(PMTS) 2023 Q3 法說會逐字稿

Welcome to CPI Card Group's third-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 年第三季財報電話會議。我叫克里斯，今天我將成為您的接線生。 （操作員說明） 現在，我想將電話轉給 CPI 投資人關係主管 Mike Salop。

Thanks, operator, and good morning, everyone. Welcome to the CPI Card Group third-quarter 2023 earnings webcast and conference call. Today's date is November 7, 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，大家早安。歡迎參加 CPI 卡集團 2023 年第三季財報網路廣播和電話會議。今天的日期是 2023 年 11 月 7 日。CPI 卡集團總裁兼執行長 Scott Scheirman 今天接了電話； Jeff Hochstadt，財務長； 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. 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.

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所表達的內容。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。今天所做的所有前瞻性陳述僅反映我們目前的預期，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 we issued this morning. 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.

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。我們今天早上發布的新聞稿和幻燈片簡報中包含了這些非公認會計原則財務指標與最直接可比較的公認會計原則指標的調節表。今天的新聞稿以及本次電話會議附帶的簡報的副本可在 CPI 投資者關係網站 Investor.cpicardgroup.com 上取得。

In addition, CPI's Form 10-Q for the quarter ended September 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.

此外，CPI 截至 2023 年 9 月 30 日的季度的 10-Q 表格將在 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，所有成長率均指與去年同期的比較。

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執行長 Scott Scheirman。

Thanks, Mike, and good morning, everyone. During today's call, I will give a brief business and strategic overview. John will discuss CPI's third-quarter performance and our updated outlook for the full year. And then Jeff will review the financial results in more detail before we open up the call for questions. We will start on slide 4.

謝謝麥克，大家早安。在今天的電話會議中，我將簡要介紹業務和策略概述。約翰將討論 CPI 第三季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表現。我們將從幻燈片 4 開始。

As we stated in our second-quarter earnings call, we expected third-quarter results to be lower than prior year as customers remain cautious in their spending and continue to work down their inventory levels after stocking up in 2022 due to the significant supply chain challenges across the industry last year. We were also facing very challenging comparisons with the prior-year third quarter when net sales increased 25%.

正如我們在第二季財報電話會議中所述，我們預計第三季業績將低於去年同期，因為客戶對支出保持謹慎態度，並且由於供應鏈面臨重大挑戰，在 2022 年備貨後繼續降低庫存水平去年整個產業。我們也面臨著與去年第三季淨銷售額成長 25% 的非常具有挑戰性的比較。

Given this backdrop, third-quarter sales this year declined 15%, driven by a reduction in card volumes in our debit and credit segments and some timing impacts in prepaid. As we assess the rest of the year, we believe sales and adjusted EBITDA in the fourth quarter will be at similar levels as the third quarter as it is taking longer than expected for customer spending to rebound and for our new sales initiatives to have an impact Consequently, we now expect net sales as well as adjusted EBITDA to decline in the mid-single digits range for the year.

在此背景下，由於我們的金融卡和信用卡業務卡數量減少以及預付業務的一些時間影響，今年第三季銷售額下降了 15%。當我們評估今年剩餘時間時，我們認為第四季度的銷售額和調整後 EBITDA 將與第三季度處於相似水平，因為客戶支出反彈以及我們的新銷售舉措產生影響所需的時間比預期更長因此，我們現在預計今年的淨銷售額以及調整後的EBITDA 將下降至個位數中段。

The market for card production has certainly turned out to be more difficult than expected in 2023. But if we step back and look at the bigger picture, we believe the overall card industry appears healthy. Most importantly, cards in circulation have continued to grow, and large issuers have continued to report strength in their card programs, which John will discuss more in a few minutes.

2023 年卡片生產市場肯定比預期更加困難。但如果我們退一步看更大的前景，我們相信卡片產業整體表現健康。最重要的是，銀行卡的流通量持續成長，大型發卡機構也繼續報告其銀行卡計畫的實力，約翰將在幾分鐘內對此進行更多討論。

Consequently, we remain confident in the long-term health of the market, and we believe we are well positioned for future with our innovative, high-quality products and services and strong customer focus. As one indicator of our belief in the business, this morning, we announced a $20 million share repurchase program. We believe repurchasing shares is a great investment for our shareholders, and this authorization will run through the end of 2024.

因此，我們對市場的長期健康發展仍然充滿信心，我們相信憑藉我們創新、高品質的產品和服務以及對客戶的強烈關注，我們為未來做好了準備。作為我們對業務信心的體現之一，今天早上，我們宣布了一項 2000 萬美元的股票回購計劃。我們相信回購股票對我們的股東來說是一項偉大的投資，這項授權將持續到 2024 年底。

Before turning the call over to John, I would like to highlight our ongoing strategic focus on slide 5. As discussed, we believe the softness we are experiencing is temporary in nature. The strategies we have successfully employed to grow sales and gain market share since 2017 continued to be our cornerstone, and we remain committed to having deep customer focus, market-leading quality products and customer service, continuous innovation, and a market-competitive business model. Over the long term, we believe our market will return to solid growth, and we believe we'll gain share by focusing on these strategic priorities.

