CPI Card Group Inc (PMTS) 2023 Q2 法說會逐字稿

Welcome to CPI Card Group's second-quarter 2023 earnings call. My name is Chris, and I'll be your operator today. (Operator Instructions) Now I'd like to turn the call over to Mike Salop, CPI's Head of Investor Relations.

歡迎參加 CPI 卡集團 2023 年第二季度財報電話會議。我叫克里斯，今天我將成為您的接線員。 （操作員指示）現在我想將電話轉給 CPI 投資者關係主管 Mike Salop。

Thanks, operator, and good morning, everyone. Welcome to the CPI Card Group's second-quarter 2023 earnings webcast and conference call. Today's date is August 8, 2023. And on the call today from CPI Card Group are Scott Scheirman, President and Chief Executive Officer; Jeff Hochstadt, Chief Financial Officer; and John Lowe, Executive Vice President, End-to-End Payment Solutions.

謝謝接線員，大家早上好。歡迎觀看 CPI 卡集團 2023 年第二季度收益網絡廣播和電話會議。今天的日期是 2023 年 8 月 8 日。CPI 卡集團總裁兼首席執行官 Scott Scheirman 今天接聽了電話； Jeff Hochstadt，首席財務官； John Lowe，端到端支付解決方案執行副總裁。

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.

在我們開始之前，我想提醒大家，本次電話會議可能包含根據1995 年《私人證券訴訟改革法案》定義的前瞻性陳述。這些陳述受到某些風險和不確定性的影響，可能導致實際結果與實際結果有所不同。實質上來自於前瞻性陳述中表達的內容。

For a discussion of such risks and uncertainties, please see CPI Card Group's most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that occur after this call.

有關此類風險和不確定性的討論，請參閱 CPI 卡集團最近向 SEC 提交的文件。今天做出的所有前瞻性陳述僅反映我們當前的預期，我們沒有義務更新任何陳述以反映本次電話會議後發生的事件。

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 that we issued this morning.

此外，在今天的電話會議期間，公司將討論一項或多項非公認會計準則財務指標，包括但不限於：EBITDA、調整後 EBITDA、調整後 EBITDA 利潤率、淨槓桿率和自由現金流。這些非公認會計原則財務指標與最直接可比的公認會計原則指標的調節表包含在我們今天上午發布的新聞稿和幻燈片演示中。

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 10-Q for the quarter ended June 30, 2023, 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.

今天的新聞稿以及本次電話會議附帶的演示文稿的副本可在 CPI 的投資者關係網站 Investor.cpicardgroup.com 上獲取。此外，CPI 截至 2023 年 6 月 30 日的季度的 10-Q 表將在 CPI 的投資者關係網站上發布。在今天的電話會議上，除非另有說明，所有增長率均指與上年同期的比較。

And now, I'd like to turn the call over to President and Chief Executive Officer, Scott Scheirman.

現在，我想將電話轉給總裁兼首席執行官斯科特·謝爾曼 (Scott Scheirman)。

Thanks, Mike, and good morning, everyone. During today's call, I will give a brief overview and highlight our ongoing strategy. John will discuss CPI's second-quarter performance and our updated outlook for the full year. And then Jeff will review the financial results in more detail before we open the call for questions.

謝謝邁克，大家早上好。在今天的電話會議中，我將簡要概述並強調我們正在進行的戰略。約翰將討論 CPI 第二季度的表現以及我們對全年的最新展望。然後，在我們開始提問之前，傑夫將更詳細地審查財務業績。

We will start on slide 4. As you know, in early June, I announced my plans to retire in early 2024. This was a difficult decision for me as I have enjoyed leading CPI since becoming CEO in late 2017, but I need to give priority to my family.

我們將從幻燈片4 開始。如您所知，6 月初，我宣布計劃於2024 年初退休。這對我來說是一個艱難的決定，因為自2017 年底成為首席執行官以來，我一直享受領先的CPI，但我需要給予優先考慮我的家人。

Given the company has a strong foundation with an excellent leadership team that has been executing our strategy successfully, I feel comfortable that the time is right for me to retire. Our Board is currently undergoing a search for the next CEO, evaluating both internal and external candidates and expects to name a new CEO in late 2023 or early 2024.

鑑於公司擁有堅實的基礎和優秀的領導團隊，並且成功地執行了我們的戰略，我感到現在是我退休的最佳時機。我們的董事會目前正在尋找下一任首席執行官，評估內部和外部候選人，並預計在 2023 年底或 2024 年初任命新首席執行官。

I want to assure you that the company remains committed to the key strategic priorities that have guided our success, specifically deep customer focus, market-leading quality products and customer service, continuous innovation, and a market-competitive business model. Although we have adjusted our outlook for the year to reflect some near-term challenges in the industry, I remain confident in the long-term secular growth for the markets and in CPI's competitive position.

我想向您保證，公司仍然致力於指導我們成功的關鍵戰略重點，特別是深度關注客戶、市場領先的優質產品和客戶服務、持續創新以及具有市場競爭力的商業模式。儘管我們調整了今年的前景以反映行業的一些近期挑戰，但我對市場的長期增長和 CPI 的競爭地位仍然充滿信心。

As you can see on slide 5, payment cards issued to consumers continue to grow. The latest figures from Visa and MasterCard show cards in circulation in the US increased at a 10% CAGR for the three years ending March 31 and were up 9% compared to the prior-year period.

