Q2 2025 CPI Card Group Inc Earnings Call
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Now I would like to turn the call over to Mike Salop C. P I head of Investor Relations.
Speaker #1: Welcome to CPI Card Group. Second quarter, 2025 earnings call. My name is Bailey, and I will be your operator today. If you are viewing on the webcast, you may advance slides forward by pressing the arrow buttons.
Thanks, Operator, welcome to the CPI card group second quarter 2025 earnings webcast and conference call. Today's date is August eight 2025 and on the call today from CPI card group are John Lowe, President and Chief Executive Officer, and Jeff <unk> Chief Financial Officer.
Speaker #1: This call will be open for questions after the company's remarks. If you would like to get into the queue for questions, please press star followed by the number one on your telephone keypad.
Before we begin I'd like to remind everyone that this call may contain forward looking statements as they are to.
Signed under the private Securities Litigation Reform Act of 1095.
Speaker #1: If you would like to withdraw your question, again, press star and one. Now, I would like turn the call over to Mike Salop, CPI Head of Investor Relations.
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 most recent filings with the SEC. All forward looking statements made today reflect our current expectations only and we undertake no obligation to update any statements to reflect the events that occur after this call.
Speaker #3: Thanks, operator. Welcome to the CPI Card Group second quarter, 2025 earnings webcast and conference call. Today's date is August 8th, 2025, and on the call today from CPI Card Group are John Lowe, President and Chief Executive Officer; and Jeff Hochstadt, Chief Financial Officer.
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 net sales growth excluding the impact of an accounting change EBITDA adjusted EBITDA adjusted EBITDA margin net leverage ratio and free cash flow reconciliations of these non-GAAP financial measures. The most directly comparable GAAP measures are include.
Speaker #3: 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.
Speaker #3: 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 discussion of such risks and uncertainties, please see CPI Card Group's most recent filings with the SEC.
In the press release and slide presentation, we issued this morning.
Today's press release as well as the presentation that accompanies this conference call are accessible on Cpi's Investor Relations website, investor about CPI card group Dot com.
Speaker #3: All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call.
In addition, cpi's Form 10-Q for the second quarter will be available on Cpi's Investor Relations website on.
Speaker #3: 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 net sales growth excluding the impact of an accounting change; EBITDA, adjusted EBITDA; adjusted EBITDA margin; net leverage ratio; and free cash flow.
On today's call all growth rates refer to comparisons with the prior year period, unless otherwise noted.
The agenda for today's call can be found on slide three John will give a brief overview of business performance and our strategy execution, Jeff will provide more details on the financial results and our 2025 outlook and then we will open the call for questions.
Speaker #3: Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and slide presentation we issued this morning.
We can start on slide four and I'll turn the call over to John.
Speaker #3: Copies of today's press release, as well as the presentation that accompanies this conference call, are accessible on CPI's Investor Relations website investor.cpicardgroup.com. In addition, CPI's form 10Q for the second quarter will be available on CPI's Investor Relations website.
Thanks, Mike and good morning, everyone.
Well, we had a good first half with sales growth as our strategies and investments are reaping benefits. Our customers are excited about our solutions. Our business continues to grow and win share and our <unk> acquisition is performing better than our expectations. Let me give you a few highlights from our first half sales performance note that what I will cover excludes.
Speaker #3: On today's call, all growth rates referred to comparisons with the prior year period, unless otherwise noted. The agenda for today's call can be found on slide three.
Speaker #3: John will give a brief overview of business performance and our strategy execution. Jeff will provide more details on the financial results in our 2025 outlook.
The impact of a onetime noncash accounting change affecting revenue recognition timing, which Jeff will cover in a few minutes.
Speaker #3: And then we will open the call for questions. We can start on slide four, and I'll turn the call over to John.
Let's start with our secure card business, where we are a top payment card producer in the U S. This business delivered volume and sales growth greater than 15% in the first half and we have one new business, including metal card orders and realized strong performance from the key customer contract signed early last year.
Speaker #4: Thanks, Mike, and good morning, everyone. Well, we had a good first half of sales growth as our strategies and investments are reaping benefits. Our customers are excited about our solutions, our business continues to grow and win share, and our ROI acquisition is performing better than our expectations.
Once our market leading software as a service instant issuance digital solution grew more than 20% in the first half and expanded to more than 17000 locations with two consecutive record sales quarters and ongoing momentum in our business to generate strong recurring revenue.
Speaker #4: Let me give you a few highlights from our first half sales performance. Note that what I will cover excludes the impact of a one-time, non-cash accounting change affecting revenue recognition timing, which Jeff will cover in a few minutes.
Speaker #4: Let's start with our secure card business, where we are a top payment card producer in the US. This business delivered volume and sales growth greater than 15% in the first half.
Our market, leading open loop prepaid business has continued to grow with sales up 17%. This year, excluding the impact of the accounting change driven by greater value tamper evident packaging solutions and our diversification into healthcare payment offerings our.
Speaker #4: And we have one new business, including metal card orders, and realized strong performance from the key customer contracts signed early last year. Card of Once, our market-leading software as a service incident issuance digital solution, grew more than 20% in the first half, and expanded to more than 17,000 locations.
Our digital solutions, while still immaterial to overall sales are growing and generated great customer interest, including customers outside of our typical debit and credit space.
And the <unk> acquisition, which was completed in early May.
Speaker #4: With two consecutive record sales quarters and ongoing momentum in a that generates strong recurring revenue. Our market-leading OpenLoop prepaid business has continued to grow, with sales up 17% this year, excluding impact of the accounting change, driven by greater value tamper-evident packaging solutions and our diversification into healthcare payment offerings.
Off to a good start with nearly $10 million of revenue contribution in less than two months exceeding our expectations for sales and also beating our expectations for profitability.
Before we further review the quarter and outlook, let me take a few minutes to share more on our strategy execution on slide five.
Our vision is to be the most trusted partner for innovative payment technology solutions the.
Speaker #4: Our digital solutions, while still immaterial to overall sales, are growing and generating great customer interest, including customers outside of our typical dividend credit space.
The strategic pillars that drive our actions, our customer focus folding efficiency innovation and diversification and people and culture with.
Speaker #4: And the ROI acquisition, which was completed in early May, is off to a good start. With nearly $10 million of revenue contribution in less than two months, exceeding our expectations for sales, and also beating our expectations for profitability.
We strive to provide market, leading high quality payment solutions and best in class customer service and seek to enhance growth through innovation and diversification.
This includes our focus on expanding our addressable markets by both increasing solution sets for existing customers and adapting existing solutions for new customer verticals.
Speaker #4: Before we further review the quarter and outlook, let me take a few minutes to share more on our strategy execution on slide five. Our vision is to be the most trusted partner for innovative payment technology solutions.
We've invested significantly over the last couple of years to drive market expansion opportunities and accelerated our investments in 2025.
So, let's discuss our progress and expected benefits starting with the <unk> acquisition on slide six.
Speaker #4: The strategic pillars that drive our actions are customer-focused quality and efficiency, innovation and diversification, and people and culture. We strive to provide market-leading high-quality payment solutions and best-in-class customer service, and seek to enhance growth through innovation and diversification.
After three months of owning the <unk> business I can say, we are even more excited about the opportunity.
