Core Viewpoint - Pomerantz LLP is investigating potential securities fraud or unlawful business practices involving CPI Card Group Inc. and its officers or directors, following disappointing financial results and a significant stock price drop [1][3][4]. Financial Performance - On August 8, 2025, CPI reported second quarter 2025 financial results that missed both top-line and bottom-line estimates, with a GAAP earnings-per-share of $0.04, missing estimates by $0.46, and revenue of $129.75 million, missing estimates by $3.21 million [3]. - The company updated its 2025 outlook, now expecting net sales growth in the low double-digit to mid-teens range, an increase from the previous mid-to-high single-digit growth forecast, attributed to the acquisition of Arroweye Solutions, Inc. [3]. Stock Market Reaction - Following the announcement of the financial results, CPI's stock price fell by $5.37 per share, or 28.83%, closing at $13.25 per share on August 8, 2025 [4].

Core Viewpoint - CPI Card Group Inc. is under investigation for potential securities fraud and unlawful business practices following disappointing financial results and a significant stock price drop [1][3][4]. Financial Performance - On August 8, 2025, CPI reported Q2 2025 financial results that missed both revenue and earnings estimates, with a GAAP earnings-per-share of $0.04, falling short by $0.46, and revenue of $129.75 million, missing estimates by $3.21 million [3]. - The company revised its 2025 outlook, now expecting net sales growth in the low double-digit to mid-teens range, an increase from the previous mid-to-high single-digit growth forecast [3]. Stock Market Reaction - Following the announcement of the financial results, CPI's stock price dropped by $5.37 per share, or 28.83%, closing at $13.25 per share on August 8, 2025 [4]. Legal Investigation - Pomerantz LLP is investigating claims on behalf of CPI investors regarding potential securities fraud or other unlawful business practices by the company and its officers or directors [1].

Financial Data and Key Metrics Changes - Reported net sales increased by 9% in Q2 2025 to $129.8 million, or 15% excluding the impact of a one-time noncash accounting change [18][20] - Adjusted EBITDA increased by 3% to $22.5 million, despite lower gross margins [25] - Net income decreased by 91% in the quarter, impacted by acquisition costs and accounting changes [25] Business Line Data and Key Metrics Changes - SecureCard business delivered volume and sales growth greater than 15% in the first half [7] - CardOnce instant issuance solution grew more than 20% in the first half, expanding to over 17,000 locations [7] - Open loop prepaid business sales increased by 17%, driven by packaging solutions and diversification into healthcare payment offerings [8] Market Data and Key Metrics Changes - The debit and credit segment saw a 16% increase in sales, while the prepaid segment experienced a 19% decrease [21] - Excluding the accounting change, prepaid net sales increased by 4% while debit and credit sales increased by 18% [22] Company Strategy and Development Direction - The company aims to be the most trusted partner for innovative payment technology solutions, focusing on customer service, quality, efficiency, innovation, and diversification [9] - The AeroEye acquisition is expected to create synergies and expand market access, particularly in the prepaid debit payment card market [10][11] - Investments are being made in automation and new facilities to enhance production efficiency and capacity [15] Management's Comments on Operating Environment and Future Outlook - The company anticipates challenges from unexpected tariffs, estimating a $5 million impact for 2025 [16][23] - Despite these challenges, the company has increased its sales outlook for the year, including contributions from AeroEye [17] - The management remains confident in the strategy and growth opportunities, expecting improvements as new facilities become operational [24][32] Other Important Information - The company generated $9.9 million in cash from operating activities in the first half, an increase from $4.1 million in the prior year [28] - The net leverage ratio at quarter end was 3.6 times, up from 3.1 times due to the acquisition funding [30] Q&A Session Summary Question: Insights on ROI acquisition performance and larger orders - The ROI acquisition has exceeded expectations with nearly $10 million in revenue in less than two months, but immediate large orders are not yet evident [38][41] Question: Synergies from chip procurement with ROI - The company plans to leverage its stronger purchasing power for chips, which could free up cash flows in the future [42][43] Question: Impact of accounting changes on ROI contribution - The ROI contribution is still small relative to overall revenue, but its profitability has been beneficial [48][49] Question: Opportunities in government programs with CardOnce - The company is expanding into government disbursement programs, which are expected to provide recurring revenue opportunities [50][52] Question: Metal card market growth - The company is positioned to meet the demand for metal cards, which is a growing but still small segment of the overall market [55][56] Question: Mitigation strategies for potential chip tariffs - The company has ample chip inventory and is prepared to manage through potential tariff impacts [59][62]

Core Viewpoint - CPI Card Group Inc. reported quarterly earnings of $0.04 per share, significantly missing the Zacks Consensus Estimate of $0.56 per share, representing an earnings surprise of -92.86% [1][2] Financial Performance - The company posted revenues of $129.75 million for the quarter ended June 2025, which was 1.89% below the Zacks Consensus Estimate, compared to $118.82 million in revenues a year ago [2] - Over the last four quarters, CPI Card Group has surpassed consensus EPS estimates two times and topped consensus revenue estimates three times [2] Stock Performance - CPI Card Group shares have declined approximately 37.7% since the beginning of the year, contrasting with the S&P 500's gain of 7.8% [3] - The current Zacks Rank for the stock is 5 (Strong Sell), indicating expectations of underperformance in the near future [6] Future Outlook - The consensus EPS estimate for the upcoming quarter is $0.66 on revenues of $140.45 million, and for the current fiscal year, it is $2.35 on revenues of $539.15 million [7] - The estimate revisions trend for CPI Card Group was unfavorable prior to the earnings release, which may impact future stock movements [6] Industry Context - The Technology Services industry, to which CPI Card Group belongs, is currently ranked in the top 37% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8]

Financial Performance - Q2 2025 - Net sales increased by 9% to $129.8 million[29] - Excluding the impact of an accounting change, sales increased by 15%[29] - Adjusted EBITDA increased by 3% to $22.5 million, with a margin of 17.3%[29] - Net income decreased significantly by 91% to $0.5 million, resulting in a net income margin of 0.4%[29] Financial Performance - First Half 2025 - Net sales increased by 9% to $252.5 million[37] - Excluding the impact of an accounting change, sales increased by 14% to $259.9 million[31] - Adjusted EBITDA decreased by 3% to $43.7 million, with a margin of 17.3%[37] - Net income decreased by 55% to $5.2 million, resulting in a net income margin of 2.0%[37] Balance Sheet and Cash Flow - Cash on hand was $17.1 million as of June 30, 2025[50] - Total debt was $343.2 million as of June 30, 2025[50] - Net Leverage Ratio was 3.6x as of June 30, 2025[50] - Free Cash Flow was $0.8 million for the first half of 2025[50] Outlook - The company updated its full-year 2025 net sales outlook to a low double-digit to mid-teens increase[60] - The Adjusted EBITDA outlook for 2025 remains unchanged at a mid-to-high single-digit increase[60]

[Part I — Financial Information](index=3&type=section&id=Part%20I%20%E2%80%94%20Financial%20Information) [Item 1 — Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201%20%E2%80%94%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive income, changes in stockholders' deficit, and cash flows, for the periods ended June 30, 2025, along with detailed notes on business overview, accounting policies, recent accounting pronouncements, and key financial accounts [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets Key Data (As of June 30, 2025 and December 31, 2024) | Indicator (Thousands of USD) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $17,124 | $33,544 | | Accounts receivable, net | $87,495 | $85,491 | | Inventories, net | $83,872 | $72,660 | | Total current assets | $204,341 | $203,042 | | Plant, equipment, leasehold improvements and operating lease right-of-use assets, net | $104,774 | $68,648 | | Intangible assets, net | $20,945 | $10,492 | | Goodwill | $48,211 | $47,150 | | Total assets | $399,795 | $349,657 | | **Liabilities and Stockholders' Deficit** | | | | Accounts payable | $24,564 | $16,123 | | Accrued expenses | $52,933 | $57,979 | | Total current liabilities | $79,032 | $75,587 | | Long-term debt | $310,911 | $280,405 | | Total liabilities | $428,821 | $385,278 | | Total stockholders' deficit | $(29,026) | $(35,621) | | Total liabilities and stockholders' deficit | $399,795 | $349,657 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Condensed Consolidated Statements