Cpi Card (PMTS) Q1 2026 Earnings Transcript

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DATE

Tuesday, May 5, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — John D. Lowe
• Interim Chief Financial Officer — Tara Grantham
• Senior Vice President, Investor Relations and Corporate Development — Michael A. Salop

TAKEAWAYS

• Total Revenue -- $147 million, up 20%, driven by Secure Card Solutions and AOI contribution.
• Secure Card Solutions Revenue -- Increased by 35%, including $16 million from ArrowEye, supported by growth in contactless solutions and personalization services.
• Prepaid Solutions Revenue -- Declined 17%, attributed to order timing with partial offset from incremental closed loop card sales.
• Integrated Paytech Revenue -- Rose 1% compared to a strong prior year; management expects over 15% segment growth for the full year.
• Adjusted EBITDA -- Up 9%, supported by strong sales and ArrowEye integration.
• Net Income -- Fell 57% to $2.1 million, primarily due to $3 million in pretax integration expenses.
• Gross Profit Margin -- Declined to 30% from 33.2%, impacted by lower Prepaid segment sales, tariffs, and $2 million in added depreciation; partially offset by Secure Card Solutions volume.
• SG&A Expenses -- Increased by $6.5 million, reflecting ArrowEye integration, higher compensation, severance, and technology spend.
• Operating Cash Flow -- Rose to $13.6 million from $5.6 million, enabled by focused working capital management.
• Free Cash Flow -- Increased to $10.1 million from $0.3 million, reflecting higher operating cash flow and $3.5 million CapEx.
• Net Leverage Ratio -- Reduced to just below three times, supported by Q1 cash generation.
• Contactless Card Penetration -- Over 90% of debit and credit card production is contactless.
• Indiana Production Facility Volume -- Volumes in 2026 to be 30% higher than in the prior facility in 2024.
• Fiserv Agreement -- New referral arrangement is now active, leveraging Fiserv’s customer base and supporting Paytech growth.
• Closed Loop Prepaid Revenue -- Achieved strong sequential growth over Q4 2025 within Prepaid Solutions.
• Technology and Go-to-Market Investments -- Integration costs primarily from technology, vendor transitions, and marketing initiatives to generate revenue synergies.
• 2026 Outlook Affirmed -- High single-digit revenue growth, low- to mid-single-digit adjusted EBITDA growth, comparable free cash flow conversion, and year-end net leverage ratio between 2.5x and 3.0x.
• Q2 Expectations -- Revenue projected to be similar to Q1; adjusted EBITDA slightly lower than last year due to timing of investment spending.

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RISKS

• Grantham stated, "Prepaid Solutions segment declined 17%," with margin pressures also cited due to lower volumes and production cost increases.
• Integration costs of $3 million in the quarter negatively impacted net income and are expected to remain elevated in Q2 before declining in the second half.
• Lowe said, "tariffs have somewhat normalized," but noted continued exposure and uncertainty regarding expected tariff refunds, impacting cost predictability.
• Gross profit margin dropped 320 basis points year over year, attributed to tariff expenses, higher depreciation, and underperformance in the Prepaid Solutions segment.

SUMMARY

Management confirmed strong revenue growth with operating leverage in Secure Card Solutions, but noted Prepaid Solutions weakness and persistent cost headwinds. Segment diversification and new Fiserv partnership are expected to drive revenue and margin improvements over the remainder of 2026. Technology platform investments and expanded production capabilities are positioning the company to capture demand trends in contactless and chip-based payment solutions.

• Lowe highlighted active marketing under the Fiserv agreement, observing "positive customer interest" and supporting Integrated Paytech’s long-term growth target above 15%.
• Company is advancing its pilot of Card Safe-to-Buy technology with a national retailer, potentially expanding chip-enabled card penetration in prepaid markets.
• Integration costs are strategically focused on revenue synergies, technology alignment, and operating efficiencies, with management forecasting a significant reduction in the second half.
• Production scale-up at the Indiana facility is enabling stronger order fulfillment without prior capacity constraints, providing a foundation for incremental margin gains.

