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CPI Card Group Inc. (PMTS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 was mixed: net sales rose 11% to $138.0M as Arroweye and Card@Once drove growth, but gross margin fell to 29.7% (vs. 35.8% LY) and Adjusted EBITDA declined 7% to $23.4M; GAAP diluted EPS was $0.19 as higher costs (tariffs, depreciation) outweighed volume gains .
  • Versus S&P Global consensus, revenue modestly missed ($137.97M actual vs $140.62M consensus*) and S&P “Primary EPS” was a slight miss (0.446 actual vs 0.453*), while management characterized results as in line and expects a stronger Q4 . Values retrieved from S&P Global.*
  • FY25 outlook was lowered: net sales growth trimmed to low double-digit to low-teens (from low double-digit to mid-teens) and Adjusted EBITDA to flat-to-low single-digit growth (from mid-to-high single-digit), citing debit/credit sales mix pressure and prepaid order timing; current outlook excludes potential semiconductor chip tariff impacts .
  • Execution progress: Arroweye added ~$15M to Q3 segment revenue; Card@Once again grew strongly; CPI invested $10M for a 20% stake in Karta to introduce chip-enabled anti-fraud prepaid cards; the new Indiana facility is operational; net leverage was 3.6x LTM Adjusted EBITDA ($89M) .
  • Key swing factor: tariffs were $1.6M in Q3; FY impact now expected at $4–$5M, aided by a China rate reduction to 45% and supplier negotiations to share costs .

What Went Well and What Went Wrong

What Went Well

  • Share gains and product momentum: “We gained share with our core payment solutions… Arroweye… continues to perform well” and Card@Once “once again delivered strong growth” .
  • Instant issuance leadership and secular tailwinds: >17,000 Card@Once installations across >2,000 FIs underpin recurring SaaS revenue; U.S. cards in circulation up 7% CAGR over three years per networks .
  • Balance sheet actions and cash generation: retired $20M of 10% notes; YTD operating cash flow improved to $19.9M (vs $16.7M LY), positioning deleveraging and funding of growth capex .

What Went Wrong

  • Margin compression: gross margin fell to 29.7% (from 35.8% LY) on adverse mix (lower ASPs) and higher production costs (tariffs, depreciation); Adjusted EBITDA margin declined to 17.0% (from 20.1% LY) .
  • Prepaid softness/timing: Prepaid segment net sales fell 7% YoY on timing and tough comps after strong high-value packaging sales LY .
  • Higher costs/taxes: Q3 included $1.6M of tariff expenses and ~$1.7M higher depreciation tied to Arroweye and the new facility; the Q3 effective tax rate was 38% (YTD 34%) due to non-deductible Arroweye costs .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Net Sales ($M)$122.8 $129.8 $138.0
Gross Profit Margin %33.2% 30.9% 29.7%
Adjusted EBITDA ($M)$21.2 $22.5 $23.4
Adjusted EBITDA Margin %17.2% 17.3% 17.0%
Net Income ($M)$4.8 $0.5 $2.3
GAAP Diluted EPS ($)$0.40 $0.04 $0.19

Segment net sales ($M):

SegmentQ1 2025Q2 2025Q3 2025
Debit & Credit$96.520 $110.757 $115.272
Prepaid Debit$26.713 $19.222 $23.335

Select KPIs and financial position:

  • Card@Once installations: 17,000+
  • Tariff expense (Q3): $1.6M
  • Cash & Equivalents (9/30/25): $16.0M
  • Total Debt incl. leases (9/30/25): $340.6M
  • LTM Adjusted EBITDA: $89.0M
  • Net Leverage: 3.6x
  • YTD Free Cash Flow: $6.1M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange & Rationale
Net Sales growthFY 2025Low double-digit to mid-teens growth Low double-digit to low-teens growth Lowered; debit/credit mix pressure and prepaid order timing
Adjusted EBITDA growthFY 2025Mid-to-high single-digit growth Flat to low single-digit growth Lowered; margin pressure from sales mix and tariffs
Tariff assumptionsFY 2025Reflects current tariffs; excludes proposed chip tariffs Same: reflects current tariffs; excludes proposed chip tariffs Maintained policy; chip tariff details uncertain
Effective tax rateFY 2025—30%–35% (expected) New color; higher due to non-deductible Arroweye costs

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2025)Trend
Tariffs/cost inflationQ1: Actions to mitigate tariffs; cost control . Q2: Margin pressure from tariffs; outlook unchanged for EBITDA growth .Q3: $1.6M tariff expense; FY impact $4–$5M with 45% China rate; pushing suppliers to absorb .Ongoing headwind; partial mitigation; FY impact narrowed
Prepaid order timingQ1: Prepaid growth, strong packaging demand . Q2: Prepaid down on accounting change; timing effects .Q3: Prepaid -7% YoY on timing/tough comps; some orders may slip into early 2026 but not lost .Lumpy; demand intact, timing variance
Instant issuance (Card@Once)Q1/Q2: Strong growth; recurring SaaS .Q3: On track for a record year; growing faster than company; higher-margin .Strengthening
Arroweye integrationQ2: ~ $10M in <2 months; synergies pursued .Q3: ~$15M contribution in quarter; integration costs raised SG&A; synergy/efficiency work underway .Positive revenue; near-term cost drag
Indiana facility modernizationQ2: Investment year; capacity/efficiency .Q3: Facility fully operational; should aid 2026 efficiencies .Execution milestone achieved
Chip tariffs risk—Outlook excludes proposed chip tariffs; suppliers confident about exemptions; CPI elevated chip inventory as precaution .Watchlist risk
Digital/prepaid anti-fraud (Karta)—20% stake; piloting chip-enabled prepaid anti-fraud solution with a large U.S. retailer .New optionality

