Q2 2024 CPI Card Group Inc Earnings Call
Welcome to CPI Card Group's 2nd Quarter 2024 Earnings Call.
34, Vernon Scull.
Eric: My name is Eric, and I will be your operator today. If you are viewing on the webcast, you may advance the slides forward by pressing the arrow buttons.
Operator: My name is Eric, and I will be your operator today. If you are viewing this on the webcast, you may advance the slides forward by pressing the arrow button.
Eric: My name is Eric and I will be your operator today.
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The call will be open for questions after the company's remarks. If you would like to get in the queue for questions, please press star followed by the number one on your telephone keypad. If you would like to enjoy a question, press star one again.
Operator: The call will be open for questions after the company's remarks. If you would like to get in the queue for questions, please press star followed by the number one on your telephone keypad. If you would like to adjourn your question, press star 1 again. Now I would like to turn the call over to Mike Salop, CPI's Head of Investor Relations.
Speaker Change: The call will be open for questions after the company's remarks.
Speaker Change: If you would like to get in the queue for questions, please press star followed by the number 1 on your telephone keypad.
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Mike Salop: Now I would like to turn the call over to Mike Salop, CPI's head of Investor Relations. Please go ahead.
Mike Salop: Now, I would like to turn the call over to Mike Salop, CPI's Head of Investor Relations.
Mike Salop: Thanks, Operator, and good afternoon, everyone. Welcome to the CPI Card Group second quarter 2024 Earnings Webcast and Conference Call. Today's date is August 5th, 2024, and on the call today from CPI Card Group are John Lowe, President and Chief Executive Officer, and Jeff Hochstadt, Chief Financial Officer. Before we begin, 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.
Thanks, operator, and good afternoon, everyone.
Mike Salop: Welcome to the CPI Card Group Second Quarter of 2024 Earnings Webcast and Conference Call. Today's date is August 5th, 2024, and on the call today from CPI Card Group are John Lowe, President and Chief Executive Officer, and Jeff Hochstadt, Chief Financial Officer.
Speaker Change: Please go ahead.
Speaker Change: Thanks, Operator, and good afternoon, everyone. Welcome to the CPI Card Group Second Quarter 2024 Earnings Webcast and Conference Call. Today's date is August 5, 2024, and on the call today from CPI Card Group are John Lowe, President and Chief Executive Officer, and Jeff Hochstadt, Chief Financial Officer.
Before we begin, I'd like to remind everyone this call may contain forward-looking statements that 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 discussions such as risk and uncertainties, please see CPI Card Group's most recent filings with the SEC. All forward-looking statements may today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that occur after this call.
Mike Salop: 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 Card Group's most recent filings with the FCC.
Speaker Change: Before we begin, 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.
Speaker Change: For a discussion of such risks and uncertainties, please see CPI Card Group's most recent filings with the FCC. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that occur after this call.
Mike Salop: All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the 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 afternoon.
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 pre-cash flow. Reconciliation of these non-GAAP financial measures, the most directly comparable GAAP measures, are included in the press release and slide presentation we issued this afternoon.
Speaker Change: 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.
Speaker Change: 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 afternoon.
Happy that today's press release, as well as the presentation of the company's conference call, are accessible on CPI's Investor Relations website, investor.cpicardgroup.com. In addition, CPI's form 10-Qs for the quarter into June 30th, 2024 will be available on CPI's Investor Relations website. On today's call, I'll growth rates refer to comparisons with the prior year period unless otherwise noted.
Mike Salop: Copies of today's press release, as well as the presentation of the company's conference call, are accessible on CPI's Investor Relations website, investor.cpicardgroup.com. In addition, CPI's Form 10-Q for the quarter ended June 30, 2024, will be available on CPI's Investor Relations website. On today's call, all growth rates refer to comparisons with the prior year period, unless otherwise noted. I'd now like to turn the call over to President and Chief Executive Officer John Lowe.
Speaker Change: Copies of today's press release, as well as the presentation of the company's conference call, are accessible on CPI's investor relations website, investor.cpicardgroup.com.
Speaker Change: In addition, CPI's Form 10-2 for the quarter ended June 30, 2024, will be available on CPI's Investor Relations website. On today's call, all growth rates refer to comparisons with the prior year period, unless otherwise noted.
John Lowe: I'd now like to turn the call over to President and Chief Executive Officer John Lowe. Thanks, Mike, and good afternoon, everyone. On today's call, I would give a brief overview of the second quarter and our ongoing strategies. Jeff will go into more detail on the results and our financial outlook, and then we will open the call for questions. Let's start on slide four. As I wrap up my second quarter as President and CEO, I am very pleased with the performance of our company and our teams. We return to positive sales growth in the quarter, as continued growth in our prepaid segment and our instant issuance and card personalization businesses was complemented by improved trends in secure card sales, leading to growth in both our business segments.
Speaker Change: And now I'd like to turn the call over to President and Chief Executive Officer John Lowe.
John Lowe: Thanks, Mike, and good afternoon, everyone. On today's call, I will give a brief overview of the second quarter and our ongoing strategy. Jeff will go into more detail on the results and our financial outlook, and then we will open the call for questions. Let's start with slide four.
John Lowe: Thanks, Mike, and good afternoon, everyone. On today's call, I will give a brief overview of the second quarter and our ongoing strategies. Jeff will go into more detail on the results and our financial outlook, and then we will open the call for questions.
John Lowe: As I wrap up my second quarter as President and CEO, I am very pleased with the performance of our company and our team. We return to positive sales growth, as continued growth in our prepaid segment and our instant issuance and card personalization business was complemented by improved trends in secure card sales, leading to growth in both our business segments. Additionally, we made further progress on our diversification efforts in adjacencies and digital solutions.
Speaker Change: Let's start on slide four.
Speaker Change: As I wrap up my second quarter as President and CEO , I am very pleased with the performance of our company and our teams.
John Lowe: We return to positive sales growth in the quarter.
Jeff: as continued growth in our prepaid segment and our instant issuance and card personalization businesses.
John Lowe: was complemented by improved trends in secure card sales leading to growth in both our business segments.
Additionally, we made further progress on our diversification efforts in adjacencies and digital solutions. From a market perspective, while we believe channel card inventory is still being worked down, levels are improving and we are winning business. Secure card sales were down only slightly in the quarter and posted sequential growth compared to the first quarter, which represented the second straight quarter of sequential increases. The issuance market also remains strong, with cards in circulation in the US posting another healthy growth quarter based on the latest data from the card. Networks. Our pre-fades business benefited from higher value packaging solutions, while our instant issuance business was aided by continued market penetration of our software as a service-based digital solution, as we are now in more than 16,000 branches across the United States.
John Lowe: Additionally, we made further progress on our diversification efforts in adjacencies and digital solutions.
John Lowe: From a market perspective, while we believe channel card inventory is still being worked down, levels are improving, and we are winning business. Your card sales were down only slightly in the second quarter and posted sequential growth compared to the first quarter, which represented the second straight quarter of sequential increase.
John Lowe: From a market perspective, while we believe channel card inventory is still being worked down, levels are improving and we are winning business.
John Lowe: Secure card sales were down only slightly in the quarter.
John Lowe: and posted sequential growth compared to the first quarter which represented the second straight quarter of sequential increases.
John Lowe: The issuance market also remains strong, with cards in circulation in the U.S. posting another healthy growth, based on the latest data from the card. Our prepaid business benefited from higher-value packaging solutions, while our instant issuance business was aided by continued market penetration of our software-as-a-service-based digital solution, as we are now in more than 16,000 branches across the U.S. Overall, we are confident in our business trends and continue to expect better growth rates in the second half of the year. From a profitability standpoint, gross margins improved slightly in the quarter while adjusted EBITDA margins declined, primarily due to increases in SG&A, which reflect increased investments in people and the business to drive future growth.
John Lowe: The issuance market also remains strong, with cards in circulation in the U.S. posting another healthy growth quarter based on the latest data from the card networks.
Speaker Change: Our prepaid business benefited from higher-value packaging solutions, while our instant issuance business was aided by continued market penetration of our software-as-a-service-based digital solution, as we are now in more than 16,000 branches across the United States.
Overall, we are confident in our business trends and continue to expect better growth rates in the second half of the year. From a profitability standpoint, gross margins improved slightly in the quarter, while adjusted EBITDA margins declined. Primarily due to increases in SG&A, which reflect increased investments in people and in the business to drive future growth. For the second half of the year, we expect strong growth in sales and adjusted EBITDA compared to last year's second half. Based on our first half performance and expectations for the rest of the year, we have updated our full year outlook for 2024, increasing our expected sales growth from a slight increase to mid-single-digit growth, while maintaining our adjusted EBITDA outlook as slight growth compared to 2023, as we continue to invest for long-term growth.
Speaker Change: Overall, we are confident in our business trends and continue to expect better growth rates in the second half of the year.
Speaker Change: From a profitability standpoint, gross margins improved slightly in the quarter, while adjusted EBITDA margins declined, primarily due to increases in SG&A, which reflect increased investments in people and the business to drive future growth.
John Lowe: For the second half of the year, we expect strong growth in sales and adjusted EBITDA compared to last year's second half. Based on our first half performance and expectations for the rest of the year, we have updated our full-year outlook for 2024, increasing our expected sales growth from a slight increase to mid-single-digit growth while maintaining our adjusted EBITDA outlook at slight growth compared to 2023, as we continue to invest for long-term growth.
Speaker Change: For the second half of the year, we expect strong growth in sales and adjusted EBITDA compared to last year's second half.
Speaker Change: based on our first half performance and expectations for the rest of the year.
Speaker Change: We have updated our full-year outlook for 2024, increasing our expected sales growth from a slight increase.
Speaker Change: to mid-single-digit growth.
Speaker Change: while maintaining our adjusted EBITDA outlook at slight growth compared to 2023 as we continue to invest for long-term growth.
