CPI Card Group Inc.

Welcome to the CPI Card Group's first quarter 2023 earnings call. My name is Bailey and I will be your operator today. If you're viewing on the webcast, you may advance the slides forward by pressing the arrow buttons. The call will be open for questions after the company's remarks. If you would like to get in queue for questions, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star and once. And now I will turn the call over to Mike Salop, CPI's Head of Investor Relations.

Thanks, Operator, and good morning, everyone. Welcome to the CPI Card Group First Quarter 2023 Earnings Webcast and Conference Call. Today's date is May 9, 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 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. 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, 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. In addition, CPI's Form 10-Q for the quarter ended March 31st, 2023, 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.

Thanks, Mike, and good morning, everyone. During today's call, I will discuss CPI's first quarter performance, reiterate our outlook for the full year, and review our long-term strategy. Amitur will review the financial results in more detail, and then we'll open up the call for questions. We will start on slide four. Overall, I'm very pleased with the first quarter performance. We increased sales by 8% despite comparisons with a very strong first quarter in 2022, which benefited from large eco-focused card orders and significant instant issuance printer upgrade sales. Growth in this year's first quarter was led by ongoing strength in sales of contact with and we also delivered good growth from other areas across our debit and credit portfolio. We grew adjusted EBITDA 11% to $25 million and increased the adjusted EBITDA margin 50 basis points to 20.7%, driven by operating leverage. We increased net income by 81% to nearly $11 million, aided by sales growth, operating leverage, a lower tax rate, and lower interest expense, as we have utilized cash flow to reduce our average borrowings. We also improved our overall financial position in the quarter, generating nearly $4 million of positive free cash flow, retiring an additional $8 million of our senior notes, and reducing our net leverage ratio up to 2.9 times at quarter end. As we mentioned in March, this year we are focused on continuing to execute our strategies, grow the business, win share in the marketplace, increased cash flow, and reduced leverage. We believe the first quarter demonstrated good progress against each of these goals. As we look to the rest of the year, our sales efforts will remain focused on gaining market share with our differentiated portfolio of innovative products and services and end-to-end solutions and leading quality and customer service. Turning to our outlook on slide five. Today, we are affirming the financial outlook we provided in March. we believe continued strong performance from contactless cards, additional sales of end-to-end solutions, and further penetration of instant issuance will drive sales growth for the full year. However, there is more risk and uncertainty in the market. The banking industry stress that emerged following the collapse of Silicon Valley Bank in March has contributed to more cautious spending environments among issuers. Although we do not have any significant direct exposure to the three major banks that have failed, We have recently seen softening customer demand in our debit and credit segment and consequently do not expect second quarter results to be as strong as the first quarter. Near term, it's difficult to project the extent of the banking industry stress or how long it will continue to impact us. However, given the uncertainty, we have implemented various new initiatives to drive sales and manage expenses more tightly in 2023. Based on what we know today and the strong first quarter performance, we have affirmed the full-year outlook we provided in March. Despite the near-term challenges, we continue to believe we operate in an attractive long-term growth market. Specular card trends have remained healthy, as evidenced by the 11% compounded annual growth rate on MasterCard and Visa U.S. cards in circulation for the three-year period ending December 31, 2022. and the ongoing movements towards eco-focused cards and contactless cards should continue to aid growth. I would also remind you that the card business is reoccurring in nature, with historically approximately 90% of payment cards issuance being for reissuance and replacements, so there is strong support for the market over time. We have successfully gained share in a growing market over the past five years by focusing on our key strategies, and we expect those to continue to be the foundation for our growth. Specifically, turning to slide six, our key strategic priorities remain deep customer focus, market leading quality products and customer service, continuous innovation, and a market competitive business model. We believe the first quarter results demonstrated further advances against these priorities. Although eco-focused card sales were down compared to some very large orders in the prior year, We still sold nearly 7 million of our innovative cards made with recovered ocean-bound plastic core in the quarter and continue to be a leader in the US eco-focused card space. We also continue to leverage our high-quality end-to-end solutions, driving growth in contactless cards, personalization services, and our card-at-once, SaaS-based instant issuance business. Prepaid was down slightly in the quarter, but we did continue to have success with new customer types. And we demonstrated a competitive business model. We generated operating leverage despite ongoing inflationary impacts on key material costs and continued to balance pricing with managing long-term customer relationships. These four key strategic priorities will continue to guide our actions to grow and gain market share, and we also plan to pursue additional opportunities in the markets such as our expansion of prepaid use cases and development of complementary digital offerings. We remain confident in the long-term growth prospects for the market and in our ability to execute against our strategies to win business and grow share. Now I will turn the call over to Amitur to review our first quarter results and our outlook in more detail. Amitur?