Q1 2022 CPI Card Group Inc Earnings Call

May 5, 2022

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Operator: Welcome to CPI Card Group's Q1 2022 earnings call. My name is Charlotte, and I will be your operator today. The call will be open for questions after the company's remarks. If you would like to get in the queue for questions, please press star one on your telephone keypad. Now, I would like to turn the call over to Mike Salop, CPI's head of investor relations.

Welcome to CPI Card Group's first quarter 2022 earnings call. My name is Charlotte, and I will be your operator today. The call will be open for questions after the company's remarks. If you would like to get in the queue for questions, please press par one on your telephone keypad. Now, I would like to turn the call over to Mike Salop, CPI's Head of Investor Relations.

Welcome to the CPI card group first quarter 2022 earnings call. My name is Charlotte and I will be your operator today.

The call will be open for questions. After the company's remarks, if you would like to get in the queue for questions. Please press star one on your telephone keypad.

Now I would like to turn the call over to Mike Salop, Cpi's head of Investor Relations.

Mike Salop: Thanks, operator. Good morning, everyone. Welcome to the CPI Card Group first quarter 2022 earnings webcast and conference call. Today's date is May 5th, 2022, and on the call today from CPI Card Group are Scott Scheuermann, president and chief executive officer, and Amitosh Shankell, chief financial officer. Before we begin, I'd like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reforms Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statement. For discussion of such risks and uncertainties, please see CPI Card Group's most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call.

Thanks, Operator, and good morning, everyone. Welcome to the CPI Card Group First Quarter 2022 Earnings Webcast and Conference Call. Today's date is May 5th, 2022, and on the call today from CPI Card Group are Scott Shireman, President and Chief Executive Officer, and Amit Shankar, Chief Financial Officer.

Thanks, operator, good morning, everyone welcome to the CPI card group first quarter 2022 earnings webcast and conference call. Today's date is May five 2022 and on the call today from CPI card group are Scott <unk>, President and Chief Executive Officer, and on the first Engle Chief Financial Officer before we begin I'd like to remind everyone that this call may contain.

Before we begin, I'd like to remind everyone that this column may contain forward-looking statements as they are defined under the Private Security Politication Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statement.

Looking statements.

They are defined under the private Securities Litigation Reform Act of $19 95.

Statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements.

For discussion of such risks and uncertainties, please see CPI Card Group's most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call. Also, during the course of today's call, the company will be discussing one or more non-GAAP financial measures, including but not limited to EBITDA, adjusted EBITDA, adjusted EBITDA margin, net leverage ratio, and free cash flow.

For a discussion of such risks and uncertainties. Please see <unk>.

I'd card group's most recent filings with the SEC.

All forward looking statements made today reflect our current expectations only and we undertake no obligation to update any statement to reflect the events that occur after this call.

Mike Salop: Also, during the course of today's call, the company will be discussing one or more non-GAAP financial measures, including but not limited to EBITDA, adjusted EBITDA, adjusted EBITDA margin, net leverage ratio, and free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and slide presentation we issued this morning. Copies of today's press release, as well as the presentation that accompanies this conference call, are accessible on CPI's investor relations website, investor.cpicardgroup.com. In addition, CPI's Form 10-Q for the quarter ended 31 March 2022, will be available on CPI's investor relations website. Now I'd like to turn the call over to President and Chief Executive Officer, Scott Scheuermann.

Also, during the course of today's call, the company will be discussing one or more non-GAAP financial measures, including but not limited to EBITDA, adjusted EBITDA, adjusted EBITDA margin, net leverage ratio, and free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and slide presentation we issued this morning. Copies of today's press release, as well as the presentation that accompanies this conference call, are accessible on CPI's investor relations website, investor.cpicardgroup.com. In addition, CPI's Form 10-Q for the quarter ended 31 March 2022, will be available on CPI's investor relations website. Now I'd like to turn the call over to President and Chief Executive Officer, Scott Scheuermann.

Also during the course of today's call the company will be discussing one or more non-GAAP financial measures, including but not limited to EBITDA adjusted EBITDA adjusted EBITDA margin net leverage ratio and free cash flow.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and slide presentation we issued this morning.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release and slide presentation. We issued this morning.

Copies of today's press release, as well as the presentation that accompanies this conference call, are accessible on CPI's Investor Relations website, investor.cpicardgroup.com. In addition, CPI's Form 10-Q for the quarter ended March 31st, 2022, will be available on CPI's Investor Relations website.