The improvement in our sales outlook is being driven by strong pre-paid performance and improvement in debit and credit sales trends, but Jeff will give you more detail on our full financial outlook in a few minutes. In addition to our business performance, we have continued to execute against our capital allocation priorities and further enhance our capital structure. In July, to further support our long-term growth, we refinanced our debt, issuing $285 million of new senior secured notes and entering into a new $75 million asset-based revolving credit facility. The refinancing extends our debt maturities out to 2029 and removes market risk in replacing the previous notes, which would have matured in early 2026.
John Lowe: The improvement in our sales outlook is being driven by strong prepaid performance and improvement in debit and credit sales. But Jeff will give you more detail on our full financial outlook in a few minutes. In addition to our business performance, we've continued to execute against our capital allocation priorities and further enhance our capital structure. In July, to further support our long-term growth, we refinanced our debt, issuing $285 million of new senior secured notes and entering into a new $75 million asset-based revolving credit. The refinancing extends our debt maturities out to 2029 and removes market risk in replacing the previous notes, which would have matured in early 2026.
Speaker Change: The improvement in our sales outlook is being driven by strong prepaid performance and improvement in debit and credit sales trends, but Jeff will give you more detail on our full financial outlook in a few minutes.
Jeff: In addition to our business performance, we have continued to execute against our capital allocation priorities and further enhance our capital structure.
Jeff: In July , to further support our long-term growth, we refinanced our debt, issuing $285 million of new senior secured notes and entering into a new $75 million asset-based revolving credit facility.
Jeff: The refinancing extends our debt maturities out to 2029 and removes market risk in replacing the previous notes, which would have matured in early 2026.
We chose to refinance the summer as the debt markets have been strong and investors have been very receptive to offerings, and we wanted to avoid any potential that the markets become less favorable as we go through the election cycle later this year. In addition, we have completed additional share repurchases, bringing our total since inception of the program to almost $9 million out of our $20 million authorization.
John Lowe: We chose to refinance this summer as the debt markets have been strong and investors have been very receptive to offerings, and we wanted to avoid any potential that the markets could become less favorable as we go through the election cycle later this year. In addition, we've completed additional share repurchases, bringing our total since inception of the program to almost $9 million out of our $20 million authorization.
Jeff: We chose to refinance this summer as the debt markets have been strong and investors have been very receptive to offerings, and we wanted to avoid any potential that the markets become less favorable as we go through the election cycle later this year.
Jeff: In addition, we've completed additional share repurchases, bringing our total since inception of the program to almost $9 million, out of our $20 million authorization.
Before turning the caller to Jeff, let me briefly review our strategies on slide five. Our strategies continue to focus on growing and gaining share in our traditional businesses while enhancing growth by expanding into adjacent markets, including digital solutions over the long term. Our goal is to continue to gain share in our current markets by being the leader in customer service, quality, and innovation. One example of following our strategies to grow in our traditional businesses is our ongoing priority to listen to and meet the needs of our customers. In our prepaid business, our customers are currently very focused on preventing fraud and providing more tamper-evident and fraud-resistant solutions to their customers.
John Lowe: Before turning the call over to Jeff, let me briefly review our strategies on slide five. Our strategies continue to focus on growing and gaining share in our traditional businesses while enhancing growth by expanding into adjacent markets, including digital solutions, over the long term. Our goal is to continue to gain share in our current markets by being the leader in customer service, quality, and innovation. One example of following our strategies to grow in our traditional businesses is our ongoing priority to listen to and meet the needs of our customers.
Jeff: Before turning the call over to Jeff, let me briefly review our strategies on slide 5.
Jeff: Our strategies continue to focus on growing and gaining share in our traditional businesses while enhancing growth by expanding into adjacent markets, including digital solutions over the long term.
Jeff: Our goal is to continue to gain share in our current markets by being the leader in customer service, quality, and innovation.
Jeff: One example of following our strategies to grow in our traditional businesses is our ongoing priority to listen to and meet the needs of our customers.
John Lowe: In our prepaid business, our customers are currently very focused on preventing fraud and providing more tamper-evident and fraud-resistant solutions to their customers. Our prepaid team works closely with our customers to counter new mechanisms fraudsters are employing and to develop innovative packaging solutions that help our customers achieve their fraud reduction goal. These additional innovations not only create demand but also require higher-value packaging solutions, benefiting our sales.
Speaker Change: In our prepaid business, our customers are currently very focused on preventing fraud and providing more tamper-evident and fraud-resistant solutions to their customers.
Our prepaid team works closely with our customers to counter new mechanisms; fraudsters are employed, and to develop innovative packaging solutions that help our customers achieve their fraud reduction goals. These additional innovations not only create demand, but also require higher-value packaging solutions benefiting our sales. This is just one example of how we gain share by focusing on our customers across our portfolio and providing leadership in customer service, quality, and innovation. In addition to driving growth in the existing core business, we are advancing our efforts to capitalize on new opportunities by entering adjacent markets, including offering more products and solutions to existing customers and expanding the new customer of articles.
Speaker Change: Our prepaid team works closely with our customers to counter new mechanisms fraudsters are employing and to develop innovative packaging solutions that help our customers achieve their fraud reduction goals.
Speaker Change: These additional innovations not only create demand, but also require higher value packaging solutions benefiting our sales.
John Lowe: This is just one example of how we gain share by focusing on our customers across our portfolio and providing leadership in customer service, quality, and innovation, in addition to driving growth in the existing core business. We are advancing our efforts to capitalize on new opportunities by entering adjacent markets, including offering more products and solutions to existing customers and expanding a new customer version. Examples include our entry into healthcare payment cards and our ongoing development of digital push provisioning services for mobile wallets. We are making progress across both of these long-term drivers, and we expect these adjacent opportunities to supplement core growth over the coming year. Turning to slide six.
Speaker Change: This is just one example of how we gain share by focusing on our customers across our portfolio and providing leadership in customer service, quality, and innovation.
Speaker Change: In addition to driving growth in the existing core business, we are advancing our efforts to capitalize on new opportunities by entering adjacent markets, including offering more products and solutions to existing customers and expanding the new customer verticals.
Examples include our entry into healthcare payment cards and our ongoing development of digital push provision services for mobile wallets. We are making progress across both of these long-term drivers, and we expect these adjacent opportunities to supplement core growth over the coming years.
Speaker Change: Examples include our entry into health care payment cards and our ongoing development of digital push provisioning services for mobile wallets.
Speaker Change: We are making progress across both of these long-term drivers, and we expect these adjacent opportunities to supplement core growth over the coming years.
Turning to slide six, we continue to expect our core markets to provide solid long-term growth. On this slide, you can see the latest U.S. cards and circulation trends from Visa and Mastercard. For the three years ending March 31st, fards and circulation in the U.S. increased at a 10% Kager. In cards and circulation, we're also up 10% compared to the prior year first quarter. So issuance trends remain healthy. We also expect U.S. debit and credit market growth to be aided by ongoing preferences for cards and the recurring nature of the industry as well as trends towards higher value eco-friendly and other contactless cards.
John Lowe: We continue to expect our core markets to provide solid long-term growth. On this slide, you can see the latest U.S. card and circulation trends from Visa and MasterCard. For the three years ending March 31st, cards in circulation in the U.S. increased at a 10% CAGR, and cards in circulation were also up 10% compared to the prior year's first quarter. So issuance trends remain healthy. We also expect U.S. debit and credit market growth to be aided by ongoing preferences for cards and the recurring nature of the industry, as well as trends towards higher value, eco-friendly, and other contactless payments.
Speaker Change: Turning to slide 6, we continue to expect our core markets to provide solid long-term growth. On this slide, you can see the latest U.S. cards in circulation trends from Visa and MasterCard.
Speaker Change: For the three years ending March 31st, cards in circulation in the U.S. increased at a 10% CAGR. And cards in circulation were also up 10% compared to the prior year first quarter. So issuance trends remain healthy.
Speaker Change: We also expect U.S. debit and credit market growth to be aided by ongoing preferences for cards and the recurring nature of the industry, as well as trends towards higher value eco-friendly and other contactless cards.
To demonstrate the ongoing consumer adoption of contactless, Visa just reported in a recent earnings call that tap to pay penetration has surpassed 50% of transactions in the U.S.
John Lowe: To demonstrate the ongoing consumer adoption of Contactless, Visa just reported in its recent earnings call that tap-to-pay penetration has surpassed 50% of transactions in the U.S. I would now like to turn the call over to Jeff to discuss our second quarter financial results and 2024 Outlook in more detail.
Speaker Change: To demonstrate the ongoing consumer adoption of Contactless, Visa just reported in its recent earnings call that tap-to-pay penetration has surpassed 50% of transactions in the U.S.
Jeff Hochstadt: I would now like to turn the caller to Jeff to discuss our second quarter financial results in 2024 outlook in more detail. Jeff, thanks, John, and good afternoon, everyone. I will begin my overview on slide eight. Overall, we are pleased with the second quarter results. As John mentioned, we sustained growth in our prepaid instant issuance and card personalization businesses, and card sales trends improved compared to recent quarters. Compared to the prior year second quarter, net sales increased 3%; net income decreased 8%; and adjusted EBITDA decreased 6%. Growth margins increased slightly, while net income in adjusted EBITDA were negatively impacted by increased SDA, including investments in some ongoing costs related to the CEO transition.
Speaker Change: I would now like to turn the call over to Jeff to discuss our second quarter financial results and 2024 Outlook in more detail. Jeff?
Jeff Hochstadt: Thanks, John, and good afternoon, everyone. I will begin my overview on slide 8. Overall, we are pleased with the second quarter results. As John mentioned, we sustained growth in our prepaid, instant issuance, and card personalization businesses, and card sales trends improved compared to recent quarters. Compared to the prior year's second quarter, net sales increased 3%, net income decreased 8%, and adjusted EBITDA decreased 6%. Gross margins increased slightly, while net income and adjusted EBITDA were negatively impacted by increased SG&A, including investments in some ongoing costs related to the CEO transition.