正如您在幻燈片 5 中看到的那樣，向消費者發行的支付卡持續增長。 Visa 和 MasterCard 的最新數據顯示，截至 3 月 31 日的三年間，美國流通的銀行卡複合年增長率為 10%，較去年同期增長 9%。

Trends toward adoption of higher-priced contactless and eco-focused cards also support long-term market growth expectations. And as we have discussed in the past, the card business is reoccurring in nature, and our research shows that on average, about 90% of US payment card annual issuance is driven by replacement of existing cards. In short, banks and financial institutions need and want to issue cards.

採用高價非接觸式和環保卡的趨勢也支持了長期市場增長預期。正如我們過去所討論的，卡業務本質上是重複發生的，我們的研究表明，平均而言，美國支付卡每年發行量的約 90% 是由現有卡的更換推動的。簡而言之，銀行和金融機構需要並且想要發行卡。

As that market grows over time, and we are well positioned to continue to win share based on our differentiated products and end-to-end solutions portfolio, our strong customer service, and our team's track record of gaining share through execution of our focused strategies.

隨著該市場隨著時間的推移而增長，我們有能力憑藉我們的差異化產品和端到端解決方案組合、強大的客戶服務以及我們的團隊通過執行重點戰略來贏得市場份額的記錄，繼續贏得市場份額。

We are currently being affected by softness in customer demand, which has cost us to adjust our sales outlook range for the year. But we believe the softness is temporary in nature as eventually cards will still need to be purchased and issued. Overall, given the market conditions, I am pleased with the results we posted in the second quarter and for the first half of the year, including solid profitability growth.

我們目前受到客戶需求疲軟的影響，這使我們不得不調整今年的銷售前景範圍。但我們認為，這種疲軟本質上是暫時的，因為最終仍需要購買和發行卡片。總體而言，考慮到市場狀況，我對我們第二季度和上半年的業績感到滿意，包括穩健的盈利增長。

I would now like to turn the call over to John Lowe to further discuss the current environment, our second-quarter results, and our outlook for 2023. For those of you who don't know John, he leads all of our debit and credit segment, which represents approximately 80% of the company's net sales and previously served as the company's CFO. He has done a great job of bringing our end-to-end payment solutions businesses together and driving our business forward. John?

我現在想將電話轉給 John Lowe，進一步討論當前環境、我們第二季度的業績以及我們對 2023 年的展望。對於那些不認識 John 的人來說，他領導著我們所有的借方和貸方業務該部門約占公司淨銷售額的80%，此前曾擔任公司的首席財務官。他在整合我們的端到端支付解決方案業務並推動我們的業務向前發展方面做得非常出色。約翰？

Thanks, Scott, and good morning, everyone. Happy to be on the call today. Let me first go through some of the results for the quarter on slide 6 before reviewing our full-year outlook.

謝謝斯科特，大家早上好。很高興今天能接聽電話。在回顧我們的全年展望之前，讓我先回顧一下幻燈片 6 上本季度的一些結果。

For the quarter, we delivered a 1% increase in net sales, driven by 14% growth in our prepaid business, which is led by Peggy O'Leary and her team. Our debit and credit business declined 1%, which reflects both challenging comparisons with the prior year quarter and cautious spending by some of our customers.

在 Peggy O'Leary 及其團隊領導的預付費業務增長 14% 的推動下，本季度我們的淨銷售額增長了 1%。我們的借記卡和貸記業務下降了 1%，這既反映出與去年同期相比具有挑戰性，也反映了我們的一些客戶的謹慎支出。

As you may recall, our debit and credit segment net sales increased 29% in the second quarter of 2022. This was driven by a large card order related to an eco-focused portfolio addition with one of our largest customers. As a result, we sold nearly 15 million more eco-focused cards in last year's second quarter than the current quarter. As a reminder, as of the end of the current quarter, we have sold nearly 100 million eco-focused cards to our customers since late 2019.

您可能還記得，我們的借記卡和信用卡部門淨銷售額在2022 年第二季度增長了29%。這是由我們最大的客戶之一與以生態為重點的投資組合增加相關的大額銀行卡訂單推動的。因此，去年第二季度我們售出的環保卡比本季度多了近 1500 萬張。提醒一下，自 2019 年底以來，截至本季度末，我們已向客戶銷售了近 1 億張環保卡。

Aside from eco-focused cards, we delivered increases in debit and credit in this year's quarter, primarily from our other contactless cards, contact cards, and services businesses. Comparison aside, customer demand is softer than we expected coming into the year, which we believe is driven by a couple of factors.

除了以環保為重點的卡外，我們在今年季度的借記卡和信用卡業務也有所增長，主要來自我們的其他非接觸式卡、接觸式卡和服務業務。撇開比較不談，今年的客戶需求比我們預期的要疲軟，我們認為這是由幾個因素驅動的。

As we mentioned last quarter, we started to see some impact on orders following the banking stress that began in the spring. Although the turmoil that affected small and regional banks has dissipated and the current environment appears to have stabilized, we continue to see cautionary spending among many of our smaller medium-sized banking customers on cards and a related personalization.

正如我們上季度提到的，在春季開始的銀行業壓力之後，我們開始看到訂單受到一些影響。儘管影響小型和區域銀行的動盪已經消散，並且當前環境似乎已經穩定，但我們仍然看到許多中小型銀行客戶在卡和相關個性化方面的支出持謹慎態度。

We're also hearing from our customers that they're utilizing more existing inventory as supply chain challenges that previously prompted them to carry more inventory have improved. We believe the ongoing economic slowdown concerns have also likely put more emphasis on customers optimizing inventory levels.

