管理層發言
Welcome to CPI's Second Quarter 2026 Earnings Call. My name is Alexandra and I will be your operator today. Operator instructions. Now I would like to turn the call over to Davis Barker, Head of Investor Relations.
Thank you, operator. Welcome to CPI's Second Quarter and First Half 2026 Earnings Call. As a brief introduction, I recently joined the CPI team and I'm incredibly excited to partner with CPI's leadership to share our compelling story with the investment community. Joining me on the call today are John Lowe, President and Chief Executive Officer; and Terra Grantham, Chief Financial Officer. Before we begin on Slide 2, I'd 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 actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see CPI's most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only and we undertake no obligation to update any statement to reflect events that occur after this call. During today's call, the company will be discussing one or more non-GAAP financial measures, including, but not limited to, 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. Today's press release as well as the presentation that accompanies this conference call and the Form 10-Q are accessible on CPI's Investor Relations website at investor.cpicardgroup.com. We will open the call for Q&A after our remarks. I would now like to turn the call over to John.
Thanks, Davis and welcome aboard. We're excited to have you on the CPI team. Good morning, everyone and welcome to the call. Before I begin, I'd like to officially congratulate Terra on her appointment as Chief Financial Officer. Since joining CPI in 2017, Terra has been a key driver of CPI's evolution into a payments technology leader. After an outstanding job as interim CFO, I couldn't be more excited to have her in the role permanently. Turning to Slide 3. The CPI team delivered a strong second quarter and first half of 2026. We achieved revenue growth of 15% in the second quarter and 17% in the first half, resulting in a record first half revenue for the company. Our performance reflected continued momentum in Secure Card Solutions, including another quarter of strong execution from Arroweye, which continues to exceed our original expectations. We completed another strategic acquisition, buying an instant issuance solution known as TRISM, which further supports the expansion of our higher growth, higher-margin Integrated Paytech segment. We also received tariff refunds in the second quarter, which benefited the P&L by more than $3 million. These successes were partially offset by some market choppiness in prepaid as we continue to see softness within that segment, which we expect will continue into late 2026. We delivered good profitability growth, exceeding our expectations with second quarter adjusted EBITDA increasing 7% to $24 million, while generating a company record free cash flow of $36 million in the first half. Strong performance in our Secure Card Solutions is driving significant operating cash flow growth as higher volumes accelerate inventory optimization initiatives. Just as importantly, we continue to strengthen our balance sheet, reducing net leverage to 2.7x and redeeming $26.5 million of our senior notes shortly after quarter end. These results reinforce the strength of our business model and our ability to consistently generate strong operating cash flow, delever our balance sheet and create additional value through disciplined capital allocation. With our strong first half performance and visibility into the second half of the year, we are pleased to raise our full year revenue growth and free cash flow guidance while reaffirming all other guidance targets. Terra will share more about our updated outlook shortly. Beyond the financial results, what excites me most is the continued progress we're making executing our strategy and diversifying CPI. We continue to see strong momentum across our cloud-based and digital solutions, which are helping us generate new recurring revenue streams, deepen customer relationships and expand our role in the payments ecosystem. During the quarter, we continued to build go-to-market momentum across our businesses. In our Integrated Paytech segment, we're excited to expand the reach of our cloud-based push provisioning and Card@Once solutions with Blossom, a leading digital banking and payments platform serving more than 350 credit unions; and CU*Answers, a leading core processing and digital banking provider, serving more than 400 credit unions across the U.S. We continue to be excited about the momentum we're building as we expand our reach into the payments ecosystem as a provider of digital solutions, leveraging our tokenization capabilities. In our Secure Card Solutions segment, we hit a new milestone with Arroweye, where we executed our 25th new customer win since closing the acquisition in May of last year. We are also excited to have extended our relationship with Vericast, a data-driven fintech that services roughly 60% of U.S. commercial banks and credit unions and a customer relationship that spans more than two decades. On the prepaid side, while the current year remains choppy, we remain excited about our long-term opportunities in the open loop market and the much larger closed-loop market. This quarter, we've continued to win share and are now serving all of the top prepaid program managers in the U.S., further strengthening our position as the center of the prepaid market and creating new opportunities to deliver our secure packaging solutions. We are making good progress with Karta on our joint pilot to launch prepaid packages with SafeToBuy chip-embedded technology at one of the largest U.S. national retailers, and we are seeing encouraging signs in the adoption of