Jeff: Thanks John and good afternoon everyone. I will begin my overview on slide 8.
Jeff: Overall, we are pleased with the second quarter results. As John mentioned, we've sustained growth in our prepaid, instant issuance, and card personalization businesses, and card sales trends improved compared to recent quarters.
Speaker Change: Compared to the prior year's second quarter, net sales increased 3%, net income decreased 8%, and adjusted EBITDA decreased 6%.
Speaker Change: Gross margins increased slightly, while net income and adjusted EBITDA were negatively impacted by increased SG&A, including investments in some ongoing costs related to the CEO transition.
Year to date, our free cash flow is slightly less than prior year levels, as expected. In our net leverage ratio at the end of the quarter was 3.3 times. Turning to the detailed second quarter results on slide nine, the overall 3% sales increase reflected a 3% increase in our debit and credit segment and a 9% increase in our prepaid segment. Within debit and credit, card at once instant issuance solutions and other card personalization services both delivered good growth. The major trend change versus previous quarters, however, came from improvement and card sales, which only declined slightly in the quarter compared to prior year and increased compared to the first quarter.
Speaker Change: Year-to-date, our free cash flow is slightly less than prior year levels, as expected, and our net leverage ratio at the end of the quarter was 3.3 times.
Jeff Hochstadt: Year-to-date, our free cash flow is slightly less than prior year levels, as expected, and our net leverage ratio at the end of the quarter was 3.3 times. Turning to the detailed second quarter results on Slide 9, the overall 3% sales increase reflected a 3% increase in our debit and credit segment and a 9% increase in our prepaid segment. Within debit and credit, Card at Once instant issuance solutions and other card personalization services both delivered good growth.
Speaker Change: Turning to the detailed second quarter results on slide 9, the overall 3% sales increase reflected a 3% increase in our debit and credit segment and a 9% increase in our prepaid segment.
Speaker Change: Within Debit and Credit, Card at Once, Instant Issuance Solutions, and other card personalization services both delivered good growth.
Jeff Hochstadt: The major trend change versus previous quarters, however, came from improvement in card sales, which only declined slightly in the quarter compared to the prior year and increased compared to the first quarter. The increase in prepaid sales reflects continued strong demand from existing customers for our fraud-focused packaging solutions, as John mentioned earlier. Gross profit in the quarter increased 4% from the prior year, driven by sales growth and a slight increase in margin from 35.5% to 35.7%.
Speaker Change: The major trend change versus previous quarters, however, came from improvement in card sales, which only declined slightly in the quarter compared to prior year, and increased compared to the first quarter.
Jeff Hochstadt: The increase in prepaid sales reflects continued strong demand from existing customers for our frock focused packaging solutions, as John mentioned earlier. Growth profit in the quarter increased 4% from the prior year, driven by the sales growth and the slight increase in margin from 35.5% to 35.7%. FGNA, including depreciation and amortization, increased $4.1 million from the prior year, primarily due to increased compensation costs, including stock compensation from special grants issued in 2023 related to the CEO transition. We also had unfavorable comparisons with low prepaid operating expenses in the prior year. We had planned for SG&A to increase this year as we invest for the future, including in people after tightening spending significantly in 2023.
Speaker Change: The increase in prepaid sales reflects continued strong demand from existing customers for our fraud-focused packaging solutions, as John mentioned earlier.
John Lowe: Gross profit in the quarter increased 4% from the prior year, driven by the sales growth and a slight increase in margin from 35.5% to 35.7%.
Jeff Hochstadt: SG&A, including depreciation and amortization, increased $4.1 million from the prior year, primarily due to increased compensation costs, including stock compensation from special grants issued in 2023 related to the CEO transition. We also had unfavorable comparisons with low prepaid operating expenses in the prior year. We have planned for SG&A to increase this year as we invest for the future, including in people, after tightening spending significantly in 2023
John Lowe: SG&A, including depreciation and amortization, increased $4.1 million from the prior year, primarily due to increased compensation costs, including stock compensation from special grants issued in 2023 related to the CEO transition.
John Lowe: We also had unfavorable comparisons with low prepaid operating expenses in the prior year.
John Lowe: We have planned for SG&A to increase this year as we invest for the future, including in people, after tightening spending significantly in 2023.
Our tax rate in the quarter was 27.7%, which compared to 38.9% in the second quarter of last year, as last year's rate reflected limitations on detectability of executive compensation due to the CEO retention award. Net income in the first quarter decreased 8% to $6 million, primarily due to the SG&A increase, partially offset by sales growth in the lower tax rate. In adjusted EBITDA, decreased 6% to $21.9 million. Adjusted EBITDA margin of 18.4% was down from 20.3% in the prior year due to the higher SG&A expenses.
Jeff Hochstadt: Our tax rate in the quarter was 27.7 percent, which compared to 38.9 percent in the second quarter of last year, as last year's rate reflected limitations on the deductibility of executive compensation due to the CEO Retention Award. Net income in the first quarter decreased 8% to $6 million, primarily due to the SG&A increase, partially offset by sales growth and the lower tax rate. An adjusted EBITDA decreased 6% to $21.9 million. The adjusted EBITDA margin of 18.4% was down from 20.3% in the prior year due to higher SG&A expenses.
John Lowe: Our tax rate in the quarter was 27.7%, which compared to 38.9% in the second quarter of last year, as last year's rate reflected limitations on deductibility of executive compensation due to the CEO Retention Award.
John Lowe: Net income in the first quarter decreased 8% to $6 million, primarily due to the SG&A increase, partially offset by sales growth and the lower tax rate. An adjusted EBITDA decreased 6% to $21.9 million.
John Lowe: Adjusted EBITDA margin of 18.4% was down from 20.3% in the prior year due to the higher SG&A expenses.
Turning now to our first half results on flight 10. For the first half of the year, sales decreased 2% with the debit and credit segment declining 6% and prepaid increasing 17%. Within debit and credit, declines in both contactless and contact card sales were partially offset by growth and eco-focused contactless cards, as well as ongoing growth from instant issuance and other card personalization services. Growth profit for the first half was flat, as an improvement in margin from 35.6% to 36.4% offset the impact of the 2% sales decline. The growth margin improvement was driven by comparisons with some higher expenses in the first quarter of 2023, when we transitioned our prepaid production facility workforce from temporary to permanent.
Jeff Hochstadt: Turning now to our first half results on slide 10. For the first half of the year, sales decreased 2%, with the debit and credit segment declining 6% and prepaid increasing 17%. Within debit and credit, declines in both contactless and contact card sales were partially offset by growth in eco-focused contactless cards, as well as ongoing growth from instant issuance and other card personalization services.
John Lowe: Turning now to our first half results on slide 10.
John Lowe: For the first half of the year, sales decreased 2% with the debit and credit segment declining 6% and prepaid increasing 17%.
John Lowe: Within debit and credit, declines in both contactless and contact card sales were partially offset by growth in eco-focused contactless cards, as well as ongoing growth from instant issuance and other card personalization services.
Jeff Hochstadt: Gross profit for the first half was flat as an improvement in margin from 35.6% to 36.4% offset the impact of the 2% sales decline. The gross margin improvement was driven by comparisons with some higher expenses in the first quarter of 2023 when we transitioned our prepaid production facility workforce from temporary to permanent. SG&A increased $9 million from the prior year period primarily due to the same factors as the second quarter as well as the former CEO's retention award and other executive summaries. The year-to-date tax rate of 28.2% was down slightly from last year's 28.6%.
John Lowe: Gross profit for the first half was flat as an improvement in margin from 35.6% to 36.4% offset the impact of the 2% sales decline.
John Lowe: The gross margin improvement was driven by comparisons with some higher expenses in the first quarter of 2023 when we transitioned our prepaid production facility workforce from temporary to permanent.
SG&A increased $9 million from the prior year period, primarily due to the same factors as the second quarter, as well as the former CEO's retention award and other executive severance. The year-to-date tax rate of 28.2% was down slightly from last year's 28.6%. Net income in the first half decreased 34% to $11.5 million, and adjusted EBITDA decreased 7% to $44.9 million. Adjusted EBITDA margins of 19.5% was down from 20.5% in the prior year, as the impact of lower sales and higher operating expenses was partially offset by improved growth margins. As mentioned, the net income decline also reflects the impacts of the executive retention award accrual and other CEO transition-related costs, which are not included in adjusted EBITDA.
John Lowe: SG&A increased $9 million from the prior year period, primarily due to the same factors as the second quarter, as well as the former CEO's retention award and other executive severance.
John Lowe: The year-to-date tax rate of 28.2% was down slightly from last year's 28.6%.
Jeff Hochstadt: Net income in the first half decreased 34% to $11.5 million, and adjusted EBITDA decreased 7% to $44.9 million. Adjusted EBITDA margins of 19.5% were down from 20.5% in the prior year as the impact of lower sales and higher operating expenses was partially offset by improved gross margin. As mentioned, the net income decline also reflects the impacts of the Executive Retention Award accrual and other CEO transition-related costs, which are not included in the adjusted EBITDA. Turning now to our segments, on slide 11.
John Lowe: Net income in the first half decreased 34% to $11.5 million and adjusted EBITDA decreased 7% to $44.9 million.
John Lowe: Adjusted EBITDA margins of 19.5% was down from 20.5% in the prior year as the impact of lower sales and higher operating expenses was partially offset by improved gross margins.
John Lowe: As mentioned, the net income decline also reflects the impact of the Executive Retention Award accrual and other CEO transition-related costs, which are not included in the adjusted EBITDA.
Jeff Hochstadt: Turning now to our segments on Slide 11. I discussed the segment sales drivers earlier, so I will highlight segment profitability on this slide. Income from operations for the debit and credit segment increased 1% to $25.4 million in the second quarter, driven by the sales increase, and decreased 13% in the first half due to the sales decline and increased compensation expenses. Prepaid debit segment income from operations decreased 9% to $6.9 million in the second quarter, which was due to comparisons with lower operating expenses in the prior year quarter. On a year-to-date basis, prepaid income from operations increased 38% driven by sales growth and gross margin improvement, including the impact of labor expenses related to the staffing transition and our prepaid production facility in the prior year first quarter.
