CPI Card Group Inc. (NASDAQ:PMTS) Q1 2023 Results Earnings Conference Call May 9, 2023 9:00 AM ET Company Participants Mike Salop - Head of Investor Relations Scott Scheirman - President and Chief Executive Officer Amintore Schenkel - Chief Financial Officer Conference Call Participants Jaeson Schmidt - Lake Street Capital Markets Edward Najarian - EF Hutton Operator Welcome to the CPI Card Group's First Quarter 2023 Earnings Call. My name is Bailey and I will be your operator today. [Operator Instructions] ...

Part I [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited Q1 2023 financials show total assets at $298.2 million, net sales of $120.9 million, net income of $10.9 million, and positive operating cash flow [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets reached $298.2 million, liabilities decreased to $368.9 million, and stockholders' deficit improved to $70.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total current assets** | $168,332 | $167,570 | | **Total assets** | $298,208 | $296,666 | | **Total current liabilities** | $57,460 | $68,012 | | **Long-term debt** | $285,984 | $285,522 | | **Total liabilities** | $368,940 | $378,743 | | **Total stockholders' deficit** | $(70,732) | $(82,077) | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Q1 2023 net sales increased 8.5% to $120.9 million, gross profit reached $43.1 million, and net income significantly rose to $10.9 million Q1 2023 vs. Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total net sales | $120,852 | $111,424 | | Gross profit | $43,094 | $39,278 | | Income from operations | $20,598 | $17,981 | | Net income | $10,873 | $6,002 | | Diluted earnings per share | $0.91 | $0.51 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2023 operating cash flow turned positive at $8.0 million, with cash and equivalents increasing by $3.1 million to $14.2 million Cash Flow Summary for Three Months Ended March 31 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Cash provided by (used in) operating activities | $8,001 | $(15,961) | | Cash used in investing activities | $(4,095) | $(3,149) | | Cash (used in) provided by financing activities | $(792) | $10,563 | | **Net increase (decrease) in cash** | **$3,120** | **$(8,547)** | | **Cash and cash equivalents, end of period** | **$14,157** | **$12,136** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail business segments, revenue recognition, debt composition, income tax rates, segment performance, and contingencies including a patent lawsuit - The company's business is organized into two main reportable segments: **Debit and Credit**, which serves financial institutions, and **Prepaid Debit**, which serves prepaid program managers. A third segment, "Other," includes corporate expenses[22](index=22&type=chunk) Net Sales by Segment (Q1 2023 vs Q1 2022, in thousands) | Segment | Q1 2023 Net Sales | Q1 2022 Net Sales | | :--- | :--- | :--- | | Debit and Credit | $101,985 | $92,015 | | Prepaid Debit | $19,130 | $19,461 | Long-Term Debt Composition (in thousands) | Debt Instrument | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Senior Notes (8.625%) | $277,000 | $285,000 | | ABL Revolver | $13,000 | $5,000 | | **Total long-term debt** | **$285,984** | **$285,522** | - The effective tax rate for Q1 2023 was **20.7%**, a significant decrease from **38.2%** in Q1 2022, primarily due to increased deductibility of interest costs from a 2022 tax election and the reduction of a state tax valuation allowance[52](index=52&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2023 revenue growth to contactless cards, driving net income up 81.2% to $10.9 million, while maintaining solid liquidity despite banking system risks [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Q1 2023 net sales increased 8.5%, gross profit rose 9.7%, and net income surged 81.2% due to higher sales, lower interest, and a reduced tax rate Q1 2023 vs Q1 2022 Results of Operations Summary (in thousands) | Metric | Q1 2023 | Q1 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total net sales | $120,852 | $111,424 | $9,428 | 8.5% | | Gross profit | $43,094 | $39,278 | $3,816 | 9.7% | | Income from operations | $20,598 | $17,981 | $2,617 | 14.6% | | Net income | $10,873 | $6,002 | $4,871 | 81.2% | - The increase in net sales was primarily driven by higher sales of higher-priced **contactless card products** and **personalization services**, along with benefits from **price increases**[87](index=87&type=chunk) - The