我們還從客戶那裡得知，他們正在利用更多的現有庫存，因為之前促使他們攜帶更多庫存的供應鏈挑戰已經得到改善。我們認為，持續的經濟放緩擔憂也可能讓客戶更加重視優化庫存水平。

As we talk to our customers, our belief is the softness in the market and inventory work downs will likely continue in the near term, but we believe the market will improve later in the year. As Scott noted, card issuance to consumers remains healthy. So we do expect sales to issuers to start to regain momentum once inventory levels are worked down.

當我們與客戶交談時，我們相信市場疲軟，庫存下降可能會在短期內持續，但我們相信市場將在今年晚些時候有所改善。正如斯科特指出的那樣，向消費者發卡的情況依然健康。因此，我們確實預計，一旦庫存水平下降，發行人的銷售將開始恢復勢頭。

Turning back to second-quarter results, despite the slight sales growth, we were able to increase adjusted EBITDA by effectively managing operating expenses. We grew net income by 6% and adjusted EBITDA by 18% in the quarter with adjusted EBITDA margins increasing 290 basis points to 20.3%.

回到第二季度的業績，儘管銷售額略有增長，但我們能夠通過有效管理運營費用來增加調整後的 EBITDA。本季度我們的淨利潤增長了 6%，調整後 EBITDA 增長了 18%，調整後 EBITDA 利潤率增長了 290 個基點，達到 20.3%。

For the first half of the year, we delivered solid 5% net sales growth of 43% increase in net income and 15% growth in adjusted EBITDA. Jeff will give you more details on our results in a few minutes, but first, let's turn to slide 7 to discuss our updated outlook for 2023.

今年上半年，我們的淨銷售額實現了 5% 的穩定增長，淨利潤增長了 43%，調整後 EBITDA 增長了 15%。 Jeff 將在幾分鐘內向您提供有關我們結果的更多詳細信息，但首先，讓我們轉到幻燈片 7 來討論我們更新的 2023 年展望。

Today, we're adjusting the sales outlook provided in May, while affirming our outlooks for adjusted EBITDA growth, free cash flow generation, and net leverage. We have updated our full-year sales outlook to a range of flat to low-single digit growth, down from our original outlook of mid-single-digit growth due to the factors mentioned previously. This change is attributable to the debit and credit segment as we continue to expect the prepaid segment to be similar to or slightly better than 2022 levels.

今天，我們調整了 5 月份提供的銷售前景，同時確認了調整後 EBITDA 增長、自由現金流生成和淨槓桿率的預期。由於前面提到的因素，我們將全年銷售預期從持平到低個位數增長的範圍從原來的中個位數增長的預期下調。這一變化歸因於借記和貸記部分，因為我們繼續預計預付費部分將類似於或略好於 2022 年的水平。

Currently, we expect sales to decline in the third quarter and return to growth in the fourth quarter as the market starts to improve and the impact of our sales initiatives takes hold. As we mentioned last quarter, due to the softness we are seeing in the market, we are executing various initiatives to drive sales in 2023, and these will primarily benefit the fourth quarter.

目前，隨著市場開始改善以及我們銷售舉措的影響顯現，我們預計第三季度銷售額將下降，第四季度將恢復增長。正如我們上季度提到的，由於我們看到市場疲軟，我們正在執行各種舉措來推動 2023 年的銷售，這些舉措將主要有利於第四季度。

On the profit side, we are affirming our outlook for mid- to high single-digit adjusted EBITDA growth. Given the lower sales expectation, we have increased our focus on managing discretionary expenses such as outside services costs and managing the timing of implementation of certain projects where possible.

在利潤方面，我們確認調整後 EBITDA 實現中高個位數增長的前景。鑑於銷售預期較低，我們更加註重管理可自由支配費用，例如外部服務成本，並儘可能管理某些項目的實施時間。

As noted, adjusted EBITDA increased 15% in the first half of the year, so we're off to a good start. Although there is still uncertainty in the economic environment and exactly when the market will improve, we have confidence in our teams and their focus on delivering our outlook and believe we have solid plans in place to do so. Longer term, the same positive secular trends remain intact: cards in circulation growth, contactless card market penetration, and eco-focused US card growth trends where we believe we are a leader.

如前所述，今年上半年調整後的 EBITDA 增長了 15%，因此我們有了一個良好的開端。儘管經濟環境以及市場何時改善仍存在不確定性，但我們對我們的團隊及其對實現我們的前景的專注充滿信心，並相信我們已經制定了堅實的計劃來做到這一點。從長遠來看，同樣積極的長期趨勢仍然完好無損：卡的流通量增長、非接觸式卡市場滲透率以及以生態為中心的美國卡增長趨勢，我們相信我們是領先者。

I will now turn the call over to Jeff to review our second quarter and year-to-date results and outlook in more detail. Jeff?

我現在將把電話轉給傑夫，更詳細地回顧我們第二季度和今年迄今為止的業績和前景。傑夫？

Thanks, John, and good morning, everyone. I will begin my overview on slide 9.

謝謝約翰，大家早上好。我將從幻燈片 9 開始概述。

Net sales increased 1% in the quarter as strong growth from our prepaid business offset the expected softness in debit and credit. Prepaid sales increased 14%, driven by higher sales to existing customers, while debit and credit segment sales decreased 1% as the previously implemented price increases helped offset some of the reduced demand.

本季度淨銷售額增長 1%，因為我們的預付費業務的強勁增長抵消了借記卡和貸卡業務的預期疲軟。由於現有客戶銷售額增加，預付費銷售額增長了 14%，而藉記卡和信貸部門銷售額下降了 1%，因為之前實施的提價幫助抵消了部分需求減少。

Looking at our products and services and debit and credit, declines in eco-focused card sales were largely offset by increases in sales of other contactless cards, contact cards, personalization services, including our print-on-demand business, Card@Once, instant issuance processing fees, and sales of non-EMV cards.