Airline CPI businesses are very complementary while CPI bread and butter has historically been debit and credit payment cards for financial institutions airway provides a digitally driven all in one delivery process that has penetrated a much more diverse set of payment card users primarily in the prepaid debit payment card market.
Speaker #4: This includes our focus on expanding our addressable markets by both increasing solution sets for existing customers and adapting existing solutions for new customer verticals.
Speaker #4: We have invested significantly over the last couple of years to drive market expansion opportunities, and accelerated our investments in 2025. So let's discuss our progress and expected benefits, starting with the ROI acquisition on slide six.
<unk> prepaid program managers.
Related providers healthcare related providers <unk> of all types as well as banks credit unions and others. They participate in a variety of segments, including incentives rebates gift cards prepaid payroll health care government insurance and fleet, among others as well as debit and credit.
Speaker #4: After three months of owning the ROI business, I can say we are even more excited about the opportunity. ROI and CPI's businesses are very complementary.
Speaker #4: While CPI's bread and butter has historically been dividend credit payment cards for financial institutions, ROI provides a digitally driven, all-in-one delivery process that has penetrated a much more diverse set of payment card users, primarily in the prepaid debit payment card market.
We have very little customer overlap and receive positive feedback from the combination from both customer basis, thus far.
<unk>, becoming a part of CPI creates many opportunities at CPI now has access to a number of additional market segments.
And CPI financial backing allows <unk> existing customers to allocate more business to them with less risk.
Speaker #4: ROI serves prepaid program managers, payroll-related providers, healthcare-related providers, fintechs of all types, as well as banks, credit unions, and others. They participate in variety of segments, including incentives, rebates, gift cards, prepaid, payroll, healthcare, government, insurance, and fleet among others, as well as dividend credit.
This year is focused on bringing our companies together, but we are anticipating many potential sales synergies and expansion opportunities from the acquisition going forward.
In addition to airlines, we expect several other investments to a long term growth and profitability as highlighted on slide seven.
Speaker #4: We have very little customer overlap and receive positive feedback on the combination from both customer bases thus far. ROI becoming a part of CPI creates many opportunities as CPI now has access to a number of additional market segments.
As mentioned earlier or card at once instant issuance solution is in strong demand and is delivering great results. We have been investing to expand the solution beyond the financial institution space and have now successfully launched into a non financial institution verticals, specifically and the government disbursement space providing.
Speaker #4: And CPI's financial backing allows ROI's existing customers to allocate more business to them with less risk. This year is focused on bringing our companies together, but we are anticipating many potential sales synergies and expansion opportunities from the acquisition going forward.
Providing the capability to issue onsite payment cards for social safety net programs.
This market is very similar to many of our others is it a sizeable and recurring in nature and we're continuing to invest in our go to market actions to grow in the government market and introduce into other customer verticals.
Speaker #4: In addition to ROI, we expect several other investments to aid long-term growth and profitability as highlighted on slide seven. As mentioned earlier, our Card of Once instant issuance solution is in strong demand and is delivering great results.
We've also invested to provide prepaid packages for the U S closed loop market.
Speaker #4: We have been investing to expand the solution beyond the financial institution space and are now successfully launched into a non-financial institution vertical, specifically in the government disbursement space.
Which offer significant opportunity, where we have little presence today.
As customer demand has developed for secure packaging solutions in this space. We are on track to deliver our first closed loop deliveries in the fourth quarter.
Speaker #4: Providing the capability to issue on-site payment cards for social safety net programs. This market is very similar to many of our others. As it is sizable and recurring in nature, and we are continuing to invest in our go-to-market actions to grow in the government market, and introduce into other customer verticals.
Already having secured customer commitments.
As we are just getting started in this large and expanding market. We believe this will be a long term contribution to growth and look forward to sharing more.
And we have invested in expanding our healthcare payment card solutions with expanded offerings already driving incremental growth.
Speaker #4: We have also invested to provide prepaid packages for the US closed loop market. Which offers significant opportunity where we have little presence today. As customer demand has developed for secure packaging solutions in this space, we are on track to deliver our first closed loop deliveries in the fourth quarter.
This is also an area, where <unk> performed well and we believe between our combined solutions. We can continue to grow in this attractive and recurring market.
Our digital solutions continued to advance as we have discussed in the past new solutions for small and medium sized financial institutions take long periods of time to adapt and we're experiencing that however, we continue to sign new clients for a push provisioning digital issuance services and are seeing a growing pipeline of potential.
Speaker #4: Already having secured customer commitments, as we are just getting started in this large and expanding market, we believe this will be a long-term contribution to growth and look forward to sharing more.
Speaker #4: And we have invested in expanding our healthcare payment card solutions, with expanded offerings already driving incremental growth. This is also an area where ROI performs well, and we believe between our combined solutions, we can continue to grow in this attractive and recurring market.
Customers the.
The scale of these higher margin solutions, we will continue to invest in resources technology and our go to market needs.
Our investments in metal car capabilities over the years have shown results as well as we have had a few sizable customer orders, which contribute to the second quarter growth with metal we are providing solutions to meet demands for heavier cards that can be purchased at good value relative to other high end metal offerings in the market.
Speaker #4: Our digital solutions continue to advance. As we have discussed in the past, new solutions for small and medium-sized financial institutions take long periods of time to adapt.
Speaker #4: And we are experiencing that. However, we continue to sign new clients for our push provisioning digital issuance services, and are seeing a growing pipeline of potential customers.
In addition to these market expansion initiatives, we've also been making significant investments in automation and Colorado innovating our production workflow, our personalization facility in Tennessee, and continuing to invest in our prepaid business in Minnesota as well as opening the new secured part facility in Indiana.
Speaker #4: The scale of these higher margin solutions we will continue to invest in resources, technology, and our o-to-market needs. Our investments in metal card capabilities over the years have shown results as well.
As we have discussed in the past the Indiana facility will bring efficiencies from automation and optimal processes, while adding capacity and new capabilities.
Speaker #4: As we have had a few sizable customer orders which contributed to second quarter growth. With metal, we are providing solutions to meet demands for heavier cards that can be purchased at good value, relative to other high-end metal offerings in the market.
Our new facility is now starting to operate with the peak of our transition occurring in the second half.
As we open our doors our customers are excited about the possibilities and we have already begun working on additional business opportunities that will be made possible as we complete our transition to the state of the art facility.
Speaker #4: In addition to these market expansion initiatives, we have also been making significant investments in automation in Colorado, innovating our production workflow at our personalization facility in Tennessee, and continuing to invest in our prepaid business in Minnesota, as well as opening the new secure card facility in Indiana.
While we see a bright road ahead with our strategic investments. This year has had its challenges at the highest level our goal is to grow and diversify.
And while we were accomplishing that goal we are experiencing negative cost impacts this year.
Speaker #4: As we have discussed in the past, the Indiana facility will bring efficiencies from automation and optimal processes while adding capacity and new capabilities. Our new facility is now starting to operate, with a peak of our transition occurring in the second half.
Such as unexpected tariffs, which we now anticipate being approximately $5 million for 2025.
We're also incurring one time costs and inefficiencies in our secure card business as the team is focused on the new facility.
Speaker #4: As we open our doors, our ustomers are excited about the possibilities, and we have already begun working on additional business opportunities that will be made possible as we complete our transition to the state-of-the-art facility.