在將電話轉給約翰之前，我想強調我們對幻燈片 5 的持續戰略重點。正如所討論的，我們認為我們所經歷的疲軟本質上是暫時的。自2017 年以來，我們成功採用的增加銷售額和獲得市場份額的策略仍然是我們的基石，我們仍然致力於深度關注客戶、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業務模式。從長遠來看，我們相信我們的市場將恢復穩健成長，並且我們相信透過專注於這些策略重點，我們將獲得份額。

I would now like to turn the call over to John Lowe to further discuss the current environment, our third quarter results, and our outlook for 2023. John?

我現在想將電話轉給 John Lowe，進一步討論當前環境、我們第三季的業績以及我們對 2023 年的展望。約翰？

Thanks, Scott, and good morning, everyone. I will start on slide 6, which is a good indicator of the overall health of the market.

謝謝斯科特，大家早安。我將從幻燈片 6 開始，它是市場整體健康狀況的良好指標。

As Scott mentioned, 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 June 30 and were up 9% compared with the prior-year quarter. Additionally, recent earnings reports from the big US banks also point to healthy card issuance and usage trends with consumers.

正如斯科特所提到的，向消費者發行的支付卡持續成長。 Visa 和 Mastercard 的最新數據顯示，截至 6 月 30 日的三年間，美國流通的銀行卡複合年增長率為 10%，與去年同期相比增長 9%。此外，美國大型銀行最近的收益報告也顯示消費者的信用卡發行和使用趨勢良好。

As a few examples, Chase noted the cards outstanding increased 16% year over year in its third quarter, driven by strong account acquisition. Citi's new account acquisitions increased 5%. And Wells Fargo's new account growth increased 22%. So the card issuance to consumer side of the market where banks and other issuers participate has been strong in 2023, but the production side where we participate has been relatively soft. However, if you look at our last two years together, CPI sales were more broadly in line with the issuance trends to consumers.

舉幾個例子，大通銀行指出，在強勁的客戶收購推動下，第三季的信用卡流通量較去年同期成長 16%。花旗的新帳戶獲取量增加了 5%。富國銀行的新帳戶成長了 22%。因此，2023 年銀行和其他發卡機構參與的市場消費端發卡表現強勁，但我們參與的生產端相對疲軟。然而，如果你看一下我們過去兩年的情況，你會發現消費者物價指數 (CPI) 銷售與消費者的發行趨勢更加一致。

Looking back at 2022, we delivered well-above-average growth, with our debit and credit segment increasing 32% as customers have high demand for cards given the limited supply in the market. As the supply chain stabilized and lead times came down in 2023, in combination with economic uncertainty and baking industry stress, customers have pulled back on ordering this year more than we expected and are targeting lower months of supply for their inventory, resulting in our updated outlook of a mid-single-digit sales decline for the year.

回顧 2022 年，我們的成長遠高於平均水平，我們的金融卡和信貸業務成長了 32%，因為市場供應有限，客戶對卡片的需求很高。隨著2023 年供應鏈趨於穩定和交貨時間縮短，再加上經濟不確定性和烘焙行業壓力，客戶今年的訂單減少幅度超出了我們的預期，並且目標是減少庫存供應月份，這導致我們更新了預計今年銷售額將出現中個位數下降。

Relative to 2021, though, this year's projected sales would still be about 20% higher than the 2021 levels. And the combined two-year trends would be more consistent with the ongoing growth in cards issued to consumers. Long term, we believe growth in consumer issuance, coupled with the recurring nature of the business in which the significant majority of card issuance relates to existing card replacements and the ongoing trends towards adoption of higher priced contactless and eco-focused cards, should support strong growth for the company.

不過，相較於 2021 年，今年的預期銷售額仍將比 2021 年的水準高出 20% 左右。兩年的綜合趨勢將與向消費者發行的信用卡的持續成長更加一致。從長遠來看，我們認為消費者發卡量的成長，加上業務的重複性（其中絕大多數發卡與現有卡更換有關）以及採用價格更高的非接觸式和環保卡的持續趨勢，應該會支持強勁的發展。為公司的成長。

We don't know exactly when customer spending will normalize. But based on indications from our customers, we believe the market will improve gradually over the course of 2024. We will have more visibility and provide more color on our 2024 expectations when we release our fourth-quarter results early next year.

