CPI Card Group Inc. (PMTS) is a leading payments technology company providing a comprehensive range of payment cards and related digital solutions. The company has established a strong market position across several key areas of the U.S. payment card solutions market, including debit and credit card production, personalization, and software-as-a-service-based instant issuance services. Additionally, CPI is a market leader in the production of Prepaid Debit Cards and related secure packaging solutions.
Business Overview and History
CPI Card Group was initially formed as CPI Holdings I, Inc. in June 2007 and changed its name to CPI Card Group Inc. in August 2015. The company's principal executive offices are located in Littleton, Colorado. CPI serves thousands of customers through direct and indirect sales channels and has maintained long-standing relationships with its top customers, some of which date back nearly 20 years.
Throughout its history, CPI has developed significant technological, engineering, and operational expertise that has solidified its position as an industry leader. The company has continuously worked to enhance its offerings and create new products and solutions to meet the evolving demands of the marketplace and its customers. This includes expertise in complying with global technical standards for smart payment cards and developing proprietary and patented solutions such as its CardOnce instant card issuance system.
CPI has faced numerous challenges over the years, including operating in a highly competitive, saturated, and consolidated marketplace. The company has had to compete with larger global conglomerates as well as newly established competitors, suppliers, and customers who have developed their own products and services. Despite these challenges, CPI has successfully navigated changes in technology, customer preferences, and industry standards, ensuring its products and services remain relevant and in demand.
The company's revenues are primarily generated from the production of and services related to secure debit and credit cards that are issued on the networks of major Payment Card Brands, including Prepaid Debit Cards. CPI operates three reportable segments: Debit and Credit, Prepaid Debit, and Other (corporate expenses).
The Debit and Credit segment is responsible for producing secure debit and credit cards and providing card services, including digital services, for U.S. card-issuing financial institutions. The Prepaid Debit segment primarily provides integrated prepaid card services to prepaid program managers in the U.S., including tamper-evident secure packaging solutions.
Over the years, CPI has demonstrated a strong focus on innovation, quality, and customer service, which has contributed to its market leadership position. The company has developed technological, engineering, and operational expertise that has made it a leader in its industry, including expertise with complying with global technical standards for smart payment cards.
Financial Performance
For the fiscal year ended December 31, 2024, CPI reported total revenue of $480.60 million, a year-over-year increase of 8%. Net income for the year was $19.52 million, down 19% from the prior year due to $8.8 million in debt refinancing costs. Adjusted EBITDA, a non-GAAP metric, increased 3% to $91.9 million, with an adjusted EBITDA margin of 19.1%.
In the most recent quarter (Q4 2024), CPI's revenue reached $125.10 million, up 22% year-over-year. Net income for the quarter was $6.77 million, representing a significant increase of 148% compared to the same period in the previous year. The strong quarterly performance was driven by robust growth in both the Prepaid Debit and Debit and Credit segments.
Liquidity
The company's balance sheet remains healthy, with $33.54 million in cash and cash equivalents as of December 31, 2024. Total debt stood at $280.40 million, resulting in a net leverage ratio of 3.0x at the end of the year, down from 3.1x in the prior year. CPI generated $43.31 million in operating cash flow and $34.06 million in free cash flow during 2024, up from $27.6 million in 2023.
CPI's liquidity position is further strengthened by an available credit line of $72.80 million under the 2029 ABL Revolver facility. The company's current ratio stands at 2.69, while its quick ratio is 1.72, indicating a strong ability to meet short-term obligations. However, it's worth noting that the company has a negative debt-to-equity ratio of -7.87, which may require careful management going forward.
Segment Performance
In the Debit and Credit segment, net sales increased 4% for the full year 2024, reaching $375.26 million. This growth was driven by increased demand for contactless cards, the company's CardOnce instant issuance solution, and personalization services. The segment generated $251.15 million from product sales and $124.11 million from services. Gross profit for the segment was $128.09 million, representing a 34.1% gross profit margin, down slightly from 35.1% in the prior year due to product mix. Income from operations for Debit and Credit was $92.86 million.
The Prepaid Debit segment delivered exceptional performance, with net sales increasing 26% to $106.54 million for the year. This growth was fueled by strong demand for higher-priced fraud-focused packaging solutions and an expansion of the company's healthcare payment solutions vertical. Gross profit for the segment was $43.12 million, representing a robust 40.5% gross profit margin. Income from operations for Prepaid Debit was $37.20 million.
Strategic Initiatives and Outlook
CPI has refined and advanced its strategic focus in recent years, emphasizing customer service, quality, innovation, and diversification. The company is actively working to expand its addressable markets by offering new solutions to existing customers and existing solutions to new customer verticals.
For 2025, the company is projecting mid-to-high single-digit growth in both net sales and adjusted EBITDA. The debit and credit segment is expected to be the primary growth driver, as CPI continues to gain market share. While the prepaid segment is not expected to match its record 2024 performance, the company is making investments to penetrate the larger closed-loop prepaid market later in 2025.
CPI expects to generate strong free cash flow in 2025, although slightly below the 2024 level, due to increased cash interest expense from the debt refinancing and higher capital spending. The company aims to reduce its net leverage ratio to below 3.0x by the end of 2025, driven by EBITDA growth and strong cash flow generation.
Industry Trends
The U.S. payment card market has shown steady growth, with a 9% compound annual growth rate (CAGR) in cards-in-circulation over the past three years. In 2024, general purpose credit cards in the U.S. increased by 7%, while total credit and debit cards grew by 9%. These industry trends bode well for CPI's continued growth and market expansion.
Key risks facing CPI include competition from larger global competitors, disruptions in its supply chain, cybersecurity threats, and the potential for economic downturns that could impact consumer spending and card issuance activity. However, the company's diversified customer base, long-standing customer relationships, and focus on innovation and quality have helped it navigate challenging market conditions in the past.
Conclusion
CPI Card Group is a well-positioned payments technology company with a strong track record of innovation and customer service. The company's diversified business model, with leading positions in both the debit/credit and prepaid card markets, has enabled it to deliver consistent financial performance. With a healthy balance sheet and strong cash flow generation, CPI is well-equipped to continue investing in strategic initiatives to drive long-term growth and shareholder value. The company's focus on four strategic pillars - customer focus, quality/efficiency, innovation/diversification, and people/culture - has allowed it to gain market share and expand into adjacencies like healthcare payment solutions, positioning it for continued success in the growing U.S. payments card market.