Jeff Hochstadt: I discussed the segment sales drivers earlier, so I will highlight segment profitability on this slide. Income from operations for the debit and credit segment increased 1% to $25.4 million in the second quarter, driven by the sales increase, and decreased 13% in the first half due to the sales decline and increased compensation expenses. Prepaid debit segment income from operations decreased 9% to $6.9 million in the second quarter, which was due to comparisons with lower operating expenses in the prior year quarter.
John Lowe: Turning now to our segments on slide 11.
John Lowe: I discussed the segment sales drivers earlier, so I will highlight segment profitability on this slide.
John Lowe: Income from operations for the debit and credit segment increased 1% to $25.4 million in the second quarter, driven by the sales increase, and decreased 13% in the first half due to the sales decline and increased compensation expenses.
John Lowe: Prepaid debit segment income from operations decreased 9% to $6.9 million in the second quarter, which was due to comparisons with lower operating expenses in the prior year quarter.
Jeff Hochstadt: On a year-to-date basis, prepaid income from operations increased 38 percent, driven by sales growth and gross margin improvement, including the impact of labor expenses related to the staffing transition in our prepaid production facility in the prior year first quarter. Turning to the balance sheet, liquidity, and cash flow on slide 12. For the first half of the year, we generated $4.1 million of cash from operating activities and invested $2.7 million in capital expenditures, which resulted in free cash flow of $1.4 million.
John Lowe: On a year-to-date basis, prepaid income from operations increased 38%, driven by sales growth and gross margin improvement, including the impact of labor expenses related to the staffing transition in our prepaid production facility in the prior year first quarter.
Turning to the balance sheet, liquidity, and cash flow on slide 12. For the first half of the year, we generated $4.1 million of cash from operating activities and invested $2.7 million in capital expenditures, which resulted in free cash flow of $1.4 million. This compared to operating cash flow of $10.3 million in free cash flow of $3.7 million in the prior year first half. The lower generation in this year's period was driven by the net income decline, increased working capital usage, partially offset by lower capital spending. Working capital usage included payment of the $5 million retention award for our former CEO and the initial incentive for the new customer contract we announced last quarter.
John Lowe: Turning to the balance sheet, liquidity, and cash flow on slide 12.
John Lowe: For the first half of the year, we generated $4.1 million of cash from operating activities and invested $2.7 million in capital expenditures, which resulted in free cash flow of $1.4 million.
Jeff Hochstadt: This compared to operating cash flow of $10.3 million and free cash flow of $3.7 million in the prior year's first half. The lower generation in this year's period was driven by the net income decline and increased working capital usage, partially offset by lower capital spending.
John Lowe: This compared to operating cash flow at $10.3 million and free cash flow at $3.7 million in the prior year first half.
John Lowe: The lower generation in this year's period was driven by the net income decline and increased working capital usage, partially offset by lower capital spending.
Jeff Hochstadt: Working capital usage included payment of the $5 million retention award for our former CEO and the initial incentive for the new customer contract we announced last quarter. We expect capital spending to ramp up in the second half of the year as we advance the build-out of our new secure card production facility in Indiana. On the balance sheet at quarter end, we had $7.5 million of cash, $4 million of borrowings on our ABL revolver, $268 million of senior secured notes outstanding, and a net leverage ratio of 3.3 times.
John Lowe: Working capital usage included payment of the $5 million retention award for our former CEO and the initial incentive for the new customer contract we announced last quarter.
Jeff Hochstadt: We expect capital spending to ramp in the second half of the year as we advance the build-out of our new secure card production facility in Indiana. On the balance sheet at quarter and we had $7.5 million of cash, $4 million of borrowing on our ABL revolver, $268 million of senior secure notes outstanding in a net leverage ratio of 3.3 times. Our capital structure and allocation priorities remain focused on maintaining ample liquidity, investing in the business, including possible strategic acquisitions, de-leveraging the balance sheet, and returning funds to stockholders. As mentioned earlier in July, we completed the refinancing of our debt, issuing $285 million of 10% coupon senior secured notes due in 2029 at par.
John Lowe: We expect capital spending to ramp in the second half of the year as we advance the build-out of our new secure card production facility in Indiana.
John Lowe: On the balance sheet, at quarter end, we had $7.5 million of cash, $4 million of borrowings on our ABL revolver, $268 million of senior secured notes outstanding, and a net leverage ratio of 3.3 times.
Jeff Hochstadt: Our capital structure and allocation priorities remain focused on maintaining ample liquidity, investing in the business, including possible strategic acquisitions, deleveraging the balance sheet, and returning funds to stockholders. As mentioned earlier, in July, we completed the refinancing of our debt, issuing $285 million of 10% coupon senior secured notes due in 2029 at par. Concurrently, we also entered into a new $75 million ABL revolving facility, replacing our existing facility.
John Lowe: Our capital structure and allocation priorities remain focused on maintaining ample liquidity, investing in the business, including possible strategic acquisitions, deleveraging the balance sheet, and returning funds to stockholders.
John Lowe: As mentioned earlier, in July , we completed the refinancing of our debt, issuing $285 million of 10% coupon senior secured notes due in 2029 at par.
Concurrently, we also entered into a new $75 million ABL revolving facility, replacing our existing facility. We've used the proceeds from the debt offering to redeem our existing senior notes due in 2026, including payment of the call premium. We'd expect our net debt and net leverage ratio to move up slightly in the third quarter to the cash outflow associated with the refinance, reflecting payment of the call premium and deal costs on the new offering. This refinancing gives us stability in our capital structure and removes market risk on refinancing our notes, which would have matured in early 2026.
John Lowe: Concurrently, we also entered into a new $75 million ABL revolving facility, replacing our existing facility.
Jeff Hochstadt: We've used the proceeds from the debt offering to redeem our existing senior notes due in 2026, including payment of the call premium. We expect our net debt and net leverage ratio to move up slightly in the third quarter due to a cash outflow associated with the refinance, reflecting payment of the call premium and deal costs on the new offering. This refinancing gives us stability in our capital structure and removes market risk on refinancing our notes, which would have matured in early 2026.
John Lowe: We've used the proceeds from the debt offering to redeem our existing senior notes due in 2026, including payment of the call premium.
John Lowe: We expect our net debt and net leverage ratio to move up slightly in the third quarter due to cash outflow associated with the refinance, reflecting payment of the call premium and deal costs on the new offering.
John Lowe: This refinancing gives us stability in our capital structure and removes market risk on refinancing our notes, which would have matured in early 2026.
We also continue to execute our Sherry Purchase Program. Through July, we have bought back approximately $9 million against our $20 million authorization since inception of the program in the fourth quarter of last year. We spent approximately $750,000 to repurchase 40,000 shares of our common stock in the open market in the second quarter. In July, we completed the purchase of an additional 121,000 shares for $2.2 million from our majority shareholder, pursuant to the second stock purchase agreement announced in March. I knew that agreement. We committed to repurchase shares from our majority shareholder. The ratio of three to one to the number of shares we repurchased in the open market from April to June at a price of 98% of the average open market repurchase price over that period.
Jeff Hochstadt: We also continue to execute our share repurchase program. Through July, we have bought back approximately $9 million against our $20 million authorization since inception of the program in the fourth quarter of last year. We spent approximately $750,000 to repurchase 40,000 shares of our common stock in the open market in the second quarter, and in July, we completed the purchase of an additional 121,000 shares for $2.2 million from our majority shareholder, pursuant to the second stock purchase agreement announced in March.
John Lowe: We also continue to execute our share repurchase program. Through July , we have bought back approximately $9 million against our $20 million authorization since inception of the program in the fourth quarter of last year.
John Lowe: We spent approximately $750,000 to repurchase 40,000 shares of our common stock in the open market in the second quarter and in July , we completed the purchase of an additional 121,000 shares for $2.2 million from our majority shareholder, pursuant to the second stock purchase agreement announced in March.
Jeff Hochstadt: Under that agreement, we committed to repurchase shares from our majority shareholder at a ratio of 3 to 1 to the number of shares we repurchased in the open market from April to June at a price of 98% of the average open market repurchase price over that period. In the second quarter, we also completed the purchase of 244,000 shares for $4.4 million from our majority shareholder, pursuant to the stock purchase agreement announced in December.
Speaker Change: Under that agreement, we committed to repurchase shares from our majority shareholder in a ratio of 3 to 1 to the number of shares we repurchased in the open market from April to June at a price of 98% of the average open market repurchase price over that period.
In the second quarter, we also completed the purchase of 244,000 shares for $4.4 million from our majority shareholder, pursuant to the stock purchase agreement announced in December. That agreement caused for us to purchase from our majority shareholder at a three-to-one ratio to the number of shares we repurchased in the open market from December through March, also at a price of 98% of the open market price.
Speaker Change: In the second quarter, we also completed the purchase of 244,000 shares for $4.4 million from our majority shareholder, pursuant to the Stock Purchase Agreement announced in December .
Jeff Hochstadt: That agreement calls for us to purchase from our majority shareholder at a 3 to 1 ratio to the number of shares we repurchased in the open market from December through March, also at a price of 98% of the open market price. At this time, we do not expect additional share repurchases for the remainder of the year.
Speaker Change: That agreement calls for us to purchase from our majority shareholder at a 3 to 1 ratio to the number of shares we repurchased in the open market from December through March, also at a price of 98% of the open market price.
At this time, we do not expect additional sharey purchases for the remainder of the year.
Speaker Change: At this time, we do not expect additional share repurchases for the remainder of the year.