我們不知道客戶支出何時會正常化。但根據客戶的指示，我們相信市場將在 2024 年逐步改善。當我們明年初發布第四季度業績時，我們將對 2024 年的預期有更多的了解並提供更多的資訊。

But let's return now to our third-quarter results on slide 7. I will provide a few high-level comments and Jeff will go into more detail in a few minutes.

現在讓我們回到幻燈片 7 上的第三季業績。我將提供一些高級評論，傑夫將在幾分鐘內詳細介紹。

For the quarter, debit and credit segment net sales declined 16% and prepaid segment sales declined 12%. The prepaid decline can be attributed to timing between quarters as we were only down slightly on a year-to-date basis and still expect the full-year sales to be similar to or slightly above last year's levels. In the debit and credit segment, the decline was primarily driven by reductions in card volumes as customers continue to be cautious with spending and focused on working down inventory levels.

本季，簽帳卡和貸記業務淨銷售額下降 16%，預付費業務銷售額下降 12%。預付費下降可歸因於季度之間的時間安排，因為我們今年迄今僅略有下降，但仍預計全年銷售額將與去年的水平相似或略高於去年的水平。在藉記卡和信用卡領域，下降的主要原因是卡片數量減少，因為客戶繼續對支出持謹慎態度，並專注於降低庫存水準。

Card volumes declined across eco-focused, contactless, and contact cards in the quarter, while services revenue increased slightly, driven by increases in processing fees due to a larger installation base in our Card@Once instant issuance business. Despite the sales decline, we have continued to win new business opportunities that should help us in the future not only with secure cards, but also in card personalization services, Card@Once, and prepaid.

本季度，生態卡、非接觸式卡和接觸式卡的卡銷量有所下降，而服務收入則略有增長，這是由於我們的 Card@Once 即時發卡業務安裝基數較大而導致處理費增加。儘管銷售額下降，我們仍繼續贏得新的商機，這些機會不僅在安全卡方面，而且在卡片個人化服務、Card@Once 和預付費方面對我們都有幫助。

From a profitability standpoint, the sales decline in the third quarter negatively impacted operating leverage in our results, leading to net income and adjusted EBITDA margin declines despite reductions in operating expenses. As a result, third-quarter net income declined 68% and adjusted EBITDA declined 25% compared to the prior-year period. For the first nine months of the year, sales were down slightly with a 2% decline , while net income decreased 12% and adjusted EBITDA declined 1%.

從獲利能力的角度來看，第三季的銷售額下降對我們業績中的營運槓桿產生了負面影響，導致儘管營運費用減少，但淨利潤和調整後 EBITDA 利潤率仍下降。因此，第三季淨利較上年同期下降 68%，調整後 EBITDA 下降 25%。今年前 9 個月，銷售額小幅下降 2%，淨利下降 12%，調整後 EBITDA 下降 1%。

Slide 8 shows our revised outlook for the year. Based on recent customer feedback, we expect our overall fourth-quarter sales levels to be similar to the third quarter. We had previously expected improvement in the fourth quarter based on customer discussions and quoting activity in the summer, but that demand has not materialized as soon as expected.

幻燈片 8 顯示了我們修改後的今年展望。根據最近的客戶回饋，我們預計第四季的整體銷售水準將與第三季相似。我們先前根據客戶討論和夏季報價活動預計第四季度會有所改善，但這一需求並未如預期那樣迅速實現。

In addition, the various new sales initiatives we implemented after seeing the market softness earlier in the year have taken longer to get results than we expected and consequently will have minimal impact on this year's results. We expect to see benefit, however, in 2024.

此外，我們在今年稍早看到市場疲軟後實施的各種新銷售措施所花費的時間比我們預期的要長，因此對今年業績的影響很小。不過，我們預計到 2024 年就會受益。

This year's fourth quarter also has challenging comparisons as we posted net sales growth of 36% in last year's fourth quarter. We expect declines in the debit and credit segment in the fourth quarter due to reduced card volumes, but we do expect prepaid sales to improve. The fourth-quarter expectation translates into a full year outlook of mid-single-digit declines for both net sales and adjusted EBITDA.

今年第四季的比較也具有挑戰性，因為我們公佈去年第四季的淨銷售額成長了 36%。我們預計，由於卡片數量減少，第四季度金融卡和信用卡業務將下滑，但我們確實預計預付費銷售將會改善。第四季的預期轉化為全年淨銷售額和調整後 EBITDA 均出現中個位數下降的前景。

We now expect free cash flow to be approximately double the 2022 level and a year-end net leverage ratio of approximately three times, which would be consistent with the 2022 year-end ratio. Although the overall 2023 outlook is below our expectations coming into the year, we believe we continue to have a strong position in the US marketplace and should be able to quickly capitalize once customers resume normal purchasing patterns.