of Operations and Comprehensive Income Key Data (For the Periods Ended June 30, 2025) | Indicator (Thousands of USD) | 3 Months 2025 | 3 Months 2024 | Change (%) | 6 Months 2025 | 6 Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | | | | | | | | Products | $80,950 | $63,844 | 26.8% | $150,125 | $122,002 | 23.1% | | Services | $48,803 | $54,974 | -11.2% | $102,389 | $108,752 | -5.9% | | **Total Net Sales** | **$129,753** | **$118,818** | **9.2%** | **$252,514** | **$230,754** | **9.4%** | | Cost of sales | $89,633 | $76,430 | 17.3% | $171,698 | $146,848 | 16.9% | | **Gross Profit** | **$40,120** | **$42,388** | **-5.4%** | **$80,816** | **$83,906** | **-3.7%** | | Operating expenses | $30,697 | $27,479 | 11.7% | $57,289 | $54,852 | 4.4% | | **Operating Income** | **$9,423** | **$14,909** | **-36.8%** | **$23,527** | **$29,054** | **-19.0%** | | Interest, net | $(8,069) | $(6,530) | 23.6% | $(15,754) | $(12,955) | 21.6% | | Income before income taxes | $1,341 | $8,301 | -83.8% | $7,778 | $15,956 | -51.3% | | Income tax expense | $(823) | $(2,300) | -64.2% | $(2,486) | $(4,500) | -44.8% | | **Net Income** | **$518** | **$6,001** | **-91.4%** | **$5,292** | **$11,456** | **-53.8%** | | Basic earnings per share | $0.05 | $0.54 | -90.7% | $0.47 | $1.03 | -54.3% | | Diluted earnings per share | $0.04 | $0.51 | -92.2% | $0.44 | $0.97 | -54.7% | [Condensed Consolidated Statements of Stockholders' Deficit](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Deficit) Condensed Consolidated Statements of Stockholders' Deficit Key Data (As of June 30, 2025) | Indicator (Thousands of USD) | March 31, 2025 | June 30, 2025 | | :--- | :--- | :--- | | Common shares outstanding | 11,281,489 | 11,334,910 | | Common stock amount | $11 | $11 | | Capital deficit | $(104,299) | $(104,126) | | Accumulated earnings | $74,571 | $75,089 | | Total stockholders' deficit | $(29,717) | $(29,026) | | **Changes** | | | | Shares issued under stock incentive plans | 53,421 | - | | Stock-based compensation expense | - | $709 | | Net income | - | $518 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows Key Data (Six Months Ended June 30, 2025) | Cash Flow Activities (Thousands of USD) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $9,937 | $4,108 | | Net cash from investing activities | $(51,504) | $(2,744) | | Net cash from financing activities | $25,147 | $(6,298) | | Net decrease in cash and cash equivalents | $(16,420) | $(4,934) | | Cash and cash equivalents at beginning of period | $33,544 | $12,413 | | Cash and cash equivalents at end of period | $17,124 | $7,479 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Business Overview and Summary of Significant Accounting Policies](index=8&type=section&id=1.%20Business%20Overview%20and%20Summary%20of%20Significant%20Accounting%20Policies) The company is a payment technology provider offering comprehensive payment card and digital solutions, leading the US market in debit and credit card production, personalization, and SaaS instant issuance services - CPI Card Group Inc. is a payment technology company providing payment card and digital solutions, a market leader in US debit and credit card production, personalization, and SaaS instant issuance services[12](index=12&type=chunk) - The company's operations are divided into three reporting segments: **Debit and Credit**, **Prepaid Debit**, and **Other**[15](index=15&type=chunk) - Effective Q2 2025, the company adjusted revenue recognition for certain product contracts from "over time" to "at a point in time" (typically shipment or customer acceptance), reflecting business practice changes and the integration of Arroweye Solutions, Inc.[19](index=19&type=chunk) [Recent Accounting Pronouncements](index=12&type=section&id=Recent%20Accounting%20Pronouncements) This section outlines recent accounting pronouncements, including ASU 2023-09 (income tax disclosure improvements) and ASU 2024-03 (income statement expense disaggregation disclosures), which the company does not plan to early adopt - ASU 2023-09 (income tax disclosure improvements) is effective for fiscal years beginning after December 15, 2024, and is expected to result in additional income tax disclosures without a material impact on financial position or operating results[24](index=24&type=chunk) - ASU 2024-03 (income statement expense disaggregation disclosures) is effective for fiscal years beginning after December 15, 2026, and is not expected to materially impact financial position or operating results[25](index=25&type=chunk) [2. Accounts Receivable](index=12&type=section&id=2.%20Accounts%20Receivable) This section details the composition of the company's accounts receivable, including trade receivables and allowance for credit losses, showing an increase to $87,495 thousand as of June 30, 2025 Accounts Receivable Composition (Thousands of USD) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Trade accounts receivable | $87,885 | $78,464 | | Unbilled accounts receivable | $0 | $7,213 | | Less: Allowance for credit losses | $(390) | $(186) | | **Total Accounts Receivable, Net** | **$87,495** | **$85,491** | [3. Inventories](index=12&type=section&id=3.%20Inventories) This section presents the detailed breakdown of the company's inventories, including raw materials, work-in-process, and finished goods, which increased to $83,872 thousand as of June 30, 2025 Inventories Composition (Thousands of USD) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Raw materials | $72,208 | $63,863 | | Work-in-process | $4,850 | $955 | | Finished goods | $6,814 | $7,842 | | **Total Inventories, Net** | **$83,872** | **$72,660** | [4. Acquisition](index=13&type=section&id=4.%20Acquisition) The company acquired Arroweye Solutions, Inc. for an estimated adjusted purchase price of $46.0 million on May 6, 2025, integrating its financial results into the Debit and Credit segment - The company acquired Arroweye Solutions, Inc., an on-demand payment card solutions provider, for **$46.0 million** on May 6, 2025[28](index=28&type=chunk) - Arroweye's financial results have been integrated into the company's **Debit and Credit segment**[29](index=29&type=chunk) Arroweye Acquisition Preliminary Purchase Price Allocation (As of June 30, 2025, Thousands of USD) | Assets/Liabilities | Amount | | :--- | :--- | | Cash and cash equivalents | $1,603 | | Accounts receivable | $9,427 | | Inventories | $4,071 | | Plant, equipment, leasehold improvements and operating lease right-of-use assets | $18,275 | | Intangible assets | $12,400 | | Goodwill | $1,061 | | Total assets | $55,074 | | Accounts payable | $2,837 | | Accrued expenses | $3,849 | | Accrued long-term operating lease | $2,371 | | **Total Purchase Price** | **$46,017** | Arroweye Acquisition Preliminary Estimated Fair Value of Identifiable Intangible Assets (As of June 30, 2025, Thousands of USD) | Intangible Asset | Weighted Average Life (Years) | Amount | | :--- | :--- | :--- | | Trademarks | 2.5 | $600 | | Acquired technology | 7.0 | $4,400 | | Customer relationships | 15.0 | $7,400 | | **Total** | | **$12,400** | [5. Plant, Equipment, Leasehold Improvements and Operating Lease Right-of-Use Assets](index=15&type=section&id=5.%20Plant%2C%20Equipment%2C%20Leasehold%20Improvements%20and%20Operating%20Lease%20Right-of-Use%20Assets) This section details the composition of the company's plant, equipment, leasehold improvements, and operating lease right-of-use assets, which significantly increased to $104,774 thousand as of June 30, 2025 Plant, Equipment, Leasehold Improvements and Operating Lease Right-of-Use Assets Composition (Thousands of USD) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Machinery and equipment | $82,362 | $71,781 | | Machinery and equipment under finance leases | $41,030 | $32,272 | | Operating lease right-of-use assets | $27,459 | $15,090 | | Less: Accumulated depreciation and amortization | $(84,695) | $(75,634) | | **Total Net** | **$104,774** | **$68,648** | [6. Fair Value of Financial Instruments](index=15&type=section&id=6.%20Fair%20Value%20of%20Financial%20Instruments) This section defines fair value and its three-level hierarchy, disclosing the carrying amounts and estimated fair values of financial assets and liabilities not remeasured at fair value, with senior notes having a fair value of $302,456 thousand as of June 30, 2025 Carrying Value and Fair Value of Financial Liabilities (Thousands of USD) | Liability | June 30, 2025 Carrying Value | June 30, 2025 Fair Value | December 31, 2024 Carrying Value | December 31, 2024 Fair Value | | :--- | :--- | :--- | :--- | :--- | | Senior Notes | $285,000 | $302,456 | $285,000 | $304,571 | | ABL Revolving Credit Facility | $30,000 | $30,000 | $0 | $0 | - The fair value of senior notes is based on quoted prices for identical or similar liabilities in inactive markets, classified as Level 2 inputs[34](index=34&type=chunk) - The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values due to their short-term nature[37](index=37&type=chunk) [7. Accrued Expenses](index=17&type=section&id=7.%20Accrued%20Expenses) This section details the composition of the company's accrued expenses, which decreased to $52,933 thousand as of June 30, 2025, primarily due to reduced accrued employee performance incentives and capitalized contract costs payable Accrued Expenses Composition (Thousands of USD) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accrued salaries and related employee costs | $10,304 | $9,493 | | Accrued employee performance incentive compensation | $2,220 | $4,664 | | Capitalized contract costs payable | $0 | $8,000 | | Accrued interest | $13,446 | $13,506 | | Current operating and finance lease liabilities | $11,630 | $9,065 | | **Total Accrued Expenses** | **$52,933** | **$57,979** | [8. Long-Term Debt](index=17&type=section&id=8.