As well as seen margin pressures from sales mix.
But with all that said the performance we are delivering across many areas of our business along with the airline investment has allowed us to continue delivering growth in 2025.
Speaker #4: While we see a bright road ahead with our strategic investments, this year has had its challenges. At the highest level, our goal is to grow and diversify.
When netting the puts and takes we have increased our sales outlook for the year, including airlines, while maintaining our adjusted EBITDA outlook, even with the increased tariff impact.
Speaker #4: And while we are accomplishing that goal, we are experiencing negative cost impacts this year. Such as unexpected tariffs, which we now anticipate being approximately $5 million for 2025.
As I'm sure you are aware on Wednesday, the current administration announced proposed tariffs on ships our outlook does not reflect any potential impact that specific details of implementation timing and possible exemptions have not been announced as a reminder, we have managed through many unexpected developments over the years and through these events, we have managed to grow.
Speaker #4: We're also incurring one-time costs and inefficiencies in our secure card business. As the team has focused the new facility, as well as seeing margin pressures from sales mix.
Speaker #4: But with all that said, the performance we are delivering across many areas of our business, along with the ROI investment, has allowed us to continue delivering growth in 2025.
The business and increase share.
We are confident in our strategy and the opportunities ahead of us and we look forward to sharing our progress with you I will now turn the call over to Jeff to cover the second quarter results and 2025 outlook in more detail Jeff.
Speaker #4: When netting the puts and takes, we have increased our sales outlook for the year, including ROI. While maintaining our adjusted EBITDA outlook, even with the increased tariff impact.
Speaker #4: As I'm sure you are aware, on Wednesday, the current administration announced proposed tariffs on ships. Our outlook does not reflect any potential impact. As specific details of implementation timing and possible exemptions have not been announced.
Thanks, John and good morning, everyone, let's start on slide nine with the second quarter highlights.
Our second quarter net sales reflect organic growth from our debit and credit business. The addition of ROI and as noted in our press release, the onetime noncash impact from an accounting change regarding revenue recognition timing for work in process orders.
Speaker #4: As a reminder, we have managed through many unexpected developments over the years, and through these events, we have managed to grow the business and increase share.
Speaker #4: We are confident in our strategy, and the opportunities ahead of us. And we look forward to sharing our progress with you. I will now turn the call over to Jeff to cover the second quarter results in 2025 outlook in more detail.
Reported net sales increased 9% in the quarter to $129 8 billion or.
We're 15% excluding the impact of the accounting change with organic growth led by increased sales of contactless debit and credit cards and strong growth from card at one instant issuance.
Speaker #4: Jeff? Thanks, John, and good morning, everyone. Let's start on slide nine with the second quarter highlights. Our second quarter net sales reflect organic growth from our debit and credit business, the addition of ROI, and as noted in our press release, the one-time, non-cash impact from an accounting change regarding revenue recognition timing for work in process orders.
<unk> also delivered strong performance contributing approximately $10 million of revenue and less than two months since the may six acquisition.
Gross margins in the quarter were pressured by various factors, which I will discuss shortly and net income was also impacted by various nonrecurring items adjusted.
Speaker #4: Reported net sales increased 9% in the quarter to $129.8 million or 15% excluding the impact of the accounting change. With organic growth led by increased sales of contactless debit and credit cards and strong growth from Card of Once instant issuance.
Adjusted EBITDA increased as the ROI contribution in sales growth helped to offset gross margin pressure.
The sales impacts of the accounting change on the second quarter and year to date can be seen on slide 10.
The accounting change essentially moves us away from recognizing revenue from certain work and process orders at the ended the quarter as was done historically to primarily recognizing revenue only at time of shipment.
Speaker #4: ROI also delivered strong performance contributing approximately $10 million of revenue in less than two months since the May 6th acquisition. Gross margins in the quarter were pressured by various factors which I will discuss shortly, and net income was also impacted by various non-recurring items.
We made this change after the review of our current business practices with customers and to align with Rois.
Practically this means the second quarter does not reflect any revenue for work in process orders at the end of the quarter or prior quarters would have included such revenue.
Speaker #4: Adjusted EBITDA increase as the ROI contribution and sales growth helped offset gross margin pressure. The sales impacts of the accounting change on the second quarter and year to date can be seen on slide 10.
This resulted in a onetime negative transition impact of approximately $8 million on sales in the second quarter.
Speaker #4: The accounting change essentially moves us away from recognizing revenue from certain work in process orders at the end of the quarter as was done historically, to primarily recognizing revenue only at time of shipment.
Excluding the net impact of work in process orders and current and prior period net sales increased 15% in the second quarter.
The accounting change only affects the timing of revenue recognition and does not impact cash flow.
Speaker #4: We made this change after a review of our current business practices with customers and to align with ROI. Practically, this means the second quarter does not reflect any revenue for work in process orders at the end of the quarter, or prior quarters would have included such revenue.
Other than the second quarter of next year, there will not be any significant quarterly comparison issues from this change going forward as the net work in process impacts have typically been relatively small each quarter.
There was approximately $3 billion of gross profit associated with the $8 billion sales impact as a result, our net income in the quarter was affected by the accounting change, but there was no effect on adjusted EBITDA as the impact was treated as an adjustment item.
Speaker #4: This resulted in a one-time negative transition impact of approximately $8 million on sales in the second quarter. Excluding the net impact of work in process orders and current and prior periods, net sales increased 15% in second quarter.
Speaker #4: The accounting change only affects the timing of revenue recognition and es not impact cash flow. Other than the second quarter of next year, there will not be any significant quarterly comparison issues from this change going forward.
We can review the detailed quarterly results on slide 11.
The overall, 9% sales increase reflects a 16% increase in the debit and credit segment and a 19% decrease in the prepaid segment.
Speaker #4: As the net work in process impacts have typically been relatively small each quarter. There was approximately $3 million of gross profit associated with the $8 million sales impact.
The accounting change had the most significant impact on the prepaid segment, which tends to have larger amounts of work in process due to the nature of the business.
Excluding the impact of the accounting change prepaid net sales increased 4%, while debit and credit sales increased 18%.
Speaker #4: As a result, our net income in the quarter was affected by the accounting change but there was no effect on adjusted EBITDA as the impact was treated as an adjustment item.
As mentioned debit and credit growth was led by the addition of ROI and increased sales of contactless cards, including metal cards, and cardiac <unk> instant issuance, partially offset by a decline in personalization services.
Speaker #4: We can review the detailed quarterly results on slide 11. The overall 9% sales increase reflects a 16% increase in the debit and credit segment in 19% decrease in prepaid segment.
The gross profit margin in the quarter decreased from 35, 7% in the prior year to 39% driven by two main factors.
Speaker #4: The accounting change had the most significant impact on the prepaid segment, which tends to have larger amounts of work in process due to the nature of the business.
Sales mix, which has been weighted towards larger volume issuers this year, including a decline in our personalization business and increased production costs, which include higher tariffs depreciation and incremental costs related to our India production facility transition.
Speaker #4: Excluding the impact of the accounting change, prepaid net sales increased 4%, while debit and redit sales increased 18%. As mentioned, debit and credit growth was led by the addition of ROI and increased sales of contactless cards including metal cards and Card of Once instant issuance partially offset by a decline in alization services.