Copies of today's press release as well as the presentation that accompanies this conference call.

First of all on Cpi's Investor Relations website, Investor that CPI card group Dot Com. In addition, Cpi's Form 10-Q for the quarter ended March 31, 2022 will be available on Cpi's Investor Relations website.

And now I'd like to turn the call over to President and Chief Executive Officer Scott Shireman.

And now I would like to turn the call over to President and Chief Executive Officer, Scott Chairman.

Scott Scheuermann: Thanks, Mike, and good morning, everyone. During today's call, I will provide an overview of CPI's performance in Q1, update our 2022 expectations, and review our long-term strategy. Amit will review the quarterly financial results in more detail, and then we will open the call for questions. We are pleased with our start to the year as we increased sales 25% to $111 million, which is record quarterly sales levels since we became public in 2015, and significantly improved our margins from the Q4 levels. Q1 growth was driven by our debt and credit segments, with particular strength from contactless cards, including the related personalization services, and our software as a service-based Card-at-Once instant issuance solutions. Our contactless card growth was driven by sales of eco-focused cards, as we sold over 10 million of these cards in the quarter.

Scott Scheirman: Thanks, Mike, and good morning, everyone. During today's call, I will provide an overview of CPI's performance in Q1, update our 2022 expectations, and review our long-term strategy. Amit will review the quarterly financial results in more detail, and then we will open the call for questions. We are pleased with our start to the year as we increased sales 25% to $111 million, which is record quarterly sales levels since we became public in 2015, and significantly improved our margins from the Q4 levels. Q1 growth was driven by our debt and credit segments, with particular strength from contactless cards, including the related personalization services, and our software as a service-based Card-at-Once instant issuance solutions. Our contactless card growth was driven by sales of eco-focused cards, as we sold over 10 million of these cards in the quarter.

Thanks, Mike, and good morning, everyone. During today's call, I will provide an overview of CPI's performance in the first quarter, update our 2022 expectations, and review our long-term strategy.

Thanks, Mike and good morning, everyone. During today's call I will provide an overview of <unk> performance in the first quarter update our 2022 expectations and review our larger strategy.

Amanpour will review the quarterly financial results in more detail, and then we will open the call for questions.

<unk> will review the quarterly financial results in more detail and then we will open the call for questions.

We are pleased with our start to the year as we increased sales 25% to $111 million, which is record quarterly sales level since we became public in 2015 and significantly improved our margins from the fourth quarter level.

We are pleased with our start to the year as we increased sales, 25% to $111 million, which is record quarterly sales level. Since we became public in 2015 and significantly improved our margins from the fourth quarter levels.

First quarter growth was driven by our debit and credit segments with particular strength from contactless cards, including the related personalization services and our software as a service based card at once instant issuance solution.

First quarter growth was driven by our debit and credit segment with particular strength from contactless cards, including the related personalization services and our software as a service space cargo.

Instant issuance solutions are.

Our contactless car growth was driven by sales of eco-focused cars, as we sold over 10 million of these cars in a quarter.

Our contact with card growth was driven by sales of ASR focus Cogs as we sold over $10 million of these cars in the quarter.

Scott Scheuermann: Our selection of innovative eco-focused card solutions presents us opportunities to gain market share as industry adoption continues to grow and provided the incremental revenue benefits of selling higher average-priced contactless cards. Card-at-once also once again grew faster than the company overall. This fast-paced instant issuance solution not only provides us initial product sales upon installation, but also offers us ongoing annuity model of service and consumable revenue. Our prepaid segment sales were flat compared to the prior year, which is good performance given the exceptionally strong first quarter in 2021, which benefited from a significant new portfolio addition. As a result of the strong sales growth overall, we were able to deliver increased adjusted EBITDA in the quarter compared to the prior year, despite cost pressures and comparisons with a very strong margin in the first quarter of 2021.

Our selection of innovative eco-focused card solutions presents us opportunities to gain market share as industry adoption continues to grow and provided the incremental revenue benefits of selling higher average-priced contactless cards. Card-at-once also once again grew faster than the company overall. This fast-paced instant issuance solution not only provides us initial product sales upon installation, but also offers us ongoing annuity model of service and consumable revenue. Our prepaid segment sales were flat compared to the prior year, which is good performance given the exceptionally strong first quarter in 2021, which benefited from a significant new portfolio addition. As a result of the strong sales growth overall, we were able to deliver increased adjusted EBITDA in the quarter compared to the prior year, despite cost pressures and comparisons with a very strong margin in the first quarter of 2021.

