CPI Card Group Inc.

This quarter, we've continued to win share and are now serving all of the top prepaid program managers in the U.S., further strengthening our position as the center of the prepaid market and creating new opportunities to deliver our secure packaging solutions. We are making good progress with Carta on our joint pilot to launch prepaid packages with safe-to-buy chip-embedded technology at one of the largest U.S. national retailers, and we are seeing encouraging signs in the adoption of closed-loop. a market where we estimate is approximately five times the size of OpenLoop. Given our leadership position in prepaid packaging, chip-enabled solutions, and customer relationships, we believe CPI is uniquely positioned to capitalize on the prepaid market as it actions to reduce fraud. Altogether, these wins across our business are a great example of how CPI is leveraging both physical and digital payment solutions to create value for customers and drive profitable growth. Turning to slide four, let me briefly remind everyone of the foundation of our strategy. Everything we do is built around three core growth pillars, our proprietary technology platform, our marketable base of thousands of customer relationships across the payments ecosystem, and our ability to deliver innovative payment solutions that evolve alongside market needs. These pillars continue to drive growth and diversification across the company, and our acquisition of TRISM instant issuance is an excellent example of that strategy in action. Turning to slide five, TRSM expands our leadership position in the attractive U.S. instant issuance market and roughly doubles our instant issuance addressable market by enabling us to serve larger financial institutions that prefer an on-premise solution. The acquisition increases our instant issuance presence to nearly 20,000 locations across over 3,000 financial institutions, adds recurring revenue, and long-term customer relationships and creates attractive cross-selling opportunities across CPI's broader portfolio. I met with the TRISM team last week, and on behalf of the leadership team and all of CPI, we are excited to have TRISM as part of our team. TRISM is expected to increase integrated pay tech growth to approximately 20% in 2026 while maintaining a gross margin profile of over 50%, consistent with our existing integrated pay tech business. Additionally, This acquisition had little impact on leverage, enabling us to complete the strategic acquisition while maintaining our disciplined approach to capital allocation. In summary, we delivered an excellent second quarter. We gained share, generated strong revenue growth and profitability expansion, delivered record first half free cash flow, and continued to improve our balance sheet. We are executing our strategy to grow and diversify the business, positioning CPI well for the second half of the year and beyond. With that, I'll turn the call over to Terra to provide more detail on our financial results and outlook for the remainder of the year.