我們目前預計自由現金流將約為 2022 年水準的兩倍，年末淨槓桿率約為三倍，這將與 2022 年年末比率保持一致。儘管 2023 年的整體前景低於我們今年的預期，但我們相信我們在美國市場上繼續保持強勢地位，一旦客戶恢復正常購買模式，我們應該能夠快速獲利。

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

我現在將把電話轉給傑夫，以更詳細地審查我們第三季和年初至今的業績和前景。傑夫？

Thanks, John, and good morning, everyone. I will begin my overview on slide 10.

謝謝約翰，大家早安。我將從幻燈片 10 開始概述。

Net sales decreased 15% in the quarter, with debit and credit sales declining 16% and prepaid sales declining 12%. Within our debit and credit segment, as mentioned, the primary driver of the decline is reduced card sales. Third-quarter gross profit decreased 25% and the gross profit margin decreased from 38.9% to 34.1%. The lower sales levels negatively affected margin due to the impact on fixed costs within cost of sales, and margin was also impacted by higher material costs, primarily chips, partially offset by lower freight costs.

本季淨銷售額下降 15%，其中藉記卡和貸記銷售額下降 16%，預付費銷售額下降 12%。如前所述，在我們的金融卡和信用卡領域，下降的主要驅動因素是卡片銷量的減少。第三季毛利下降25%，毛利率從38.9%下降至34.1%。由於銷售成本中固定成本的影響，較低的銷售水準對利潤率產生了負面影響，而利潤率也受到材料成本（主要是晶片）較高的影響，但部分被較低的運費成本所抵消。

SG&A expenses, including depreciation and amortization, declined by $1.8 million in the quarter, primarily due to lower professional services costs. Compensation expenses decrease as lower employee short-term incentive compensation offset $3 million of accruals related to the previously announced executive retention awards and higher headcount and salaries.

本季的 SG&A 費用（包括折舊和攤提）下降了 180 萬美元，主要是由於專業服務成本下降。由於員工短期激勵薪酬的減少抵消了與先前宣布的高階主管留任獎勵以及員工人數和工資增加相關的 300 萬美元應計費用，薪酬支出有所下降。

Our tax rate increased to 37.7% compared to 25.8% in the prior-year quarter and brought our year-to-date rate to 30.5%. The increased tax rate expected for 2023 primarily reflects limitations on deductibility of executive compensation related to the executive retention package.

我們的稅率從去年同期的 25.8% 上升至 37.7%，並使我們的年初至今稅率達到 30.5%。預計 2023 年稅率上調主要反映了與高階主管保留方案相關的高階主管薪酬扣除限制。

Net income in the third quarter decreased 68% to $3.9 million, and adjusted EBITDA decreased 25% to $21.2 million. Adjusted EBITDA margin declined from 22.7% in the prior year to 20.1% due to the reduced sales levels and related lower gross margins. The net income decline also reflects the impacts of the executive retention award accrual, which is not included in adjusted EBITDA, and a higher tax rate partially offset by lower interest expense.

第三季淨利潤下降 68% 至 390 萬美元，調整後 EBITDA 下降 25% 至 2,120 萬美元。由於銷售水準下降以及相關的毛利率下降，調整後 EBITDA 利潤率從上一年的 22.7% 下降至 20.1%。淨利潤下降也反映了應計高階主管保留獎勵的影響（不包括在調整後的 EBITDA 中），以及較高的稅率被較低的利息費用部分抵消。

Turning now to our year-to-date results on slide 11. For the first nine months of the year, net sales decreased 2%, with the debit and credit segment down 2% and prepaid debit down 1%. Debit and credit sales declines primarily reflect lower eco-focused card sales compared to very large orders in 2022, partially offset by increases in volumes of other contactless cards and growth in card personalization and Card@Once instant issuance solutions services.

現在轉向幻燈片 11 上的年初至今的業績。今年前 9 個月，淨銷售額下降 2%，其中藉記卡和貸記卡部門下降 2%，預付借記卡下降 1%。金融卡和信用卡銷售額的下降主要反映了與2022 年的大訂單相比，以生態為重點的卡銷售額下降，但部分被其他非接觸式卡銷量的增長以及卡個性化和Card@Once即時發行解決方案服務的成長所抵銷。

Pricing contributed approximately 3 percentage points of growth in the first nine months, primarily related to actions taken in 2022. Year-to-date gross profit decreased 6% from the prior year, with gross profit margin decreasing from 36.7% to 35.1%, driven by increased material costs partially offset by lower freight. Price increases benefited margin but were largely offset by the negative impact of sales declines.

