CPI Card Group Inc.

Welcome to CPI Cuts Group's 4th Quarter 2022 Earnings Call. My name is Glenn and I will be your operator today. If you are viewing on the webcast, you may advance the slides forward by pressing the arrow buttons. The call will be open for questions after the question release remarks. If you would like to get in the queue for questions, kindly press star followed by 1 on the telephone keypad. Now, I would like to turn the call over to Mike Salo. CPI's Head of Investor Relations. Mike?

Thanks, Operator, and good morning, everyone. Welcome to the CPI Card Group Fourth Quarter 2022 Earnings Webcast and Conference Call. Today's date is March 8, 2023, and on the call today from CPI Card Group are Scott Shireman, President and Chief Executive Officer, and Amitur Shankar, Chief Financial Officer. 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 discussion of such risks and uncertainties, please see CPI Card Group's most recent followings with the SEC. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call. 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 pre-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, investors.cpicardgroup.com. In addition, CPI's Form 10-K for the year ended December 31, 2022, will be available on CPI's Investor Relations website. And now I'd like to turn the call over to President and Chief Executive Officer Scott Shireman.

Scott Shireman Thanks, Mike, and good morning, everyone. During today's call, I will discuss CPI's performance in 2022, provide thoughts on our initial outlook for 2023, and reiterate our long-term strategy. Amantor will review the financial results in more detail, and then we will open up the call for questions. We will start on slide four. 2022 was a great year for CPI. We increased sales 27% for the full year to a record level of $476 million, and we believe we gained significant overall market share. We grew adjusted EBITDA 28% to $98 million and increased the adjusted EBITDA margin slightly to 20.5%, despite significant inflationary impacts on costs. We also improved our net leverage ratio in 2022, ending the year at three times and retired $25 million of principal on our senior secured notes during the year. And we ended 2022 on a high note with fourth quarter net sales increasing 36% and adjusted EBITDA increasing 100%. As we look back on 2022, there were four main drivers that were critical to our success. First was our differentiated innovative products and services and end-to-end solutions. Second, our market leading quality and customer service. Third, our strong supply chain execution while the industry faced challenges. And fourth, we benefited from a strong growth year for the card markets in the U.S. Our differentiated end-to-end solution, leading quality and customer service and strong supply chain execution each contributed meaningfully to our market share gains. One example was our innovative EcoFocus cards, which posted a 70% increase in sales for the year. Led by our cards made with recovered ocean-bound plastic core, we sold more than 40 million EcoFocus cards in 2022, bringing our total to more than 90 million sold since the launch in mid-2019. Another example is our differentiated software as a service, instant-insurance solution, Card at Once, which delivered another excellent year. Growth was driven by new customer installations, strong printer upgrade sales, and ongoing services revenue. At the end of the year, Card at Once installations across the U.S. totaled more than 14,000 customer locations. Across our portfolio, our market-leading quality and customer service helped us gain more business with existing and new customers including a prepaid where we added new customer types beyond the traditional retail channel. In addition, we were able to significantly expand secure card production capacity during the year to meet customer needs and to fulfill demand in the market. And we believe our strong execution supply chain, including proactive inventory management during the year while the industry was challenged, also allowed us to gain more business in 2022. As you may recall, we entered last year with strong customer demand, but faced significant supply chain and labor shortage challenges, and the impact of inflation on our costs was escalating. I would like to thank all of our employees for their dedication and effort to tackle those challenges and deliver a record year, successfully increasing capacity, navigating global supply chains, and serving our customers. Before I discuss our 2023 outlook, I would like to also personally thank Amator Shankle for his strong contributions to our success since joining CPI. Amator has informed us he will be leaving the company this year due to family-related personal reasons, but will stay on while we search for his replacement to help transition the new CFO once named. In addition to his role in helping us drive profitability and improve our financial position, Amator has led us towards successful SOX compliance and further developed our financial organization, leaving us with a strong financial team. Amator will give some remarks and a further financial review in a few minutes. But first, let's turn to our 2023 outlook on slide five. For 2023, we're focused on continuing to execute on our strategies, grow the business, win share in the marketplace, increase cash flow, and reduce leverage. We believe we are well positioned to continue to gain overall market share in 2023 with our portfolio of differentiated solutions and market-leading quality and customer service. We anticipate continued benefits from the ongoing transition to contactless cards, more progress on providing end-to-end solutions to small and medium-sized issuers, and further instant issuance penetration. Our initial financial outlook for 2023 projects mid-single-digit growth for net sales, with higher expected net sales growth in our debit and credit segment, which comprised 82% of net sales last year, and prepaid debit segment net sales similar to the 2022 levels. The net sales outlook reflects expectations for slower market growth in 2023, as last year benefited from robust customer demand. We anticipate issuers being more cautious regarding the U.S. economic environment tightly managing spending and orders as they assess the consumer trends and their own inventory levels, and potentially increasing credit underwriting standards. Debit cards, which today make up the majority of the market, tend to be less affected by economic conditions, and historically around 90% of payment card issuance is for reissuance and replacements. So we still expect the market to grow overall, but not as strong as 2022. We also faced challenging comparisons with our 2022 performance as the 27% net sales growth last year benefited from significant contributions by large portfolio additions with existing customers, particularly eco-focused cards and strong card-at-once printer upgrade sales. As we did last year, we'll remain nimble and ready to adapt as the market and economic conditions evolve and customer plans change. On the profitability side, we expect adjusted EBITDA growth for 2023 in the mid to high single-digit range, despite continued inflationary impact on costs, as we manage expenses tightly and achieve more operating leverage in our debit and credit segment. We're also focused on significantly increasing pre-cash flow and reducing our net leverage ratio, which Amitur will discuss in a few minutes. Overall, we expect continued share gains followed growth and another strong earnings year in 2023 as we continue the momentum we have established over the past few years. Now let's turn to slide six to discuss our long-term strategy. Over the past five years, we have consistently focused on four key strategic priorities. Deep customer focus, market leading quality products and customer service, continuous innovation, and a market competitive business model. Successful execution of these strategies has allowed us to gain market share, create and expand market leadership in key categories, and deliver strong financial results. Since 2017, we have achieved compounded annual growth rates of 16% in net sales and 33% in adjusted EBITDA. Over the same period, we have increased gross margins from 30% to 37%, and reduce net leverage from over 12 times to three times at the end of 2022. Some examples of strategy success in 2022, as mentioned earlier, include winning new business with our innovative EcoFocus cards and prepaid solutions, expanding our SaaS-based instant issue and distribution, providing personalization and print-on-demand solutions for fintechs, and enhancing our market competitive business model to improve capacity and reduce customer lead times following supply chain-driven spikes throughout the industry. At the end of 2022, we reorganized our structure to help us better execute our strategies going forward. Specifically, we aligned secure cards, personalization, and instant issuance under OneLeader, which we believe will optimize our ability to focus on providing end-to-end solutions for our customers. We also created a leadership position dedicated to prepaid, in a position focused on new growth opportunities, including new product and business development and digital solutions. Some new product and business examples include providing prepaid payment cards for non-retail channels, such as our health savings accounts, and to support businesses that need to provide funds to gig workers and contractors. We're also exploring opportunities for instant issuance solutions beyond financial institution locations, such as with retailers. To summarize, execution of our strategic priorities has contributed greatly to our success over the past five years, driving sales growth, market share gains, product diversification, and operating leverage. And we believe there are many opportunities to further expand offerings and capabilities and drive growth in the years to come. Now I will turn the call over to Amitur Shankar to review our fourth quarter and full year 2022 results in more detail. Amitur?