INDUSTRY GLOSSARY

• ArrowEye: A Secure Card Solutions business acquired to enhance on-demand card production capabilities and drive integrated platform synergies.
• Instant Issuance: Software-as-a-service platform enabling immediate, on-site issuance of debit and credit cards for financial institutions.
• Card Safe-to-Buy technology: Proprietary chip-enabled security solution for prepaid cards undergoing pilot testing with a national retailer.
• Closed loop cards: Prepaid cards redeemable only at specific retailers or company locations, as opposed to open loop cards usable across multiple merchants.
• Integrated Paytech: Segment focused on offering integrated software and card issuance solutions, targeting financial institutions with digital and instant issuance products.

Full Conference Call Transcript

Michael A. Salop: Thanks, operator. Welcome to CPI Card Group Inc.'s first quarter 2026 earnings webcast and conference call. Today's date is 05/05/2026, and on the call today from CPI Card Group Inc. are John D. Lowe, president and chief executive officer, and Tara Grantham, interim chief financial officer. Before we begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see CPI Card Group Inc.'s most recent filings with the SEC.

All forward-looking statements made today reflect our current expectations only. We undertake no obligation to update any statements to reflect events that occur after this call. Also, during the course of today's call, the company will be discussing one or more non-GAAP financial measures, including, but not limited to, EBITDA, adjusted EBITDA, adjusted EBITDA margin, net leverage ratio, and free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and slide presentation we issued this morning. Copies of today's press release as well as the presentation that accompanies this conference call and the Form 10-Q are accessible on CPI Card Group Inc.'s Investor Relations website, investor.cpicardgroup.com.

On today's call, all growth rates refer to comparisons with the prior-year period unless otherwise noted. The agenda for today's call can be found on slide three. We will open the call for questions after our remarks. I will now turn the call over to John.

John D. Lowe: Good morning, everyone. Overall, we are off to a solid start in 2026 and are on track to achieve our full-year outlook. We are executing on our initiatives to deliver on our strategy of growing and diversifying the business by helping our customers win as we expand our proprietary technology platform, grow our marketable base of relationships, and evolve our payment solutions to meet market needs. We exceeded our expectations in the first quarter, delivering 20% revenue growth, which reflected another strong contribution from AOI, as well as good growth across our other Secure Card Solutions businesses.

This included strong performance from our contactless solutions, led by continued strength of contactless metal as we emphasize our offerings of value-driven metal solutions, and increased sales of personalization services. As expected, our Prepaid Solutions segment had a slow start to the year, but we continue to anticipate growth for the full year. Integrated Paytech grew only slightly due to comparisons with a strong prior-year quarter, and we continue to expect the segment to grow more than 15% for the full year. Adjusted EBITDA increased 9% in the quarter, and we generated strong cash flow with more than $10 million of free cash flow in the quarter.

We also improved our financial position, ending the quarter with a net leverage ratio just below three times. Based on first quarter results and our current forecast, we are affirming the full-year financial outlook we provided in March. Tara will give you more details on first quarter results in a few minutes, but first, I would like to provide a brief strategic update on slide five. As I said before, we are executing on our strategy as we start 2026 and are fortunate to operate in multiple growing markets.

In addition to ongoing increases in cards in circulation in the U.S. payments market, our business is supported by increased demand for digital solutions by financial institutions and an increased focus on security for prepaid cards and packages. As we discussed last quarter, our strategy is to continue providing payment technology solutions that help our customers win, driven by three primary growth pillars that underpin our value proposition. First, our proprietary technology platform with a vast reach into the U.S. payments ecosystem. Second, our marketable base of thousands of deep and broad relationships across the U.S. payments market. And third, our proven track record of delivering evolving payment solutions that reflect changing market needs.

We continue to make progress on driving our strategy forward, laying more pipes to further expand our platform, expanding our marketable base of relationships, and introducing new solutions for the market. We mentioned at year-end that we had locked in a new referral agreement giving us the opportunity to significantly advance our marketable base for our Integrated Paytech segment. We are excited to share that we are actively marketing our solutions with the help of Fiserv and are seeing positive customer interest. And we continue to expand our pipes on our technology platform, creating further integrations and customer connections for our digital solutions.