closed loop, a market we estimate is approximately five times the size of open loop. Given our leadership position in prepaid packaging, chip-enabled solutions and customer relationships, we believe CPI is uniquely positioned to capitalize on the prepaid market as it acts to reduce fraud. Altogether, these wins across our business are a great example of how CPI is leveraging both physical and digital payment solutions to create value for customers and drive profitable growth. Turning to Slide 4. Let me briefly remind everyone of the foundation of our strategy. Everything we do is built around three core growth pillars: our proprietary technology platform, our marketable base of thousands of customer relationships across the payments ecosystem and our ability to deliver innovative payment solutions that evolve alongside market needs. These pillars continue to drive growth and diversification across the company and our acquisition of TRISM instant issuance is an excellent example of that strategy in action. Turning to Slide 5. TRISM expands our leadership position in the attractive U.S. instant issuance market and roughly doubles our instant issuance addressable market by enabling us to serve larger financial institutions that prefer an on-premise solution. The acquisition increases our instant issuance presence to nearly 20,000 locations across over 3,000 financial institutions, adds recurring revenue and long-term customer relationships and creates attractive cross-selling opportunities across CPI's broader portfolio. I met with the TRISM team last week and on behalf of the leadership team and all of CPI, we are excited to have TRISM as part of our team. TRISM is expected to increase Integrated Paytech growth to approximately 20% in 2026, while maintaining a gross margin profile of over 50%, consistent with our existing Integrated Paytech business. Additionally, this acquisition had little impact on leverage, enabling us to complete the strategic acquisition while maintaining our disciplined approach to capital allocation. In summary, we delivered an excellent second quarter. We gained share, generated strong revenue growth and profitability expansion, delivered record first half free cash flow and continued to improve our balance sheet. We are executing our strategy to grow and diversify the business, positioning CPI well for the second half of the year and beyond. With that, I'll turn the call over to Terra to provide more detail on our financial results and outlook for the remainder of the year.
Thanks, John. Before I begin, I'd like to thank John, our Board of Directors and the entire CPI team for their confidence and support as I take on the CFO role. I look forward to continuing to partner with our leadership team as we execute our strategy, drive profitable growth and create long-term value for our shareholders. I'll begin with our consolidated revenue and profitability results on Slide 7. We are pleased with our second quarter and first half financial performance. Our strong results for the second quarter were better than our expectations, although the mix of performance across the business evolved as the first half progressed. Strong performance in Secure Card Solutions helped offset a slower-than-expected start to the year in Prepaid Solutions. Revenue increased 15% in the second quarter to $149 million compared to $130 million in the prior year period, driven by increased volumes of contactless cards and higher personalization solutions as well as contributions from the acquisition of Arroweye. Excluding Arroweye, total organic revenue grew 12% in the second quarter, reflecting the underlying strength of our business. Second quarter gross profit increased 21%, resulting in a gross profit margin of 32.5% in the second quarter, an increase of approximately 160 basis points from 30.9% in the prior year period, primarily driven by a benefit of more than $3 million of tariff refunds. Second quarter adjusted EBITDA was $24 million, representing growth of 7%, driven by revenue growth and the benefits of tariff refunds. Gross margin and adjusted EBITDA margins were impacted by unfavorable segment mix due to softness in higher-margin prepaid revenue that was partially offset by continued growth in Secure Card Solutions, which, while profitable, carries lower margins than our prepaid business. SG&A expenses were $37 million in the second quarter compared to $31 million in the prior year period. The increase in SG&A was driven by Arroweye integration expenses and investments in digital and technology as we fuel our efforts to grow and diversify in our higher-margin, more recurring revenue businesses like Card@Once and digital. Integration and transaction-related costs primarily related to Arroweye were nearly $3 million in the second quarter. We expect these to be significantly lower in the second half of the year. We will have TRISM integration expenses in the second half but at significantly lower spend levels. These investments have and will continue to support our long-term growth strategy through expanded capabilities and revenue and operating synergies. And as a reminder, these costs are not included in adjusted EBITDA but do impact net income. We are driving initiatives designed to improve margins over time. During the second quarter, we progressed supplier negotiations, realized incremental acquisition synergies, including freight and scale efficiencies, advanced work site optimization across our Secure Card Solutions footprint and moved our automation initiatives forward. We also continued our focus on expanding our growth in higher-margin solutions, including metal cards in our Integrated Paytech segment. While some of these initiatives are already generating benefits, we expect a larger impact as