看看我們的產品和服務以及借記卡和信用卡，以生態為重點的卡銷售額的下降在很大程度上被其他非接觸式卡、接觸卡、個性化服務（包括我們的按需打印業務、Card@Once、即時卡）銷售額的增長所抵消。發行處理費以及非 EMV 卡的銷售。

First-quarter gross profit increased 1%, largely in line with sales growth. The gross profit margin decreased slightly from 35.8% to 35.5%. We reduced SG&A expenses by $2 million in the quarter, primarily due to lower expenses in prepaid and lower professional service expenses.

第一季度毛利潤增長1%，與銷售增長基本一致。毛利率由35.8%小幅下降至35.5%。本季度我們減少了 SG&A 費用 200 萬美元，主要是由於預付費用減少和專業服務費用減少。

Compensation expenses increased slightly in the quarter as the impact of increased headcount and salaries and the executive retention package noted in our early June 8-K were offset by reduced short-term employee incentive compensation expense. Most of the cash and equity expense impacts from the executive retention package will be amortized within SG&A through the end of February of next year and recorded as adjustment items to EBITDA.

本季度的薪酬支出略有增加，因為我們在 6 月初的 8-K 報告中提到的員工人數和工資增加以及高管保留方案的影響被短期員工激勵薪酬支出的減少所抵消。高管保留計劃帶來的大部分現金和股權費用影響將在明年 2 月底之前在 SG&A 內攤銷，並作為 EBITDA 的調整項目記錄。

We had a relatively high tax rate of 38.9% in the quarter, which compared to 22.1% in the prior year and brought our year-to-date rate up to 28.6%. The increased rate in the quarter primarily reflects limitations on deductibility of executive compensation related to the CEO retention package.

本季度我們的稅率相對較高，為 38.9%，而去年同期為 22.1%，使我們的年初至今稅率達到 28.6%。本季度的增長率主要反映了與首席執行官保留方案相關的高管薪酬扣除限制。

The year-to-date rate is still below last year's level due to higher interest expense deductibility and a favorable adjustment in the first quarter to reflect a change in state tax law. We project a normalized rate, excluding any adjustment items of between 25% and 30% and now expect the overall 2023 rate to be near the top of that range.

由於利息費用扣除額提高以及第一季度為反映州稅法變化而進行的有利調整，年初至今的利率仍低於去年的水平。我們預計一個標準化利率，不包括 25% 至 30% 之間的任何調整項目，現在預計 2023 年的總體利率將接近該範圍的頂部。

Net income in the second quarter increased 6% to $6.5 million and adjusted EBITDA increased 18% to $23.3 million. Adjusted EBITDA margin improved from 17.4% in the prior year to 20.3%, driven by reduced SG&A expenses; while net income growth also benefited from lower interest expense, partially offset by a higher tax rate.

第二季度淨利潤增長 6%，達到 650 萬美元，調整後 EBITDA 增長 18%，達到 2330 萬美元。由於 SG&A 費用減少，調整後 EBITDA 利潤率從上一年的 17.4% 提高至 20.3%；而淨收入的增長也受益於利息支出的下降，但部分被較高的稅率所抵消。

Turning now to our year-to-date results on slide 10, for the first half of the year, net sales increased 5% with the debit and credit segment growing 5% and prepaid debit increasing 6%. Debit and credit sales growth was driven by contactless card, card personalization services, Card@Once, instant issuance solution services, and non-EMV cards.

現在來看幻燈片 10 上的年初至今的業績，上半年淨銷售額增長了 5%，借記卡和貸記卡部門增長了 5%，預付借記卡增長了 6%。借記卡和信用卡銷售的增長是由非接觸式卡、卡個性化服務、Card@Once、即時發行解決方案服務和非 EMV 卡推動的。

Pricing contributed just under 4 percentage points of the overall growth in the first half, primarily related to actions taken in 2022. So this impact will lessen over the remainder of the year.

上半年，定價對整體增長的貢獻略低於 4 個百分點，這主要與 2022 年採取的行動有關。因此，這種影響將在今年剩餘時間內減弱。

First-half gross profit increased 5% from the prior year, with gross profit margin increasing slightly to 35.6%. SG&A expenses decreased by approximately $1 million in the first half as reduced professional service expenses, including for third-party SOX costs and lower expenses in prepaid were partially offset by increased compensation expenses, primarily reflecting increased headcount.

上半年毛利較去年同期增長5%，毛利率小幅上升至35.6%。上半年，SG&A 費用減少了約 100 萬美元，原因是專業服務費用（包括第三方 SOX 費用）的減少和預付費用的減少被補償費用的增加部分抵消，主要反映了員工人數的增加。

Net income in the first half increased 43% to $17.4 million, and adjusted EBITDA increased 15% to $48.4 million. Adjusted EBITDA margin improved from 18.8% in the prior year to 20.5%, driven primarily by reduced operating expenses, while net income growth also benefited from lower interest expense and a lower tax rate.

上半年淨利潤增長 43% 至 1740 萬美元，調整後 EBITDA 增長 15% 至 4840 萬美元。調整後的 EBITDA 利潤率從上年的 18.8% 提高至 20.5%，這主要是由於運營費用減少，而淨利潤增長也受益於利息費用降低和稅率降低。

Turning now to our segments on slide 11, I mentioned the segment sales drivers earlier, so I will just discuss segment profitability on the slide. Income from operations for the debit and credit segment decreased 1% in the quarter to $25.1 million, in line with the sales decline. For the first half, debit and credit income from operations increased 11%, driven by sales growth, operating leverage, including the benefits of pricing increases and lower SG&A expenses.