Our selection of innovative eco focus card solutions presents us opportunities to gain market share as the industry adoption continues to grow and provided the incremental revenue benefit of selling higher average price contactless cards.

Current ones also, once again, grew faster than the company overall. The staff-based instant issuance solution not only provides initial product sales upon installation.

<unk> also once again grew faster than the company overall.

<unk> face instant issuance solution not only provides us initial product sales upon installation, but also offers ongoing annuity model of service and consumable revenue.

but also offers an ongoing model of service and consumable revenue.

Our prepaid segment sales were flat compared to the prior years, which is good performance given the exceptionally strong first quarter in 2021, which benefited from a significant new portfolio addition.

Our prepaid segment sales were flat compared to the prior year, which is good performance given the exceptionally strong first quarter in 2021, which benefited from a significant move portfolio additions.

As a result of the strong sales growth overall, we were able to deliver increased adjustments into that in the quarter compared to the prior year, despite cost pressures and comparisons with a very strong margin in the first quarter of 2021.

As a result of the strong sales growth overall, we were able to deliver increased adjusted EBITDA in the quarter compared to the prior year.

By cost pressures in comparison with a very strong margin in the first quarter of 2021.

Scott Scheuermann: Thanks to the strong first quarter sales performance, additional inventory purchases, and improvements in our production capacity, we have increased our sales outlook for the full year to low double-digit growth, which is up from our previous outlook of mid-single-digit increase. The overall macro environment remains challenging with ongoing labor shortages, supply chain issues, and uncertainty of the potential impacts from the Russia-Ukraine war, China lockdowns, and interest rate increases, among other factors. However, customer demand remains strong, our production capacity has improved, and we believe we're well positioned to serve our customers. We're also increasing the top of the range for our adjusted EBITDA expectations, moving from mid-single digit in our original outlook to mid to high single-digit growth.

Thanks to the strong first quarter sales performance, additional inventory purchases, and improvements in our production capacity, we have increased our sales outlook for the full year to low double-digit growth, which is up from our previous outlook of mid-single-digit increase. The overall macro environment remains challenging with ongoing labor shortages, supply chain issues, and uncertainty of the potential impacts from the Russia-Ukraine war, China lockdowns, and interest rate increases, among other factors. However, customer demand remains strong, our production capacity has improved, and we believe we're well positioned to serve our customers. We're also increasing the top of the range for our adjusted EBITDA expectations, moving from mid-single digit in our original outlook to mid to high single-digit growth.

Thanks for the strong first quarter sales performance. Additional inventory.

Thanks to the strong first quarter sales performance additional inventory purchases and improvements in our production capacity, we have increased our sales outlook for the full year to low double digit growth, which is up from our previous outlook of mid single digit increase.

and improvement in our production capacity, we have increased our sales outlook for the full year to low double-digit growth, which is up from our previous outlook of mid-single-digit increase.

The overall macroenvironment remains challenging, with ongoing labor shortages, supply chain issues, and uncertainty of the potential impacts from the Russia-Ukraine war, China lockdowns, and interest rate increases, among other factors.

The overall macro environment remains challenging with ongoing labor shortage in supply.

Supply chain issues and uncertainty of the potential impacts from the rest of the Ukraine water, China, Lockdowns and interest rate increases among other factors, however, customer demand remains strong.

However, customer demand remains strong, our production capacity has improved, and we believe we are well-positioned to serve our customers.

Capacity has improved and we believe we are well positioned to serve our customers.

We're also increasing the top of the range for our adjusted EBIT expectations, moving from mid-single-digit in our original outlook to mid- to high-single-digit growth. The increased range is a result of the improved sales outlook, and we now expect our four-year adjusted EBITDA margin to be slightly below 20 percent, reflecting expectations for continued and accelerating inflationary impact on costs.

We're also increasing the top of the range for our adjusted EBIT expectations moving from mid single digit in our original outlook.

Scott Scheuermann: The increased range is a result of the improved sales outlook, and we now expect our full-year adjusted EBITDA margin to be slightly below 20%, reflecting expectations for continued and accelerating inflationary impacts on costs. We did have some offsets from price increases in the first quarter, and we expect more price increases to go into effect as we move through the year. So overall, for 2022, we expect sales performance above our original expectations, with continued strong customer demand, partially held back by anticipated supply and capacity constraints, and a higher top end of the range in adjusted EBITDA growth, with benefits of higher sales partially offset by cost pressure that we expect to continue to rise. Turning to slide five, Amitosh will go into more detail on the financial results shortly, but first let me spend a few minutes reiterating our long-term opportunities and strategies.

