CPI Card Group’s Shares Take a Hit as EMV Card Sales and Revenues Plunge

Shares of payment card manufacturer CPI Card Group Inc. dropped almost 17% Thursday in the wake of slipping EMV chip card sales, falling revenues, and a net loss in the first quarter.

The Littleton, Colo.-based firm said quarterly net sales declined 35% year-over-year to $56 million. Product net sales plunged 46% primarily due to declines in EMV cards sold and average chip card prices. U.S. credit and debit card net sales dropped 39% to $39.5 million.

Meanwhile, U.S. prepaid card net sales fell 21% to $9.8 million mainly due to a large customer’s delay in rolling out an updated packing design.

The net loss was $4.5 million compared with net income of $5.7 million in 2016’s first quarter. CPI Card Group’s stock closed on the Nasdaq Stock Market at $2.63 per share Thursday, down nearly 17% from Wednesday’s $3.15 close.

Despite the down numbers, “our first-quarter results were in line with our expectations,” CPI president and chief executive Steven Montross said in a late Wednesday conference call with analysts, according to a Thomson Reuters StreetEvents call transcript.

Montross said the results reflect the reduced demand for EMV cards that began last year. CPI Card Group produced 18.3 million EMV cards in the quarter, down 56% from 41.4 million in the prior-year period, mainly because of few orders from large issuers.

“Despite this decrease, we believe our market share has remained fairly stable year-over-year,” Montross said, according to the transcript. “Based upon our first-quarter results and ongoing conversations with our customers regarding their EMV card demand for the remainder of 2017, we continue to expect to produce about the same number of EMV cards in 2017 as we did in 2016.”

Average first-quarter selling prices for EMV cards came in at 84 cents per unit compared with 97 cents in 2016’s fourth quarter, according to Montross, a decline of 13%.

Recent figures from the payment card networks indicate that EMV card growth is slowing as many issuers complete conversions of magnetic-stripe card portfolios to chip. Visa Inc. reported that there were 421.1 million Visa chip credit and debit cards in the U.S. in March, up 3.2% from December. Visa said that about 58% of its U.S. cards now have chips.

CPI Card Group agrees chip card demand growth is slowing, but it estimates U.S. EMV debit and credit card penetration is somewhat higher than Visa’s figure, at about 65% in the first quarter. The company predicts penetration should hit 80% by year’s end.

“While EMV card migrations are progressing at a slower rate than in the past few years, with approximately 35% of the U.S. debit and credit markets still mag-stripe, there continues to be significant runway for EMV-driven growth in the industry,” Montross said.

CPI Card Group expects its prepaid card and value-added services sales to pick up, but prepaid card price compression will probably offset increased volumes.