前 9 個月，定價貢獻了約 3 個百分點的成長，主要與 2022 年採取的行動有關。年初至今毛利較上年下降 6%，毛利率從 36.7% 下降至 35.1%，材料成本增加被運費下降部分抵消。價格上漲有利於利潤率，但在很大程度上被銷量下降的負面影響所抵消。

Total SG&A expenses decreased by $2.8 million in the first nine months, as reduced professional services expenses more than offset an increase in total compensation expense. Year-to-date net income decreased 12% to $21.3 million, and adjusted EBITDA decreased 1% to $69.6 million. Adjusted EBITDA margin increased slightly from 20.2% in the prior year to 20.4%, driven by reduced operating expenses. The net income decline also reflects the executive retention award and a higher tax rate partially offset by lower interest expense.

前 9 個月，SG&A 支出總額減少了 280 萬美元，因為專業服務支出的減少足以抵消薪資支出總額的增加。年初至今的淨利潤下降 12%，至 2,130 萬美元，調整後 EBITDA 下降 1%，至 6,960 萬美元。受營運費用減少的推動，調整後 EBITDA 利潤率從上一年的 20.2% 略有上升至 20.4%。淨利潤下降也反映了高階主管保留獎勵和較高的稅率，部分被較低的利息費用所抵銷。

Turning now to our segments on slide 12. I discussed the segment sales drivers earlier, so I will just discuss segment profitability on this slide. Income from operations for the debit and credit segment decreased 29% in the quarter to $20.8 million and 4% for the first nine months. Income declines in both periods were driven by decreased sales and higher material costs partially offset by lower operating expenses.

現在轉向投影片 12 上的細分市場。我之前討論了細分市場的銷售驅動因素，因此我將在這張投影片上討論細分市場的獲利能力。本季借記和信貸部門的營運收入下降 29%，至 2,080 萬美元，前 9 個月下降 4%。這兩個時期的收入下降都是由於銷售額下降和材料成本上升造成的，但營運費用下降部分抵消了這一影響。

Prepaid debit segment income from operations decreased 27% in the third quarter to $6.6 million, driven by the sales decline and higher labor costs. Year-to-date income from operations was down 12% due to lower gross profit, which includes higher labor costs and the impact of costs incurred in the first quarter related to the labor conversion at our prepaid production facilities, partially offset by lower operating expenses.

由於銷售額下降和勞動力成本上升，第三季預付借記業務業務收入下降 27% 至 660 萬美元。年初至今，營運收入下降了 12%，原因是毛利下降，其中包括勞動力成本上升以及第一季與我們預付生產設施的勞動力轉換相關的成本的影響，但部分被營運費用下降所抵消。

Turning to the balance sheet, liquidity, and cash flow on slide 13. On a year-to-date basis, we generated $22.3 million of cash flow from operating activities and invested $6.1 million on capital expenditures, which resulted in free cash flow of $16.2 million. This compared to the free cash flow usage of $2.7 million in the prior-year period, with the improvement driven by reduced working capital usage compared to last year's first nine months.

轉向幻燈片13 上的資產負債表、流動性和現金流。年初至今，我們從經營活動中產生了2230 萬美元的現金流，並在資本支出上投資了610 萬美元，從而產生了16.2 美元的自由現金流百萬。相較之下，去年同期的自由現金流使用量為 270 萬美元，與去年前 9 個月相比，營運資金使用量減少推動了這項改善。

In the balance sheet at September 30, we had $10.5 million of cash and $8 million of borrowings outstanding on our $75 million ABL revolver. We had $268 million of senior secured notes outstanding at quarter end as we repurchased $2 million of notes in the open market in the quarter, bringing our total to $17 million year to date.

在 9 月 30 日的資產負債表中，我們價值 7,500 萬美元的 ABL 左輪手槍有 1,050 萬美元現金和 800 萬美元未償還借款。由於我們本季在公開市場回購了 200 萬美元的票據，因此截至季末，我們有 2.68 億美元的未償還優先擔保票據，使年初至今的總額達到 1,700 萬美元。

Our net leverage ratio at 2.9 times at the end of the quarter compared to 3.0 times at year end and 3.6 times in the prior-year third quarter. Our capital structure and allocation priorities remain focused on maintaining ample liquidity; investing in the business, including possible strategic acquisitions; deleveraging the balance sheet; and returning funds to stockholders.

本季末我們的淨槓桿率為 2.9 倍，而年底為 3.0 倍，去年第三季為 3.6 倍。我們的資本結構和配置重點仍是維持充足的流動性；投資業務，包括可能的策略性收購；資產負債表去槓桿化；並將資金返還給股東。

As Scott mentioned earlier, we are pleased to announce a $20 million share repurchase program with the authorization expiring at the end of 2024. Despite the updated lower outlooks for full-year net sales and adjusted EBITDA, we still expect to generate strong free cash flow improvement, driven by our focus on working capital in a more stable supply chain environment as well as tight management of discretionary spending and projects.

