CPI Card Group Inc.

get in the queue for questions please press star followed by the number one on your telephone keypad if you would like to withdraw your question press star one again 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 afternoon everyone welcome to the cpi card group second quarter 2024 earnings webcast and conference call today's date is august 5th 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 this call may contain forward-looking statements, but 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 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 to the most directly comparable GAAP measures are included in the press release and slide presentation we issued this afternoon. Copies of today's press release as well as the presentation of the company's conference call are accessible on CPI's investor relations website, investor.cpicardgroup.com. In addition, CPI's form 10-Q for the quarter ended June 30th, 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. I'd now like to turn the call over to President and Chief Executive Officer John Lowe.

Thanks, Mike, and good afternoon, everyone. On today's call, I will give a brief overview of the second quarter and our ongoing strategies. Jeff will go into more detail on the results and our financial outlook, and then we will open the call for questions. Let's start on slide four. As I wrap up my second quarter as president and CEO, I am very pleased with the performance of our company and our teams. We return to positive sales growth in the quarter, as continued growth in our prepaid segment and our instant issuance and card personalization businesses was complemented by improved trends in secure card sales, leading to growth in both our business segments. Additionally, we made further progress on our diversification efforts in adjacencies and digital solutions. From a market perspective, while we believe channel card inventory is still being worked down, levels are improving, and we are winning business. Secure card sales were down only slightly in the quarter. and posted sequential growth compared to the first quarter, which represented the second straight quarter of sequential increases. The issuance market also remained strong, with cards in circulation in the US posting another healthy growth quarter based on the latest data from the card networks. Our prepaid business benefited from higher value packaging solutions, while our instant issuance business was aided by continued market penetration of our software as a service based digital solution as we are now in more than 16,000 branches across the United States. Overall, we are confident in our business trends and continue to expect better growth rates in the second half of the year. From a profitability standpoint, gross margins improved slightly in the quarter, while adjusted EBITDA margins declined, primarily due to increases in SG&A, which reflect increased investments in people and the business to drive future growth. For the second half of the year, we expect strong growth in sales and adjusted EBITDA compared to last year's second half. Based on our first half performance and expectations for the rest of the year, we have updated our full-year outlook for 2024, increasing our expected sales growth from a slight increase to mid-single-digit growth, while maintaining our adjusted EBITDA outlook at slight growth compared to 2023, as we continue to invest for long-term growth. The improvement in our sales outlook is being driven by strong prepaid performance and improvement in debit and credit sales trends. But Jeff will give you more detail on our full financial outlook in a few minutes. In addition to our business performance, we've continued to execute against our capital allocation priorities and further enhance our capital structure. In July, to further support our long-term growth, we refinanced our debt, issuing $285 million of new senior secured notes and entering into a new $75 million asset-based revolving credit facility. The refinancing extends our debt maturities out to 2029 and removes market risk in replacing the previous notes, which would have matured in early 2026. We chose to refinance this summer as the debt markets have been strong and investors have been very receptive to offerings. and we wanted to avoid any potential that the markets become less favorable as we go through the election cycle later this year. In addition, we've completed additional share repurchases, bringing our total since inception of the program to almost $9 million out of our $20 million authorization. Before turning the call over to Jeff, let me briefly review our strategies on slide five. Our strategies continue to focus on growing and gaining share in our traditional businesses while enhancing growth by expanding into adjacent markets, including digital solutions, over the long term. Our goal is to continue to gain share in our current markets by being the leader in customer service, quality, and innovation. One example of following our strategies to grow in our traditional businesses is our ongoing priority to listen to and meet the needs of our customers. In our prepaid business, our customers are currently very focused on preventing fraud, providing more tamper evident and fraud resistant solutions to their customers our prepaid team works closely with our customers to counter new mechanisms fraudsters are employing and to develop innovative packaging solutions that help our customers achieve their fraud reduction goals these additional innovations not only create demand but also require higher value packaging solutions benefiting our sales this is just one example of how we gain share by focusing on our customers across our portfolio and providing leadership in customer service, quality, and innovation. In addition to driving growth in the existing core business, we are advancing our efforts to capitalize on new opportunities by entering adjacent markets, including offering more products and solutions to existing customers and expanding the new customer verticals. Examples include our entry into healthcare payment cards and our ongoing development of digital push provisioning services for mobile wallets. We are making progress across both of these long-term drivers, and we expect these adjacent opportunities to supplement core growth over the coming years. Turning to slide six, we continue to expect our core markets to provide solid long-term growth. On this slide, you can see the latest U.S. cards in circulation trends from Visa and MasterCard. For the three years ending March 31st, cards in circulation in the U.S. increased at a 10% CAGR. And cards in circulation were also up 10% compared to the prior year first quarter. So issuance trends remain healthy. We also expect U.S. debit and credit market growth to be 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. To demonstrate the ongoing consumer adoption of contactless, Visa just reported in its recent earnings call the tap-to-pay penetration has surpassed 50% of transactions in the U.S. I would now like to turn the call over to Jeff to discuss our second quarter financial results and 2024 outlook in more detail.