We have also expanded our solution set by delivering for the closed loop prepaid market, seeing strong closed loop revenue growth from Q4 2025 in the first quarter. And we continue to explore the viability of chip-embedded cards in the U.S. prepaid market, advancing our extensive pilot with a large national retailer testing Card Safe-to-Buy technology. We believe our strategic efforts and investments will continue to drive long-term growth, expanding our addressable markets and providing the solutions needed by the market as it continues to evolve, creating value for our company and our shareholders.

We will continue to update you on progress throughout the year, but now I would like to turn the call over to Tara to take you through the first quarter results in more detail. Tara?

Tara Grantham: Thanks, John. I will begin with the segment results on slide seven. Overall, as John said, we are pleased with our first quarter performance. First quarter revenue increased 20% to $147 million, led by our Secure Card Solutions segment. Secure Card Solutions revenue increased 35%, which included a $16 million contribution from ArrowEye. As John mentioned, we experienced strength across this segment in the first quarter with good growth from our contactless solutions and personalization services. Our Prepaid Solutions segment declined 17% in the first quarter, reflecting timing of orders from key customers, with the first quarter decline partially offset by better-than-expected incremental sales of closed loop cards.

Integrated Paytech increased 1% in the quarter due to comparisons with a strong prior year while we maintained strong gross margins at over 55%. As John said, we still expect to grow revenue in this segment by more than 15% in 2026. Turning to profitability on slide eight, first quarter net income declined by 57% to $2.1 million, primarily affected by $3 million of pretax integration costs, while adjusted EBITDA increased 9%, driven by sales growth including the addition of AOI. Integration costs were high in Q1, and we expect them to remain at similar levels in Q2 but drop significantly in the second half of the year.

Our 2026 integration costs are meant to drive revenue synergies and lower operating costs and primarily result from go-to-market spending, technology investments, and certain vendor termination fees as we drive operating synergies. As a reminder, integration costs are not included in adjusted EBITDA but do impact net income. Gross profit margin declined from 33.2% to 30%, affected by lower sales and margins in our Prepaid segment and increased production costs including tariffs and depreciation, partially offset by benefits from increased sales from Secure Card Solutions. Production costs in the quarter compared to prior year included $2 million of increased depreciation primarily related to ArrowEye and the new Secure Card production facility and $1.2 million of tariff expenses.

We expect Prepaid margins to improve in the second quarter with higher revenue levels, and we also expect overall company gross margins to be much stronger in the second half of the year. Margin comparisons with prior year should also improve going forward as ArrowEye depreciation and tariff primarily began impacting results in 2025. Overall, we anticipate full-year gross margins to be relatively consistent with prior-year levels. We have multiple initiatives in place to drive margin improvement over time, including targeted supplier negotiations, automation investments, production optimization across our sites, driving more favorable product mix, and achievement of ArrowEye synergies.

We are also managing discretionary spending and driving operational efficiencies as volume increases, including in our new Indiana production facility, where we expect volumes this year to be 30% higher than 2024 levels in our old production facility. First quarter SG&A expenses increased $6.5 million from the prior year, primarily due to ArrowEye integration costs, the inclusion of ArrowEye operating expenses, increased employee performance-based incentive compensation, increased severance, and higher technology spending. Investment spending was less than anticipated in the first quarter, and we expect that to ramp over the remainder of the year beginning in the second quarter. Turning to slide nine, we had strong cash flow generation in the first quarter.

Our cash flow generated from operating activities for the quarter increased from $5.6 million last year to $13.6 million, driven by strong working capital management. Free cash flow increased from $300,000 in the prior year to $10.1 million in 2026. We spent $3.5 million on CapEx in the quarter compared to $5.3 million in the prior year, although we still anticipate full-year capital spending to be similar to 2025 levels, with increased focus on technology spending. On the balance sheet, at quarter-end, we had $19 million of cash, $15 million of borrowings on our ABL revolver, and $265 million of senior notes outstanding.

Turning to our 2026 financial outlook on slide 10, we are affirming the full-year outlook provided in March. This includes high single-digit revenue growth, low- to mid-single-digit adjusted EBITDA growth, free cash flow conversion at similar levels to 2025, and a year-end net leverage ratio between 2.5x and 3.0x. We expect Q2 revenue to be similar to Q1 levels, with adjusted EBITDA expected to be slightly lower than the prior year due to timing of investment spending, including some spending that was delayed from the first quarter. I will now turn the call back to John for some closing remarks.