%20Long-Term%20Debt) This section details the company's long-term debt, including senior notes and the ABL revolving credit facility, totaling $310,911 thousand as of June 30, 2025, an increase primarily due to ABL borrowings Long-Term Debt Composition (Thousands of USD) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Senior Notes | $285,000 | $285,000 | | ABL Revolving Credit Facility | $30,000 | $0 | | Unamortized deferred financing costs | $(4,089) | $(4,595) | | **Total Long-Term Debt** | **$310,911** | **$280,405** | - The company completed a private offering of **$285.0 million** of 10.000% Senior Secured Notes due July 15, 2029, on July 11, 2024[40](index=40&type=chunk) - The company has an asset-backed senior secured revolving credit facility (ABL Revolving Credit Facility) with JPMorgan Chase Bank, N.A., for up to **$75.0 million**, with **$30.0 million** borrowed as of June 30, 2025[42](index=42&type=chunk)[45](index=45&type=chunk) [9. Income Taxes](index=19&type=section&id=9.%20Income%20Taxes) This section discloses the company's effective tax rates for the three and six months ended June 30, 2025, which increased to 61.4% and 32.0% respectively, primarily due to executive compensation deduction limitations and acquisition-related non-deductible costs Effective Tax Rates (As of June 30, 2025) | Period | 3 Months 2025 | 3 Months 2024 | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Effective Tax Rate | 61.4% | 27.7% | 32.0% | 28.2% | - The increase in effective tax rate is primarily due to executive compensation deduction limitations, non-deductible acquisition costs related to the Arroweye acquisition, and increased state tax expense[47](index=47&type=chunk) - The company acquired over **$85.8 million** in net operating loss (NOL) carryforwards through the Arroweye acquisition, utilizing **$2.2 million** in the first half of 2025[49](index=49&type=chunk)[50](index=50&type=chunk) [10. Stockholders' Deficit](index=19&type=section&id=10.%20Stockholders%27%20Deficit) This section discloses the company's stock repurchase program, which authorized up to $20.0 million in common stock repurchases and expired on December 31, 2024, with $11.2 million remaining unused - The Board of Directors approved a stock repurchase program on November 2, 2023, authorizing up to **$20.0 million** in common stock repurchases, which expired on December 31, 2024, with **$11.2 million** remaining unused[52](index=52&type=chunk) - For the six months ended June 30, 2024, the company repurchased **352,750 shares** of common stock for a total of **$6.4 million**, at an average price of **$18.14 per share**[53](index=53&type=chunk) [11. Earnings per Share](index=21&type=section&id=11.%20Earnings%20per%20Share) This section provides the calculation and data for basic and diluted earnings per share, showing a significant decrease for both the three and six months ended June 30, 2025, compared to the prior year Earnings per Share Calculation (As of June 30, 2025) | Indicator | 3 Months 2025 | 3 Months 2024 | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (Thousands of USD) | $518 | $6,001 | $5,292 | $11,456 | | Basic weighted average common shares | 11,297,785 | 11,049,968 | 11,271,815 | 11,158,334 | | Diluted weighted average common shares | 11,927,943 | 11,776,894 | 11,969,909 | 11,817,584 | | **Basic Earnings per Share** | **$0.05** | **$0.54** | **$0.47** | **$1.03** | | **Diluted Earnings per Share** | **$0.04** | **$0.51** | **$0.44** | **$0.97** | [12. Commitments and Contingencies](index=21&type=section&id=12.%20Commitments%20and%20Contingencies) This section discusses the company's contingent matters, including legal proceedings and the Delaware unclaimed property voluntary disclosure program, with potential losses for the latter currently not reasonably estimable - The company faces routine legal proceedings but believes their ultimate resolution will not materially adversely affect its business, financial condition, or results of operations[56](index=56&type=chunk) - The company is participating in the Delaware unclaimed property voluntary disclosure program, but potential losses are not reasonably estimable at this time[57](index=57&type=chunk) [13. Stock-Based Compensation](index=22&type=section&id=13.%20Stock-Based%20Compensation) This section details the company's Amended and Restated Omnibus Incentive Plan, which increased the total shares available for issuance to 3,200,000, with 780,053 common shares available as of June 30, 2025 - The company's Omnibus Incentive Plan was amended, increasing total shares available for issuance to **3,200,000**, with **780,053 common shares** available as of June 30, 2025[58](index=58&type=chunk) - In January 2024, the CEO was granted **60,000 Performance Stock Units (PSUs)** with a fair value of **$0.9 million**, vesting in three tranches based on stock price targets[59](index=59&type=chunk) - In February 2025, executives were granted Performance Cash Awards (PCAs) with a fair value of **$2.0 million**, vesting on December 31, 2025, contingent on company performance targets[60](index=60&type=chunk) - As of June 30, 2025, **545,360 Restricted Stock Units** and **747,937 options** were unexercised[61](index=61&type=chunk)[62](index=62&type=chunk) [14. Segment Reporting](index=24&type=section&id=14.%20Segment%20Reporting) This section provides segment-level financial performance for Debit and Credit, Prepaid Debit, and Other segments, with the CEO assessing performance based on net sales and EBITDA - The company assesses the operating performance of its **Debit and Credit**, **Prepaid Debit**, and **Other** reporting segments based on net sales and EBITDA[65](index=65&type=chunk)[70](index=70&type=chunk) Segment Net Sales (Thousands of USD) | Segment | 3 Months 2025 | 3 Months 2024 | Change (%) | 6 Months 2025 | 6 Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Debit and Credit | $110,757 | $95,620 | 15.8% | $207,277 | $183,593 | 12.9% | | Prepaid Debit | $19,222 | $23,815 | -19.3% | $45,935 | $48,013 | -4.3% | | **Total Net Sales** | **$129,753** | **$118,818** | **9.2%** | **$252,514** | **$230,754** | **9.4%** | Segment EBITDA (Thousands of USD) | Segment | 3 Months 2025 | 3 Months 2024 | Change (%) | 6 Months 2025 | 6 Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Debit and Credit | $26,548 | $27,625 | -3.8% | $50,515 | $52,467 | -3.7% | | Prepaid Debit | $5,297 | $7,803 | -32.1% | $14,418 | $17,418 | -17.2% | | Other | $(16,920) | $(16,549) | 2.2% | $(31,639) | $(32,909) | -3.9% | | **Total EBITDA** | **$14,925** | **$18,879** | **-20.9%** | **$33,294** | **$36,976** | **-10.0%** | Segment Total Assets (Thousands of USD) | Segment | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Debit and Credit | $330,132 | $248,970 | | Prepaid Debit | $48,323 | $60,621 | | Other | $21,340 | $40,066 | | **Total Assets** | **$399,795** | **$349,657** | Segment Capital Expenditures (Thousands of USD) | Segment | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | | Debit and Credit | $7,516 | $1,371 | | Prepaid Debit | $1,341 | $1,373 | | Other | $255 | $0 | | **Total Capital Expenditures** | **$9,112** | **$2,744** | [15. Subsequent Events](index=29&type=section&id=15.%20Subsequent%20Events) This section discloses significant post-reporting period events, including the amendment of the ABL revolving credit facility to increase borrowing capacity to $100.0 million and the redemption of $20.0 million in senior notes - On July 2, 2025, the company amended its ABL revolving credit facility, increasing available borrowing capacity from **$75.0 million** to **$100.0 million**[78](index=78&type=chunk) - On July 15, 2025, the company redeemed **$20.0 million** of its Senior Notes at a redemption price of 103.000% of the principal amount plus accrued and unpaid interest[79](index=79&type=chunk) [Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202%20%E2%80%94%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's detailed discussion and analysis of the company's financial condition and operating results for the quarter and six months ended June 30, 2025, covering forward-looking statements, company and segment overviews, trends, operating performance, and liquidity [Cautionary Statement Regarding Forward-Looking Information](index=30&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Information) This report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations - This report contains forward-looking statements regarding future events and beliefs, subject to significant risks and uncertainties that may cause actual results to differ materially from expectations[81](index=81&type=chunk) - Risk factors include deteriorating macroeconomic conditions, failure to retain customers, intense market competition, technological obsolescence, supply chain disruptions, cybersecurity risks, use of AI technology, debt burden, failure to integrate acquisitions, internal control deficiencies, and ESG-related risks[82](index=82&type=chunk)[83](index=83&type=chunk) [Company Overview](index=32&type=section&id=Company%20Overview) CPI