effective tax rate decreased from **38.2%** to **20.7%** year-over-year, mainly due to a tax election made in Q3 2022 that increased interest cost deductibility and a reduction in a state valuation allowance[93](index=93&type=chunk) [Segment Discussion](index=20&type=section&id=Segment%20Discussion) Debit and Credit segment sales grew 10.8% to $102.0 million, while Prepaid Debit sales decreased 1.7% to $19.1 million, impacting segment income Debit and Credit Segment Performance (Q1 2023 vs Q1 2022, in thousands) | Metric | Q1 2023 | Q1 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $101,985 | $92,015 | $9,970 | 10.8% | | Income from operations | $30,026 | $24,110 | $5,916 | 24.5% | Prepaid Debit Segment Performance (Q1 2023 vs Q1 2022, in thousands) | Metric | Q1 2023 | Q1 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net sales | $19,130 | $19,461 | $(331) | (1.7)% | | Income from operations | $3,677 | $5,968 | $(2,291) | (38.4)% | - The decrease in Prepaid Debit gross profit was primarily due to expenses related to transitioning temporary workers to permanent employees and lower net sales[101](index=101&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2023, cash was $14.2 million, with operating activities generating $8.0 million, and $8.0 million of Senior Notes retired - Cash provided by operating activities was **$8.0 million** for Q1 2023, compared to cash used of **$16.0 million** in Q1 2022[116](index=116&type=chunk) - During Q1 2023, the company used cash on hand and ABL Revolver capacity to retire **$8.0 million** of the principal amount of its Senior Notes[47](index=47&type=chunk)[118](index=118&type=chunk) - As of March 31, 2023, the company had **$277.0 million** principal outstanding on its Senior Notes and **$13.0 million** outstanding on its ABL Revolver[111](index=111&type=chunk)[114](index=114&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Disclosure is not required due to the company's status as a smaller reporting company - Disclosure is not required due to the company's status as a **smaller reporting company**[127](index=127&type=chunk) [Item 4. Controls and Procedures](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were **effective**[128](index=128&type=chunk) - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's **internal control over financial reporting**[129](index=129&type=chunk) Part II [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in a patent infringement lawsuit by SPS concerning contactless product antenna technology, currently stayed pending IPR proceedings - The company is defending a patent infringement lawsuit from Smart Packaging Solutions, SA (SPS) related to **antenna technology** in its **contactless products**[132](index=132&type=chunk) - The lawsuit is currently stayed pending the resolution of **Inter Partes Review (IPR) proceedings** at the U.S. Patent Office, expected to conclude around **September 2023**[132](index=132&type=chunk) [Item 1A. Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) New material risk factors include banking system instability, potentially reducing demand from financial institution customers due to market uncertainty - A new material risk factor relates to **adverse conditions in the banking system**, highlighted by the recent failures of **Silicon Valley Bank** and **Signature Bank**[135](index=135&type=chunk) - The company faces risks of **reduced demand** for its products, as its financial institution customers may reduce spending on card programs due to **market uncertainty** and **liquidity concerns**[136](index=136&type=chunk) [Item 5. Other Information](index=26&type=section&id=Item%205.%20Other%20Information) Jeffrey Hochstadt was appointed new CFO, effective May 15, 2023, with a compensation package including a $400,000 base salary and equity awards - **Jeffrey Hochstadt** was appointed as the new **Chief Financial Officer**, effective **May 15, 2023**, succeeding Amintore Schenkel[139](index=139&type=chunk) - Mr. Hochstadt's compensation includes a **$400,000 base salary**, a target annual bonus of **$325,000**, and a sign-on equity award with a fair value of **$250,000**[142](index=142&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits) Exhibits filed with Form 10-Q include the new CFO's offer letter and Sarbanes-Oxley Act certifications - Key exhibits filed include the employment offer letter for the new CFO, **Jeffrey Hochstadt**, and **Sarbanes-Oxley Act certifications**[145](index=145&type=chunk)