Jeff Hochstadt: Turning to our 2024 financial outlook on slide 13. As John mentioned, we have updated our financial outlook for 2024, increasing our sales outlook to mid-single-digit growth from the previous expectation of slight growth. The increase is driven primarily by the strong performance of our prepaid business and the improved trends in debit and credit card sales and reflects both expected market recovery and anticipated share gains. We are maintaining our Adjusted EBITDA outlook at slight growth compared to 2023, which still implies good growth in the second half of the year as Adjusted EBITDA was down 7% in the first half.
Jeff Hochstadt: Turning to our 2024 financial outlook on slide 13, as John mentioned, we have updated our financial outlook for 2024, increasing our sales outlook to mid-single-digit growth from the previous expectation of cyclist growth. The increase is driven primarily by the strong performance of our prepaid business and the reflects both expected market recovery and anticipated share gains. We are maintaining our adjusted EBITDA outlook at slight growth compared to 2023, which still implies good growth in the second half of the year as adjusted EBITDA was down 7% in the first half. We expect sales to grow faster than adjusted EBITDA in the second half, primarily due to investments for future growth and higher performance-based compensation compared to low levels in 2023.
Speaker Change: Turning to our 2024 financial outlook on slide 13.
Speaker Change: As John mentioned, we have updated our financial outlook for 2024, increasing our sales outlook to mid-single-digit growth from the previous expectation of slight growth.
Speaker Change: The increase is driven primarily by the strong performance of our prepaid business and the improved trends in debit and credit card sales and reflects both expected market recovery and anticipated share gains.
Speaker Change: We are maintaining our Adjusted EBITDA outlook at slight growth compared to 2023, which still implies good growth in the second half of the year as Adjusted EBITDA was down 7% in the first half.
Jeff Hochstadt: We expect sales to grow faster than adjusted EBITDA in the second half, primarily due to investments for future growth and higher performance-based compensation compared to low levels in 2023. Investments for future growth include investments in our digital business, the Indiana Secured Card Production Facility, technology, and people. We have maintained our full-year free cash flow outlook at approximately half the 2023 level, and we continue to expect our year-end net leverage ratio to be between 3 and 3.5 times.
Speaker Change: We expect sales to grow faster than adjusted EBITDA in the second half, primarily due to investments for future growth and higher performance-based compensation compared to low levels in 2023.
Investments for future growth include investments in our digital business, the Indiana secured card production facility, technology, and people. We have maintained our full-year free cash flow outlook at approximately half the 2023 level, and we continue to expect our year-end net leverage ratio to be between 3 and 3.5 times.
Speaker Change: Investments for future growth include investments in our digital business, the Indiana Secured Card Production Facility, technology, and people.
Speaker Change: We have maintained our full-year free cash flow outlook at approximately half the 2023 level, and we continue to expect our year-end net leverage ratio to be between 3 and 3.5 times.
John Lowe: I will now pass the call back to John for some closing remarks on slide 14.
John Lowe: I will now pass the call back to John for some closing remarks on slide 14. John? Thanks, Jeff.
Speaker Change: I will now pass the call back to John for some closing remarks on slide 14. John ?
John? Thanks, Jeff. To summarize, we are pleased to return to sales growth in the second quarter. That continued growth in prepaid and our debit and credit services businesses was complemented by improvement in secured card sales trends. We have increased our outlook for sales and affirmed our outlook for adjusted EBITDA for the full year. In our main component, we will see accelerated growth in the second half as we continue to invest for the long-term growth of CPI. We also further executed against our capital strategies by refinancing our senior notes in July. We continue to see healthy trends in U.S.
Operator: To summarize, we are pleased to return to sales growth in the second quarter, and continued growth in prepaid and our debit and credit services businesses was complemented by improvement in SecureCard sales trends. We've increased our outlook for sales and affirmed our outlook for adjusted EBITDA for the full year and remain confident we will see accelerated growth in the second half as we continue to invest for the long-term growth of CPI. We also further executed against our capital strategies by refinancing our senior notes in July.
John Lowe: Thanks Jeff. To summarize, we are pleased to return to sales growth in the second quarter that continued growth in prepaid and our debit and credit services businesses was complemented by improvement in SecureCard sales trends.
Speaker Change: We have increased our outlook for sales and affirmed our outlook for adjusted EBITDA for the full year, and remain confident we will see accelerated growth in the second half as we continue to invest for the long-term growth of CPI.
Speaker Change: We also further executed against our capital strategies by refinancing our senior notes in July .
Operator: We continue to see healthy trends in U.S. card issuance and remain focused on executing our strategies to gain share by leading in customer service, quality, and innovation and increasing our market through expansion into adjacencies, including digital solutions over time. Operator, we will now open the call up for questions.
card issuance and remain focused on executing our strategies to gain share by leading in customer service, quality, and innovation, and increasing our adjustable market through expansion into adjacencies, including digital solutions over time.
Speaker Change: We continue to see healthy trends in U.S. card issuance and remain focused on executing our strategies to gain share by leading in customer service, quality, and innovation, and increasing our adjustable market through expansion into adjacencies, including digital solutions over time.
Operator: We will now open the call to your questions. If you would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to adjourn your question, press star 1 again. Your first question comes from the line of Jaeson Schmidt with Lake Street Capital Markets. Hey guys, thanks for taking my questions and congrats on the solid results. John, you mentioned the excess inventory is still in place.
Operating?
We will now open the call up for questions. If you would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to answer your question, press star one again.
Speaker Change: Operator, we will now open the call up for questions.
Speaker Change: We will now open the call for your questions.
Speaker Change: If you would like to ask a question please press star followed by the number one on your telephone keypad
Speaker Change: If you would like to withdraw your question, press star 1 again.
Jason Schmidt: Your first question comes from the line of Jason Schmidt with links to capital markets. Please go ahead. Hey guys, thanks for your time. My questions and congrats on the solve results. John, you mentioned the excess inventory is still an issue out there. Curious how you're thinking about when the issue is going to be fully behind you. Do you think that excess inventory is going to be fully worked down here in Q3?
Speaker Change: Your first question comes from the line of Jaeson Schmidt with Lake Street Capital Markets.
Jaeson Schmidt: Hey guys, thanks for taking my questions and congrats on the solid results. John, you mentioned that excess inventory is still an issue out there. Curious how you're thinking about when the issue is going to be fully behind you. Do you think that excess inventory is going to be fully worked down here in Q3?
Speaker Change: Please go ahead.
Jaeson Schmidt: Hey guys, thanks for taking my questions and congrats on the solid results. John , you mentioned the excess inventory is still an issue out there. Curious how you're thinking about when the issue is going to be fully behind you. Do you think that excess inventory is going to be fully worked down here in Q3?
Ladies and gentlemen, we seem to be experiencing some tactical difficulties. Please remain on the line for one moment, and your conference will continue. Ladies and gentlemen, thank you for standing by. Your conference will now resume.
Operator: Ladies and gentlemen, we seem to be experiencing some technical difficulties. Please remain on the line for one moment, and your conference will continue. Thanks for watching!
Operator: Ladies and gentlemen, we seem to be experiencing some technical difficulties. Please remain on the line for one moment, and your conference will continue. Ladies and gentlemen, thank you for standing by. The conference will now resume. I'm Jaeson Schmidt with Lake Street Capital Markets. Could you please repeat your question?
Speaker Change: Ladies and gentlemen, we seem to be experiencing some technical difficulties.
Speaker Change: Thank you for watching!
Jaeson Schmidt: to John, you noted that it's still creating some headwinds. Obviously, it doesn't seem like significant just given what you guys reported.
Speaker Change: Ladies and gentlemen, thank you for standing by. The conference will now resume.
Jason Schmidt: Jason Schmidt with next week, Capitol Marcus, could you please repeat your question. You noted that it's still creating some headwinds. Obviously, it doesn't seem like significant just given what you guys reported, but curious when you think that issue is going to be fully behind you. Do you think it will be over by the end of Q3?
Speaker Change: Jaeson Schmidt with Lake Street Capital Markets. Could you please repeat your question?
Jaeson Schmidt: John , you noted that it's still creating some headwinds, obviously it doesn't seem like significant just given what you guys reported, but curious when you think that issue is going to be fully behind you? Do you think it will be over by the end of Q3?
John Lowe: Hey, Jason, good to talk to you and apologize for the technical difficulties; a little bit of challenges with our Polycom here in the room. You know, we feel like there's good momentum in the market. If you think about just card issuance trends, cards in circulation, they are up 10% over the last few years, 10% quarter of a quarter. That's actually an improvement from the last time. You said MasterCard, put information out. If you think about our internal card volumes, we saw sequential card volume growth, Q2 to Q1. We also saw Q1 to Q4. And if you think about it from a customer perspective, we've been talking the large customers down to the smallest of customers, and what we are seeing is more normalization, I would say.
Jaeson Schmidt: But curious when you think that issue is going to be fully behind you. Do you think it will be over by the end of Q3? Hey Jaeson, good to talk to you and apologize for the technical difficulties. There were a few challenges with our Polycom here in the room we're in.
Speaker Change: Hey Jaeson, good to talk to you and apologize for the technical difficulties, a little bit of challenges with our polycom here in the room we're in.
John Lowe: You know, we feel like there's good momentum in the market. If you think about just card issuance trends, cards in circulation, they're up 10% over the last few years, 10% quarter over quarter. That's actually an improvement from the last time Visa and MasterCard put information out. If you think about our internal card volumes, we saw sequential card volume growth from Q2 to Q1. We also saw growth from Q1 to Q4.
Jaeson Schmidt: You know, we feel like there's good momentum in the market if you think about
Speaker Change: just card issuance trends, cards in circulation.
Speaker Change: They are up 10% over the last few years, 10% quarter over quarter, that's actually an improvement.
Speaker Change: from the Last Time Visa and MasterCard.
Speaker Change: put information out. If you think about our internal card volumes, we saw sequential card volume growth, Q2 to Q1. We also saw Q1 to Q4. And if you think about from a customer perspective,
John Lowe: And if you think about from a customer perspective, we've been talking to large customers down to the smallest of customers. And what we are seeing is more normalization, I would say, in card inventory levels. Now, granted, they're still higher than what they have been historically, but we're seeing us move closer to that normalization period.
