CPI Card Surprises Investors with Strong Free Cash Flow Amid Mixed Q3 Earnings
Solid Revenue Growth Outpaces Analyst Expectations
Despite mixed earnings, CPI Card Group recorded a revenue of $124.8 million, exceeding the $117.1 million that analysts had anticipated. Known for producing debit and credit cards issued by banks, the company achieved this boost with an 18% year-over-year sales increase, which it attributed to robust demand for both debit and credit cards, as well as prepaid cards.
However, the company’s profits fell short, coming in at just $0.11 per share—substantially lower than the $0.51 per share analysts had estimated. The earnings decline was largely due to a refinancing cost of $8.8 million, as CPI took significant steps to restructure its debt.
Debt Restructuring: A Strategic Move for Long-Term Financial Health
CPI undertook a debt restructuring that involved redeeming its $268 million senior secured notes, originally due in 2026 with an 8.6% interest rate, and replacing them with $285 million in senior secured notes due in 2029, carrying a 10% interest rate. This refinancing move will increase the company’s interest costs but extends the debt maturity by three years. Additionally, CPI now has access to an added $75 million revolving credit facility, improving its liquidity position and access to capital.
Change in Major Shareholder’s Position Signals New Phase for CPI
Another notable development was that CPI’s majority shareholder sold 1.4 million shares in the public market, reducing their stake in the company from 56% to 43%. This shift means that CPI no longer has a controlling shareholder, potentially bringing more independence and strategic flexibility to the company.
Future Outlook: Sales Growth and Free Cash Flow Improvements Expected
In terms of forward guidance, CPI projects that sales will grow in the mid-to-high single digits, an increase over its previous estimates. Additionally, the company anticipates stronger-than-expected earnings before interest, taxes, depreciation, and amortization (EBITDA). Importantly for investors, CPI’s free cash flow is now expected to be “slightly below 2023 levels”—a considerable improvement from earlier predictions, which projected a roughly 50% decline.
Based on these updates, investors could anticipate CPI’s free cash flow to reach around $25 million this year, a figure that implies the stock could be trading at less than 11 times its free cash flow. For a company with an 18% annual growth rate in sales, this valuation could be appealing to investors looking for growth at a reasonable price.
This recent update positions CPI Card Group as an intriguing prospect for those looking to invest in the financial technology sector, particularly in companies focusing on card production and related payment services.