Tariffs, which are expense less inventory has received were slightly more than $1 billion in the quarter.
Based on the latest rates and projections, including <unk>. We now expect tariffs of approximately $5 million in 2025 with a slightly lower profit impact as we are partnering with our customers to share in the impacts where possible.
Speaker #4: The gross profit margin in the quarter decreased from $35.7% in the prior year to $30.9%, driven by two main factors. Sales mix, which has been weighted towards larger volume issuers this year, including a decline in our personalization business and increased production costs, which include higher tariffs, depreciation, and incremental costs related to our Indiana production facility transition.
Depreciation expense in cost of sales was $1 $3 million higher than last year, reflecting the addition of ROI and depreciation related to the new Indiana factory and other new capital equipment.
And we continue to have incremental costs associated with operating two production types in Indiana, while we transition to the new facility.
Speaker #4: Tariffs, which are expensed when inventory is received, were slightly more than $1 million in the quarter. Based on the latest rates and projections including ROI, we now expect tariffs of approximately $5 million in 2025 with a slightly lower profit impact as we are partnering with our customers to share in the impacts where possible.
We are working to alleviate margin pressures for 2026 through supplier negotiations for key components synergies from the ROI acquisition better contribution from our emerging digital solutions as those businesses scale and expected efficiencies from our advanced machinery investment.
Speaker #4: Depreciation expense and cost of sales was $1.3 million higher than last year, reflecting the addition of ROI and depreciation related to the new Indiana factory and other new capital equipment.
We should also see improvement next year as our new India production facility becomes fully operational and we move pass the higher costs and other inefficiencies. We are incurring this year operating duplicate facilities during the transition.
Speaker #4: And we continue to have incremental costs associated with operating two production sites in Indiana while we transition to the new facility. We are working to alleviate margin pressures for 2026 through supplier negotiations for key components, synergies from the ROI acquisition, better contribution from our emerging digital solutions as those businesses scale, and expected efficiencies from our advanced machinery investments.
For this year, we expect incremental costs related to India to affect adjusted EBITDA by approximately $3 million impacting both cost of sales and operating expense and we expect that amount to decline by approximately half and 2026.
We should also benefit from incremental operating efficiencies from the new state of the art facility as the secured card business grows in coming years.
Speaker #4: We should also see improvement next year as our new Indiana production facility becomes fully operational, and we move past the higher costs and other inefficiencies we are incurring this year by operating duplicate facilities during the transition.
SG&A expenses in the second quarter, including depreciation and amortization increased approximately $3 million from the prior year, primarily due to the inclusion of <unk> operating expenses and acquisition and integration costs of $1 6 million.
Speaker #4: For this year, we expect incremental costs related to Indiana to affect adjusted EBITDA by approximately $3 million impacting both cost of sales and operating expense, and we expect that amount to decline by approximately half in 2026.
Our tax rate for the quarter was 61% on a relatively low pretax income about which brought our first half rates of 32%.
The increase in our current rate compared to prior year, primarily reflects impacts from the <unk> acquisition, including non deductibility of certain ROI acquisition costs, and we now expect a full year rate of approximately 30%.
Speaker #4: We should also benefit from incremental operating efficiencies from the new state-of-the-art facility as the secure card business grows in the coming years. SG&A expenses in the second quarter, including depreciation and amortization, increased approximately $3 million from the prior year.
We expect cash NOL benefits of around $5 million from the Arrow acquisition in the coming years, which will benefit cash flow, but will not impact our reported effective tax rate.
Speaker #4: Primarily due to the inclusion ROI operating expenses and acquisition and integration costs of $1.6 million. Our tax rate for the quarter was 61% under relatively low pre-tax income amount.
We also expect approximately $3 million to $5 million of cash benefits from the recently passed U S reconciliation bill over the next 12 months.
Speaker #4: Which brought our first half rates of 32%. The increase in our current rate compared to prior year primarily reflects impacts from the ROI acquisition including non-deductibility of certain ROI acquisition costs, and we now expect a full year rate approximately 30%.
Net income decreased 91% in the quarter, which was also affected by arrow acquisition cost restructuring charges related to the cost saving activities the impact of the accounting change and higher interest expense.
Adjusted EBITDA increased 3% to $22 5 billion.
Speaker #4: We expect cash NOL benefits of around $5 million from the ROI acquisition in the coming years. Which will benefit cash flow but will not impact our reported effective tax rate.
As sales growth and the addition of ROI were partially offset by lower gross margins, including the impact of approximately $1 million of tariff expenses.
Speaker #4: We also expect approximately $3 to $5 million of cash benefits from the recently passed US reconciliation bill over the next 12 months. Net income decreased 91% in the quarter, which was also affected by ROI acquisition costs to restructuring, charges related to the cost-saving activities, the impact of the accounting change, and higher interest expense.
Adjusted EBITDA margins declined from 18, 4% to 17, 3%, primarily due to sales mix and increased tariff expenses. The second quarter margin would have been slightly lower excluding the accounting change impact on sales.
First half results and variance explanations can be found on slide 12.
Speaker #4: Adjusted EBITDA increased 3% to $22.5 million, as sales growth and the addition of ROI were partially offset by lower gross margins, including the impact of approximately $1 million of tariff expenses.
The first half generally reflects the same factors as the second quarter.
Segment results can be found on slide 13.
Income from operations for the debit and credit segment decreased 9% in the second quarter and 7% in the first half as sales growth, including the addition of <unk> was offset by lower gross margin.
Speaker #4: Adjusted EBITDA margins declined from 18.4% to 17.3% primarily due to sales mix and increased tariff expenses. The second quarter margin would have been slightly lower excluding the accounting change impact on sales.
Those margins were impacted by the same factors discussed for the company as a whole, namely sales mix increased depreciation expense and higher production costs, including tariffs, which primarily impacted debit and credit segment prepay.
Speaker #4: First half results and variance explanations can be found on slide 12. The first half generally reflects the same factors as the second quarter. Segment results can be found on slide 13.
Prepaid debit segment income from operations decreased 40% in the quarter and 22% year to date, which was a direct result of the revenue recognition accounting change.
Speaker #4: Income from operations for the debit and credit segment decreased 9% in the second quarter and 7% in the first half as sales growth including the addition of ROI was offset by lower gross margins.
Excluding working process impacts prepaid income from operations increased slightly in the quarter with a stronger increase for where the first half.
Turning to the balance sheet liquidity and cash flow on slide 14.
Speaker #4: Gross margins were impacted by the same factor discussed for the company as a whole, namely sales mix, increased depreciation expense, and higher production costs including tariffs, which primarily impact the debit and credit segment.
We generated $9 $9 billion of cash from operating activities in the first half, which was an increase from $4 1 million in the prior year driven by lower working capital usage.
Speaker #4: Prepaid debit segment income from operations decreased 40% in the quarter and 22% year to date, which was a direct result of the revenue recognition accounting change.
We increased capital spending investment from $2 7 million in the prior year period to $9 1 million in this year's first half, which resulted in free cash flow of $800000. This year down slightly from $1 4 million in prior year.