is a payment technology company offering comprehensive payment card and digital solutions, a market leader in US debit and credit card production, personalization, and SaaS instant issuance services - CPI is a payment technology company providing comprehensive payment card and digital solutions, a market leader in US debit and credit card production, personalization, and SaaS instant issuance services[86](index=86&type=chunk) - The company's revenue primarily derives from the production of secure debit and credit cards and related services, including prepaid debit cards[87](index=87&type=chunk) - On May 6, 2025, the company acquired Arroweye Solutions, Inc., a provider of on-demand payment card solutions[87](index=87&type=chunk) [Segment Overview](index=34&type=section&id=Segment%20Overview) The company's operations consist of three reporting segments: Debit and Credit, Prepaid Debit, and Other, each serving distinct payment card solution markets - The company's operations comprise three reporting segments: **Debit and Credit**, **Prepaid Debit**, and **Other**[88](index=88&type=chunk) - The Debit and Credit segment primarily produces secure debit and credit cards for US issuing financial institutions, offering personalization, instant issuance, and digital push services[89](index=89&type=chunk) - The Prepaid Debit segment primarily provides integrated prepaid card services, including payment cards and related tamper-evident security packaging, for US prepaid program managers[90](index=90&type=chunk) - The Other segment primarily includes corporate expenses[91](index=91&type=chunk) [Trends and Uncertainties That May Affect our Financial Performance](index=34&type=section&id=Trends%20and%20Uncertainties%20That%20May%20Affect%20our%20Financial%20Performance) The company monitors macroeconomic trends and uncertainties, such as tariffs and trade restrictions, which have adversely impacted net sales and profitability - The company continuously monitors macroeconomic trends and uncertainties, such as recently implemented tariffs and potential additional tariffs, which have adversely affected net sales and profitability[92](index=92&type=chunk) - Tariffs and trade restrictions have exacerbated supply chain challenges, led to volatile raw material and component costs, and may reduce demand for products and services[92](index=92&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section analyzes the company's operating results, highlighting changes in net sales, gross profit, operating expenses, interest expense, and net income for the periods ended June 30, 2025 Consolidated Results of Operations Summary (Thousands of USD) | Indicator | 3 Months 2025 | 3 Months 2024 | Change (%) | 6 Months 2025 | 6 Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Net Sales** | **$129,753** | **$118,818** | **9.2%** | **$252,514** | **$230,754** | **9.4%** | | Product net sales | $80,950 | $63,844 | 26.8% | $150,125 | $122,002 | 23.1% | | Service net sales | $48,803 | $54,974 | -11.2% | $102,389 | $108,752 | -5.9% | | **Gross Profit** | **$40,120** | **$42,388** | **-5.4%** | **$80,816** | **$83,906** | **-3.7%** | | Gross margin | 30.9% | 35.7% | -4.8pp | 32.0% | 36.4% | -4.4pp | | Operating expenses | $30,697 | $27,479 | 11.7% | $57,289 | $54,852 | 4.4% | | **Operating Income** | **$9,423** | **$14,909** | **-36.8%** | **$23,527** | **$29,054** | **-19.0%** | | Interest, net | $(8,069) | $(6,530) | 23.6% | $(15,754) | $(12,955) | 21.6% | | Income tax expense | $(823) | $(2,300) | -64.2% | $(2,486) | $(4,500) | -44.8% | | **Net Income** | **$518** | **$6,001** | **-91.4%** | **$5,292** | **$11,456** | **-53.8%** | - Total net sales increased by **9.2%** in Q2 2025 and **9.4%** for the first half of 2025, driven by growth in product net sales within the Debit and Credit segment, including contributions from the Arroweye acquisition, partially offset by a decline in service net sales[97](index=97&type=chunk) - Gross profit and gross margin decreased due to reduced revenue recognition for prepaid debit card product orders from an accounting policy change, unfavorable sales mix, and increased production costs, including tariffs[98](index=98&type=chunk)[99](index=99&type=chunk) - Operating expenses increased primarily due to professional service fees and integration costs associated with the Arroweye acquisition[100](index=100&type=chunk) - Interest expense increased due to higher interest rates and increased average borrowings from the Senior Secured Notes issued in July 2024[101](index=101&type=chunk) - Net income decreased by **91.4%** in Q2 2025 and **53.8%** for the first half of 2025, primarily impacted by lower gross profit and higher interest expense[94](index=94&type=chunk) Segment Results of Operations Summary (Thousands of USD) | Segment | Indicator | 3 Months 2025 | 3 Months 2024 | Change (%) | 6 Months 2025 | 6 Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Debit and Credit** | Net Sales | $110,757 | $95,620 | 15.8% | $207,277 | $183,593 | 12.9% | | | Gross Profit | $34,649 | $34,164 | 1.4% | $65,903 | $65,659 | 0.4% | | | Operating Income | $23,053 | $25,389 | -9.2% | $44,756 | $48,143 | -7.0% | | **Prepaid Debit** | Net Sales | $19,222 | $23,815 | -19.3% | $45,935 | $48,013 | -4.3% | | | Gross Profit | $5,471 | $8,224 | -33.5% | $14,913 | $18,247 | -18.3% | | | Operating Income | $4,171 | $6,909 | -39.6% | $12,170 | $15,654 | -22.3% | | **Other** | Operating Expenses | $17,801 | $17,389 | 2.4% | $33,399 | $34,743 | -3.9% | [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity, primarily from cash and cash equivalents and operating cash flows, and its capital resources, including the ABL revolving credit facility and long-term debt - As of June 30, 2025, the company held **$17.1 million** in cash and cash equivalents, with operating activities being the primary source of liquidity[117](index=117&type=chunk) - The ABL revolving credit facility had **$42.9 million** in available borrowing capacity as of June 30, 2025[118](index=118&type=chunk) - Cash flow from operating activities increased to **$9.9 million** for the six months ended June 30, 2025, primarily due to reduced working capital usage, partially offset by lower net income[119](index=119&type=chunk) - On May 6, 2025, the company acquired Arroweye for an initial cash consideration of **$42.4 million**, funded by cash on hand and the ABL revolving credit facility[120](index=120&type=chunk) - Capital expenditures totaled **$9.1 million** for the six months ended June 30, 2025, primarily for investments in a new production facility in Indiana[121](index=121&type=chunk) Long-Term Debt Balances (Thousands of USD) | Debt Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Senior Notes | $285,000 | $285,000 | | ABL Revolving Credit Facility | $30,000 | $0 | | Unamortized deferred financing costs | $(4,089) | $(4,595) | | **Total Long-Term Debt** | **$310,911** | **$280,405** | - The company expects to pay **$29.5 million** in interest over the next 12 months, primarily related to the Senior Notes[131](index=131&type=chunk) - In February 2024, the company entered into a build-to-suit lease agreement for a new production facility in Indiana, with annual base rent of **$0.9 million** commencing in 2026[134](index=134&type=chunk) [Item 3 — Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203%20%E2%80%94%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[138](index=138&type=chunk) [Item 4 — Controls and Procedures](index=45&type=section&id=Item%204%20%E2%80%94%20Controls%20and%20Procedures) As of June 30, 2025, management assessed and concluded that disclosure controls and procedures were effective, with ongoing integration of Arroweye's controls into the company's control environment - As of June 30, 2025, the company's management (under the supervision and with the participation of the CEO and CFO) assessed and concluded that disclosure controls and procedures were effective[139](index=139&type=chunk) - The company is integrating Arroweye's controls and processes into its control environment and plans to assess their internal control effectiveness by the end of 2026[140](index=140&type=chunk) [Part II — Other Information](index=45&type=section&id=Part%20II%20%E2%80%94%20Other%20Information) [Item 1 — Legal Proceedings](index=45&type=section&id=Item%201%20%E2%80%94%20Legal%20Proceedings) This section refers to the information on legal proceedings provided in Note 12, "Commitments and Contingencies," of the condensed consolidated financial statements - Information on legal proceedings can be found in Note 12, "Commitments and Contingencies," to the condensed consolidated financial statements[141](index=141&type=chunk) [Item 1A — Risk Factors](index=45&type=section&id=Item%201A%20%E2%80%94%20Risk%20Factors) This section states that the risk factors disclosed in the company's annual report on Form 10-K and quarterly report on Form 10-Q remain applicable for understanding its business, financial condition, and results of operations - The risk factors disclosed in the company's annual report on Form 10-K and quarterly report on Form 10-Q remain applicable for understanding its business, financial condition, and results of operations[142](index=142&type=chunk) [Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202%20%E2%80%94%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that the company had no unregistered sales of equity securities or use of