正如斯科特之前提到的，我們很高興宣布一項2000 萬美元的股票回購計劃，授權將於2024 年底到期。儘管全年淨銷售額和調整後EBITDA 的預期較低，但我們仍然預計將產生強勁的自由現金流改善的推動因素是我們專注於更穩定的供應鏈環境中的營運資金以及對可自由支配支出和專案的嚴格管理。

I will now pass the call back to Scott for some closing remarks on slide 14. Scott?

我現在將把電話轉給 Scott，請其對幻燈片 14 做一些結束語。斯科特？

Thanks, Jeff, and thanks to all of our employees for your hard work and dedication in serving our customers well. I would also like to welcome Ravi Mallela, who is joining our Board of Directors as an independent member. Ravi is Chief Financial Officer of National Mortgage Holdings, Inc. (sic - NMI Holdings Inc.), and we look forward to the financial and business experience he will bring to our Board and Audit Committee.

謝謝傑夫，感謝我們所有員工的辛勤工作和奉獻精神，為我們的客戶提供良好的服務。我還要歡迎 Ravi Mallela，他是作為獨立成員加入我們的董事會。 Ravi 是 National Mortgage Holdings, Inc.（原文如此 - NMI Holdings Inc.）的財務官，我們期待他將為我們的董事會和審計委員會帶來財務和業務經驗。

To summarize today's call, 2023 has turned out to be more challenging than we expected as economic uncertainties and banking industry stress have contributed to customers being more cautious with their spending as well as more focused on working down inventory levels after the substantial purchases in 2022. Although exact timing is not clear, we expect customer demand to improve over time. And we continue to believe in the long-term secular trends for payment cards and in our ability to gain share over the long term. We are pleased to put in place a $20 million share repurchase program announced this morning and believe it will be beneficial for our shareholders.

總結今天的電話會議，2023 年比我們預期更具挑戰性，因為經濟不確定性和銀行業壓力導致客戶在支出方面更加謹慎，並且在 2022 年大量採購後更加​​註重降低庫存水平。儘管具體時間尚不清楚，但我們預期客戶需求會隨著時間的推移而改善。我們仍然相信支付卡的長期趨勢以及我們長期獲得市場份額的能力。我們很高興實施今天早上宣布的 2000 萬美元的股票回購計劃，並相信這將對我們的股東有利。

Thank you for joining our call today, and we'll now open up the call for any questions.

感謝您今天加入我們的電話會議，如果有任何問題，我們現在將開放電話會議。

Thank you. We'll now open the call for questions. (Operator Instructions) Jaeson Schmidt, Lake Street.

謝謝。我們現在開始提問。 （操作員指示）Jaeson Schmidt，湖街。

Yes. Thanks for your taking my questions. Just looking at the updated full-year guidance, I'm just curious if you're seeing any cancellations. Or are these headwinds just mainly due to pushouts?

是的。感謝您回答我的問題。只是看看更新後的全年指導，我只是好奇你是否看到任何取消。還是這些阻力主要是因為退出造成的？

Hey, Jason. Good morning. It's Scott. Thank you for joining the call.

嘿，傑森。早安.這是斯科特。感謝您加入通話。

I would say some of it's pushouts. For example, we've had a customer that's in the subprimes that are tightening a bit, so there's a bit of a cancellation there. But I would say largely, I think what's important is the secular trends are intact in our business. We operate in attractive and growing markets.

我會說其中一些是推出的。例如，我們有一位客戶的次級貸款緊縮，所以有一些取消。但我主要想說的是，我認為重要的是我們業務的長期趨勢完好無損。我們在有吸引力且不斷成長的市場中運作。

As John mentioned on the call, the cards in circulation from Visa and Mastercard are growing at a 10% CAGR. We also are very much in a reoccurring business in that, on average, year in/year out, there's about over 600 million cards produced. We think about, on average, 90% of those are reoccurring, meaning it's a card reissuance -- it's lost or stolen. So we feel good about the long-term trends in the business.

正如 John 在電話中提到的那樣，Visa 和 Mastercard 流通的信用卡正以 10% 的複合年增長率增長。我們也從事重複性業務，平均每年生產約 6 億張卡片。我們認為，平均而言，其中 90% 是重複發生的，這意味著它是重新發行的卡片——丟失或被盜。因此，我們對業務的長期趨勢感到滿意。

The secular tailwinds are there. Contactless cards continue to win in the marketplace. They're higher priced. Eco-focused cards are out there for sure. Both banks and consumers want to be more environmentally sound. We're the market leader with over 100 million since 2019.

長期的順風就在那裡。非接觸式卡繼續在市場上獲勝。它們的價格更高。以生態為重點的卡片肯定存在。銀行和消費者都希望更環保。自 2019 年以來，我們是市場領導者，擁有超過 1 億的用戶。

So I think what we're seeing is just a bit of a timing difference, temporary difference, between card issuance, card usage. Cards are winning at the expense of cash, for sure. The large issuers are continuing to grow that. The production market has just been softer than we expected with cards, cautious spending, some robust purchases in 2022 as a result of a tight supply chain.