John D. Lowe: Thanks, Sarah. Turning to slide 11 to summarize before we open the call for Q&A. We are executing on our strategy with a better-than-expected start of the year. The segment trends are largely as we anticipated, and we are on track to achieve our full-year outlook. We also generated strong cash flow and brought net leverage back down to just below three times after the temporary increases following last year's ROI acquisition. We intend to continue growing and diversifying our business, leveraging our expanding proprietary technology platform, our extensive marketable base, and our evolving portfolio of payment solutions to meet market needs, drive growth, and enable our customers to win. Operator? We will now open the call for questions.

Operator: Thank you. We will now open the call for any questions. If you would like to ask a question, please press star then 1. If you would like to withdraw your question, press star 1 again. Your first question will come from Peter James Heckmann with D.A. Davidson.

Peter James Heckmann: Hey, good morning. Thanks for taking my question. In terms of thinking about Instant Issuance, Card@Once solutions, you did not mention it in the prepared remarks, but what are you thinking for this year in terms of base business as well as some of the tangential areas that you have expanded into over the last fifteen months?

John D. Lowe: Yeah. Pete, good morning. We are excited about Instant Issuance. It is a great platform for us. Just as a reminder, it is a software-as-a-service platform. We built it from the ground up. It took us, you know, ten-plus years to build it, especially all the integrations into what we refer to as the payments ecosystem that we service. So we have thousands of customers across the U.S., and we expect that to be a large chunk of the growth out of our Integrated Paytech segment for 2026, growing that segment from an outlook perspective greater than 15%. I think the Fiserv deal we announced helps us grow.

And just on the breakout between Instant Issuance and everything digital — I will say digital — we are essentially building the business there. It is small in relation to the rest of the business, but we are seeing strong customer demand, a good pipeline, and we continue to build out the pipes and integrations, if you will, to continue to service multiple areas of the market. So we are excited about what we are doing in Instant Issuance, but broadly in digital too.

Peter James Heckmann: Okay. Great. And then just in terms of contactless, where do you think we are in terms of contactless cards? I have not seen recently any information that would suggest what percentage of cards out today have a contactless chip embedded.

John D. Lowe: Good question. What we produce today is 90% plus contactless. So, you know, we used to use the baseball analogy. I would say we are in the very late innings of the transition. That is on the debit and credit side. I would say on the prepaid side of our business, there is a lot of opportunity. The volumes within prepaid broadly, when including open loop and closed loop, are somewhat greater on an annual basis than even the debit and credit side in terms of what is produced.

So to the extent that market starts to move more towards chip, it starts to move specifically towards contactless — which is what we are doing with Carta and what we are doing with a large national retailer, where we have a pilot underway, which we are having positive kind of movement on, if you will. If that market continues to move towards chip and grows, we will see a long transition there. It is what we would expect, and we would be in a unique position to capitalize on that transition.

So on the debit and credit side of your question, I think we are late innings; we are pretty much fully penetrated, but I think there is a lot of opportunity on the prepaid side.

Peter James Heckmann: Got it. I appreciate it. I will get back in the queue.

John D. Lowe: Yep. Thanks, Pete.

Operator: Your next question comes from Jacob Michael Stephan with Lake Street Capital Markets.

Jacob Michael Stephan: Hey, guys. Good morning. Nice quarter. I just wanted to ask on the Fiserv relationship. It seems like that was expanded a little bit. Maybe you could touch on some of the things and ways that it was different from the past contract with them, or agreement. And then maybe touching on the supply chain a little bit — last year about this time we were talking a lot about tariffs. From a supply chain perspective and chip tightness, what are you seeing out there in the market today? And lastly, you are kind of expecting a bigger ramp in the second half from the Integrated Paytech segment.

What are going to be the main drivers of that growth in Paytech?

John D. Lowe: Yeah. No. Jacob, I think the main difference is we call out their name. We had entered into this agreement around year-end, so we mentioned an agreement at year-end, but we just did not call out Fiserv's name. I would say getting marketing teams together to finalize documents takes a long time, but the agreement is in place. We are excited about it. We are seeing positive customer interest in Q1, kind of ramping up, if you will, and Fiserv is a great partner. We love working with them.