Management Commentary

  • “We gained share with our core payment solutions and the Arroweye business continues to perform well… Our Card@Once business also once again delivered strong growth” — John Lowe, CEO .
  • “We will continue to focus on improving margins, achieving synergies from the Arroweye acquisition, and reducing net leverage… key investments in 2025 will help… including driving strong cash flow and lower net leverage in future years.” — Jeff Hochstadt, CFO .
  • “Our new Indiana facility is now fully operational… which should aid efficiencies in 2026.” — John Lowe (prepared remarks) .
  • “We will be Karta’s exclusive U.S. supplier… producing contactless prepaid cards with chip technology… We are already piloting the solution with a large national retailer in the U.S.” — John Lowe .

Q&A Highlights

  • Tariff quantification and outlook: Q3 tariffs were ~$1.6M; FY now $4–$5M after China rate cut to 45%, with supplier pushback to absorb some costs; full-year impact grows in 2026 due to a full-year run-rate .
  • Prepaid dynamics and timing: Management expects some prepaid orders to slip into early 2026 but sees this as timing, not demand loss; 2024’s strong fraud-preventive packaging comps amplify YoY pressure .
  • Potential semiconductor chip tariffs: Suppliers believe they may be exempt; CPI carried higher chip inventory as a precaution; little new information on timing/scope from the administration .
  • Instant issuance momentum: Card@Once is growing faster than the company, is higher margin, and is on track for a record year; expansion beyond FIs underway .

Estimates Context

  • Q3 2025 vs S&P Global consensus:
    • Revenue: $140.62M consensus* vs $137.97M actual → miss (~1.9%); values retrieved from S&P Global.*
    • Primary EPS: $0.453 consensus* vs $0.446 actual* → slight miss (~1.5%); values retrieved from S&P Global.*
    • Note: Company-reported GAAP diluted EPS was $0.19 .
  • Near-term (Q4 2025) S&P Global consensus: Revenue $145.22M*, EPS $0.60*; values retrieved from S&P Global.*
  • Implications: The guidance cut and persistent mix/tariff headwinds suggest risk to margin assumptions, though management telegraphed a stronger Q4; higher expected tax rate (30–35%) also pressures bottom-line consensus .

Financial Results Detail (Drivers and Cross-Checks)

  • Debit & Credit grew 16% to $115.3M on Arroweye and instant issuance; Prepaid fell 7% to $23.3M on timing and tough comps .
  • Gross margin compression reflected lower ASPs (sales mix), $1.6M of tariff expense, and ~$1.7M higher depreciation from Arroweye and the new Indiana facility; SG&A rose ~$1M on $1.8M acquisition/integration costs and Arroweye opex .
  • YTD: net sales +10% to $390.5M; Adjusted EBITDA -4% to $67.1M; FCF $6.1M as capex rose ~$9.6M for Indiana; net leverage 3.6x on $324.6M net debt and $89.0M LTM Adjusted EBITDA .

Key Takeaways for Investors

  • Mix and tariff headwinds drove margin compression despite top-line growth; management is attacking costs (supplier negotiations, automation, Arroweye synergies), with 2026 efficiency benefits expected from Indiana coming online .
  • Guidance reset lowers FY25 expectations; expect Q4 acceleration but with continued mix/tariff drag; watch for execution on Arroweye synergies and Card@Once momentum to support margins .
  • Prepaid remains strategically attractive (higher-value packaging, closed-loop expansion), but order timing and lumpy demand may persist; the Karta chip-enabled solution could structurally raise ASPs and value if pilots scale in 2026+ .
  • Balance sheet leverage (3.6x) and higher coupon debt underscore the importance of FCF conversion; management prioritized deleveraging while funding modernization and growth .
  • Policy risk remains: proposed semiconductor chip tariffs are excluded from guidance; CPI is partially buffered by inventory and potential supplier exemptions—monitor policy developments and supply chain responses .
  • For estimate models: consider lower FY25 EBITDA margin trajectory, elevated depreciation and a 30–35% tax rate, along with a stronger Q4 revenue cadence .

Appendices

S&P Global Consensus vs Actuals (Q3 2025)

MetricConsensusActualSurprise
Revenue ($M)$140.62*$137.97 -$2.65 (~-1.9%)
Primary EPS ($)$0.453*$0.446*-$0.007 (~-1.5%)

Values retrieved from S&P Global.*

Notable Non-GAAP Adjustments (Q3)

  • Adjusted EBITDA reconciliation includes: stock-based comp $1.499M, acquisition/integration $1.849M, restructuring/other $1.190M, loss on debt extinguishment $0.287M; Adjusted EBITDA $23.429M (17.0% margin) .

Additional Context and Press Releases

  • Fort Wayne “Factory of the Future” grand opening: larger, automated, LEED-aimed facility with inline production and AI-enabled quality systems; all lines slated to be operational by year-end .
  • Q2 and Q1 baselines: Q2 net sales $129.8M (+9%), gross margin 30.9%, Adjusted EBITDA $22.5M; Q1 net sales $122.8M (+10%), gross margin 33.2%, Adjusted EBITDA $21.2M .