proceeds during the reporting period - During the reporting period, the company had no unregistered sales of equity securities or use of proceeds[143](index=143&type=chunk) [Item 3 — Defaults Upon Senior Securities](index=47&type=section&id=Item%203%20%E2%80%94%20Defaults%20Upon%20Senior%20Securities) This section states that the company had no defaults upon senior securities during the reporting period - During the reporting period, the company had no defaults upon senior securities[145](index=145&type=chunk) [Item 4 — Mine Safety Disclosures](index=47&type=section&id=Item%204%20%E2%80%94%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[146](index=146&type=chunk) [Item 5 — Other Information](index=47&type=section&id=Item%205%20%E2%80%94%20Other%20Information) This section discloses that no directors or officers adopted or terminated Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the three and six months ended June 30, 2025 - During the three and six months ended June 30, 2025, no directors or officers adopted or terminated Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements[147](index=147&type=chunk) [Item 6 — Exhibits](index=48&type=section&id=Item%206%20%E2%80%94%20Exhibits) This section lists the exhibits filed with the Form 10-Q report, including the 2025 Executive Short-Term Incentive Plan, credit agreement amendment, CEO and CFO certifications, and XBRL data files - Exhibits include the 2025 Executive Short-Term Incentive Plan, credit agreement amendment, CEO and CFO Sarbanes-Oxley Act certifications, and XBRL data files[149](index=149&type=chunk) [Signatures](index=49&type=section&id=Signatures) This section contains the report's signatures by the President and Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, as required by the Securities Exchange Act of 1934 - The report was signed on August 8, 2025, by John Lowe (President and Chief Executive Officer), Jeffrey Hochstadt (Chief Financial Officer), and Donna Abbey Carmignani (Chief Accounting Officer)[154](index=154&type=chunk)

[Executive Summary](index=1&type=section&id=Executive%20Summary) Overview of CPI Card Group's Q2 2025 performance and updated full-year 2025 financial outlook [Second Quarter 2025 Performance Overview](index=1&type=section&id=Second%20Quarter%202025%20Performance%20Overview) CPI Card Group reported a 9% increase in Q2 2025 net sales to $129.8 million (15% excluding an accounting change), driven by Arroweye's strong performance and growth in contactless debit and credit cards. Net income decreased 91% to $0.5 million due to acquisition costs, restructuring, and increased interest, while Adjusted EBITDA increased 3% to $22.5 million Q2 2025 Key Financials | Metric | Q2 2025 | Q2 2024 | Change (%) | | :----- | :------ | :------ | :--------- | | Net Sales | $129.8M | $118.8M | 9% | | Net Sales (excl. accounting change) | - | - | 15% | | Net Income | $0.5M | $6.0M | (91%) | | Adjusted EBITDA | $22.5M | $21.9M | 3% | - Net sales growth was led by Arroweye delivering approximately **$10 million of net sales** in less than 2 months, increased sales of contactless debit and credit cards including higher-priced metal cards, and strong performance from Card@Once® instant issuance solutions[2](index=2&type=chunk) - Net income was impacted by transaction and integration costs related to the Arroweye acquisition, restructuring charges, the accounting change, and increased interest expense. The Adjusted EBITDA increase was primarily driven by sales growth, including the addition of Arroweye, partially offset by lower gross margins and increased tariff expenses[3](index=3&type=chunk) [2025 Financial Outlook Update](index=1&type=section&id=2025%20Financial%20Outlook%20Update) CPI updated its full-year 2025 net sales outlook to low double-digit to mid-teens growth, primarily due to the Arroweye acquisition. The Adjusted EBITDA outlook remains unchanged at mid-to-high single-digit growth, with Arroweye's benefits offset by increased tariffs and unfavorable sales mix Updated 2025 Outlook | Metric | New 2025 Outlook | Previous 2025 Outlook | Change | | :----- | :--------------- | :-------------------- | :----- | | Net Sales Growth | Low double-digit to mid-teens | Mid-to-high single-digit | Increased | | Adjusted EBITDA Growth | Mid-to-high single-digit | Mid-to-high single-digit | Unchanged | - The Company believes long-term growth trends for the U.S. card market remain strong, led by ongoing consumer card growth, with Visa and Mastercard® U.S. debit and credit cards in circulation increasing at an **8% compound annual growth rate** for the three-year period ending March 31, 2025[5](index=5&type=chunk) [2025 Business Highlights](index=2&type=section&id=2025%20Business%20Highlights) Key business activities in 2025 include the acquisition of Arroweye Solutions, continued leadership in SaaS-based instant issuance with Card@Once®, expansion into healthcare payments and digital offerings, and a focus on eco-focused payment card solutions. The company also exercised an optional redemption feature on its 10% Senior Notes - On May 6, 2025, CPI acquired **Arroweye Solutions, Inc.**, a leading provider of digitally-driven, on-demand payment card solutions for the U.S. market[8](index=8&type=chunk) - CPI continues to be the leading provider of Software-as-a-Service-based instant issuance solutions in the U.S., with more than **17,000 Card@Once® installations** across more than **2,000 financial institutions**, generating strong recurring revenue streams[8](index=8&type=chunk) - CPI continues to advance its market and product expansion strategies, including healthcare payment solutions, digital offerings such as push provisioning capabilities for mobile wallets and payment card fraud solutions, and closed-loop prepaid solutions[8](index=8&type=chunk) - CPI continues to be a leading provider of eco-focused payment card solutions in the U.S. market, with more than **450 million eco-focused debit, credit, and prepaid card or package solutions sold**[8](index=8&type=chunk) - On July 15, 2025, CPI exercised the optional redemption feature on its **10% Senior Notes due 2029** and retired **$20 million of principal** at a redemption price of **103% of par**, plus accrued interest[8](index=8&type=chunk) [Financial Performance](index=2&type=section&id=Financial%20Performance) Detailed financial results for Q2 and H1 2025, including balance sheet, liquidity, and cash flow analysis [Second Quarter 2025 Financial Results](index=2&type=section&id=Second%20Quarter%202025%20Financial%20Results) In Q2 2025, net sales grew 9% (15% adjusted for accounting change) to $129.8 million, driven by Arroweye and contactless cards. Gross profit decreased 5% to $40.1 million, with margin declining to 30.9% due to sales mix and increased production costs. Net income fell 91% to $0.5 million, impacted by acquisition costs and restructuring, while Adjusted EBITDA rose 3% to $22.5 million [Consolidated Results (Q2 2025)](index=2&type=section&id=Consolidated%20Results%20(Q2%202025)) Consolidated financial performance for Q2 2025, highlighting key revenue, profit, and earnings metrics Q2 2025 Consolidated Financials | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (%) | | :----- | :--------------------- | :--------------------- | :--------- | | Net Sales | $129,753 | $118,818 | 9.2% | | Gross Profit | $40,120 | $42,388 | (5.4%) | | Gross Profit Margin | 30.9% | 35.7% | (4.8 pp) | | Income from Operations | $9,423 | $14,909 | (36.8%) | | Net Income | $518 | $6,001 | (91.4%) | | Diluted EPS | $0.04 | $0.51 | (92.2%) | | Adjusted EBITDA | $22,487 | $21,912 | 2.6% | - Gross profit margin of **30.9%** decreased from **35.7%** in the prior-year second quarter, as benefits of operating leverage from sales growth were offset by negative impacts from sales mix and increased production costs, including tariffs, depreciation, and expenses associated with the transition to a new secure card production facility[8](index=8&type=chunk)[9](index=9&type=chunk) [Segment Performance (Q2 2025)](index=2&type=section&id=Segment%20Performance%20(Q2%202025)) Net sales performance across Debit and Credit and Prepaid Debit segments for Q2 2025 Q2 2025 Net Sales by Segment | Segment | Q2 2025 Net Sales | Q2 2024 Net Sales | Change ($) | Change (%) | | :------ | :---------------- | :---------------- | :--------- | :--------- | | Debit and Credit | $110.8M | $95.6M | $15.1M | 15.8% | | Debit and Credit (excl. accounting change) | $113.4M | $96.4M | $17.0M | 17.6% | | Prepaid Debit | $19.2M | $23.8M | ($4.6M) | (19.3%) | | Prepaid Debit (excl. accounting change) | $24.3M | $23.4M | $0.9M | 3.6% | [Impact of Accounting Change (Q2 2025)](index=3&type=section&id=Impact%20of%20Accounting%20Change%20(Q2%202025)) Impact of the accounting change on revenue recognition for CPI Card Group in Q2 2025 - The accounting change implemented in the second quarter resulted from the Company moving from over-time revenue recognition for certain work-in-process ("WIP") orders to point-in-time recognition (revenue booked when shipped)[11](index=11&type=chunk)[23](index=23&type=chunk) - This resulted in a one-time, non-cash, negative transition impact in the second quarter as approximately **$8 million of second quarter shipments** were recognized as WIP revenue in the first quarter under the over-time process, with no WIP revenue recognized in the second quarter under the point-in-time process. This impact affects quarterly