CPI Card Group(US:PMTS)2023-03-08 15:55Financial Data and Key Metrics Changes - In 2022, the company achieved record net sales of $476 million, representing a 27% increase year-over-year [40] - Adjusted EBITDA grew by 28% to $98 million, with the adjusted EBITDA margin slightly increasing to 20.5% despite inflationary pressures [40][58] - The net leverage ratio improved to 3x, with $25 million of principal retired on senior secured notes during the year [40][58] - Free cash flow increased to $13.5 million from $10.2 million in the prior year, with a strong fourth quarter generating $16.2 million in free cash flow [11][12] Business Line Data and Key Metrics Changes - The Debit and Credit segment saw a 32% increase in sales, driven by strong demand for contactless cards and personalization services [64] - The Prepaid Debit segment experienced a 9% increase in sales, with growth attributed to new customer additions and pricing benefits [19][68] - For Secure Cards, 80% of sales growth was due to volume, with the remainder from the conversion to contactless cards and pricing [20] Market Data and Key Metrics Changes - The U.S. market for contactless cards is estimated to have ended 2022 with a penetration rate of 50% to 60%, expected to grow to over 80% by 2025 [18] - The company anticipates mid-single digit growth for net sales in 2023, with higher growth expected in the Debit and Credit segments [48] Company Strategy and Development Direction - The company focuses on four key strategic priorities: deep customer focus, market-leading quality products and customer service, continuous innovation, and a competitive business model [52] - The company reorganized its structure to enhance execution of strategies, aligning Secure Cards, personalization, and instant issuance under one leader [54] - New product initiatives include prepaid payment cards for non-retail channels and exploring instant issuance solutions beyond financial institutions [55] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to secure supply despite macroeconomic challenges, citing strong relationships with suppliers [11][75] - The outlook for 2023 includes expectations for adjusted EBITDA growth in the mid- to high-single digit range, with a focus on increasing free cash flow and reducing leverage [50][76] - Management acknowledged the potential for slower market growth in 2023 compared to 2022, but remains optimistic about gaining market share [48][49] Other Important Information - The company reported a significant increase in accounts receivable and inventories due to strong sales growth and customer demand [12] - SG&A expenses increased by approximately $15 million, primarily due to higher compensation and professional services costs [57] Q&A Session Summary Question: Analyst inquiry on investor awareness and coverage - Management is actively working on enhancing investor relations and reaching out to analysts to increase coverage [7][8][13] Question: Inquiry about Prepaid Debit segment growth - Management indicated that the Prepaid Debit segment is expected to be flat in 2023 due to tough comparisons with 2022, but sees long-term growth opportunities [87] Question: Clarification on supply chain confidence - Management reiterated confidence in securing supply through strong supplier relationships and proactive inventory management [11][75]