we move through the year. Turning to our segment results on Slide 8. In Secure Card Solutions, second quarter revenue increased 17% to $111 million, driven by increased volumes of contactless cards, higher personalization and $5 million of Arroweye contribution. Excluding Arroweye, second quarter organic revenue in the secure card segment increased 13% with strong underlying growth in our largest segment. In Prepaid Solutions, second quarter revenue increased 18% to $23 million, primarily due to a change in accounting that was implemented in the second quarter of 2025, partially offset by comparisons with strong sales of higher-value packaging solutions in the prior year period. As I shared at the start of my remarks, we experienced a slower-than-expected start to the year in prepaid as customer ordering patterns remained uneven. While the recovery has been slower than originally anticipated, we continue to be well positioned to capture new revenue opportunities in this market, including in closed loop, where we are continuing to see strong customer interest and in our strategic partnership with Karta. Within Integrated Paytech, second quarter revenue increased 4%, driven by increased Card@Once revenue and a very small contribution from the TRISM instant issuance acquisition, which closed in late June. We continue to expect Integrated Paytech to deliver approximately 20% growth for the full year, an increase from 15% expected at the start of the year. While this implies a significant increase in growth in the second half of the year, we have confidence in this expectation based upon continued adoption of our Card@Once and digital solutions, contributions from TRISM and the benefits of favorable comps versus the prior year. We generated exceptional cash flow in the first half of the year. Cash flow from operating activities was a record $42 million in the first half compared with $10 million in the prior year period. Free cash flow was $36 million compared with $1 million in the prior year period, driven by lower working capital usage, including reductions in chip inventory, and a strong Secure Card Solutions performance that accelerated inventory optimization initiatives. Our free cash flow through the first six months of the year is a record for the company. Capital expenditures totaled $6 million in the first half, down from $9 million in the prior year period as capital spending last year included investments for our new Indiana production facility. We now expect full year CapEx to be slightly below our 2025 levels, driven by a reduction in certain equipment investments and lower software capitalization than planned. We are focusing CapEx on growing our digital solutions, enhancing our technology, driving automation and other key growth investments. On the balance sheet, at quarter end, we had $21 million of cash, $92 million of available borrowing capacity under our ABL revolver and $265 million of senior notes outstanding prior to our $26.5 million senior note redemption in mid-July. Net leverage ended the quarter at 2.7x, down from 3.6x at this point last year. The progress on our balance sheet reflects our commitment to deleveraging and reducing our interest expense while continuing to grow adjusted EBITDA. Wrapping up with our 2026 financial outlook on Slide 10. As John shared at the beginning of the call, we are pleased to be increasing our 2026 financial guidance on revenue growth and free cash flow while holding our guidance on adjusted EBITDA and year-end net leverage. Our adjusted EBITDA outlook remains unchanged as the benefits from stronger Secure Card Solutions performance and tariff refunds are expected to largely be offset by continued investment in Integrated Paytech and ongoing choppiness in our higher-margin Prepaid Solutions segment. We now expect revenue growth of high single digits to low double digits, adjusted EBITDA growth of low to mid-single digits, free cash flow ranging from $45 million to $50 million, an increase from our prior guidance and a conversion rate in line with 2025. 2025 free cash flow was $41 million. Year-end net leverage expected from 2.5x to 3.0x. And as we already shared, we are raising our Integrated Paytech segment revenue growth from 15% to approximately 20%, helped by our acquisition of TRISM. Overall, our first half results keep us on track to achieve our updated full year objectives. We currently expect third quarter revenue and adjusted EBITDA to be slightly better than the second quarter as we progress toward our updated guidance. The actions we are taking to grow the business, expand our market opportunity, improve margins and generate strong cash flow position us well for the remainder of 2026 and beyond. I'll now turn the call back to John for some closing remarks.
Thanks, Terra. We delivered a strong first half of 2026, achieving double-digit revenue growth and record free cash flow while continuing to execute on our strategy to grow and diversify the business. We expanded our digital and cloud capabilities, secured exciting customer wins, completed another strategic acquisition and continued building momentum across our portfolio. At the same time, we strengthened our balance sheet, reduced debt and maintain the flexibility to invest in future growth while creating value for shareholders. As I wrap up today's remarks, I want to recognize the CPI team for delivering a strong first half and positioning us for an even stronger second half of 2026. We have a robust sales pipeline, an increasingly high-quality recurring revenue customer base and a clear focus on generating profitable growth. Operator, we will now open the call up for questions.
分析師問答
Operator instructions. Your first question comes from the line of Peter Heckmann with D.A. Davidson.