Speaker #4: Excluding work in process impacts, prepaid income from operations increased slightly in the quarter, with a stronger increase for the first half. Turning to the balance sheet, liquidity, and cash flow on Slide 14.
The increased capital spending supported the build out of our new DNS secure card production facility as well as additional advanced machinery for other facilities.
Speaker #4: We generated $9.9 billion of cash from operating activities in the first half, which was an increase from $4.1 million in the prior year, driven by lower working capital usage.
In May we completed the <unk> acquisition for $45 6 million.
The final cash settlement dependent on working capital adjustments.
Speaker #4: We increased capital spending investment from $2.7 million in the prior year period to $9.1 million in this year's first half. Which resulted in free cash flow of $800,000 this year down slightly from $1.4 million in prior year.
The initial net cash outlay was $42 4 million.
Which appears as an investment item in our cash flow reflects ROI cash balances at the time of the acquisition in funds held in escrow.
On the balance sheet at quarter end, we had $17 1 billion of cash $30 million of borrowings on our ABL revolver and $285 million of senior notes outstanding.
Speaker #4: The increased capital spending supported the build-out of our new Indiana secure card production facility as well as additional advanced machinery for other facilities. In May, we completed the ROI acquisition for 45.6 million dollars with final cash settlement dependent on working capital adjustments.
Following the ended the quarter in July we exercised an optional redemption feature on our 10% coupon senior notes and retired $20 million of notes at a redemption price of 103% of par value.
Speaker #4: The initial net cash outlay was $42.4 million, which appears as an investment item in our cash flow and reflects ROI cash balances at the time of acquisition and funds held in escrow.
We also increased the size of our asset backed lending facility from $75 million to a $100 million.
And we utilize short term borrowings to retire the notes.
Speaker #4: On the balance sheet, at quarter end, we had $17.1 million of cash, $30 million of borrowings on our ABL revolver, and $285 million of senior notes outstanding.
Our net leverage ratio at quarter end was three six times up from three one times at the end of the first quarter due to the funding of the acquisition.
Expect to utilize free cash flow to pay down our ABL borrowings and bring net leverage down over time, although ABL borrowings increased early in the third quarter to fund the senior notes redemption.
Speaker #4: Following end of the quarter in July, we exercised an optional redemption feature on our 10% coupon senior notes and retired 20 million dollars of notes at a emption price of 103% of par value.
Before we move on to our 2025 outlook. We have provided the latest U S cards in circulation trends from visa and Mastercard on slide 15.
Speaker #4: We also increased the size of our asset-backed lending facility from 75 million dollars to 100 million dollars and we utilized short-term borrowings to retire the notes.
For the three years ended March 31 cards in circulation in the U S increased at an 8% CAGR.
Speaker #4: Our net leverage ratio at quarter end was 3.6 times up from 3.1 times at end of the first quarter due to the funding of the acquisition.
Latest earnings reports from large issuers continue to indicate card growth and marketing support despite ongoing economic uncertainty.
Speaker #4: We expect to utilize free cash flow to pay down our ABL borrowings and bring net leverage down over time. Although ABL borrowings increased early in the third quarter to fund the senior notes redemption.
I will now turn to our 2025 outlook on slide 16.
We have updated our 2025 outlook primarily to reflect the ROI acquisition increased tariffs and changes in sales mix.
Speaker #4: Before we move on to our 2025 outlook, we have provided the latest US cards and circulation trends from Visa MasterCard on slide 15. For the three years ended March 31st, cards and circulation in the US increased at an 8% CAGR.
Our current net sales outlook is low double digit to mid teens growth, which compares to our previous outlook of mid to high single digit growth the.
The increase from the previous outlook as a result of the addition of <unk> sales, partially offset by the impact of the accounting change for revenue recognition timing.
Speaker #4: The latest earnings reports from March issuers continue to indicate card growth and marketing support, despite ongoing economic uncertainty. I will now turn to our 2025 outlook on slide 16.
Though there were puts and takes among our businesses. Our overall organic growth outlook has not significantly changed.
Our adjusted EBITDA outlook is unchanged from our prior outlook as we continue to project mid to high single digit growth.
Speaker #4: We have updated our 2025 outlook primarily to reflect the ROI acquisition, reased tariffs, and changes in sales mix. Our current net sales outlook is low double-digit to mid-teams growth, which compares to our previous outlook amid to high single-digit growth.
Compared to the prior outlook, we have added contribution from.
But this is expected to be offset by increased tariffs and unfavorable sales mix.
Our current outlook reflects existing tariff rates and does not reflect potential impacts from the proposed semiconductor chip tariffs announced by the administration on August 6th.
Speaker #4: The increase from the previous outlook is a result of the addition of ROI sales partially offset by the impact of the accounting change for revenue recognition timing.
Speaker #4: Although there were puts and takes among our businesses, our overall organic growth outlook has not significantly changed. Our adjusted EBITDA outlook is unchanged from the prior outlook, as we continue to project mid to high single-digit growth.
At this point details on implementation timing and exemption criteria have not been announced.
You will recall that during and after Covid became significant share as we leverage our strong chip supplier relationships, making significant investments to ensure we always had shifts unhedged for our customers.
Speaker #4: Compared to the prior outlook, we have added contribution from ROI, but this is expected to be offset by increased tariffs and unfavorable sales mix.
We have continued that practice and while chip types very we have ample chip supply inventory. Currently so we have some flexibility to manage supply chain and the near term.
Speaker #4: Our current outlook reflects existing tariff rates and does not reflect potential impacts from the proposed semiconductor chip tariffs announced by the administration on August 6th.
Additionally, any final implications from chips would be an industry wide impact for which we would work not only with our chip providers, but also with our customers on how to manage in the best possible manner.
Speaker #4: At this point, details on implementation timing and exemption criteria have not been announced. You will recall that during and after COVID, we gained significant share as we leveraged our strong chip supplier relationships.
This is real time news, we are not including any impact in our outlook. This morning, and we'll share more when appropriate.
Speaker #4: Making significant investments to ensure we always had chips on hand for our customers. We have continued that practice, and while chip types vary, we have ample chip supply inventory currently, so we have some flexibility to manage supply chains in the near term.
From a quarterly standpoint, we expect the third quarter to face similar margin pressures as Q2, including costs related to further ramping up the Indiana plant before seeing accelerated sales growth and margin improvement in Q4.
As we mentioned last quarter, we expect net leverage to be temporarily higher this year compared to 2024 to the cash flow being utilized for the ROI acquisition and increased capital spending.
Speaker #4: Additionally, any final implications from chips would be an industry-wide impact, for which we would work not only with our chip providers but also with our ustomers on how to manage in the best possible manner.
I will now turn the call back to John for some closing remarks.
Speaker #4: Since this is real-time news, we are not including any impact in our outlook this morning and will share more when appropriate. From a quarterly standpoint, we expect the third quarter to face similar margin pressures as Q2, including costs related to further ramping up the Indiana plant, before seeing accelerated sales growth and margin improvement in Q4.
Thanks, Jeff.
Turning to slide 17 to summarize before we open the call for Q&A.
Our core businesses are on track to deliver solid growth for the year and we are pleased with the <unk> contribution thus far as well as its long term potential we.
We are also excited about the potential long term benefits of our other investments, including further expansion into new markets, such as healthcare closed loop prepaid and digital solutions and the increased capability and capacity from our new production facility.