timing of revenue recognition and associated reported net income but does not impact cash flow or Adjusted EBITDA[11](index=11&type=chunk) [First Half 2025 Financial Results](index=3&type=section&id=First%20Half%202025%20Financial%20Results) For the first half of 2025, net sales increased 9% (14% adjusted) to $252.5 million. Gross profit decreased 4% to $80.8 million, with margin at 32.0%. Income from operations declined 19% to $23.5 million, and net income decreased 54% to $5.3 million. Adjusted EBITDA saw a 3% decrease to $43.6 million, primarily due to lower gross margins and increased tariffs [Consolidated Results (H1 2025)](index=3&type=section&id=Consolidated%20Results%20(H1%202025)) Consolidated financial performance for H1 2025, highlighting key revenue, profit, and earnings metrics H1 2025 Consolidated Financials | Metric | H1 2025 (in thousands) | H1 2024 (in thousands) | Change (%) | | :----- | :--------------------- | :--------------------- | :--------- | | Net Sales | $252,514 | $230,754 | 9.4% | | Gross Profit | $80,816 | $83,906 | (3.7%) | | Gross Profit Margin | 32.0% | 36.4% | (4.4 pp) | | Income from Operations | $23,527 | $29,054 | (19.0%) | | Net Income | $5,292 | $11,456 | (53.8%) | | Diluted EPS | $0.44 | $0.97 | (54.6%) | | Adjusted EBITDA | $43,649 | $44,888 | (2.8%) | [Segment Performance (H1 2025)](index=3&type=section&id=Segment%20Performance%20(H1%202025)) Net sales performance across Debit and Credit and Prepaid Debit segments for H1 2025 H1 2025 Net Sales by Segment | Segment | H1 2025 Net Sales | H1 2024 Net Sales | Change ($) | Change (%) | | :------ | :---------------- | :---------------- | :--------- | :--------- | | Debit and Credit | $207.3M | $183.6M | $23.7M | 12.9% | | Debit and Credit (excl. accounting change) | $209.3M | $184.1M | $25.2M | 13.7% | | Prepaid Debit | $45.9M | $48.0M | ($2.1M) | (4.3%) | | Prepaid Debit (excl. accounting change) | $51.3M | $43.8M | $7.5M | 17.1% | [Balance Sheet, Liquidity and Cash Flow](index=3&type=section&id=Balance%20Sheet,%20Liquidity%20and%20Cash%20Flow) In the first half of 2025, cash from operating activities increased to $9.9 million, while Free Cash Flow decreased to $0.8 million due to higher capital expenditures. The Arroweye acquisition for $45.6 million impacted the balance sheet, with cash and equivalents at $17.1 million and a Net Leverage Ratio of 3.6x as of June 30, 2025. The company aims to deleverage using future free cash flow H1 2025 Cash Flow Highlights | Metric | H1 2025 (in thousands) | H1 2024 (in thousands) | Change ($) | | :----- | :--------------------- | :--------------------- | :--------- | | Cash from Operating Activities | $9,937 | $4,108 | $5,829 | | Free Cash Flow | $825 | $1,364 | ($539) | - In May 2025, the Company completed the acquisition of Arroweye Solutions, Inc. for a purchase price of **$45.6 million**, subject to customary closing adjustments[16](index=16&type=chunk) Key Balance Sheet and Leverage Metrics (June 30, 2025) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----- | :--------------------------- | :------------------------------- | | Cash and Cash Equivalents | $17,124 | $33,544 | | 10% Senior Secured Notes due 2029 | $285,000 | $285,000 | | ABL Revolving Credit Facility | $30,000 | $0 | | Net Leverage Ratio | 3.6x | 3.0x | - The Company's capital structure and allocation priorities are focused on investing in the business, including strategic acquisitions; deleveraging the balance sheet; and returning funds to stockholders. The Company plans to utilize future free cash flow over time to drive down net leverage, which was impacted by the Arroweye acquisition and other investments this year[18](index=18&type=chunk) [Financial Outlook](index=4&type=section&id=Outlook%20for%202025) CPI updated its 2025 full-year outlook, projecting low double-digit to mid-teens net sales growth, an increase from the previous mid-to-high single-digit forecast, primarily due to the Arroweye acquisition. The Adjusted EBITDA outlook remains unchanged at mid-to-high single-digit growth, with Arroweye's contribution expected to be offset by increased tariffs and unfavorable sales mix. This outlook assumes a stable economic environment and currently announced tariffs, excluding potential chip tariff impacts 2025 Financial Outlook | Metric | 2025 Outlook | Prior Outlook | Change | | :----- | :----------- | :------------ | :----- | | Net Sales Growth | Low double-digit to mid-teens | Mid-to-high single-digit | Increased | | Adjusted EBITDA Growth | Mid-to-high single-digit | Mid-to-high single-digit | Unchanged | - The outlook reflects a stable economic environment and the impact of currently announced tariffs. The outlook does not reflect potential impact from proposed chip tariffs announced on August 6, 2025, as details on the proposed tariffs, including timing and exemptions, have not been announced[19](index=19&type=chunk) [Non-GAAP Financial Measures](index=5&type=section&id=Non-GAAP%20Financial%20Measures) Definitions and reconciliations for CPI Card Group's non-GAAP financial measures [Definitions and Reconciliations](index=5&type=section&id=Definitions%20and%20Reconciliations) This section defines key non-GAAP financial measures used by CPI Card Group, including Net Sales excluding the Impact of an Accounting Change, EBITDA, Adjusted EBITDA, Free Cash Flow, LTM Adjusted EBITDA, and Net Leverage Ratio. These measures are used by management to assess operating performance and are provided to enhance investor understanding, with reconciliations to GAAP measures available in Exhibits E and F - Non-GAAP financial measures are utilized by management in comparing operating performance on a consistent basis and serve as a basis for certain Company compensation programs. They are appropriate to enhance an overall understanding of underlying operating performance trends and provide improved comparability, but should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP[22](index=22&type=chunk) - Net Sales excluding the Impact of an Accounting Change is defined as net sales excluding the impact from an accounting change implemented in the **second quarter of 2025**, resulting from the Company moving from over-time revenue recognition for certain WIP orders to point-in-time recognition[23](index=23&type=chunk) - Adjusted EBITDA is defined as EBITDA adjusted for litigation; stock-based compensation expense; estimated sales tax expense; restructuring and other charges, including executive retention and severance and acquisition-related costs; costs related to production facility modernization efforts; loss on debt extinguishment; foreign currency gain or loss, gross profit related to the impact from the accounting change related to revenue; and other items that are unusual in nature, infrequently occurring or not considered part of core operations. It is intended to show unleveraged, pre-tax operating results[24](index=24&type=chunk)[25](index=25&type=chunk) - Free Cash Flow is defined as cash flow provided by (used in) operating activities less capital expenditures. This metric is used in analyzing the ability to service and repay debt, but it does not represent funds available for investment or other discretionary uses[27](index=27&type=chunk) - Net Leverage Ratio is defined as the ratio of debt principal outstanding, plus finance lease obligations, less cash, divided by LTM Adjusted EBITDA. Management and various investors use this ratio as a measure of financial strength when making key investment decisions and evaluating against peers[29](index=29&type=chunk) [Company Information](index=6&type=section&id=Company%20Information) Overview of CPI Card Group Inc., including business description and risk factors [About CPI Card Group Inc.](index=6&type=section&id=About%20CPI%20Card%20Group%20Inc.) CPI Card Group is a payments technology company offering a full range of payment cards and digital solutions. The company focuses on customer relationships, innovation, and serving clients across various industries with high-security production facilities in the U.S., aiming to transform the industry and enhance daily payment experiences - CPI Card Group is a payments technology company providing a comprehensive range of payment cards and related digital solutions, with a focus on building personal relationships and earning trust[30](index=30&type=chunk) - The company helps customers navigate the evolving world of payments, delivering innovative solutions, and serves clients across industry, size, and scale through experienced employees and a network of high-security production and card services facilities, all located in the United States[31](index=31&type=chunk) [Forward-Looking Statements and Risk Factors](index=7&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements regarding CPI's strategic initiatives, market opportunities, and financial outlook, which are subject to significant risks and uncertainties. These risks include general economic conditions, competition, technological changes, supply chain disruptions, tariffs, cybersecurity, ability to retain personnel, substantial indebtedness, and integration of acquisitions like Arroweye. Investors are cautioned against undue reliance on these statements - Forward-looking statements, including those about strategic initiatives, market opportunities, financial outlook for 2025, and the impact of investments, are based on current expectations and beliefs but are subject