Good to see the nice strong first half results. I had a question on the TRISM acquisition. I infer that this is a relatively small deal. I think in the original press release, you said that you didn't expect it to change your net leverage ratio at all. I did hop on a little bit late, so I apologize if you already covered it. But I guess, in terms of thinking about incremental revenue perhaps that you could pick up for 2027, should we be thinking about maybe something like for the full year, $5 million to $10 million in revenue? And then just in terms of the rationale for that deal, there aren't very many players in the instant card issuance market. Absorbing this one should really help your competitive position. Can you talk a little bit about what attributes the deal brings to CPI?
Yes, Pete, good question. No problem jumping on late. We can cover that. So just to start, TRISM is a great strategic acquisition for us. You think about our position in the instant issuance market broadly, we historically have been the market leader by far in cloud-based, Software-as-a-Service solutions where you're servicing those small to medium banks that don't have the ability to manage their own technology. We would also compete against a couple of other players that have on-premise solutions, typically servicing the larger banks with a greater number of locations that have large technology operations and that want to manage those systems on site. TRISM fits into that latter mold. So it really grows our addressable market, essentially doubling it from where we were and is a great investment for us. That said, to your other question about size, we talked about TRISM increasing our Integrated Paytech segment guidance this year from 15% to 20%. If you run that math, roughly $3.5 million to $4 million is what we expect for the latter part of this year. That said, that's because we're getting them up and running under the CPI umbrella. We would expect that run rate to be roughly double and probably a little bit larger in 2027. So I wouldn't expect to give precise guidance yet, but I wouldn't expect just to double that and call it the guidance for 2027. Pete, does that answer your question?
Your next question comes from the line of Jacob Stephan with Lake Street Capital Markets.
First, maybe just kind of building off of that last one on TRISM. When I look at Integrated Paytech, it grew kind of low single digits in the first half but your fiscal year guide is 20%. I think TRISM is probably in the $3 million to $4 million range. What's the other $10 million that you're expecting to ramp in the second half?
So really three things. One, our Card@Once business — we have strong confidence in the second half of the year. We see line of sight to greater growth there and that's important for us. You add in TRISM, which as I mentioned is a smaller percentage of the growth. And then if you look at comparables for 2026 versus 2025, Q3 was a pretty good quarter in 2025 but Q4 of 2025 was a little bit slower. So we would expect fairly strong growth in Q3 for Integrated Paytech and very strong growth in Q4 of 2026 for Integrated Paytech. We're confident in the business and our line of sight to hit the 20% guidance for the year.
Okay. Great. Maybe just on Secure Card, that was up 25% in the first half. How much of the incremental was Arroweye versus organic contactless personalization? And can that maintain into the second half of the year?
Yes. If you look at our organic growth, it was very strong in the first half and in Q2. Overall, for CPI, our organic growth for Q2 was 12% and for the first half was 14%, and the majority of that was driven by strong organic growth in Secure Card Solutions.
Okay. Last one for me. Just on the free cash flow, obviously $36 million is outstanding in the first half. With your guide being $45 million to $50 million, what kind of reversals in the second half do you expect? And how much inventory release is left in the model?
Well, Jacob, first, I just want to thank the team — we had a tremendous amount of cash flow in the second quarter. The performance in the business is really driving significant volume growth, which ultimately drives inventory optimization, which we've been pushing to do since the post-COVID period. We knew we'd get to this point, and we're excited about the cash flow prospectively. I'll let Terra cover more of the second half detail.
Yes. Again, very happy with our free cash flow performance in the first half. A lot of that was driven by inventory optimization acceleration. We expect our inventory to continue to improve in the second half. However, we do have some other items in the second half that will not be as positive as the first half, primarily around accounts receivable and accounts payable timing. So a lot of the performance in the first half was due to strong working capital management and some timing benefits. We also expect higher CapEx in the second half. Overall, we're focused on continuing to drive cash flow and are very encouraged by our performance and continued working capital management going forward.
Your next question comes from the line of Peter Heckmann with D.A. Davidson.
John, sorry about that. I was on mute. I did have a follow-up question but your answer on TRISM was very helpful. Thinking about progress on anti-fraud packaging on the closed-loop prepaid cards: have you had any progress there and has that changed your thoughts about the relative opportunity over the next 18 months?