Speaker Change: We've been talking to large customers down to the smallest of customers.
In card inventory levels, not granted, they're still higher than what they have been historically, but we're seeing us move closer to that normalization period. So we wouldn't say there's a bright line when things are over and perfectly back to normalcy, but we feel good about where we are. And it's part of the reason that we raised our guidance to mid-single digits growth for revenue and feel that the markets are healthy and the performance of the company is positive. So we're happy with that. of things.
Speaker Change: And what we are seeing is more normalization, I would say, in card inventory levels. Now, granted, they're still higher than what they have been historically.
Speaker Change: But we're seeing us move closer to
John Lowe: So we wouldn't say there's a bright line when things are over and perfectly back to normal, but we feel good about where we are. And that's part of the reason that we raised our guidance to mid-single-digit growth for revenue and feel that the markets are healthy and the performance of the company is positive. So we're happy with that. Okay, that's really helpful.
Speaker Change: that normalization period. So we wouldn't say there's a bright line when things are over and perfectly back to normalcy, but we feel good about where we are and it's part of the reason that
Speaker Change: We raised our guidance to mid-single digits growth for revenue and feel that the markets are healthy and the performance of the company is positive, so we're happy with things.
Okay, that's really helpful.
Jaeson Schmidt: And then looking at new markets or new verticals, such as sort of healthcare payment cards, digital push provisioning. I know it's early, but when do you think these opportunities can be a meaningful contributor? Is it a 2025 story, 2026, or early beyond that? Yeah, I mean, I think it's for years to come.
Jason Schmidt: And then looking at the new markets or new verticals, such as for the healthcare payment cards, digital push provisioning, I know it's early, but when do you think these opportunities can be a meaningful contributor? Is it a 2025 story, 2026 early, beyond that? Yeah, I mean, I think it's over years to come. If you share the gig economy that we've been in for a while and have been growing those businesses, they're not meaningful enough to give true revenue numbers, but they're positive and we have momentum, and we're gaining share in those areas. That said, if you look at the digital side of our business, it's a long-term play.
Speaker Change: Okay, that's really helpful. And then, looking at the new markets or new verticals, such as for the health care payment cards, digital push provisioning, I know it's early, but when do you think these opportunities can be a meaningful contributor? Is it a 2025 story, 2026, or really beyond that?
John Lowe: If you think about adjacencies broadly, there's some healthcare, and the gig economy that we've been in for a while and have been growing those businesses. They're not meaningful enough to give true revenue numbers, but they're positive, and we have momentum, and we're gaining share in those areas. That said, if you look at the digital side of our business, it's a long-term plan. If you think about our first digital solution, if you will, the way we think about it, our card at once software as a service solution, we've been in that market for 19 years. We're a leader from a software as a service perspective, and we just exceeded 16,000 branches across the U.S.
Speaker Change: Yeah, I mean, I think it's over years to come. If you think about adjacencies broadly...
Speaker Change: There's some healthcare, the gig economy.
Speaker Change: that we've been in for a while and have been growing those businesses. They're not meaningful enough to, you know, give true revenue numbers, but...
Speaker Change: They're positive and we have momentum and we're gaining share in those areas.
Speaker Change: That said, if you look at the digital side of our business...
If you think about our first digital solution, if you will, the way we think about it, our card at once, software as a service solution, we've been in that market 19 years. We're a leader from a software as a service perspective, and we just exceeded 16,000 branches across the U.S. We're in. So when you think about digital card issuance broadly, it's early days, but we feel like we're well positioned in the market. We've had a great reception from our customer base, but any dollars coming in, any growth right now is very small in relation to the broader business. But in years to come, we'll be ready to share a lot more, especially if you see those numbers on the digital side start to really materialize.
Speaker Change: It's a long-term plan.
Speaker Change: If you think about our first digital solution, if you will, the way we think about it, our card at once software-as-a-service solution.
Speaker Change: We've been in that market nine, ten years. We're a leader from a software-as-a-service perspective.
Speaker Change: and we just exceeded 16,000 branches.
Jaeson Schmidt: So, when you think about digital card issuance broadly, it's early days, but we feel like we're well-positioned in the market. We've had a great reception from our customer base, but any dollars coming in, any growth right now is very small in relation to the broader business, but in years to come, we'll be ready to share a lot more, especially as we see those numbers on the digital side start to really materialize. Gotcha.
Speaker Change: across the U.S. we're in. So when you think about digital card issuance broadly, it's early days, but we feel like we're well-positioned in the market. We've had a great reception from our customer base.
Speaker Change: But any dollars coming in, any growth right now is very small in relation to the broader business, but in years to come, we'll be ready to share a lot more, especially as we see those numbers on the digital side start to really materialize.
John Lowe: And then just the last one for me, and I'll jump back into Q, not so much looking at volume discounts, but just in general, what are you seeing from a pricing standpoint? Yeah, pricing is at equilibrium. I mean, I think the market is healthy. There's nothing existential impacting our market that would cause pricing to be out of equilibrium. I mean, I know that if you're looking, you know, in the very near term, today was kind of a choppy time for the equity markets, right?
Gotcha.
And then just the last one from me, and I'll jump back into Q. Not so much looking at volume discounts, but just in general, what do you see from a pricing standpoint? Yeah, price seems to be equilibrium. I think the market is healthy. There's nothing existential impacting our market that would cause pricing to be out of equilibrium. I know that if you're looking in the very near term, today was kind of a choppy time for the equity markets, right? But if you just look broadly at our markets that we operate in, pricing is all based upon value proposition, and as long as we continue to execute our strategy of focusing on the customer quality, innovation, we continue to have a great value proposition of our products, whether that's contactless or eco-focused, or pre-paid fraud prevention solutions, or even what we do on our instant issue and side as well with our software as a service solution.
Speaker Change: Gotcha. And then just the last one from me and I'll jump back into Q. Not so much looking at volume discounts, but just in general, what are you seeing from a pricing standpoint?
Speaker Change: Yeah, price seems at equilibrium. I mean, I think the market is healthy.
Speaker Change: There's nothing existential impacting our market that would cause pricing to be out of equilibrium. I mean, I know that if you're looking, you know, in the very near term, today was kind of a choppy time for the equity markets, right? But if you just look broadly at our markets that we operate in,
John Lowe: But if you just look broadly at the markets that we operate in, pricing is all based on the value proposition. And as long as we continue to execute our strategy focusing on customer quality innovation, we continue to have a great value proposition for our products, whether that's contactless or eco-focused, our prepaid fraud prevention solutions, or even what we do on our instant issuance side as well as our software as a service solution. So we feel our pricing is competitive for what we provide, and we provide great value to our market. Oh, that makes sense. I appreciate all the color. Thanks, guys.
Speaker Change: Pricing is all based upon value proposition and as long as we continue to execute our strategy of focusing on the customer, quality, innovation, we continue to have a great value proposition of our products, whether that's contactless or eco-focused.
Speaker Change: our prepaid fraud prevention solutions, or even what we do on our instant issuance side as well with our software as a service solution. So we feel pricing is competitive for what we provide, and we provide great value to our markets.
So we feel pricing is competitive for what we provide, and we provide great value to our markets. That makes sense.
Appreciate all the caller. Thanks, guys. Thanks, Justin.
Speaker Change: Oh, that makes sense. Appreciate all the color. Thanks, guys.
Andrew Scott: The next question comes from the line of Andrew Scott with Roth Capital Partners. Please go ahead. Hey, guys. Good afternoon. Congrats on the year of year growth, and thanks for taking my questions. You guys kind of touch on this previously, the prepared remarks. Can you kind of talk about the increase in S-GNA? You talked about increasing headcount for growth. It was a little bit; the growth there was a little bit stronger than the revenue growth. So kind of just if you could help kind of parse out the details there, that'd be very helpful.
Jaeson Schmidt: Your next question comes from the line of Andrew Scutt with Roth Capital Partners. Please go ahead.
Jaeson Schmidt: Thanks, Jaeson.
Speaker Change: Your next question comes from the line of Andrew Scutt with Roth Capital Partners. Please go ahead.
Andrew Scutt: Hey guys, good afternoon.
Andrew Scott: Hey guys, good afternoon. Congrats on the year-over-year growth and thanks for taking my questions.
Andrew Scutt: Congratulations on the year-over-year growth and thanks for taking my questions. You guys kind of touched on this previously in the prepared remarks, but can you kind of talk about the increase in SG&A? You talked about, you know, increasing headcount for growth. It did. It was a little bit. The growth there was a little bit stronger than the revenue growth. So, kind of, if you could help kind of parse out the details there, that'd be very helpful.
Andrew Scott: You guys kind of touched on this previously, the prepared remarks, but can you kind of talk about the increase in SG&A? You talked about, you know, increasing headcount for growth. It did, it was a little bit.
Speaker Change: The growth there was a little bit stronger than the revenue growth, so kind of just if you could help kind of parse out the details there, that'd be very helpful.
John Lowe: Let me step back just for a second before we, and I'll let you up jump into it, but if you think about broadly the business, right, and you go back to 2022, we're growing significantly both on the top and on the bottom. We came into 23, 23, we encountered a challenging market. We tightened our belts significantly, and so now we come into 2024, and as we see healthy markets, we see the pendulum starting to swing from a card inventory perspective. We see performance across our broader business, continue to uptick. We are investing in the business, so we're bringing back a lot of those investments that maybe we dialed back in 2023, whether that's technology or digital solutions or go-to-market strategies and people.
John Lowe: Yeah, let me step back just for a second before we, and I'll let Jeff jump in too, but if you think about the business broadly, right, and you go back to 2022, we were growing significantly both on the top and on the bottom. We came into 23-23, we encountered a challenging market, and we tightened our belts significantly.