現在轉向幻燈片 11 上的細分市場，我之前提到了細分市場的銷售驅動因素，因此我將僅討論幻燈片上的細分市場盈利能力。本季度借記卡和貸記卡部門的運營收入下降 1%，至 2510 萬美元，與銷售額下降一致。上半年，在銷售增長、運營槓桿（包括定價上漲和銷售管理及行政費用降低的好處）的推動下，運營借記和貸記收入增長了 11%。

Prepaid debit segment income from operations increased 43% in the second quarter to $7.6 million. First-half income from operating was flat due to first-quarter costs related to the labor conversion at our prepaid production facility.

第二季度預付借記業務收入增長 43%，達到 760 萬美元。由於第一季度與我們的預付費生產設施的勞動力轉換相關的成本，上半年的運營收入持平。

As was mentioned last quarter, we expected prepaid margin to improve from the first quarter as we gained efficiencies from the labor conversion and benefited from more favorable mix and operating leverage. Compared to prior year, prepaid income from operations also benefited from lower SG&A expenses in the second quarter.

正如上季度提到的，我們預計預付利潤率將比第一季度有所改善，因為我們從勞動力轉換中提高了效率，並受益於更有利的組合和運營槓桿。與去年同期相比，運營預付收入也受益於第二季度銷售、管理及行政費用的下降。

Turning to the balance sheet, liquidity, and cash flow on slide 12, on a year-to-date basis, we generated $10.3 million of cash flow from operating activities and invested $6.6 million on capital expenditures, which resulted in free cash flow of $3.7 million. This compared to the free cash flow usage of $16.3 million in the prior-year period, with the improvement driven by increased net income and reduced working capital usage compared to last year's first half.

轉向幻燈片12 上的資產負債表、流動性和現金流，從年初至今，我們從經營活動中產生了1,030 萬美元的現金流，並在資本支出上投資了660 萬美元，從而產生了3.7 美元的自由現金流百萬。相比之下，去年同期的自由現金流使用量為 1,630 萬美元，與去年上半年相比，淨收入增加和營運資金使用量減少推動了這一改善。

On the balance sheet, at June 30, we had $11 million of cash and $18 million of borrowings outstanding on our $75 million ABL revolver. We had $270 million of senior secured notes outstanding at quarter end as we repurchased $7 million of notes in the open market in the quarter, bringing our total to $15 million year to date.

截至 6 月 30 日，資產負債表上我們價值 7500 萬美元的 ABL 左輪手槍有 1100 萬美元現金和 1800 萬美元未償還借款。由於我們本季度在公開市場回購了 700 萬美元的票據，因此截至季度末，我們有 2.7 億美元的未償還高級擔保票據，使年初至今的總額達到 1500 萬美元。

Our net leverage ratio of 2.8 times at the end of the quarter compared to 3 times at year end and 4 times in the prior-year second quarter. Our capital structure and allocation priorities remain focused on maintaining ample liquidity, investing in the business, including possible strategic acquisition, deleveraging balance sheet, and returning funds to stockholders.

本季度末我們的淨槓桿率為 2.8 倍，而年底為 3 倍，去年第二季度為 4 倍。我們的資本結構和分配優先事項仍然集中在保持充足的流動性、投資於業務，包括可能的戰略收購、去槓桿化資產負債表以及向股東返還資金。

As mentioned earlier, we have updated our sales outlook for 2023 from mid-single-digit growth to a range of flat to low single-digit growth and affirmed our outlooks for mid- to high single-digit adjusted EBITDA growth, more than doubling free cash flow from last year's $13.5 million and net leverage improvement to between 2.5 and 3 times at year end. With sales lower than anticipated, we are focused on managing costs through initiatives and delaying certain project spending to drive adjusted EBITDA growth.

如前所述，我們已將 2023 年的銷售前景從中個位數增長更新為持平到低個位數增長，並確認了中高個位數調整後 EBITDA 增長的預期，即免費增長一倍以上現金流量從去年的1,350 萬美元增加到年底，淨槓桿率提高到2.5 至3 倍。由於銷售額低於預期，我們專注於通過舉措來管理成本並推遲某些項目支出，以推動調整後的 EBITDA 增長。

I will now pass the call back to Scott for some closing remarks on slide 13. Scott?

我現在將把電話轉給 Scott，請其對幻燈片 13 做一些結束語。斯科特？

Thanks, Jeff, and thank you to all of our employees for their efforts in delivering our first-half results in a challenging environment. I also wanted to note that we are pleased to have had our stock added to the Russell 3,000 in January, which should further help us in our efforts to increase liquidity for our shares.

謝謝杰夫，也感謝我們所有員工在充滿挑戰的環境中為實現上半年業績所做的努力。我還想指出，我們很高興在一月份將我們的股票納入羅素 3,000 指數，這將進一步幫助我們努力增加股票的流動性。

To summarize today's call, we faced expected demand challenges in the quarter but delivered good profitability growth and have generated solid results overall for the first half. We expect the short-term customer demand challenges to persist in the near term and have adjusted our sales outlook to reflect that but are focused on profitability and free cash flows and have affirmed our adjusted EBITDA and free cash flow outlooks for the year.

總結今天的電話會議，我們在本季度面臨預期的需求挑戰，但實現了良好的盈利增長，並在上半年取得了堅實的業績。我們預計短期客戶需求挑戰將在短期內持續存在，並調整了我們的銷售前景以反映這一點，但重點關注盈利能力和自由現金流，並確認了今年調整後的 EBITDA 和自由現金流前景。

We expect the market to improve over time. And we continue to remain confident in the long-term secular trends for payment cards and in our ability to continue to gain share.