to many important risks and uncertainties that could cause actual results to differ materially[32](index=32&type=chunk) - Key business and industry risks include deterioration in general economic conditions, unpredictability of operating results, failure to retain key customers, intense competition, inability to develop new products, technological obsolescence, system security risks, data breaches, cyber-attacks, supply chain disruptions, tariffs, and interruptions in operations[33](index=33&type=chunk) - Financial and operational risks include inability to recruit/retain qualified personnel, substantial indebtedness and restrictive terms, inability to make debt service payments or refinance, inability to successfully execute/integrate acquisitions (**like Arroweye**), failure to maintain effective internal control over financial reporting, and ESG-related risks[34](index=34&type=chunk) - Risks relating to common stock ownership include concentrated ownership by significant stockholders, potential conflicts of interest, impact of concentrated ownership and substantial stock sales on trading volume and market price, and the influence of securities analysts[34](index=34&type=chunk) [Exhibits](index=9&type=section&id=Exhibits) Detailed financial statements and reconciliations, including consolidated statements and segment data [Condensed Consolidated Statements of Operations and Comprehensive Income](index=10&type=section&id=Exhibit%20A) This exhibit presents the unaudited condensed consolidated statements of operations and comprehensive income for CPI Card Group Inc. for the three and six months ended June 30, 2025, and 2024, detailing net sales, cost of sales, gross profit, operating expenses, income from operations, other expenses, net income, and earnings per share Condensed Consolidated Statements of Operations (Q2 2025 vs 2024) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | | Net sales | $129,753 | $118,818 | | Cost of sales | $89,633 | $76,430 | | Gross profit | $40,120 | $42,388 | | Operating expenses | $30,697 | $27,479 | | Income from operations | $9,423 | $14,909 | | Total other expense, net | ($8,082) | ($6,608) | | Income before income taxes | $1,341 | $8,301 | | Income tax expense | ($823) | ($2,300) | | Net income | $518 | $6,001 | | Diluted earnings per share | $0.04 | $0.51 | Condensed Consolidated Statements of Operations (H1 2025 vs 2024) | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :----------------------------- | :----------------------------- | | Net sales | $252,514 | $230,754 | | Cost of sales | $171,698 | $146,848 | | Gross profit | $80,816 | $83,906 | | Operating expenses | $57,289 | $54,852 | | Income from operations | $23,527 | $29,054 | | Total other expense, net | ($15,749) | ($13,098) | | Income before income taxes | $7,778 | $15,956 | | Income tax expense | ($2,486) | ($4,500) | | Net income | $5,292 | $11,456 | | Diluted earnings per share | $0.44 | $0.97 | [Condensed Consolidated Balance Sheets](index=11&type=section&id=Exhibit%20B) This exhibit provides the unaudited condensed consolidated balance sheets for CPI Card Group Inc. as of June 30, 2025, and December 31, 2024, outlining assets (current and non-current) and liabilities and stockholders' deficit Condensed Consolidated Balance Sheets (June 30, 2025 vs Dec 31, 2024) | (in thousands) | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Total current assets | $204,341 | $203,042 | | Total assets | $399,795 | $349,657 | | Total current liabilities | $79,032 | $75,587 | | Long-term debt | $310,911 | $280,405 | | Total liabilities | $428,821 | $385,278 | | Total stockholders' deficit | ($29,026) | ($35,621) | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Exhibit%20C) This exhibit details the unaudited condensed consolidated statements of cash flows for CPI Card Group Inc. for the six months ended June 30, 2025, and 2024, categorizing cash flows from operating, investing, and financing activities, along with supplemental disclosures Condensed Consolidated Statements of Cash Flows (H1 2025 vs 2024) | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :----------------------------- | :----------------------------- | | Cash provided by operating activities | $9,937 | $4,108 | | Cash used in investing activities | ($51,504) | ($2,744) | | Cash provided by (used in) financing activities | $25,147 | ($6,298) | | Net decrease in cash and cash equivalents | ($16,420) | ($4,934) | | Cash and cash equivalents, end of period | $17,124 | $7,479 | [Segment Summary Information](index=13&type=section&id=Exhibit%20D) This exhibit provides unaudited segment-level financial information for CPI Card Group Inc. for the three and six months ended June 30, 2025, and 2024, including net sales, gross profit, income from operations, and EBITDA by segment (Debit and Credit, Prepaid Debit), along with reconciliations Net Sales by Segment (Q2 2025 vs 2024) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (%) | | :------------- | :------------------------------- | :------------------------------- | :--------- | | Debit and Credit | $110,757 | $95,620 | 15.8% | | Prepaid Debit | $19,222 | $23,815 | (19.3%) | | Total | $129,753 | $118,818 | 9.2% | Gross Profit by Segment (Q2 2025 vs 2024) | (in thousands) | Three Months Ended June 30, 2025 | % of Net Sales 2025 | Three Months Ended June 30, 2024 | % of Net Sales 2024 | Change (%) | | :------------- | :------------------------------- | :------------------ | :------------------------------- | :------------------ | :--------- | | Debit and Credit | $34,649 | 31.3% | $34,164 | 35.7% | 1.4% | | Prepaid Debit | $5,471 | 28.5% | $8,224 | 34.5% | (33.5%) | | Total | $40,120 | 30.9% | $42,388 | 35.7% | (5.4%) | Income from Operations by Segment (Q2 2025 vs 2024) | (in thousands) | Three Months Ended June 30, 2025 | % of Net Sales 2025 | Three Months Ended June 30, 2024 | % of Net Sales 2024 | Change (%) | | :------------- | :------------------------------- | :------------------ | :------------------------------- | :------------------ | :--------- | | Debit and Credit | $23,053 | 20.8% | $25,389 | 26.6% | (9.2%) | | Prepaid Debit | $4,171 | 21.7% | $6,909 | 29.0% | (39.6%) | | Total | $9,423 | 7.3% | $14,909 | 12.5% | (36.8%) | EBITDA by Segment (Q2 2025 vs 2024) | (in thousands) | Three Months Ended June 30, 2025 | % of Net Sales 2025 | Three Months Ended June 30, 2024 | % of Net Sales 2024 | Change (%) | | :------------- | :------------------------------- | :------------------ | :------------------------------- | :------------------ | :--------- | | Debit and Credit | $26,548 | 24.0% | $27,625 | 28.9% | (3.9%) | | Prepaid Debit | $5,297 | 27.6% | $7,803 | 32.8% | (32.1%) | | Total | $14,925 | 11.5% | $18,879 | 15.9% | (20.9%) | [Supplemental GAAP to Non-GAAP Reconciliations (EBITDA, Free Cash Flow, Net Leverage)](index=16&type=section&id=Exhibit%20E) This exhibit presents unaudited reconciliations of GAAP to non-GAAP financial measures for CPI Card Group Inc., including EBITDA, Adjusted EBITDA, and Free Cash Flow for the three and six months ended June 30, 2025, and 2024. It also includes the calculation of LTM Adjusted EBITDA and Net Leverage Ratio as of June 30, 2025, and December 31, 2024, with detailed adjustments EBITDA and Adjusted EBITDA Reconciliation (Q2 2025 vs 2024) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | | Net income | $518 | $6,001 | | EBITDA | $14,925 | $18,879 | | Adjustments to EBITDA | $7,562 | $3,033 | | Adjusted EBITDA | $22,487 | $21,912 | | Adjusted EBITDA growth | 2.6% | - | Free Cash Flow Reconciliation (Q2 2025 vs 2024) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | | Cash provided by (used in) operating activities | $4,344 | ($4,757) | | Capital expenditures | ($3,811) | ($1,238) | | Free Cash Flow | $533 | ($5,995) | LTM Adjusted EBITDA Reconciliation (June 30, 2025 vs Dec 31, 2024) | (in thousands) | Last Twelve Months Ended June 30, 2025 | Last Twelve Months Ended December 31, 2024 | | :------------- | :------------------------------------- | :----------------------------------------- | | Net income | $13,357 | $19,521 | | EBITDA | $71,852 | $75,534 | | Adjustments to EBITDA | $18,785 | $16,342 | | LTM Adjusted EBITDA | $90,637 | $91,876 | Net Leverage Ratio Calculation (June 30, 2025 vs Dec 31, 2024) | (in thousands) | As of June 30, 2025 | As of December 31, 2024 | | :------------- | :------------------ | :---------------------- | | Total debt | $343,239 | $307,801 | | Less: Cash and cash equivalents | ($17,124) | ($33,544) | | Total net debt (a) | $326,115 | $274,257 | | LTM Adjusted EBITDA (b) | $90,637 | $91,876 | | Net Leverage Ratio (a)/(b) | 3.6x | 3.0x | [Supplemental GAAP to Non-GAAP Reconciliations (Net Sales excluding accounting change)](index=18&type=section&id=Exhibit%20F) This exhibit provides unaudited supplemental reconciliations of net sales, adjusting for the impact of an accounting change in revenue recognition for the three and six months ended June 30, 2025, and 2024, for both consolidated CPI and its Debit and Credit and Prepaid Debit segments Consolidated Net Sales Adjusted for Accounting Change (Q2 2025 vs 2024) | (in thousands) | Q2 2025 As Reported | Q2 2025 Adjusted | Q2 2024 As Reported | Q2 2024 Adjusted | | :------------- | :------------------ | :--------------- | :------------------ | :--------------- | | Consolidated Net Sales | $129,753 | $137,474 | $118,818 | $119,243 | | Net sales growth (% Change 2025 vs. 2024) | 9.2% | 15.3% | - | - | Segment Net Sales Adjusted for Accounting Change (Q2 2025 vs 2024) | (in thousands) | Q2 2025 As Reported | Q2 2025 Adjusted | Q2 2024 As Reported | Q2 2024 Adjusted | | :------------- | :------------------ | :--------------- | :------------------ | :--------------- | | Debit and Credit Net Sales | $110,757 | $113,428 | $95,620 | $96,429 | | Debit and Credit Net sales growth (% Change 2025 vs. 2024) | 15.8% | 17.6% | - | - | | Prepaid Debit Net Sales | $19,222 | $24,274 | $23,815 | $23,431 | | Prepaid Debit Net sales growth (% Change 2025 vs. 2024) | (19.3%) | 3.6% | - | - |