They have thousands of customers across the United States that we have worked with them to build good relationships with and make sure we are helping our customers win and helping their customers win at the same time. On supply chain, broadly I would say it has normalized, and I think that is credit to not only the teams that we put in place to manage it that continue to focus on how to manage things well, especially today in light of the Iran war. That is another kind of thing to tackle from a cost perspective, although that is not significant, I would say. But tariffs are something we had to work through from a supply chain perspective.

I would say tariffs have somewhat normalized as well. But we are — just to get ahead of your probably next question — we are expecting refunds on tariffs. But we do not necessarily have a timing aspect to that. We hope to see them at one point, but as I tell my team, I will believe it when I see it. Put it that way. On the second-half ramp in Integrated Paytech, a lot of it is in relation to the deal that we signed with Fiserv. That is a chunk of it. Another chunk is just the growth in the business as it stands. Last year, it grew roughly at a 20% rate.

If we look back over time, it has been growing at a faster pace generally than the rest of the business, and that is because we have a unique value proposition in the market. I am talking about our Instant Issuance solution specifically. On the digital side of the house, that is an area that is growing even faster. Now you are talking about smaller dollars — so it is smaller dollars growing — but at the same time, that is an area we continue to see just a large amount of interest in, and we are trying to build out that business as quickly as we can to support that large customer interest.

So it is our Instant Issuance solution growth, which we have seen historically be pretty strong — we are confident in that, especially in light of the new deal — and digital growing just given what we are seeing in the market and the customer demand.

Jacob Michael Stephan: Got it. Very helpful. Appreciate it. Thank you.

John D. Lowe: Yep. Thank you.

Operator: Your final question will come from Craig Irwin with ROTH Capital Partners.

John D. Lowe: Hey, Craig. We cannot hear you.

Craig Irwin: Thank you. Sorry about that. Can you hear me now?

John D. Lowe: Yes, we can. Okay. Perfect. Good morning.

Craig Irwin: Good morning. So can you help us unpack the comments around Indiana, the 30% increase in volume? Is this something novel in the last quarter? Did something materially change there? And then with 30% higher volumes, this clearly is not translating to the top line. Is there a mix issue or price erosion or something like that impacting the contribution to revenue growth and, obviously, profit growth if the revenue is not following? Any color there would be helpful.

John D. Lowe: Yeah. Craig, good question. The reason that we shared that number specifically is it is an indicator as we have kind of come to the end of building out Indiana. You know, just a step back, it took about a year plus to build. The team in Indiana has done a great job. We essentially had nearly zero customer complaints as we were transitioning. And the reason for the growth in volume disclosure is really the fact that we could not have done what we were doing in our old facility. We were at capacity.

If you go back two, three years — in 2022, as an example, when the market was insatiable in a sense — we were busting the team. So there were multiple reasons to move, but I think moving has been a large success for us. And I think your question about margins — there is depreciation on ROI. There are tariffs that have come up. Those types of things have affected our margins. There is always a competitive pricing market, but I would not say the pricing is irrational. I would say that overall, from a margin perspective, we have definitely had some impacts, but nothing that has created an irrational pricing market. I do not know.

Derek, you would provide any other comments.

Tara Grantham: Yes. So I would just say that we did grow pretty strongly in our overall Secure Card Solutions space, up 35% overall, and then from an organic basis, we did grow 15%, so we did get strong top line growth in that solution, and that was in part driven by contactless growth across our Secure Card Solutions. So, related to that, as John said, we did get operating leverage based on that growth. It was offset by things like tariffs as well as the higher depreciation across the business related to our new Indiana facility as well as related to the acquisition of ARY.

John D. Lowe: Craig, one thing I would add, though, we do expect our overall gross margins — they are somewhat stabilized. Right? So we would expect them to be somewhat stable over the course of the year, if not increasing. Tara and team are doing a good job driving a lot of margin improvement goals. So between that and the growth of the business and the leverage we expect to get, I know we have had a lot of impacts over the last year and a half, two years, but we do expect margins — not only on a gross margin basis, but on an EBITDA basis — to improve over the course of the year.