我們預計市場會隨著時間的推移而改善。我們繼續對支付卡的長期趨勢以及我們繼續獲得份額的能力充滿信心。

Thank you for joining our call today, and we will now open the call for any questions. Operator?

感謝您今天加入我們的電話會議，我們現在將開始電話會議以解答任何問題。操作員？

(Operator Instructions) Jaeson Schmidt, Lake Street Capital Markets.

（操作員指令）Jaeson Schmidt，湖街資本市場。

Hey, guys. Thanks for taking my questions. Just want to start with, sorry, your Q4 outlook -- sorry, that confidence in a return to growth in Q4. I mean, is this based on recent customer order patterns or visibility into inventory levels? Or what gives you that confidence that you can return to growth here later this year?

大家好。感謝您回答我的問題。抱歉，首先想談談您對第四季度的展望——抱歉，是對第四季度恢復增長的信心。我的意思是，這是基於最近的客戶訂單模式還是庫存水平的可見性？或者是什麼讓您有信心在今年晚些時候恢復增長？

Yeah. Jaeson, good morning. This is Scott. Let me give you a couple of thoughts, and I'll let John add some color, too, as he works even more closely with the customers than I do every day. But I would say, based on recent conversations with customers about their project plans, we believe conditions will start to improve later in the year, Jaeson.

是的。傑森，早上好。這是斯科特。讓我給你一些想法，我也會讓約翰添加一些色彩，因為他與客戶的合作比我每天都更加密切。但我想說，根據最近與客戶就項目計劃進行的對話，我們相信情況將在今年晚些時候開始改善，Jaeson。

But obviously, the timing of the market improving could change depending upon a variety of factors, economic conditions, our customers' business objectives, and so forth. I think what's really important to note here is the long-term secular trends continue to be intact. Contactless cards will continue to transition in US; eco-focused cards are popular -- will be very popular. We're the market leader there for sure.

但顯然，市場改善的時機可能會根據各種因素、經濟狀況、客戶的業務目標等而發生變化。我認為這裡真正需要注意的是長期長期趨勢仍然完好無損。非接觸式卡將在美國繼續轉型；以生態為中心的卡片很受歡迎——將會非常受歡迎。我們肯定是那裡的市場領導者。

And then 90% -- on average, annually, 90% of our revenue is reoccurring. So we have a model that has secular trends, reoccurring revenue in nature. But clearly, we're going through some cautious spending with our customers. And again, these are based on recent conversations.

然後 90%——平均每年，我們 90% 的收入是重複發生的。因此，我們有一個具有長期趨勢、本質上經常性收入的模型。但顯然，我們正在與客戶進行一些謹慎的支出。再說一遍，這些都是基於最近的對話。

And we have, in the last few months, seen some customers push large projects into '24. I've had no one customer that canceled an order because they're tightening their credit a bit. But again, these are temporary conditions. But John, I'll let you give some more color on what gives us some confidence in Q4, although not without risk, obviously for sure.

在過去的幾個月裡，我們看到一些客戶將大型項目推到了 24 小時。我沒有遇到過因為信用收緊而取消訂單的客戶。但同樣，這些都是暫時的條件。但是約翰，我會讓你更多地說明是什麼讓我們對第四季度有信心，儘管並非沒有風險，但顯然是肯定的。

Yeah. Hey. Good morning, Jaeson. Good to talk to you again. I mean, I think Scott covered it well, but the one thing I would say is we're talking to our customers all the time. If you think about what's changed since May, right, there's really been two drivers.

是的。嘿。早上好，傑森。很高興再次與你交談。我的意思是，我認為斯科特很好地涵蓋了這一點，但我要說的一件事是我們一直在與客戶交談。如果你想想五月份以來發生的變化，對吧，確實有兩個驅動因素。

Scott mentioned this, but we're seeing the large banks just be a little bit more -- some of them at least, focused on inventory. Some have moved projects out to next year; some are tightening credit standards, which has impacted ordering. And in the small to medium space, you've seen the trends that I would say that were occurring in Q2, they've continued to a certain extent in Q3.

斯科特提到了這一點，但我們看到大型銀行只是更加關注庫存——至少其中一些銀行。一些項目已推遲到明年；一些國家正在收緊信貸標準，這影響了訂單。在中小型領域，您已經看到了第二季度出現的趨勢，它們在第三季度在一定程度上持續了下去。

We do expect those to come back in Q4. And the reason being, to answer your question directly, is really we're talking to our customers all the time. There's a significant amount of what I would say, quoting activity projects we're working on. There's always risk in the outlook, but we feel good about the end of the year and things picking up in relation to where we are now.

我們確實預計這些將在第四季度回歸。直接回答你的問題的原因是我們一直在與客戶交談。我想說的很多內容都引用了我們正在開展的活動項目。前景總是存在風險，但我們對今年年底的情況感到滿意，而且事情相對於現在的情況正在好轉。

Okay. No, that's really helpful color. Appreciate it guys.

好的。不，那是非常有用的顏色。很欣賞你們。

And then just looking at the prepaid segment, it seemed to be quite strong in Q2. Just curious if this would impact your normal seasonal patterns that you typically see in the second half of the year?

然後看看預付費領域，第二季度似乎相當強勁。只是好奇這是否會影響您通常在下半年看到的正常季節性模式？

Jaeson, it may have a bit of an impact. In each of our businesses, timing can vary among quarters for sure. We're pleased with the prepaid business. Peggy O'Leary and her team are doing a great job of growing that business.