Speaker Change: Yeah, let me let me let me step back just for a second before we, and I'll let Jeff jump into, but if you think about broadly the business, right, and you go back to 2022,
Speaker Change: We are growing significantly, both on the top and on the bottom. We came into 2023, we encountered a challenging market.
John Lowe: And so now we come into 2024, and as we see healthy markets, we see the pendulum starting to swing from a card inventory perspective. And we see performance across our broader business continue to uptick. We are investing in the business. So we're bringing back a lot of those investments that we might have dialed back in 2023, whether that's technology or digital solutions or go-to-market strategies and people. So you do see some noise there.
Speaker Change: We tightened our belts significantly.
Jeff: And so now we come into 2024, and as we see healthy markets, we see the pendulum starting to swing from a card inventory perspective.
Jeff: We see performance across...
Jeff: our broader business continue to uptick.
Jeff: We are investing in the business, so we're bringing back
Jeff: a lot of those investments that maybe we dialed back in 2023.
Jeff: whether that's technology or digital solutions or go-to-market strategies in people.
So you do see some noise there; you also see a lot of noise just through the CEO transition and everything around it, year over year.
John Lowe: You also see a lot of noise just through the CEO transition and everything around it year over year. So while it may seem odd that EBITDA's not growing as fast as our revenue, we're happy about the revenue growth, and we're investing in the business to make sure that our EBITDA growth and revenue growth are there for the long term. But Jeff, how would you do it? Yeah.
Speaker Change: So you do see some noise there. You also see a lot of noise just through the CEO transition and everything around it.
Jeff Hochstadt: So, while it may seem odd that EBITDA is not growing as fast as our revenue, we're happy about the revenue growth, and we're investing in the business to make sure that our EBITDA growth and revenue growth are their longer term. But Jeff, how would you? Yeah, no, I'll just add on to that because they hear your voice, Andrew. If you look at the $9 million, about $9 million increase in SG&A for the first half of the year, you know, a little bit more than half of that is actually added back for adjusted EBITDA, and that is really mostly related to the CEO transition.
Jeff: you know, year over year. So while it may seem odd that EBITDA is not growing as fast as our revenue, we're happy about the revenue growth and we're investing in the business to make sure that our EBITDA growth and revenue growth are there longer term. But Jeff, how would you? Yeah, no, I'll just add on to that. Good to hear your voice, Andrew.
John Lowe: Yeah. No, I'll just add on to that. Good to hear your voice, Andrew.
Jeff Hochstadt: If you look at the $9 million, about $9 million, increase in SG&A for the first half of the year, a little bit more than half of that is actually added back for Adjusted EBITDA, and that is really mostly related to the CEO transition. And that includes some final payments or the final accruals for the former CEO's retention plan. It also includes some equity that the company gave to some key employees around the company for performance and retention purposes. And then there was also some severance for some executives that left the company.
Jeff: If you look at the nine million dollar, about nine million dollar increase in
Jeff: SG&A for the first half of the year. You know, a little bit more than half of that is actually added back for adjusted EBITDA.
Jeff: And that is really mostly related to the CEO transition, and that includes, you know, some final payments to the, or the final accruals for the former CEO for his retention plan. It also includes...
And that includes some final payments to the final accruals for the former CEO for his retention plan. It also includes some equity to some equity that the company gave to some key employees around the company for performance and retention purposes, and then also some severance for some executives that left the company. So that is really a little bit more than half of the $9 million relates to that CEO transition. The remaining part, a little less than half of it, really relates to in 2020; one piece of it in 2023. We had some operating, operating profit favorability for an item for in our prepaid business.
Jeff: some equity that the company gave to some key employees.
Jeff: around the company for performance and retention purposes.
Jeff: and then also some severance for some executives that left the company. So that is really a little bit more than half of the $9 million relates to that CEO transition.
Jeff Hochstadt: So that is really a little bit more than half of the $9 million that relates to that CEO transition. The remaining part, a little less than half of it, really relates to, in 2020, and one piece of it in 2023, we had some operating profit favorability for an item in our prepaid business. And so we have a little bit of a growth of that in 2024. And in addition to that, as John mentioned, we are investing in the business in different areas.
Jeff: The remaining part, a little less than half of it...
Jeff: really relates to, in 2020, one piece of it in 2023, we had some operating profit favorability.
And so we have a little bit of a growover of that in 2024. And in addition to that, as John mentioned, we are investing in the business in different areas; he mentioned that. And so that really accounts for the $9 million. And when we think about going forward for the rest of the year, you know, we're going to continue, as John said, you know, we feel good about where we are in terms of investing in the business, especially after tightening our belt quite a bit in 2023. But also in the second half, what you'll see is in 2023, we did not meet our performance expectations, and our performance, our performance compensation was not, our performance-based competition was not where, you know, normally it lies; it was below that.
Jeff: for an item in our prepaid business. And so we have a little bit of a grow of that in 2024. And in addition to that, as John mentioned, we are investing in the business.
Jeff Hochstadt: He mentioned that. And so that really accounts for the $9 million. And when we think about going forward for the rest of the year, as John said, we feel good about where we are in terms of investing in the business, especially after tightening our belt quite a bit in 2023. But also, in the second half, you'll see that in 2023, we did not meet our performance expectations.
John Lowe: in different areas, he mentioned that. And so that really accounts for the nine million. And when we think about going forward for the rest of the year,
John Lowe: We're going to continue, as John said, we feel good about where we are in terms of investing in the business, especially after tightening our belt quite a bit in 2023. But also in the second half, what you'll see is in 2023, we did not meet our performance expectations and our performance-based compensation was not where normally it lies, it was below that. So when we get to 2024...
Jeff Hochstadt: And our performance compensation was not – our performance-based compensation was not where, you know, normally it lies. It was below that. So when we get to 2024, where we're going to get to more normal-level performance comp, you'll see a little bit of a growth over that in the second half as well. So hopefully that gives you some color.
So when we get to 2024, where we're going to get to more normal level performance comp, you'll see a little bit of a growover that in the second half as well. So hopefully that, Andrew, that gives you some color. Yeah, no, thank you. That was, uh, that was great color there.
John Lowe: where we're going to get to a more normal level of performance comp. You'll see a little bit of a grow over that in the second half as well. So hopefully that, Andrew, that gives you some color.
Andrew Scutt: Yeah, no, thank you. That was a great color there.
Andrew Scott: Um, second question for me: you guys kind of called it out, uh, in the slides and talked, and talked about on a previous question. Um, card at once seemed like you guys had a strong quarter there, uh, now in 16,000 locations. Can you kind of talk about the appetite, um, for that product and kind of the growth runway you see, um, for card at once? Yeah, Andrew, I mean it's a, uh, it's a great solution that we've built. We are, uh, when we say we're the leading provider, uh, we're one of the only providers out there that's developed to software as a service solution with instant issuance in branch across financial institutions in the US.
Andrew Scott: Yeah, no, thank you. That was a great caller there.
Speaker Change: Second question from me, you guys kind of called it out in the slides and talked about it on a previous question. Card at once seemed like you guys had a strong quarter there, now in $16,000.
Andrew Scutt: Second question for me, you guys kind of called it out in the slides and talked about it on a previous question. Card at Once seemed like you guys had a strong quarter there now in 16,000 locations. Can you kind of talk about the appetite for that product and kind of the growth runway you see for Card at Once?
Speaker Change: locations, can you kind of talk about the appetite for that product and kind of the growth runway you see for Carter Ones?
John Lowe: Yeah, Andrew, I mean, it's a great solution that we built. We are, when we say we're the leading provider, we're one of the only providers out there that have developed a software as a service solution with instant issuance in branch across financial institutions in the U.S. And the reason that our solution is differentiated is because we are integrated within the ecopayment system, whether that's processors, cores, the like. And so it's a plug-and-play solution.
Speaker Change: Yeah, Andrew, I mean it's a great solution that we've built. We are, when we say we're the leading provider, we're one of the only providers out there that's developed a software-as-a-service solution.
Speaker Change: with instant issuance in branch.
And the reason that our solution is differentiated is because we are integrated within the eco payment system, whether that's, uh, processors, cores, the like. And so it's a plug-and-play solution. So we can be up and running very quickly. Uh, it's a way for us to win new customers with a, uh, exciting new solution for their customers, which ultimately leads to, uh, generally speaking, uh, wins on our personalization side and wins on our, uh, secure card side as well. So, uh, we don't believe the market is saturated by any means. We think there's a ways to go to definitely grow, and it will continue to help us not only win with our core solutions, but also help us to win with the exact same customers from a digital solution perspective.
Speaker Change: across financial institutions in the U.S. And the reason that our solution is differentiated is because we are integrated within the eco-payment system, whether that's processors, cores, the like.
John Lowe: So we can be up and running very quickly. It's a way for us to win new customers with an exciting new solution for their customers, which ultimately leads to, generally speaking, wins on our personalization side and wins on our secure card side as well. So we don't believe the market is saturated by any means. We think there's a ways to go to definitely grow, and it will continue to help us not only win with our core solutions but also help us to win with the exact same customers from a digital solutions perspective. So it's a good solution for us, and we're excited to see it grow and excited to see what's to come.
Speaker Change: And so it's a plug-and-play solution. So we can be up and running very quickly. It's a way for us to win new customers with...
Speaker Change: exciting new solution for their customers, which ultimately leads to, generally speaking, wins on our personalization side and wins on our secure card side as well. So.
Speaker Change: We don't believe the market is saturated by any means. We think there's...
Speaker Change: ways to go to definitely grow and it will continue to help us not only win with our core solutions but also help us to win with the exact same customers from a digital solution perspective so it's it's a
So, uh, it's a, uh, good solution for us, and we're excited to see it grow and excited to see what's to come. Awesome.
Speaker Change: Good solution for us and we're excited to see it grow and excited to see what's to come.
John Lowe: And then, last run for me, if I may, I think you guys mentioned you made the decision to turn the prepaid workforce from temporary to permanent. Can you just kind of talk about what went into that decision there?