Speaker #4: As we mentioned last quarter, we expect net leverage to be temporarily higher this year compared to 2024 due to cash flow being utilized for the ROI acquisition and increased capital spending.
And we remain focused on executing and delivering results for the remainder of 2025, operator, we will now open the call up for any questions.
Speaker #4: I will now turn the call back to John for some closing remarks. Thanks, Jeff. Turning to slide 17 to summarize before we open the call for Q&A.
We will now open the call for your questions. If you would like to ask a question press star followed by the number one on your telephone keypad.
Speaker #4: Our core businesses are on track to deliver solid growth for the year, and we are pleased with the ROI contribution thus far, as well as its long-term potential.
Your first question comes from the line of Andrew Scott with Roth Capital. Your line is open.
Speaker #4: We are also excited about the potential long-term benefits of our other investments, including further expansion into new markets such as healthcare, closed loop prepaid, and digital solutions, and the increased capability and capacity from our new production facility.
Hey, good morning, guys. Thank you for taking my questions.
Great to see the revenue guide range. This morning.
So my first one for me is on the <unk> acquisition you guys touched on the fact that you know some of our customers are now.
Speaker #4: And we remain focused on executing and delivering results for the remainder of 2025. Operator, we will now open the call up for any questions.
Putting in larger orders with the backing of your balance sheet.
It looks like.
Speaker #1: We will now open the call for your questions. If you would like to ask a question, press star followed by the number one on your telephone keypad.
Current.
Revenue from <unk> is trending a little bit above your original expectations can you talk.
Speaker #1: Your first question comes from the line of Andrew Scott with Roth Capital. Your line is open.
Talk about where youre seeing from these larger orders and maybe now the backing your balance sheet will allow you to win.
Speaker #5: Hey, good morning, guys. Thank you for taking my questions and there's great to see the revenue guide raised this morning. So my first one for me is on the ROI acquisition.
Larger customer awards as well.
New customers.
Yeah, Andrew Good morning, and a good question.
So we're happy with the ROI performance.
Speaker #5: You guys touched on the fact that you know some of their customers are now you know putting in larger orders with the backing of your balance sheet.
We have spent the last three months getting into deeper with the business. We've got a great team in Las Vegas.
And just in terms of.
Speaker #5: It looks like you know current revenue from ROI is trending a little bit above your original expectations. Can you kind of talk about more what you're seeing from these larger orders and maybe if you know the backing of your balance sheet will allow you to win larger customer awards as well?
How they performed they did beat our expectation nearly $10 million of revenue and less than two months that we owned them through June 30.
Profitability better than our expectations so <unk>.
Performing well, but I would say the performance.
Not as much driven by immediate.
Speaker #5: New customers, I mean.
Revenue synergies things that Youre, describing I think there is opportunity for that.
Speaker #4: Yeah. Andrew, good ning. And good estion. So we're happy with the ROI performance. We have spent the last three months getting even deeper with the business.
We have been out and about talking to their customers.
Understanding their customers' needs, how our solutions can work for their customers their customers needs might.
Speaker #4: We've got a great team in Las Vegas. And just in terms of how they performed, they did beat our expectations by nearly $10 million in revenue.
B.
Leveraged by some of our digital solutions things of that nature, but there is not exactly I would say large orders coming through because of the fact that we have a greater balance sheet immediately things of that nature, but there's opportunities for that prospectively.
Speaker #4: In less than two months that we owned them through June 30, profitability better than our expectations. So performing well, I would say the performance not as much driven by immediate revenue synergies, things that you're describing.
But overall, we're excited about the opportunity set the synergies that we see in front of us, especially as we get into 2026, we think will be positive and the performance to date has been better than our expectations.
Speaker #4: I think 's opportunity for that as we have been out and about talking to their customers understanding their customers' eds, how our solutions can work for their customers.
Great lots of exciting here more synergies are ahead.
Speaker #4: Their customers' needs might be leveraged by some of our digital solutions, things of that nature. But there's not exactly, I would say, large orders coming through because the fact that we have a greater balance sheet immediately, things of that nature.
Second one for me before I hop back into queue, Jeff kind of broke this down but you guys did good job previously with your chips procurement and kind of transitioning to an ROI. We understand they use some of the same E&P chips that you guys may use. So are you guys able to tap into your existing inventory.
Speaker #4: But there are opportunities for that prospectively. Overall, we're excited about the opportunity set. The synergies that we see in front of us, especially as we get into 2026, we think will be positive, and the performance to date has been better than our expectations.
Maybe potentially free up some cash flows.
Sure.
Yeah, Hey, Andrew.
Yes, I think when we think about chips, we definitely think thats part of the synergy business case with the ROI that we obviously have buy a lot more chips.
Speaker #5: Great. Well, that's exciting to hear more synergies are ahead. Second one for me before I hop back in the queue, Jeff kind broke this down, but you guys did a good ob previously with your chips procurement.
Then they have so we have a stronger purchasing power so going forward.
That is the intention that we can start leveraging some of the chips that we can procure at cheaper rates.
Speaker #5: And kind of transitioning to ROI, we understand they use some of the same EMV chips that you guys may use. So are you ys able to tap into your existing inventory and maybe potentially free up some cash flows in future?
And they're in their <unk>.
In Gi cards.
Perfect. Thanks for taking my questions and I will hop back in the queue.
Thanks, Dave.
Your next question comes from the line of Jacob Steven with Lake Street Capital markets. Your line is open.
Speaker #4: Yeah. Hey, Andrew. Yeah, I ink when we think about chips, we definitely think that's part of the synergy business case with ROI. And we obviously have buy a lot more chips than they have, we have a stronger purchasing power.
Hey, guys I appreciate you taking the questions I just wanted to ask a second question on an ROI here.
Obviously, you said $10 million of revenue in less than two months.
Speaker #4: So going forward, that is the intention that we can start leveraging some of the chips that we can procure at cheaper rates. And in their EMV and DI cards.
Kind of on a non-GAAP basis, excluding that accounting charge, how much of the upside was really driven from ROI.
And maybe you could kind of talk a little bit more.
Speaker #5: Perfect. Thanks for taking my questions, and will hop back in the queue.
How is it outperformed your expectations.
Speaker #4: Thanks, Andrew.
Percentage or maybe as an absolute dollar amount.
Speaker #1: Your next question comes from the line of Jacob Stephen with Lake Street Capital Markets. Your line is open.
And Jacob good morning.
I mean, the airline contribution it's still a very small part of the business right. I mean, I think if you exclude the accounting change.
Speaker #6: Hey, guys. Purdue is taking the questions. I just wanted to ask a second question on ROI here. Obviously, you said $10 million of revenue in less than two months.
We are in the mid 100 <unk> in revenue.
Youre talking about $10 million without airwave, we would've grown year over year.
Speaker #6: The kind of on a non-GAAP basis, excluding that accounting charge, you ow how much of the upside was really driven from ROI? And maybe you know you could kind talk a little bit more on you ow how is it outperformed your expectations you know as a percentage or maybe as an absolute dollar amount?
Their profitability definitely was a help theyre performing well.
Especially in light of we had $1 million in tariffs hit in Q2 that were hard to avoid so.
