Margin Pressures Offset Revenue Growth as CPI Card Group Highlights Mixed Third Quarter

Revenue Expansion Continues, Driven by Arroweye and Instant Issuance

CPI Card Group (NASDAQ: PMTS) delivered another quarter of top-line growth, posting an 11% rise in net sales to $138 million for Q3 2025. This advance was fueled primarily by the recent Arroweye acquisition and a surge in the company’s instant issuance Card@Once® platform, even as Prepaid segment sales declined due to order timing and comparison to last year’s strong high-value packaging sales.

Leadership highlighted continued market share gains in core payments and strong momentum in SaaS-based instant issuance, noting more than 17,000 Card@Once® installations across 2,000 financial institutions. The company is also pushing ahead on expansion into digital and healthcare payment solutions, as well as eco-focused offerings, with over 500 million sustainable card solutions sold to date.

Margin and Profit Trends Reflect Higher Costs and Shifting Mix

While revenue momentum remained strong, gross profit and margin took a step back. Gross profit for Q3 2025 fell 8% year-over-year to $41 million, with margins compressing from 35.8% to 29.7%. CPI pointed to higher production costs, including tariffs and depreciation, along with a less favorable sales mix as key headwinds.

Despite net income climbing 78% to $2.3 million—mainly because of last year’s one-time debt retirement costs—operating profits declined as a percent of sales, reflecting pressure on profitability even as top-line trends stay positive.

Cash Flow Remains Positive but Capital Spending and Leverage Climb

On the cash front, CPI generated $19.9 million from operations in the first nine months of 2025, but Free Cash Flow was nearly halved year-over-year to $6.1 million. The main culprit was a significant uptick in capital expenditures, especially for a new Indiana production facility and the Arroweye acquisition.

Net leverage rose to 3.6x LTM Adjusted EBITDA at the end of Q3, up from 3.0x at year-end 2024, reflecting additional borrowing for growth investments. CPI has stated deleveraging is a focus moving forward.

Full-Year 2025 Outlook Reflects Lower EBITDA Growth but Stable Market Trends

The company refined its full-year guidance to low double-digit to low teens net sales growth (down from mid-teens previously), with Adjusted EBITDA now expected to be flat to low single-digit growth (from earlier mid-to-high single-digit growth guidance). The adjustment is mainly attributed to sales mix in the core Debit & Credit segment and prepaid order timing.

CPI management remains optimistic about the long-term U.S. card market, pointing to a 7% CAGR in U.S. Visa and Mastercard cards in circulation over the last three years. Recent deals—including a 20% equity stake in Karta to boost prepaid technology in the U.S.—underscore ongoing investment in new products and markets, while eco-focused cards and digital solutions continue to build brand value and competitive moat.

Key Takeaways for Investors: Watching Margins and Cash Discipline

CPI Card Group’s growth engine remains healthy thanks to innovation and recent acquisitions, but investors will be keeping a close watch on profit margins, production costs, and the path to improved free cash flow. The shift in 2025 outlook underscores the balancing act between revenue growth and cost discipline as new investments scale. Upcoming quarters will be crucial in determining how efficiently CPI converts its strong top-line into lasting value and balance sheet strength.

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