John Lowe: And then, um, last run for me, if I may. Uh, I think you guys mentioned you made the decision to turn the prepaid workforce from temporary to permanent. Can you just kind of talk about, uh, what went through that decision there? Yeah. I mean, I, I think in all of our businesses, um, you're always looking at the variation in seasonality versus, uh, who was doing the work. And so, as an example, across most of our businesses, there has been less seasonality other than the prepaid business. But the prepaid business, if you go back three, four years, there were significant seasonality in the business.
Speaker Change: Awesome. And then last run for me, if I may, I think you guys mentioned you made the decision to turn the prepaid workforce from temporary to permanent. Can you just kind of talk about what went through that decision there?
John Lowe: Yeah, I mean, in all of our businesses, you're always looking at the variation in seasonality versus who was doing the work. And so, as an example, across most of our businesses, there has been less seasonality, other than the prepaid business. But the prepaid business, if you go back three, four years, there was significant seasonality in the business. So we did have a variable workforce that would help us to bridge the gap when we hit that kind of high point from a seasonality perspective.
Speaker Change: Yeah, I mean, I think in all of our businesses, you're always looking at the variation in seasonality.
Speaker Change: versus who is doing the work. And so, as an example, across most of our businesses there has been less seasonality.
Speaker Change: other than the prepaid business. But the prepaid business, if you go back three, four years, there was significant seasonality in the business. So we did have a variable workforce that would help us to bridge the gap when we hit that kind of high point from a seasonality perspective.
So, we did have a variable workforce that would help us to bridge the gap when we hit that kind of high point from a seasonality perspective. Now, we've been able to, what I would say is, uh, kind of even the flow of work across all four quarters, much more so than where we were two to three years ago. And because of that, we felt like it was the right time to move from a partially temporary workforce to a, a, uh, full permanent workforce. And we have a lot of temporary workers who've been doing the same work for us year after year after year after year.
John Lowe: Now, we've been able to, what I would say is, kind of even the flow of work across all four quarters, much more so than where we were two to three years ago. Because of that, we felt like it was the right time to move from a partially temporary workforce to a full permanent workforce. And we have a lot of temporary workers who've been doing the same work for us year after year after year after year.
Speaker Change: Now, we've been able to, what I would say is, kind of...
Speaker Change: even the flow of work across all four quarters.
Speaker Change: much more so than where we were two to three years ago. And because of that...
Speaker Change: We felt like it was the right time to move from a partially temporary workforce to a full permanent workforce.
Speaker Change: A lot of temporary workers who've been doing the same work for us year after year after year after year.
So, to a certain extent, the conversion was easy. That actually carved last year. Um, and we feel like the efficiency gains that, uh, we've achieved through that. And also, great people that we have added to our team that perform really well, that we're happy about. So, um, as the prepaid business is normalized, we felt like it was the right decision. And looking back, uh, we feel like we made a great decision.
John Lowe: So to a certain extent, the conversion was easy. That actually occurred last year. And we feel like the efficiency gains that we've achieved through that and also great people that we have added to our team that perform really well, which we're happy about. So as the prepaid business is normalized, we feel like it was the right decision. And looking back, we feel like we made a great decision.
Speaker Change: To a certain extent, the conversion was easy. That actually occurred last year.
Speaker Change: and we feel like the efficiency gains that we've achieved through that and also great people that we have added to our team that perform really well that we're happy about. So as the prepaid business is normalized we felt like it was the right decision and looking back we feel like we made a great decision.
Great. Well, thank you for the color. Um, congrats again on the strongest Oldson. I'll hop back and give.
Andrew Scutt: Great, well, thank you for the color, congrats again on the strong results, and I'll hop back in the queue.
Speaker Change: Great. Well, thank you for the color. Congrats again on the strong results and I'll hop back in the queue.
Warren Goetsch: Here next question comes from Warren of Pell Goetsch with BeReilly Securities. Please go ahead. Yeah, I hope I didn't miss this, but I was, have you given a figure from the total kind of one-time expenses for the CEO transition? Have you given a, I don't know, I've been getting number for the year. Yeah, so, I mean, the ones we've really disclosed are the retention package that was for a former CEO, and that took place last and the end of Q2 last year. It was about, it was about $5 million in cash and about $4 million of equity and 9 million in total, and the cash was paid out in Q1 this year.
Harold Goetsch: Your next question comes from the line of Harold Goetsch with B. Reilly Securities. Please go ahead.
Andrew Scott: Thanks, Andrew.
Andrew Scott: Your next question comes from the line of Hal Goetsch with B Reilly Securities.
Harold Goetsch: Yeah, I hope I didn't miss this, but I was wondering, have you given a figure for the total kind of one-time expenses for the CEO transition? Have you given an aggregate number for the year?
Speaker Change: Please go ahead.
Hal Goetsch: Yeah, I hope I didn't miss this, but have you given a figure for the total kind of one-time expenses for the CEO transition? Have you given an aggregate number for the year?
Jeff Hochstadt: Yeah, so I mean, the ones we've really disclosed are the retention package that was for a former CEO. And that took place at the end of Q2 last year. It was about $5 million in cash and about $4 million of equity, and $9 million in total. And the cash was paid out in Q1 this year. So that was the retention package for the outgoing CEO.
Speaker Change: Yeah, so, I mean, the ones we've really disclosed are the retention package that was for a former CEO , and that took place the end of Q2 last year. It was about...
Speaker Change: It was about $5 million in cash and about $4 million of equity and $9 million in total, and the cash was paid out in Q1 this year.
So that was the retention package for the outgoing CEO. Yeah, that was accrued throughout the middle of last year into the first quarter of this year. So for this year, the impact of that was $2 million in the first quarter. Okay.
Speaker Change: So that was the retention package for the outgoing CEO . Yeah, that was accrued throughout the middle of last year into the first quarter of this year. So for this year, the impact of that was $2 million in the first quarter.
Jeff Hochstadt: Yeah, that was accrued throughout the middle of last year into the first quarter of this year. So for this year, the impact of that was $2 million in the first quarter. Okay.
Harold Goetsch: Well, okay, so that's kind of behind you then. All right. Yeah. Yeah. Excellent. Okay. If I could ask a follow-up question, like, you know, as it relates to card at once, you know. That revenue source is embedded in your services revenue, is that right?
Warren Goetsch: So that's kind of behind you then. All right. Yeah. And if I could ask the follow-up question, like, you know, you know, like the card it wants, you know, that's that revenue sources embedded in your services revenue, that right? That is correct, but it's between products and services, depending on whether it's the hardware that enables the solution or the actual technology. Okay.
Speaker Change: Oh, okay. So that's kind of behind you then. All right. Yeah. Yeah. Excellent. Okay.
Speaker Change: If I could ask a follow-up question on, you know,
Speaker Change: you know, to release the card at once, you know.
Speaker Change: That revenue source is embedded in your services revenue, is that right?
Harold Goetsch: That is correct, but it's split between products and services, depending on whether it's the hardware that enables the solution or the actual technology.
Speaker Change: That is correct, but it's split between products and services depending on whether it's the hardware that enables the solution or the actual technology.
Harold Goetsch: And I was just curious what the gross margins are, maybe just at the service level, for the kind of recurring revenues. Is it more in line with the SaaS business in the, you know, upper 70s or 80s? Or can you give us any color on that? Because if that becomes a faster-growing part of your business or a faster part of your mix? That should generally lift gross profit margins. I was just kind of curious if that is the art of the possible there.
Warren Goetsch: And I was curious what the gross margins are, maybe just at the service level for the kind of recurring revenue. Is it more and why I went to SaaS business in the, you know, for 70s or 80s or you can give us any color on that because that becomes a faster growing, a nice fast growing part of your business or faster or your mix. That's generally gross profit margins. I was just kind of curious if that is the art of the possible there.
Speaker Change: Okay.
Speaker Change: And I was just curious what the gross margins are, maybe just at the service level, for the kind of recurring revenues. Is it more in line with the SaaS business in the, you know, upper 70s or 80s, or can you give us any color on that? Because if that becomes a faster-growing, a nice fast-growing part of your business or a faster part of your mix.
Speaker Change: That should generally lift gross profit margins. I was just kind of curious if that is the art of the possible there.
Jeff Hochstadt: Yeah, hi, Hal. There are some benefits to the card at once, but we haven't given it any specific color. But generally, as that business scales, it can help our margin profile.
Yeah, hi, how. There are some benefits to the card at once, but we haven't given any specific color. But generally, you know, as that business scale, it can help our margin profile. It's a high-margin business for us. Okay, great.
Hal: Yeah, hi, Hal. There are some benefits to the card at once, but we haven't given any specific color. But generally, as that business scales, it can help our margin profile. Yeah, it's a high-margin business for us.
Harold Goetsch: It's a high-margin business for us. Okay, great. Okay. Thanks very much.
Okay. Thanks very much. Thanks.
Hal: Okay, great. Okay. Thanks very much.
Speaker Change: Thanks, y'all.
John Lowe: 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.
Is there no further questions in the queue?
John Lowe: I'd like to turn the call back over to John Lowe, the close remarks. Thanks, operator. As always, I want to acknowledge and thank all of our CPI employees for everything they do for our company and our customers as they execute on our vision, values, and strategies. Every single day and continue to drive our business forward. Thank you all for joining our call this afternoon. We hope you have a great day.
Speaker Change: 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.
John Lowe: Thanks, Operator. As always, I want to acknowledge and thank all of our CPI employees for everything they do for our company and our customers as they execute on our vision, values, and strategies every single day and continue to drive our business forward. Thank you all for joining us on our call this afternoon. We hope you have a great day.
John Lowe: Thanks, Operator. As always, I want to acknowledge and thank all of our CPI employees for everything they do for our company and our customers as they execute on our vision, values, and strategies every single day and continue to drive our business forward. Thank you all for joining our call this afternoon. We hope you have a great day.
Ladies and gentlemen, that concludes today's call. Thank you all for joining.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Let me know disconnect.