But again the NOI contribution was fairly small in relation to everything else for the quarter.
Speaker #6: Thanks.
Speaker #4: Yeah, Jacob, good ning. I mean, the ROI contribution, it's still a very small part of the business, right? I mean, I think if you exclude the accounting change, we're the mid-130s in revenue.
Okay got it.
Maybe just a second one.
<unk> It sounds like you guys had a nice government program win here.
If I understood that correctly, I guess whats the opportunity here it sounds like Thats, a relatively newer market for you but I'd.
Speaker #4: You're talking about $10 million. Without ROI, we would have grown year over year. The profitability definitely was a help for performing well. Especially in light of we had a million dollars in tariffs hit in Q2 that were hard to avoid.
I'd love to get your thoughts on how Youre looking at some of those.
Potentially larger programs with.
Better.
All through.
Yes, I mean, we've been doing government work and just to be clear, we do that indirectly, we typically try not to contract directly given.
Speaker #4: So but again, the ROI contribution was fairly small in relation to everything else for the quarter.
Yes.
The efforts you have to encounter with working directly with the government, but we do a lot of indirect work, we've been doing that in the debit and credit card space.
Speaker #6: Okay. Got it. Maybe just second one. Card of Once, it sounds like you guys had a nice government program win here. If I understood that correctly, I guess what's the opportunity here?
For a number of years.
So this is an opportunity to take the solutions that we've already had in the debit and credit side and additionally, provide them the ability to instantly issue on site in locations.
Speaker #6: You know it sounds like that's a relatively newer market for you, but I'd love to get your thoughts on how you're looking some of those you ow potentially larger programs with you ow better sell-through.
Specifically this is for a social safety net programs to think of <unk>.
Speaker #4: Yeah, I am. We've been doing government work, and just to be clear, we do that indirectly. We typically try not to contract directly given the efforts you have to encounter when working directly with the government.
Snap unemployment.
Very.
Needs of individuals.
They need money quickly and they needed on site at their government location within their local jurisdictions. So we've started this in one state.
Speaker #4: But we do a lot of indirect work. We've doing that in the debit and credit card space. For a number of years, so this is an opportunity to take the solutions that we've ready had in the debit and credit side and additionally provide them the ability to instantly issue on-site in locations at specifically this is for social safety net programs so think SNAP, unemployment, you know varying needs of individuals where they need money quickly and they need it on-site at their government location.
There is a number of other locations.
Locations that we believe we can penetrate into the near term, which we're in discussions with and this is just another area that we believe is a vertical.
Strong recurring market similar to our other markets that we can continue to break into but keep in mind. This is just the first.
I would say non financial institution card at once vertical we're breaking into there's a number of others that we're in discussions with as well, which we think will provide opportunities for us in the longer term. So we're excited about the card at once performance, that's a great business for us.
Speaker #4: Within their local jurisdiction. So we've started this in one state, there's a number of other locations that we believe we can penetrate into in the near term.
Two record quarters Q1, Q2 of this year.
And the team there is doing a great job. So we're excited about the opportunity set.
Speaker #4: Which we’re in discussions with. This is just another area that we believe is a vertical that's a strong recurring market, similar to our other markets that we can continue to break into.
Yes, it's great to see that traction there.
I just have one follow up you talked a little bit more about metal cards.
Speaker #4: But keep in mind, this is just the first I would say non-financial institution Card of Once vertical we're breaking into. There's a number of others that we're in discussions with as well, which we think will provide opportunities for us in the longer term.
On this call.
What I guess, what's your kind of thoughts it sounds like you are providing.
A complementary product to some of your customers that have maybe maybe plastic card offerings are.
Speaker #4: So we're excited about the Card of Once performance. It's a great business for us. I had two record quarters: Q1 and Q2 of this year.
Kind of a growing part of your business at this point.
Yes, I mean, we've been doing metal for a number of years.
Speaker #4: And the team there is doing a great job. So we're excited about the opportunity set.
What we produce.
A couple of different types of contactless metal cards.
Speaker #6: Yeah. It's great to see that traction there. I just have one follow-up. You talked a little bit more about metal cards. On this call, what I ess what's your kind of you ow thoughts?
Our metal cards in competition with the broader middle market.
Or more on a relative value basis, and when we're trying to penetrate.
Those small to mediums are those who don't want to spend as much on the.
Speaker #6: It sounds like you're providing a you know a complementary product to some of your customers that have you know maybe maybe plastic card offerings or is this kind of a growing part of your at this point?
Very costly metal card that you might see from some of our competitors, we're positioned very well to kind of meet the needs of that market and us.
Metal metal is a good market.
It's still a very small market in relation to our broader markets, but it's an area, where we can continue to sell that youre correct as a complementary product to our customers.
Speaker #4: Yeah. I mean, we've been doing metal for a number of years. You know what we produce, we have a a couple of different types of contactless metal cards.
Or if they want to provide something to their higher clientele.
Speaker #4: Our metal cards in competition with the broader metal market are are more on a relative value basis. And when we're ying to penetrate you know those small to mediums or those who don't want to spend as much on the the very costly metal card that you ight see from some of our itors, we're positioned very well to kind of meet the needs of that market.
We are priced appropriately and to provide them.
Good value for what they're providing to their customers and.
It will be.
Continued niche for us, but we will continue to.
Drive it from a go to market perspective.
Okay got it thanks guys.
Speaker #4: And as metal is a good market, it's still a very small market in relation to our broader markets. But it's an area where we can continue to sell that you're correct as a complementary product to our ustomers.
Your next question comes from the line of Peter Heckmann with D. A Davidson your line is open.
Hey, good morning, Thanks for taking the question you are on the subject.
Speaker #4: Or if they want provide something to their higher clientele, we're priced appropriately and can provide them good value for what they're iding to their customers.
An evolving story and be our tariffs have been on again off again.
Very difficult for American businesses to plan.
Purchasing inventory win.
Speaker #4: And it's a it'll be a continued niche for us, but we'll continue to drive it from a go-to-market perspective.
<unk> policy is so unpredictable, but I.
I guess, what ways could you see to mitigate potential tariffs on chips.
Speaker #6: Okay. Got it. Thanks, guys.
In terms of sourcing and given current inventory on hand, I guess.
Speaker #1: Your next question comes from the line of Peter Heckman with DA Davidson. Your line is open.
<unk>.
How much how many months of production with your current inventory levels.
Speaker #7: Hey, good morning. Thanks for taking the question. You know, on this subject, I know it's an evolving story, and you know tariffs have been on again, off again.
Yes. Good morning. Good question. So we do have.
Speaker #7: Very, very difficult for American businesses to plan. Purchasing inventory when policy is so unpredictable. But I guess what ways could you see to mitigate potential tariffs on chips?
Ample chips on hand.
Keep in mind, though.
There really haven't been any details on the chip tariffs, there's no timing, we don't know what exceptions will be there.
The way I would describe where an American company for the most part we operated five states we are.
Speaker #7: In terms of sourcing and given current inventory on hand, I guess how much how many months of production would your current inventory cover?
Nearly 2000 employees across those five states or investing in the U S building a large plant in Indiana investing in every single one of our locations across the U S. So.
There is there are things, we're trying to do too.