Thanks, John. Before I begin, I'd like to thank John, our Board of Directors, and the entire CPI team for their confidence and support as I take on the CFO role. I look forward to continuing to partner with our leadership team as we execute our strategy, drive profitable growth, and create long-term value for our shareholders. I'll begin with our consolidated revenue and profitability results on slide seven. We are pleased with our second quarter and first half financial performance. Our strong results for the second quarter were better than our expectations, although the mix of performance across the business evolved as the first half progressed. Strong performance in Secure Card Solutions helped offset a slower than expected start to the year in prepaid solutions. Revenue increased 15% in the second quarter to $149 million compared to $130 million in the prior year period, driven by increased volumes of contactless cards and higher personalization solutions, as well as contributions from the acquisition of Arrow Eye. Excluding Arrow Eye, total organic revenue grew 12% in the second quarter, reflecting the underlying strength of our business. Second quarter gross profit increased 21%, resulting in a gross profit margin of 32.5% in the second quarter, an increase of approximately 160 basis points from 30.9% in the prior year period, primarily driven by a benefit of more than $3 million of tariff refunds. Second quarter adjusted EBITDA was $24 million, representing growth of 7% driven by revenue growth and the benefits of tariff refunds. Gross margin and adjusted EBITDA margins were impacted by unfavorable segment mix due to softness and higher margin prepaid revenue that was partially offset by continued growth in SecureCard solutions, which, while profitable, carries lower margins than our prepaid business. SG&A expenses were $37 million in the second quarter compared to $31 million in the prior year period. The increase in SG&A was driven by airway integration expenses and investments in digital and technology as we fuel our efforts to grow and diversify in our higher margin, more recurring revenue businesses like Card at Once and digital. Integration and transaction-related costs Primarily related to ROI were nearly $3 million in the second quarter. We expect these to be significantly lower in the second half of the year. We will have TRISM integration expenses in the second half, but at significantly lower spend levels. These investments have and will continue to support our long-term growth strategy through expanded capabilities and revenue and operating synergies. and as a reminder, these costs are not included in adjusted EBITDA, but do impact net income. We are driving initiatives designed to improve margins over time. During the second quarter, we progressed supplier negotiations, realized incremental acquisition synergies, including freight, scale efficiencies, advanced worksite optimization across our secure card solutions footprint, and moved our automation initiatives forward. We also continued our focus on expanding our growth in higher margin solutions, including metal cards in our integrated pay tax segment. While some of these initiatives are already generating benefits, we expect a larger impact as we move through the year. Turning to our segment results on slide eight. In Secure Card Solutions, second quarter revenue increased 17% to $111 million driven by increased volumes of contactless cards, higher personalization, and $5 million of ROI contribution. Excluding ROI, second quarter organic revenue in a SecureCard segment increased 13% with strong underlying growth in our largest segment. In prepaid solutions, second quarter revenue increased 18% to $23 million, primarily due to a change in accounting that was implemented in the second quarter of 2025, partially offset by comparisons with strong sales of higher value packaging solutions in the prior year period. As I shared at the start of my remarks, we experienced a slower than expected start to the year in prepaid as customer ordering patterns remained uneven. While the recovery has been slower than originally anticipated, we continue to be well-positioned to capture new revenue opportunities in this market, including in closed loop, where we are continuing to see strong customer interest and in our strategic partnership with Carta. Within integrated paytech, second quarter revenue increased 4%, driven by increased Card at Once revenue and a very small contribution from the TRISM instant issuance acquisition which closed in late June. We continue to expect integrated pay tech to deliver approximately 20% growth for the full year, an increase from 15% expected at the start of the year. While this implies a significant increase in growth in the second half of the year, we have confidence in this expectation based upon continued adoption of our card at once and digital solutions contributions from TRISM, and the benefits of favorable comps versus the prior year. We generated exceptional cash flow in the first half of the year. Cash flow from operating activities was a record $42 million in the first half compared with $10 million in the prior year period. Free cash flow was $36 million compared with $1 million in the prior year period driven by lower working capital usage including reductions in chip inventory, a strong Secure Card Solutions performance, accelerated inventory optimization initiatives. Our free cash flow through the first six months of the year is a record for the company. Capital expenditures totaled $6 million in the first half down from $9 million in the prior year period as capital spending last year included investments for our new Indiana production facility. We now expect full-year CapEx to be slightly below our 2025 levels, driven by a reduction in certain equipment investments and lower software capitalization and plans. We are focusing CapEx on growing our digital solutions, enhancing our technology, driving automation, and other key growth investments. On the balance sheet, at quarter end, we had $21 million of cash, $92 million of available borrowing capacity under our ABL revolver, and $265 million of senior notes outstanding prior to our $26.5 million senior note redemption in mid-July. Net leverage ended the quarter at 2.7 times, down from 3.6 times at this point last year. The progress on our balance sheet reflects our commitment to deleveraging and reducing our interest expense while continuing to grow adjusted EBITDA. Wrapping up with our 2026 financial outlook on slide 10. As John shared at the beginning of the call, we are pleased to be increasing our 2026 financial guidance on revenue growth and free cash flow while holding our guidance on adjusted EBITDA and year-end net leverage. Our adjusted EBITDA outlook remains unchanged as the benefits from stronger Secure Card Solutions performance and tariff refunds are expected to largely be offset by continued investment in integrated pay tech and ongoing choppiness in our higher margin prepaid solutions segment. We now expect revenue growth of high single digits to low double digits, adjusted EBITDA growth of low to mid single digits, Free cash flow ranging from $45 to $50 million, an increase from our prior guidance of a conversion rate in line with 2025. 2025 free cash flow was $41 million. Year-end net leverage from 2.5 times to 3.0 times. And as we already shared, we are raising our integrated pay tax segment revenue growth from 15% to approximately 20% helped by our acquisition of TRISM. Overall, our first half results keep us on track to achieve our updated full year objectives. We currently expect third quarter revenue and adjusted EBITDA to be slightly better than the second quarter as we progress toward our updated guidance. The actions we are taking to grow the business, expand our market opportunity, improve margins, and generate strong cash flow position us well for the remainder of 2026 and beyond. I'll now turn the call back to John for some closing remarks.

Thanks, Terra. We delivered a strong first half of 2026, achieving double-digit revenue growth and record-free cash flow while continuing to execute on our strategy to grow and diversify the business. We expanded our digital and cloud capabilities, secured exciting customer wins, completed another strategic acquisition, and continued building momentum across our portfolio. At the same time, we strengthen our balance sheet, reduce debt, and maintain the flexibility to invest in future growth while creating value for shareholders. As I wrap up today's remarks, I want to recognize the CPI team for delivering a strong first half and positioning us for an even stronger second half of 2026. We have a robust sales pipeline, an increasingly high-quality recurring revenue customer base, and a clear focus on generating profitable growth. Operator, we will now open the call up for questions.