Cpi Card Group (PMTS) Q2 Revenue Up 9%

Cpi Card Group (PMTS -28.84%), a provider of payment card production, instant issuance, and digital payment solutions, released its latest quarterly results on August 8, 2025. The company delivered revenue growth, with net sales (GAAP) of $129.8 million, but earnings per share (GAAP) were just $0.04, marking a substantial drop and missing the analyst estimate of $0.65 (GAAP). Revenue (GAAP) also trailed the expectation of $132.97 million. Net income (GAAP) fell to $0.5 million from $6.0 million in Q2 2024. The quarter’s results reflected solid progress in top-line expansion, driven by new products and acquisitions, but profitability was affected by higher costs and the impact of recent integration activities. Overall, the period showed encouraging strategic moves but brought margin challenges that weighed on the bottom line.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q2 2025 earnings report.

About Cpi Card Group and Key Success Factors

Cpi Card Group focuses on the U.S. payment card market, producing debit, credit, and prepaid cards along with instant issuance solutions and supporting digital services. Its business hinges on manufacturing secure payment cards, delivering instant card issuance at banks and credit unions, and a growing suite of digital payment solutions.

Recently, its strategy has been centered around innovation and diversification. It has invested in eco-focused card products using recycled materials, developed the Card@Once instant issuance product that allows real-time card creation for customers at financial institutions, and acquired Arroweye in May 2025, expanding into on-demand card production. Success for the company relies on maintaining long-lasting customer relationships, driving innovation in both physical and digital payment products, managing a complex supply chain for chip and component sourcing, and strict compliance with data security standards. The ability to adapt quickly to changing market needs and technological advancements remains key.

Quarter Highlights: Revenue Growth, Margin Pressures, and Acquisition Impact

Net sales (GAAP) increased by 9.2%, exceeding last year's levels, but the gain was aided by Arroweye's contribution and partially offset by an accounting change that shifted some revenue between quarters. Adjusting for this, underlying growth was even stronger, as net sales excluding the impact of the accounting change increased 15% year-over-year (non-GAAP). The Debit and Credit segment, which includes chip, contactless, and metal cards, posted a 16% GAAP sales gain, with Arroweye accounted for approximately $10 million of net sales in less than 2 months after the acquisition. The Card@Once system—an instant card issuance product used in bank branches—remained a growth driver. The Prepaid Debit segment net sales declined by 19.3% but increased 4% after removing the effect of the accounting shift, with better performance in high-value packaging and healthcare payment solutions.

Despite revenue expansion, profitability metrics showed weakness. Gross profit (GAAP) decreased by 5%, with gross margin dropped to 30.9% from 35.7% in Q2 2024. The sharp margin contraction was due to higher production expenses, tariffs, and costs tied to the transition to a new production facility in Indiana. Adjusted EBITDA improved slightly to $22.5 million, but the adjusted EBITDA margin fell, reflecting both increased sales mix toward lower-margin offerings and temporary integration costs. Net income (GAAP) collapsed, falling year over year from $6.0 million to just $0.5 million. This decline was partly due to $3.3 million in Arroweye integration and other restructuring expenses, as well as elevated interest costs.

Operational cash flow (GAAP) improved in the first half of 2025, but Free cash flow remained modest in the first half of 2025 due to higher capital expenditures, mainly for ongoing facility investments. Leverage increased—net debt now sits at 3.6 times trailing adjusted EBITDA (non-GAAP) as of June 30, 2025—since the company partially funded the Arroweye purchase with borrowings. Liquidity remained stable, with $17.1 million in cash at quarter-end (June 30, 2025), despite the uptick in debt.

In fact, PMTS does not currently pay a dividend. One-time items included transaction and integration expenses related to Arroweye, as well as ongoing costs from the facility transition in Indiana, both of which pressured earnings. Management also warned that their 2025 outlook does not yet include possible impacts from newly proposed tariffs affecting microchips, with details pending.

Innovation, Product Portfolio, and Market Challenges

Innovation continued as a core theme, with new solutions across eco-cards, contactless payment cards, and on-demand card programs via the Arroweye acquisition. Eco-focused cards, made from recycled materials and developed as part of the company’s sustainability push, now represent a significant cumulative volume, with more than 450 million eco-focused debit, credit, and prepaid card or package solutions sold. Card@Once—its software-as-a-service (SaaS) platform for instant card activation at bank branches—remains widely adopted, having been installed over 17,000 times across more than 2,000 institutions. This SaaS-based instant issuance is important because it allows financial institutions to provide cards to consumers on the spot, reducing waiting times and enhancing customer experience.

The Arroweye acquisition marks a notable extension into digitally-driven on-demand production, serving fintechs and other clients that want rapid, highly customized card programs. Arroweye delivered approximately $10 million in net sales in less than two months post-acquisition and is expected to contribute $50-55 million per year on a full-year run rate. However, its current profit margins are below the company average, and the company expects its impact to weigh on earnings per share until at least fiscal 2027. Despite the promise of new customer segments and cost synergies, integrating Arroweye’s facility, people, and product line presents short-term challenges including potential margin dilution and ongoing cost overlap.

The Debit and Credit segment remained the primary revenue driver, sustaining double-digit sales growth but also experiencing a notable fall in gross margin, down to 31.3%. Margin pressure across both main business lines was linked to production costs and expenses associated with the transition to the new Indiana facility. The Prepaid Debit segment stayed subdued in sales, with gross margin dropping from 34.5% to 28.5% (GAAP). While enhancements to packaging and healthcare offerings helped, this area continues to grapple with profitability challenges.

Supply chain management stayed a critical focus due to continued reliance on a handful of suppliers for microchips and antennas—components essential to payment card production. With 95% of such parts were sourced from three main vendors for the year ended December 31, 2024, chip tariffs and relations with suppliers carry outsized importance. As tariffs on imported chips loom, the company faces potential cost increases that could further affect margins; the company's outlook does not reflect potential impacts from the proposed chip tariffs, as details on the proposed tariffs, including timing and exemptions, have not been announced. Management stated explicitly that its updated outlook doesn't account for these newly proposed tariffs, leaving some uncertainty for future results.

Looking Ahead: Management Guidance and Watch Items

Cpi Card Group lifted its revenue outlook for FY2025, now expecting low double-digit to mid-teens percentage net sales growth, mainly reflecting new revenue streams from the Arroweye deal. However, despite the higher top-line target, the company left its adjusted EBITDA growth projection unchanged at mid-to-high single-digit rates. This means higher expected volume but limited incremental benefit for profitability in the near term, as the company sees integration costs, tariffs, and adverse sales mix offsetting operational gains. No specific guidance for earnings per share was provided, and management indicated Arroweye would be a drag on earnings per share and “slightly dilutive” in 2026 before turning accretive in 2027.

The priorities for the coming quarters include integrating Arroweye for both revenue and cost synergies, completing the Indiana facility transition to enhance efficiency, and closely managing costs to address margin compression. Attention will also remain on regulatory developments in chip tariffs and supply chain constraints, areas management highlighted as ongoing risks. With profit margins under pressure, investors will be watching for signs of recovery in operational leverage, progress on synergy realization, and updates on how the supply chain and tariff environment evolve.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.