傑森，可能會有一點影響。在我們的每項業務中，時間肯定會因季度而異。我們對預付費業務感到滿意。佩吉·奧利裡 (Peggy O'Leary) 和她的團隊在發展該業務方面做得非常出色。

And again, we see that business probably being slightly better than where it ended up in '22, but there is a bit of seasonality in Q3 for sure as our customers prepare for the holiday season, the gifting season. But there could be a bit of timing that moves among the quarters. But overall, I'd probably focus you on prepaid having a solid year for sure and should be a tad bit better in '23 than it was '22.

再次，我們看到業務可能比 22 年最終的情況稍好一些，但隨著我們的客戶為假期季節、送禮季節做準備，第三季度肯定存在一些季節性。但各個季度之間可能會出現一些時間變化。但總的來說，我可能會重點關注預付費，肯定會有一個穩定的一年，並且 23 年的情況應該比 22 年好一點。

Hey, Jaeson. The other thing I'd say is the prepaid business -- and again, Peggy O'Leary running that business, she's doing a great job. They've been able to diversify their product set to a certain extent. We moved into HSA cards some other areas, doing things more than just our typical prepaid open-loop gift cards.

嘿，傑森。我要說的另一件事是預付費業務 - 再說一次，佩吉·奧利裡（Peggy O'Leary）經營這項業務，她做得很好。他們已經能夠在一定程度上實現產品組合的多樣化。我們進入了 HSA 卡的一些其他領域，做的事情不僅僅是我們典型的預付費開環禮品卡。

And that's reduced some of the seasonality in the business overall. So what you'll see from the second quarter to third quarter to fourth quarter, I think you'll see a little bit less lumpiness than what you would look at if you look back to our financials historically.

這減少了整個業務的季節性。因此，從第二季度到第三季度再到第四季度，您會看到的情況，我認為您會看到比回顧我們的歷史財務狀況時看到的情況要少一些。

Okay. That makes sense. And then just last one from me, and I'll jump back into queue, how should we think about gross margin here in the second half of the year?

好的。這就說得通了。然後是我的最後一篇，我將重新回到隊列中，我們應該如何考慮下半年的毛利率？

Yeah. Hi, Jaeson. This is Jeff. I think for the gross margin for the rest of the year, obviously, when sales dip a little bit, we typically get a little bit of operating leverage with higher sales. So the -- so that will put a little pressure on the gross margin.

是的。嗨，傑森。這是傑夫。我認為，對於今年剩餘時間的毛利率，顯然，當銷售額略有下降時，我們通常會隨著銷售額的增加而獲得一點運營槓桿。因此，這將對毛利率造成一些壓力。

Also, our pricing is lapsing from last year that we implemented. It's been about a year or so. So gross margin will be a little bit of pressure. But on the same token, we are managing our expenses on pretty effectively. And we don't really give guidance per se on gross margin.

此外，我們的定價較去年實施的價格有所下降。已經過去一年左右的時間了。所以毛利率會受到一點壓力。但出於同樣的原因，我們正在非常有效地管理我們的開支。我們並沒有真正給出毛利率本身的指導。

But on the adjusted EBITDA, we still affirmed our guidance for the year. There's a lot that we can again tighten our expenses in the second half and watch those closely. So we feel good about the adjusted EBITDA guidance in light of slower revenue growth.

但對於調整後的 EBITDA，我們仍然確認了今年的指引。下半年我們可以再次收緊開支並密切關注。因此，鑑於收入增長放緩，我們對調整後的 EBITDA 指引感到滿意。

Okay. That's really helpful. Thanks a lot, guys.

好的。這真的很有幫助。非常感謝，伙計們。

Thanks. Thanks, Jaeson.

謝謝。謝謝，傑森。

Thanks.

謝謝。

(Operator Instructions) Bill Charters, Sabal Capital.

（操作員指令）Bill Charters、Sabal Capital。

Hi, guys. I just wanted to get some clarity on the guidance. So regarding third-quarter guidance, you mean third quarter is down year over year, and it's off of like $124 million and $28 million last year. And so then you expect Q4 to grow somewhat, and that's how you get to the almost $100 million EBITDA for the year. Am I thinking about that correctly?

嗨，大家好。我只是想澄清一下指導意見。因此，關於第三季度的指導，你的意思是第三季度同比下降，比去年的 1.24 億美元和 2800 萬美元有所下降。因此，您預計第四季度會有所增長，這就是您今年獲得近 1 億美元 EBITDA 的方式。我的想法正確嗎？

Yeah, that's correct.

是的，這是正確的。

Okay. And then in 2015 and '16 with EMV, it created a cyclicality with lower maturities from five years down to three years and lower margins. What cyclicality, if any, do you expect from the contactless conversion?

好的。然後在 2015 年和 16 年的 EMV 中，它創造了一種週期性，期限較低，從五年降至三年，利潤率也較低。您期望非接觸式轉換具有什麼樣的周期性（如果有的話）？

Yeah. Hi, Bill. Good to talk to you again. Contactless is very different from what we saw in '15 and '16, right? I mean, I think if you go back, the mandate from Visa and MasterCard, there was a very clear set date that was October 15.

是的。嗨，比爾。很高興再次與你交談。非接觸式與我們在 15 年和 16 年看到的非常不同，對吧？我的意思是，我認為如果你回顧一下 Visa 和 MasterCard 的授權，有一個非常明確的設定日期，即 10 月 15 日。

You fast forward to the contactless transition, really started to pick up slightly in late '18. If you look at the broader market, we've seen the penetration as of the end of '22 at roughly 50% to 60%. We expect that to be in the 80%, mid-80s, if you will, in the next few years.