Speaker #4: Yeah. Pete, good morning. Good question. So we do have ample chips on hand. You know keep in mind though, there really haven't been any details on the chip tariffs.
To mitigate tariffs in general.
But I think just like anything else that's occurred over the years, we've been able to manage through it and continue to grow the business and win share in and drive profitability to the bottom line. So that's something we'll work through as we know more but.
Speaker #4: There's no timing. We don't know what exceptions will be there. You know the way I would describe we're an American company for the most part, right?
Still hot off the presses if you will.
Speaker #4: We operate in five states. We have nearly 2,000 employees across those five states. We're investing in the U.S., building a large plant in Indiana and investing in every single one of our locations across the U.S.
Yeah, Yeah, Okay, do you think I guess.
Depending upon how this issue was resolved in the next month or so would you consider doing an interim call or at or in press release to discuss.
Speaker #4: So, you know there's things we're trying to do to mitigate tariffs in general. But I think just like anything else that's occurred over the years, we've been able to manage through it and continue to grow the business and win share.
Any finalized plans.
That's a good question I doubt it.
As I said, we do have April chips on hand, we've been holding a decent number of shifts ever since COVID-19 hit.
Speaker #4: And drive profitability to the bottom line. So it's ething we'll have to work through as we know more. But it's hot off the presses, if you .
To ensure no matter what happens in the market, we're always prepared to meet the needs of our customers.
I think the benefit for US is no matter what happens we do have time to work through it. So there is.
Speaker #7: Yeah. Yeah. Okay. Do you think, I guess depending upon how this issue is resolved over the next month or so, would you consider doing an interim call or interim press release to discuss any finalized plans?
There is no immediate risk if you will.
There is no immediate risk if you will.
But again.
Like all the other tariffs we would imagine this will evolve and as things evolve we will share more as it makes sense, Okay I would just add.
Speaker #7: You know.
Speaker #4: Pete, that's a od question. I doubt it. As I said, we do have ample chips on hand. We've been holding a decent number of chips ever since you know COVID hit.
This is going to be.
If it does come to fruition, it's an industry phenomenon also great it will affect the whole industry. So.
We will just have to see.
Speaker #4: Just to ensure no matter what happens in the market, we're always prepared to meet the needs of our customers. So I think the benefit for us is that, no matter what happens, we do have time to work through it.
If and when it does we're across the supply chain.
It's captured and from a competitive standpoint, we're all in the same boat here.
Speaker #4: So there's there's no immediate risk, if you will. But again, just like all the other tariffs, would imagine this will evolve. And as things evolve, we will share more as it makes sense.
Right right. That's a fair point, Okay, we'll stay tuned thank you.
And your next question comes from the line of how go cash win B Riley Securities. Your line is open.
Speaker #7: Okay. And I just ask Pete, you know this is going to I mean, if it does come to fruition, it's an industry phenomenon also.
Hey, guys.
Thanks for that I, just wanted to go over some of the detail and make sure I've got it. So it was about a $1 million tariff impact and do you see with it.
Speaker #7: Right? It will affect the whole industry. So you know we'll just have to see you ow if and when it does you know where across the supply chain you ow it's captured.
$2 million to $3 million impact from <unk>.
Dual production facilities.
Running two facilities in Indiana is that right. So that's about $4 million is that the right number.
Speaker #7: from a competitive standpoint, you know we're all in the boat here. Right. Right. That's a fair point. Okay. We'll stay tuned. Thank ou.
You got to illustrate a $1 billion this quarter for the tariffs.
<unk> for the Beacon.
We're trying to partner with our customers to bring that on.
Speaker #1: And your next estion comes from the line of Hal Gotisch with B Riley Securities. Your line is open.
On the EBITDA impact, but from a cost impact is about $5 million on tariffs for the year and then for Indiana.
Speaker #8: Hey, guys. Thanks for that. I just want to go over some of the detail and make sure I got . So it was about a $1 million tariff impact.
$3 million incremental this year.
Speaker #8: And do you it was a two to three million impact from a dual production facilities? And running two facilities in Indiana? Is that right?
Sure.
Getting that facility up and running.
So that's kind of spread mostly.
Q4, okay.
Speaker #8: So, that's about $4 million? Is that the right number?
And then we.
Yes go ahead.
Speaker #4: Yeah. Yeah. You got it almost right. A million dollars this quarter for the tariffs. You know, like $5 million for the, we can, you know, we’re trying to partner with our customers to bring that down on the EBITDA impact.
8 million totaling $5 million for the year and tariff $3 million for Indiana.
Yes, yes production, okay cool.
The last time, we had a supply chain disruptions like getting this is liza chips.
And it caused a lot of.
Speaker #4: But from a cost impact, about $5 million on tariffs for the year. And then for Indiana that was about $3 million incremental this year.
Activity.
Thanks.
2022 was a good year because of that right and is there any.
Is there any dynamic going on now.
Speaker #4: For you ow getting the facility up and running, so that's kind of spread mostly. Two through Q4. Yeah. And we yeah, go head.
A pull forward of activity or is it an ordering or is it more now just like everyone's just kind of waiting to see what happens is it's a very different maybe dynamic than it was in 2022.
Speaker #8: 8 million total. It's $5 million for the year in tariffs, $3 million for Indiana.
In terms of customer order patterns and activity.
Yes, we.
Speaker #4: Yeah. Yeah. Production. Okay. Cool. And you know, the last time we had a supply chain disruption, it was getting the supplies of chips, you know, and it caused a lot of activity. I think 2022 was a good year because of that, right?
We have not seen any.
All forward from any of the tariff impacts thus far.
The chip news came out Wednesday night.
Yes, that's fair.
But again, we have and we shared this with our customers. We have April chips on hand, there is no.
Speaker #4: And is there any is there any dynamic going on now where there's a pull forward of activity, or is it you know on ordering, or is it or is more now it's like everyone's just kind of waiting to see what happens?
Yeah no.
No need to immediately react as a customer and we will continue to work through it.
And just for like kind of a.
Speaker #4: It's very different, maybe more dynamic than it was in 2022, in terms of customer order patterns and activity. Yeah. Hal, we have not seen any pull forward from any of the tariff impacts thus far.
What is kind of a chip value before tariffs any tariff changes to like a dollar value per card I kind of just roughly.
No.
The magnitude of.
Yes, I mean.
Speaker #4: You know the chip news came out Wednesday night, so that's very significant. But again, we have, and we shared this with our customers, we have ample chips on hand.
We can't give you exact amounts, but when you think of the cost of it I mean, it is the biggest cost component when you talk about material cost.
Speaker #4: There's no need to immediately react as a customer, and we'll continue to work through it.
Significantly.
So.
We can't give you for competitive reasons, we don't want give you anymore.
Speaker #7: Yeah. And just for like a you know kind of a what is kind of the ip value before tariffs? You know any tariff changes to like a dollar value per a card?
Detail, there, but I mean, it is a big component of the cost structure.
Alright, Thank you very much.
Thanks Al.
Speaker #7: I kind of just roughly. So we kind of know like the magnitude of.
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.
Thanks, operator.
I want to.
Again acknowledge and thank all of our CPI employees for their contributions and dedication to the company and to our customers.
Thank you all for joining and we hope you have great day.
Thank you. So much. This concludes today's conference call you may now disconnect.