Yes, Pete, good question. The prepaid market broadly — we continue to be extremely well positioned for what may occur going forward. Change in this market tends to happen gradually, so it's hard to put a specific date on it. If you think about the two big markets — open loop, where we've been a leader for a long time, and closed loop, where we're just entering — closed loop is about five times the size of open loop from a volume perspective. The value of closed loop continues to rise as regulation changes in states and retailers demand greater packaging around closed loop cards. That's where we fit because we're the largest prepaid packager in the United States by far. On the open loop side, when you add in our chip expertise from Secure Card Solutions and Integrated Paytech, that is something we're already piloting with one of the largest national retailers in the United States. We're in the second stages of that pilot and it seems to be going well. These things take time, but we're excited about the opportunity. I wouldn't put a precise number on what that means for 2027 or 2028, but we are confident in our position and the longer-term opportunity in prepaid.
Okay. That's helpful. One last quick question on metal cards. I know it's a small portion of your overall business but it seems to be growing. Can you discuss how your metal cards differ from other major providers and where you see opportunities?
Yes, good question. We had decent metal sales in Q2 and pretty strong metal sales in Q1, but it's a much smaller part of the business. Where we compete is at a more value price point than some competitors while still delivering a high-value marketable product. Our teams have been working on an almost on-demand metal product; it's early days but promising. Metal is a market we will continue to participate in and innovate within. For the thousands of small to medium banks we serve, we believe our value proposition is well positioned to capture growth in metal cards as the market expands.
Your next question comes from the line of Andrew Scutt with ROTH Capital Partners.
Continued progress. First, piggybacking on prepaid: outside of packaging, you mentioned lumpiness in demand in the quarter. Can you talk about pockets that are working and areas where demand is lagging expectations?
We said the first half would be a bit weak and expect the market to remain choppy through late 2026 while it figures out how to better protect against fraud. Most of the demand volatility is in open loop, which is the majority of what we serve and where we have a leadership position. Closed loop, which we entered in late 2025, showed decent growth and strong customer interest, though it's still small relative to the overall business. We're well positioned to grow with the prepaid market and support that growth through our packaging and chip expertise.
I would add that the stronger Secure Card Solutions performance accelerated inventory optimization, which helped our cash flow. We're focusing on the areas that drive long-term margin improvement and working capital efficiency, and we expect continued progress in the second half.
Your next question and final question will come from Hal Goetsch with B. Riley Securities.
Terrific results. You mentioned prepaid is going to be choppy through late 2026. Are you facing tough comparisons, or what is causing a business that is usually consistent to be choppy this year? Any extra color would help.
There are two things. One, we had some strong quarters last year — prepaid had a very good Q4 of 2025 — so comparisons are tougher. Given our position in the market, as the market ebbs and flows we experience those effects. Broadly, though, we still believe prepaid is a growing market. Our position in closed loop presents a lot of opportunity, and whether open loop or closed loop, addressing fraud is the central driver. We are the largest packager of prepaid cards in the U.S. and have deep chip expertise, a unique combination that positions us well for the longer term. While this year may be choppy, we're confident in the long-term prospects.
Yes. Two quick follow-ups. One is on the balance sheet and free cash flow. A lot of the free cash flow stems from inventory getting in line and lower receivables. Were there some big receivable invoices outstanding? Should we expect this level of working capital benefit again or was some of it timing-related?
There were specific drivers to our strong first half performance, including inventory optimization driven by Secure Card Solutions growth. Some of the benefits were due to timing, including AR and AP timing. However, we've also taken steps that should continue to support cash generation. We did raise our full year free cash flow guidance to $45 million to $50 million, so we expect continued strong performance for the full year, even recognizing that some of the first half benefit included timing.
Last one: with the Fort Wayne plant running and becoming optimized, can you provide color on benefits, lessons learned or whether it's running above expectations?
Fort Wayne is performing well. The team has done a great job and we're able to move work between Fort Wayne and our Colorado site efficiently. We've invested in modernizing the site and automation, which not only improves efficiency but also demonstrates to customers our commitment to helping them succeed. Those investments should continue to improve margins and efficiency over time.
One initiative that's been valuable is the ability to move jobs across sites, which helps us optimize production mix and place work in the most profitable location within the network. That flexibility supports both near-term efficiency and future growth.
As there are no further questions in the queue, I would now like to turn the call back over to John Lowe for closing remarks.
Well, thanks, everyone, for joining us. Before we sign off, I'd like to thank our employees for their continued dedication, our customers for their trust and partnership and our shareholders for their ongoing support. We look forward to delivering a strong second half of 2026. Have a great day.
This concludes today's call. Thank you for attending. You may now disconnect.