20,000 locations serving over 3,000 financial institutions, adds recurring revenue and long-term customer relationships, and creates cross-selling opportunities across CPI’s broader portfolio
  • The acquisition had minimal impact on company leverage, consistent with CPI’s disciplined capital allocation strategy, and is expected to drive integrated paytech growth to ~20% in 2026 while maintaining a gross margin over 50%, matching the existing segment profile

• Consolidated Financial Performance (Q2 2026)

  • Consolidated YoY revenue grew 15% to $149 million; organic revenue (excluding Arrow Eye) grew 12% YoY
  • Gross profit grew 21% YoY, with gross margin expanding 160 basis points to 32.5%, driven by over $3 million in tariff refunds; margin expansion was partially offset by unfavorable segment mix (faster growth in lower-margin Secure Card Solutions compared to higher-margin Prepaid Solutions)
  • Adjusted EBITDA grew 7% YoY to $24 million; SG&A increased to $37 million from $31 million YoY, driven by Arrow Eye integration costs and digital/technology investments, with ~$3 million in integration/transaction costs in Q2 expected to decline significantly in H2
  • H1 2026 set company records for operating cash flow ($42 million vs $10 million YoY) and free cash flow ($36 million vs $1 million YoY), driven by lower working capital usage, chip inventory reductions, and inventory optimization initiatives; H1 capital expenditures totaled $6 million, down from $9 million YoY
  • Balance sheet improved: net leverage fell to 2.7x at quarter end from 3.6x YoY, with $21 million cash and $92 million available borrowing capacity as of quarter end

1. Secure Card Solutions: Q2 revenue increased 17% year-over-year to $111 million, which includes $5 million contribution from the Arrow Eye (ROI) acquisition. Excluding ROI, organic revenue grew 13% YoY, driven by higher contactless card volumes and increased personalization solutions. This segment accounts for ~74.5% of total Q2 revenue. 2. Prepaid Solutions: Q2 revenue increased 18% YoY to $23 million, primarily driven by a Q2 2025 accounting change, partially offset by tough comparisons to strong higher-value packaging sales in the prior year. This segment accounts for ~15.4% of total Q2 revenue. 3. Integrated Paytech: Q2 revenue increased 4% YoY, with a very small contribution from the late-June TRISM acquisition, driven by growth in Card at Once revenue. This segment accounts for ~10.1% of total Q2 revenue.

• 2026 full-year consolidated revenue growth is guided to high single digits to low double digits, with adjusted EBITDA growth guided to low to mid single digits; adjusted EBITDA guidance is unchanged from prior expectations, as stronger Secure Card performance and tariff benefits are offset by higher investment in integrated paytech and ongoing softness in prepaid
• Full-year 2026 free cash flow guidance is increased to $45 million to $50 million, up from the prior guidance aligned with 2025’s $41 million free cash flow
• Year-end 2026 net leverage is guided to 2.5x to 3.0x
• Integrated paytech full-year 2026 revenue growth guidance is raised from 15% to approximately 20%, driven by the TRISM acquisition
• Full-year 2026 capital expenditures are expected to be slightly below 2025 levels, with capital focused on digital solutions, technology enhancements, and automation
• Third quarter 2026 revenue and adjusted EBITDA are expected to be slightly higher than Q2 2026 levels, keeping the company on track to meet full-year updated targets

• Prepaid Solutions demand has been slower and more uneven than expected to start 2026, with uneven customer ordering patterns and tough year-over-year comparisons to strong 2025 results, and management expects the segment to remain choppy through late 2026
• Unfavorable segment mix (slower growth in higher-margin prepaid, faster growth in lower-margin Secure Card Solutions) has pressured gross margin and adjusted EBITDA margins in the first half
• Integration costs for recent acquisitions have increased near-term SG&A expenses, though they are expected to decline in the second half
• Anti-fraud prepaid solution adoption, including the Carta pilot and closed-loop market expansion, is progressing gradually, with no clear near-term revenue timeline for large-scale adoption

Q: What strategic benefits does the TRISM acquisition deliver, beyond expanding addressable market? / A: Historically, CPI led the cloud-based SaaS instant issuance segment serving small-to-medium banks that do not manage on-premise technology. TRISM fills the gap of on-premise solutions preferred by large financial institutions with in-house technology operations, doubling CPI’s instant issuance addressable market. TRISM is expected to contribute ~$3.5 million to $4 million in revenue in H2 2026, with a 2027 run rate roughly double that 2026 H2 level.

Q: Besides the TRISM contribution, what drives the large second half acceleration needed to hit 20% full-year integrated paytech growth? / A: The acceleration comes from three core sources: strong expected growth in the Card at Once digital solution business in the second half, the incremental revenue contribution from TRISM, and favorable year-over-year comparisons (2025 Q4 was a relatively slow quarter for the segment). Management confirmed strong line of sight to hit the 20% full-year growth target.

Q: What progress has CPI made on closed-loop prepaid and anti-fraud chip packaging, and has the long-term opportunity changed? / A: Closed-loop prepaid is 5x the size of open-loop, and CPI, the largest U.S. prepaid packager, is seeing strong customer interest amid increasing regulatory and retailer demand for enhanced closed-loop card security. The Carta chip-enabled prepaid pilot at a major national retailer is in its second stage and progressing well, though large-scale market change occurs gradually with no set timeline for material revenue contribution. CPI’s unique combination of prepaid packaging scale and chip expertise positions it well to capture long-term opportunity.

Q: What explains the choppy demand in prepaid this year, and is it just tough comps? / A: Choppiness stems from two main factors: tough year-over-year comparisons to very strong 2025 prepaid results, especially a strong Q4 2025, and general market ebbs and flows in 2026. Management still expects the overall prepaid market to grow long-term, with large upside in closed-loop as demand for anti-fraud solutions rises. CPI’s unique combination of packaging scale and chip technology puts it in a strong position to capture long-term growth.