CPI Card Group Inc.

Welcome to the CPI Card Group's first quarter 2024 earnings call. My name is Kathleen 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 company's remarks. If you would like to get in the queue for questions, please press star one. And now, I would like to turn the call over to Mike Salep, CPI's Head of Investor Relations. Please go ahead.

Thanks, Operator, and good morning, everyone. Welcome to the CPI Card Group First Quarter 2024 Earnings Webcast and Conference Call. Today's date is May 7, 2024, and on the call today from CPI Card Group are John Lowe, President and Chief Executive Officer, and Jeff Hochstadt, 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 a 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 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 free 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, investor.cpicardgroup.com. In addition, CPI's Forum 10Q for the quarter ended March 31, 2024, will be available on CPI's Investor Relations website. On today's call, all growth rates refer to comparisons with the prior year period, unless otherwise noted. And now I'd like to turn the call over to President and Chief Executive Officer John Lowe.

Thanks, Mike, and good morning, everyone. On today's call, I will give a brief overview of the quarter and our ongoing strategies. Jeff will go into more detail on the results in our 2024 financial outlook. And then we will open the call up for questions. Let's start on slide four. Overall, we're pleased with the first quarter performance, which puts us solidly on track to achieve our full year net sales and adjusted EBITDA financial outlook. As we discussed when we reported our fourth quarter results, we anticipated the first half of this year would be challenging as customers continue to work down their card inventory levels. While card sales declined as expected, this impact was partially offset by strong growth from our prepaid business, as well as from our instant issuance and card personalization services businesses within Debit and Credit. This resulted in a total net sales decline of 7% in the quarter and sequential growth compared to the fourth quarter in net sales, net income, and adjusted EBITDA. Compared to the prior year first quarter, we delivered gross margin improvement and relatively stable adjusted EBITDA margins and also generated solid cash flow. Additionally, we made significant progress advancing our strategies and executing our share repurchase program. Jeff will go into more detail on our financial results in a few minutes. But first, I would like to briefly review our strategies on slide five. Our strategies reflect the opportunities to grow and gain share in our traditional businesses, while also enhancing growth by expanding into adjacent markets, including digital solutions, over the long term. Our traditional portfolio includes secure cards, hard personalization services, instant issuance solutions, trends on demand, and prepaid solutions. Our goal is to continue to gain share in these markets by being the leader in customer service, quality, and innovation. One recent example is a contract we signed in the first quarter to expand the relationship with one of our larger customers, which will result in increased share and incremental sales over the life of the contract, which runs through 2029. It will take some time to transition the incremental business, but this agreement should aid our growth in 2025 and over the next several years. As we discussed last quarter, we believe we can supplement core growth over the next few years by expanding into additional markets that are adjacent to our core businesses today. There are two paths for this expansion. One path is leveraging our existing customer base of thousands of financial institutions most of which are small to medium issuers who rely on third parties for many of their payment services, to provide additional solutions and service offerings to help their customers with their payment needs. An example is digital push provisioning, where we can offer our customers the ability to let their customers seamlessly push their card credentials onto a digital wallet through their mobile banking app, which serves as a complementary offering to physical card personalization. In the first quarter, we advanced this initiative, including signing a referral agreement with MEA Financial Enterprises, one of the national leaders in providing software solutions to U.S. financial institutions. Through this agreement, we will have the ability to offer push provisioning services to MEA's mobile app users, which include approximately 300 financial institutions. This is one step in opening up the service to both existing and new customers. The second adjacent expansion path involves taking existing products and solutions to new customer types, such as health savings account payment cards and instant issuance for customers beyond the financial institution space. Many of these areas will take some time to develop and drive customer adoption, but we believe there are substantial opportunities to supplement our core growth over the next few years. In the near term, we remain confident in the overall health of the U.S. card market. As you can see on slide six, U.S. cards in circulation continue to grow. The latest figures from Visa and MasterCard show cards in circulation in the U.S. increased at a 9% CAGR for the three years ending December 31st, and we're up 7% compared to the prior year quarter. Card issuance trends continue to give us confidence that issuers will eventually need to replenish their inventories, which is consistent with the indications we are hearing from our customers. The most recent quarterly earnings reports from the large banks have also demonstrated positive momentum for card programs. And we expect the U.S. debit and credit market will continue to grow over the long term, aided by ongoing preferences for cards and the recurring nature of the industry, as well as trends towards higher value eco-friendly and other contactless cards. Another recent data point on the ongoing adoption of contactless cards came from Visa. who stated in its latest earnings report the tap-to-pay penetration at point of sale in the U.S. is nearing 50%. We will continue to keep you apprised of market trends and our strategic progress, but I would now like to turn the call over to Jeff to discuss our first quarter financial results and 2024 outlook in more detail. Jeff?