The Contactless Indicator mark, consisting of four graduating arcs, is a trademark owned by and used with permission of EMVCo, LLC. Certain statements and information in this presentation (as well as information included in other written or oral statements we make from time to time) may contain or constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange ...

Financial Data and Key Metrics Changes - In 2022, the company achieved record net sales of $476 million, representing a 27% increase year-over-year [40] - Adjusted EBITDA grew by 28% to $98 million, with the adjusted EBITDA margin slightly increasing to 20.5% despite inflationary pressures [40][58] - The net leverage ratio improved to 3x, with $25 million of principal retired on senior secured notes during the year [40][58] - Free cash flow increased to $13.5 million from $10.2 million in the prior year, with a strong fourth quarter generating $16.2 million in free cash flow [11][12] Business Line Data and Key Metrics Changes - The Debit and Credit segment saw a 32% increase in sales, driven by strong demand for contactless cards and personalization services [64] - The Prepaid Debit segment experienced a 9% increase in sales, with growth attributed to new customer additions and pricing benefits [19][68] - For Secure Cards, 80% of sales growth was due to volume, with the remainder from the conversion to contactless cards and pricing [20] Market Data and Key Metrics Changes - The U.S. market for contactless cards is estimated to have ended 2022 with a penetration rate of 50% to 60%, expected to grow to over 80% by 2025 [18] - The company anticipates mid-single digit growth for net sales in 2023, with higher growth expected in the Debit and Credit segments [48] Company Strategy and Development Direction - The company focuses on four key strategic priorities: deep customer focus, market-leading quality products and customer service, continuous innovation, and a competitive business model [52] - The company reorganized its structure to enhance execution of strategies, aligning Secure Cards, personalization, and instant issuance under one leader [54] - New product initiatives include prepaid payment cards for non-retail channels and exploring instant issuance solutions beyond financial institutions [55] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to secure supply despite macroeconomic challenges, citing strong relationships with suppliers [11][75] - The outlook for 2023 includes expectations for adjusted EBITDA growth in the mid- to high-single digit range, with a focus on increasing free cash flow and reducing leverage [50][76] - Management acknowledged the potential for slower market growth in 2023 compared to 2022, but remains optimistic about gaining market share [48][49] Other Important Information - The company reported a significant increase in accounts receivable and inventories due to strong sales growth and customer demand [12] - SG&A expenses increased by approximately $15 million, primarily due to higher compensation and professional services costs [57] Q&A Session Summary Question: Analyst inquiry on investor awareness and coverage - Management is actively working on enhancing investor relations and reaching out to analysts to increase coverage [7][8][13] Question: Inquiry about Prepaid Debit segment growth - Management indicated that the Prepaid Debit segment is expected to be flat in 2023 due to tough comparisons with 2022, but sees long-term growth opportunities [87] Question: Clarification on supply chain confidence - Management reiterated confidence in securing supply through strong supplier relationships and proactive inventory management [11][75]

Cautionary Statements We caution and advise readers not to place undue reliance on forward-looking statements, which speak only as of the date hereof. These statements are based on assumptions that may not be realized and involve risks and uncertainties that could cause actual results or other events to differ materially from the expectations and beliefs contained herein. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number 001-37584 CPI Card Group Inc. (Exact name of the registrant as specified in its charter) Delaware 26-0344657 (State ...

Third Quarter 2022 Investor Presentation November 3, 2022 The Contactless Indicator mark, consisting of four graduating arcs, is a trademark owned by and used with permission of EMVCo, LLC. Cautionary Statements Forward Looking Statements Certain statements and information in this presentation (as well as information included in other written or oral statements we make from time to time) may contain or constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act ...

CPI Card Group Inc. (NASDAQ:PMTS) Q3 2022 Earnings Conference Call November 3, 2022 9:00 AM ET Company Representatives Scott Scheirman - President, Chief Executive Officer Amintore Schenkel - Chief Financial Officer Mike Salop - Head of Investor Relations Conference Call Participants Jaeson Schmidt - Lake Street Ivan Strugatsky - Stran Capital Operator Hello! And welcome to CPI Card Group’s Third Quarter 2022 Earnings Call. My name is Sam and I’ll be your operator today. If you are viewing on the webcast, y ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the Quarterly Period Ended September 30, 2022. or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from to Commission File Number: 001-37584 CPI Card Group Inc. (Exact name of the registrant as specified in its charter) Delaware 26-034 ...

CPI Card Group Inc. (NASDAQ:PMTS) Q2 2022 Earnings Conference Call August 8, 2022 9:00 PM ET Company Participants Mike Salop - Head of Investor Relations Scott Scheirman - President and Chief Executive Officer Amintore Schenkel - Chief Financial Officer Conference Call Participants Jaeson Schmidt - Lake Street Operator Hello. And welcome to CPI Card Group's Second Quarter 2022 Earnings Conference Call. My name is Alex, and I will be coordinating the call today. [Operator Instructions]. I would now like to ...