你快進到非接觸式過渡，真正開始在 18 年底略有回升。如果你看看更廣泛的市場，我們發現截至 22 年底的滲透率約為 50% 至 60%。如果你願意的話，我們預計未來幾年這個比例將達到 80%，即 80 年代中期。

So the transition has been slower. There's no mandate. So I wouldn't say this particular change in guidance or what's happening in the current year has anything to do with the contactless transition in its totality. I would say that's a much more slow transition, which is good for our customers, it's good for us. And we do expect that to continue in the coming year.

所以轉變速度比較慢。沒有授權。因此，我不會說指導方針的這一特定變化或今年發生的事情與整體非接觸式過渡有任何關係。我想說，這是一個緩慢得多的過渡，這對我們的客戶和我們都有好處。我們確實預計這種情況將在來年繼續下去。

So the cyclicality from that, I would say, isn't really comparable to what we saw from the inventory building and the boom in the industry that we saw back in the '15 and '16 time period from the Visa and MasterCard mandate.

因此，我想說，由此產​​生的周期性與我們在 15 和 16 年 Visa 和萬事達卡授權期間看到的庫存建設和行業繁榮所看到的情況並不能真正相提並論。

Okay. Great. Yeah. And you expect everything to be fully, I guess, set or fully implemented by 2025? Is that as that what you're thinking?

好的。偉大的。是的。我想，您預計到 2025 年一切都會完全確定或完全實施嗎？你是這麼想的嗎？

Well, I mean, you're never going to get to 100% penetration.

嗯，我的意思是，你永遠無法達到 100% 的滲透率。

Right.

正確的。

So we do believe kind of '25, '26 time period during the 80% to 85% range. But keep in mind, our business, one-third of our revenue on the debit and credit side comes from our largest issuers. Two-thirds of our revenue comes from the small to medium issuers. And those small to medium issuers are the ones that are much slower to transition. So we expect, even if we get to 80%, 85%, that's fairly long tail.

因此，我們確實相信“25”、“26”時期在 80% 到 85% 的範圍內。但請記住，我們的業務，借方和貸方收入的三分之一來自我們最大的發行人。我們三分之二的收入來自中小型發行人。而那些中小型發行人的轉型速度要慢得多。所以我們預計，即使我們達到 80%、85%，這也是相當長的尾部。

And the other thing I would say is the secular trends just broadly still remain. The cards in circulation, Scott mentioned this, they're up at a roughly 10% CAGR over the last three years. Overall, card issuance is roughly 90% recurring. And if you're looking at the eco-focused market where we believe we're a leader, we sold nearly 90 or 100 million of those through Q2. And we expect that market to grow at a 50% CAGR over the next few years.

我要說的另一件事是，長期趨勢基本上仍然存在。斯科特提到，流通中的卡片在過去三年中復合年增長率約為 10%。總體而言，發卡率大約為 90% 是重複發卡。如果你關注以生態為中心的市場，我們認為我們是該市場的領導者，那麼我們在第二季度就售出了近 90 或 1 億個此類產品。我們預計該市場在未來幾年將以 50% 的複合年增長率增長。

So I understand the question about the cyclicality and contactless, but we feel good about where we are in the market.

所以我理解有關週期性和非接觸式的問題，但我們對自己在市場中的地位感到滿意。

Yeah. Okay, great. And then the last question I have is on CapEx. What is maintenance CapEx? I noticed like last year was higher than historic. The first quarter was higher, but then this quarter is lower. What do you feel about on CapEx and maintenance if you can just give us more color on that?

是的。好的，太好了。我的最後一個問題是關於資本支出的。什麼是維護資本支出？我注意到去年的水平高於歷史水平。第一季度較高，但本季度較低。如果您能為我們提供更多信息，您對資本支出和維護有何看法？

Yeah. John again. If you go back several years ago, where we were very tight on cash, I would say we're probably in the $8 million, $10 million range. I think in the current environment, we're probably more in that $15 million to $20 million range.

是的。又是約翰。如果你回到幾年前，當時我們的現金非常緊張，我想說我們的資金可能在 800 萬至 1000 萬美元之間。我認為在當前環境下，我們可能更多地處於 1500 萬至 2000 萬美元的範圍內。

We do have projects that are ongoing. We're always trying to improve our operations from an efficiency perspective, the capability perspective for our customers. In doing that, we expect to continue to spend in that $15 million to $20 million range over the course of the future.

我們確實有正在進行中的項目。我們始終努力從效率的角度、為客戶提供能力的角度來改善我們的運營。為此，我們預計未來將繼續支出 1500 萬至 2000 萬美元。

I'd break that down just to your question. There's CapEx for true maintenance for the organization. There's CapEx for projects and improvement. And the maintenance side is probably more in the $5 million to $8 million range, if I had to put a number around it.

我會把它分解為你的問題。資本支出可用於組織的真正維護。有用於項目和改進的資本支出。如果我必須給出一個數字的話，維護方面的費用可能會在 500 萬至 800 萬美元之間。

Got it. Yeah. And the rest is growth or efficiencies.

知道了。是的。剩下的就是增長或效率。

That's right.

這是正確的。

Okay. Great. Well, I have no other questions. Great quarter and a great call. Thanks.

好的。偉大的。嗯，我沒有其他問題了。很棒的季度和很棒的電話。謝謝。

Yeah. Thanks, Bill.

是的。謝謝，比爾。

We have no further questions at this time. And this will conclude today's CPI Card Group's second-quarter earnings call. Thank you for joining. Have a good day.

目前我們沒有進一步的問題。今天的 CPI 卡集團第二季度財報電話會議到此結束。感謝您的加入。祝你有美好的一天。