所以我認為我們看到的只是卡片發行和卡片使用之間的一點時間差異、暫時差異。毫無疑問，卡牌的獲勝是以犧牲現金為代價的。大型發行人正在繼續擴大這一規模。由於供應鏈緊張，生產市場比我們預期的要疲軟，消費謹慎，2022 年採購量較大。

But clearly, we believe in the long-term health of the business. We believe we have opportunities on a long-term basis to continue to win share. And we had announced a $20 million share repurchase program, which represents over 10% of our market cap. So we very much believe in the long-term business.

但顯然，我們相信業務的長期健康發展。我們相信，從長遠來看，我們有機會繼續贏得市場份額。我們還宣布了一項 2000 萬美元的股票回購計劃，占我們市值的 10% 以上。所以我們非常相信長期業務。

But again, let me have John. John spends more time with customers than I do, so he can give you some more color on -- as far as pushouts or cancellations of what we're seeing.

不過，請讓我再請約翰來。約翰比我花在客戶身上的時間更多，所以他可以給你更多的資訊——就我們所看到的產品的推出或取消而言。

Jaeson, good to talk to you this morning. And Scott covered most of it. The only color I'd add is on the example of a customer, where the credit tightening, where they're in the subprime space. Things like that are going to ebb and flow over time. But for the most part, if you take a large issuer as an example, they're cutting back their spending in the current year, but they still have the same book of business.

傑森，很高興今天早上能和你說話。斯科特涵蓋了大部分內容。我要添加的唯一顏色是客戶的例子，信貸緊縮，他們處於次貸領域。類似的事情會隨著時間的推移而潮起潮落。但在大多數情況下，如果以大型發行人為例，他們會削減今年的支出，但他們的業務簿仍然相同。

They're still growing their account base. We still feel good about our position from a share perspective. That's just one example. And we see that across our book of business. So we feel really, really good about where we're positioned in the market, continue to execute on our strategy, continue to hear good things from our customers.

他們的客戶群仍在不斷擴大。從股票的角度來看，我們仍然對我們的立場感到滿意。這只是一個例子。我們在我們的業務手冊中看到了這一點。因此，我們對自己的市場定位感到非常非常滿意，繼續執行我們的策略，並繼續聽到客戶的好消息。

And I would say the only other thing is probably, there is some delayed reissuance is in the market. Our small to medium space, they're still cautious in their spending. So you definitely see some slowdowns that are continuing into Q4. But the overall card market, as Scott said, right, you're growing at a 10% CAGR over the last three years. We saw 9% growth quarter over quarter from Visa and Mastercard. So we still feel very strongly about the position we are in the market and the market itself growing at a decent CAGR.

我想說唯一的另一件事可能是，市場上有一些延遲的重新發行。我們的中小型空間，他們的支出仍然謹慎。因此，您肯定會看到一些放緩持續到第四季度。但正如斯科特所說，整個卡市場在過去三年中以 10% 的複合年增長率增長。 Visa 和萬事達卡的季度較上季成長為 9%。因此，我們仍然對我們在市場中的地位以及市場本身以可觀的複合年增長率增長感到非常強烈。

Okay. That's really helpful. And then just curious if you think the current environment coming out of the supply chain constraints -- do you think it has any lasting impact on how customers handle their inventory levels?

好的。這真的很有幫助。然後我很好奇，您是否認為當前的環境不受供應鏈限制——您認為這對客戶處理庫存水準的方式有任何持久影響嗎？

I'll take that one. I think if you go back to 2021, 2022 -- and there were a ton of industries that were impacted by this, right? The supply chain was tight. Our lead times were really long. The visibility in our business has come down. Those lead times have come down.

我會接受那個。我想如果你回到 2021 年、2022 年，有很多產業都受到了影響，對嗎？供應鏈緊張。我們的交貨時間真的很長。我們業務的知名度下降了。這些交貨時間已經縮短。

But we're -- what I would say is we're getting back to more historical times where our lead times are a little bit tighter than history. But we don't necessarily see whether it's the large banks, the small to medium banks, changing their broader historical patterns. I think what we see is they built up inventory over the last year and a half, and they're starting to normalize that, optimize that, back down to what I would say normal course patterns.

但我想說的是，我們正在回到更具歷史意義的時代，我們的交貨時間比歷史上的要緊一點。但我們不一定看到是否是大型銀行、中小型銀行正在改變更廣泛的歷史模式。我認為我們看到的是他們在過去一年半的時間裡建立了庫存，並且他們開始正常化，優化它，回到我所說的正常流程模式。

But what we don't see is banks in general taking on more risk, where they're only going to hold a really, really small amount of inventory and risks not issuing a card to one of their consumers. That -- their goal at the end of the day is to be top of wallet in everything they do. And so they would hold the right amount of cards to make sure they always meet their customers' needs.