Core Viewpoint - The market anticipates CPI Card Group Inc. (PMTS) will report a year-over-year increase in earnings driven by higher revenues for the quarter ended June 2025, with actual results being crucial for stock price movement [1][2]. Earnings Expectations - The consensus estimate for quarterly earnings is $0.56 per share, reflecting a year-over-year increase of +9.8%, while revenues are expected to reach $132.25 million, up 11.3% from the previous year [3]. Estimate Revisions - The consensus EPS estimate has been revised down by 12% over the last 30 days, indicating a bearish sentiment among analysts regarding the company's earnings prospects [4][11]. Earnings Surprise Prediction - The Most Accurate Estimate for CPI Card Group is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -6.31%, which complicates predictions of an earnings beat [11]. Historical Performance - In the last reported quarter, CPI Card Group was expected to post earnings of $0.56 per share but only achieved $0.40, resulting in a surprise of -28.57%. Over the last four quarters, the company has beaten consensus EPS estimates twice [12][13]. Overall Assessment - CPI Card Group does not appear to be a strong candidate for an earnings beat, and investors should consider other factors when making decisions regarding the stock ahead of its earnings release [16].

Financial Data and Key Metrics Changes - The company reported a 10% increase in net sales for the first quarter, driven by strong performance in debit and credit cards as well as prepaid solutions [14][16] - Adjusted EBITDA declined by 8% compared to the previous year, primarily due to negative sales mix and increased production costs [8][18] - Gross profit margin decreased from 37.1% in the prior year quarter to 33.2% due to operational inefficiencies and increased production costs [17] Business Line Data and Key Metrics Changes - Both debit and credit segments experienced a 10% increase in sales, with growth led by contactless cards and eco-focused cards [7][16] - Prepaid segment growth was driven by demand for higher-priced fraud prevention packaging solutions in healthcare payment solutions [17] - Income from operations for the debit and credit segment decreased by 5%, while prepaid segment income from operations decreased by 9% due to lower gross margins [18] Market Data and Key Metrics Changes - The U.S. cards in circulation increased at a 9% CAGR over the past three years, indicating a healthy demand in the market [21] - Despite economic uncertainties, large bank issuers reported strong account growth, aligning with the company's observed customer demand [22] Company Strategy and Development Direction - The acquisition of AeroEye Solutions aims to diversify the business and enhance market share by providing innovative payment card solutions [6][10] - The company focuses on innovation and diversification to expand addressable markets and enhance customer service [10] - The strategy includes balancing long-term investments with managing spending to improve margins throughout 2025 [9] Management's Comments on Operating Environment and Future Outlook - Management affirmed a 2025 organic outlook for mid- to high single-digit growth for net sales and adjusted EBITDA, despite market uncertainties [9][22] - The company is making changes in sourcing to mitigate tariff impacts, projecting incremental costs of approximately $2 million [23] - Management remains optimistic about customer demand and the potential for revenue and cost synergies from the AeroEye acquisition [12][13] Other Important Information - The company generated $5.6 million in cash from operating activities in the first quarter, with free cash flow slightly positive at $300,000 [19] - The purchase price for AeroEye was $45.55 million, funded through cash and borrowings from the revolving credit facility [26] Q&A Session Summary Question: Can you provide more details on AeroEye's market position and customer overlap? - AeroEye services a smaller, more nimble card program market, catering to fintechs and unique solutions that CPI does not currently offer [34] Question: What is the expected timeline for AeroEye's EBITDA margins to align with CPI's? - Margins may be impacted in 2025 due to integration costs, but there is a belief that they can be brought closer to CPI's margins over time [36][37] Question: How was the acquisition financed and what is the balance sheet impact? - The acquisition was financed with approximately $35 million drawn from the revolver and over $30 million in cash on hand [41] Question: What is the current pricing environment and its impact on gross margins? - The pricing environment is competitive, with a mix of products affecting gross margins, which are expected to improve in the second half of the year [46][50] Question: What are the startup costs associated with the new Indiana facility? - There are overlapping costs as both facilities are operated during the transition, with expectations for these costs to taper off over time [56][58]

Financial Data and Key Metrics Changes - The company reported a 10% increase in net sales for Q1 2025, driven by strong performance in debit and credit cards as well as prepaid solutions [14][15] - Adjusted EBITDA declined by 8% to $21.2 million, with adjusted EBITDA margins decreasing from 20.5% to 17.2% due to lower gross margins and increased production costs [18][24] - Net income decreased by 12% primarily due to lower gross profit and higher interest expenses [18] Business Line Data and Key Metrics Changes - Both debit and credit segments experienced a 10% increase in sales, with growth led by contactless cards and eco-focused cards [7][15] - The prepaid segment also saw a 10% increase, driven by demand for higher-priced fraud prevention packaging solutions in healthcare [15][16] - Income from operations for the debit and credit segment decreased by 5%, while prepaid segment income from operations decreased by 9% due to lower gross margins [18][19] Market Data and Key Metrics Changes - The U.S. cards in circulation increased at a 9% CAGR over the past three years, indicating a healthy demand in the market despite economic uncertainties [21][22] - Current demand from customers remains strong, although there are concerns regarding potential recessionary conditions affecting issuances and customer purchases [22] Company Strategy and Development Direction - The acquisition of AeroEye Solutions is aimed at diversifying the business and enhancing market share by offering innovative payment technology solutions [6][10] - The company aims to support its vision of being a trusted partner for payment technology by focusing on innovation and diversification [10][12] - The integration of AeroEye is expected to generate revenue and cost synergies over time, with a focus on improving margins [12][13] Management's Comments on Operating Environment and Future Outlook - Management affirmed a 2025 organic outlook for mid- to high single-digit growth for net sales and adjusted EBITDA, despite market uncertainties [8][24] - The company is focused on balancing long-term investments with managing spending to improve margins as the year progresses [8][24] - Management acknowledged the impact of tariffs and operational inefficiencies but remains optimistic about future growth [23][52] Other Important Information - The company generated $5.6 million in cash from operating activities in Q1 2025, with free cash flow slightly positive at $300,000 [19][20] - The purchase price for AeroEye was $45.55 million, funded through cash and borrowings from a revolving credit facility [25][41] Q&A Session Summary Question: Can you provide more details on AeroEye's market position and customer overlap? - AeroEye services a segment of the market focused on nimble card programs, primarily catering to fintechs and smaller issuers, with minimal customer overlap with CPI [32][34] Question: What is the expected timeline for AeroEye's EBITDA margins to align with CPI's? - Current adjusted EBITDA margins for AeroEye are in the low double digits, with expectations to improve over time as integration progresses [36][37] Question: How was the acquisition financed and what is the current cash position? - The acquisition was financed with approximately $35 million drawn from the revolver and over $30 million in cash on hand [41] Question: What is the current pricing environment and its impact on gross margins? - The pricing environment is competitive, with some mix issues impacting gross margins, but overall, there is a trend towards a more rational pricing environment [46][49] Question: Can you clarify the startup costs for the new Indiana facility? - The transition involves overlapping costs as both facilities are operated simultaneously, with expectations for these costs to taper off in the future [56][59]