We expect this year, similar to last year, fourth quarter to be our biggest quarter. And so think of Q1 as kind of a starting point for the year, if you will.

Craig Irwin: Understood. That makes sense. So then, ROI — I will admit, I was a little surprised to see the increased integration expenses this quarter. I thought that you were a long way down the path of already integrating that. Can you maybe give us some detail around the actions that are being completed right now? What did you complete over the last couple of months? Strategically, I thought that you might be actually adding a little bit more CapEx for ROI and focusing on the growth of that platform, given that personalization really is such an exciting opportunity.

John D. Lowe: Yeah. I mean, I would say the integration costs we are spending now are really in two big areas. One is technology, and one is go to market. And when we look at ROI and its position in the market specifically, when we look at our broader solutions that we provide outside of Airline, we see a lot of revenue synergies. Airline signed, even in their first deal — I mean, 10 plus deals — and we have not owned them, I mean, since essentially one year ago from now. So we have seen really strong progress in terms of AirWise performance on a revenue basis.

And the other side that we are spending on is operating synergies, trying to make sure that the way that we operate on the floor is — I would not call fully integrated, but essentially aligned with everything we are doing on a broader basis, which ultimately means we get purchasing power, things of that nature. So there were some termination fees from a vendor perspective as we transition vendors. Things of that nature pop up, and unfortunately they are not small. But we do expect integration to drop off in the second half of the year.

We expect a little bit in Q2 — that will continue — but in the second half of the year, you should see that drop off dramatically.

Craig Irwin: Thank you for that. I will take the rest of my questions offline.

John D. Lowe: Thanks, Greg.

Operator: Your next question will come from Harold Lee Goetsch with B. Riley Securities.

Harold Lee Goetsch: Hey. Thanks for taking my question. On the Prepaid statement, it was said it was down 17% in the quarter. Can you give us some of the friction points? And again, were there some maybe significant nonrecurring customer revenues that came in 2025 and before that are at least driving these declines? Or is the channel rather full right now and we are working through channel inventories? And is organic growth through the channel slower than expected? Thanks.

John D. Lowe: Yeah. Hal, on the Prepaid side, just as a reminder, the whole business and the market in general — think of on the open loop side — we have leading market share. We are positioned really well, especially if that market starts moving towards chip. And so if you think about the broader market and our customers, they are trying to determine, based upon not only regulatory demands, but just customer demands, how do you increase security around the package itself? You can do that in two ways. You can increase the actual security around the package itself, or you can put a chip in the prepaid card itself. And that is why we are working with Carta.

That is the pilot we are working with the large national retailer on. And because of that kind of testing and transition that we ultimately do expect to occur over a long period of time, we are seeing the normal-course open loop market be weaker. And we knew coming into the year this would be a slow start to the year. We are hearing that from our customers on the Prepaid side. That is because we believe from a longer-term transition perspective the value of the market is going to grow, and we are well positioned to capitalize on that.

The other side on Prepaid is the closed loop side of the business, and that actually has performed very well for us. It is fairly small today, but we had pretty strong growth over Q4 of last year in Q1. And so we are excited about where the Prepaid business is going, but it is definitely a weaker quarter for us. And you can see this in the Prepaid financials. That business gains a significant amount of operating leverage as it grows, and you saw the opposite in Q1, and that brought down broader margins.

Tara Grantham: Yeah. Just a reminder that we do expect good growth across our segments this year, including in Prepaid. So even though it was down in Q1, we do expect better growth throughout the year. And just looking back, still very confident in that business. Look back to 2024, we did grow that business 26%. And even though we were down last year, we were only down 3% once you adjusted for the accounting change that we made in Q2. So I do expect that return to growth as well as the increase in gross margins throughout the year.

John D. Lowe: Okay. Thank you very much. Thanks, Hal.

Operator: And there are no questions in the queue. I would like to turn the call back over to John D. Lowe for any closing remarks.

John D. Lowe: Thank you to all of our CPI Card Group Inc. employees for their dedication and for continuing to deliver for CPI Card Group Inc. and our customers.

Tara Grantham: Thank you all for joining our call this morning, and we hope you have a great day.

Operator: Thank you for your participation. This does conclude today's conference. You may now disconnect.

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