但我們沒有看到銀行普遍承擔更多風險，他們只會持有非常非常少量的庫存，並且有不向消費者發行銀行卡的風險。他們最終的目標是在所做的每一件事上都做到最省錢。因此，他們會持有適量的卡，以確保始終滿足客戶的需求。

Okay. Appreciate that color. I'll jump back into queue. Thanks, guys.

好的。欣賞那個顏色。我會跳回隊列。多謝你們。

Thanks.

謝謝。

Thanks, Jaeson.

謝謝，傑森。

(Operator Instructions) Hal Goetsch, B. Riley Securities.

（操作員指令）Hal Goetsch，B. Riley Securities。

Hey. Good morning, guys. Staying on this topic, 2022 with a very, very big growth year. And it was up 27%. And if you look at maybe your guidance for the full year now, it looks like over a two-year basis, the revenues are going to be up about 20%. And if the card market's growing roughly what you said -- at least high single digit, my question is like, how much inventory in the channel was there that needs to be drawn down?

嘿。早上好傢伙。繼續討論這個主題，2022 年是一個非常非常大的增長年。上漲了 27%。如果你看一下你現在對全年的指導，看起來在兩年多的基礎上，收入將增長約 20%。如果卡片市場的成長大致如你所說的——至少是高個位數，我的問題是，通路中有多少庫存需要減少？

Is it -- can you help us figure out how long this is going to take? Because it would seem that if the -- look at on a two-year basis now, you exit the year where we think you're going to exit at. It would seem like the consumption over maybe a two-year period was pretty much in line, and inventories maybe get rightsized by Q1. But like, wanted to get your thoughts on that and also wanted to get your thoughts on like -- how can we anticipate not getting that kind of channel fill pretty stopped wrong [again]? Thank you.

是嗎——你能幫我們算一下這需要多長時間嗎？因為如果現在以兩年為基礎來看，你會在我們認為你將退出的那一年退出。看起來兩年內的消費量幾乎是一致的，而且庫存可能會在第一季之前調整。但是，想聽聽您對此的想法，也想聽聽您的想法——我們如何才能預期不會[再次]讓這種通道填充完全停止錯誤？謝謝。

Hello, John again. You're right if you look at the two-year period, right, the growth at '22. And then take that over '22, '23, compare that to the overall market, things are more in line. From a standpoint of when inventory will fully normalize -- right now, based upon what we're seeing, lead times still continue to be low. Our customers, I think, are continuing to optimize.

你好，約翰又來了。如果你看看這兩年的時間，你是對的，對吧，22 年的成長。然後以 22、23 年為例，與整體市場相比，情況更加一致。從庫存何時完全正常化的角度來看，目前，根據我們所看到的情況，交貨時間仍然很短。我認為我們的客戶正在繼續優化。

That said, I think we're going to give a lot more guidance in early next year. I don't think we could sit here today and tell you exactly when it will fully normalize and the production market matches up to the card issuance market. But we still feel strong about where we are, and your analysis is spot on. That's exactly the way we've thought about it, except for exactly when it will come back.

也就是說，我認為我們將在明年初提供更多指導。我認為我們今天無法坐在這裡準確地告訴大家何時會完全正常化以及生產市場與發卡市場相匹配。但我們仍然對自己的處境充滿信心，而且您的分析是正確的。這正是我們思考的方式，除了它何時會回來。

I will say the banks in general, if you go back to where we were in August, they are carrying less months of supply than we expected, but that can't go to zero, right? You think of that [1 billion] card circulation, there's 600 million to 700 million that are produced every year. Cards are turning over in everyone's wallets roughly every three years, regardless of what the expiration date is.

我想說的是，總的來說，如果你回到我們八月的情況，銀行的供應量比我們預期的要少，但這不可能為零，對嗎？你想想[10億]卡的發行量，每年會生產6億到7億張。每個人錢包裡的卡片大約每三年就會更換一次，無論有效期限是多少。

So we feel it's going to -- the market overall will gradually improve over the course of '24. But we'll give more guidance in early next year.

因此，我們認為整個市場將在 24 年期間逐漸改善。但我們將在明年初提供更多指導。

All right. Great. Thank you.

好的。偉大的。謝謝。

There are no further questions at this time. And this will conclude today's CPI Card Group third-quarter 2023 earnings call. Thank you for joining. Have a good day.

目前沒有其他問題。今天的 CPI 卡集團 2023 年第三季財報電話會議到此結束。感謝您的加入。祝你有美好的一天。