The increased range is a result of the improved sales outlook, and we now expect our full-year adjusted EBITDA margin to be slightly below 20%, reflecting expectations for continued and accelerating inflationary impacts on costs. We did have some offsets from price increases in the first quarter, and we expect more price increases to go into effect as we move through the year. So overall, for 2022, we expect sales performance above our original expectations, with continued strong customer demand, partially held back by anticipated supply and capacity constraints, and a higher top end of the range in adjusted EBITDA growth, with benefits of higher sales partially offset by cost pressure that we expect to continue to rise. Turning to slide five, Amitosh will go into more detail on the financial results shortly, but first let me spend a few minutes reiterating our long-term opportunities and strategies.

Mid to high single digit growth.

The increased range as a result of the improved sales outlook and we now expect our full year adjusted EBITDA margin to be slightly below 20%, reflecting expectations for continued and accelerating inflationary impact on costs.

We did have some offsets from price increases in the first quarter, and we expect more price increases to go into effect as we move through the year. So, overall, for 2022, we expect sales performance above our original expectations with continued strong customer demand, partially held back by anticipated supply and capacity constraints, and a higher top end of the range and adjusted EBITDA growth with benefits of higher sales partially offset by cost pressure that we expect to continue to rise.

We did have some offsets from price increases in the first quarter and we expect more price increase go into effect as we move through the year. So overall for 2022, we expect sales performance above our original expectations with continued strong customer demand, partially held back by anticipated supply and capacity constraints and a.

Higher top end of the range and adjusted EBITDA growth with benefits of higher sales, partially offset by cost pressure that we expect to continue to rise.

Turning to slide five.

Amanpour will go into more detail on the financial revolve shortly. But first, let me spend a few minutes reiterating our long-term opportunities and strategies.

<unk> will go into more detail on the financial results shortly but first let me spend a few minutes reiterating our long term opportunities and strategies.

Scott Scheuermann: As I mentioned last quarter, the strategies we have implemented are working. We believe we have gained significant overall market share over the last four years in growing markets, and the first quarter results demonstrate further advances. Our four strategic priorities of deep customer focus, market-leading quality products and customer service, continuous innovation, and a market-competitive business model have driven our strong performance in several U.S. payment market segments. We believe we are a U.S. market leader for eco-focused cards, personalization, and instant issuance solutions for small and medium-sized financial institutions, and prepaid debit card solutions, and we are a key player in facilitating the ongoing conversion to contactless cards. Our quality products and services and in-demand solutions have helped us establish robust and long-standing customer relationships with financial institution issuers of all sizes, bank platforms, and resellers, prepaid program managers, and more recently, fintechs.

As I mentioned last quarter, the strategies we have implemented are working. We believe we have gained significant overall market share over the last four years in growing markets, and the first quarter results demonstrate further advances. Our four strategic priorities of deep customer focus, market-leading quality products and customer service, continuous innovation, and a market-competitive business model have driven our strong performance in several U.S. payment market segments. We believe we are a U.S. market leader for eco-focused cards, personalization, and instant issuance solutions for small and medium-sized financial institutions, and prepaid debit card solutions, and we are a key player in facilitating the ongoing conversion to contactless cards. Our quality products and services and in-demand solutions have helped us establish robust and long-standing customer relationships with financial institution issuers of all sizes, bank platforms, and resellers, prepaid program managers, and more recently, fintechs.

As I mentioned last quarter, the strategies we have implemented are working.

As I mentioned last quarter the strategies, we have implemented are working.

We believe we have gained significant overall market share over the last four years in growing markets and the first quarter results demonstrate further advances. Our four strategic priorities of deep customer focus, market-leading quality products and customer service,

We believe we have gained significant overall market share over the last four years and growing markets in the first quarter results demonstrate further advances our four strategic priorities of deep customer focus.

Leading quality products and customer service.

Continuous innovation and a market competitive business model have driven our strong performance in several U.S. payment market segments.

Continuous innovation in a market competitive business model have driven our strong performance in several U S payment market segments.

We believe we are a U.S. market leader for eco-focused cards, personalization, and instant issuance solutions for small and medium-sized financial institutions, and prepaid debit card solutions.

We believe we are a U S market leader for Eco focused card personalization that instant issuance solution for small and medium sized financial institution and prepaid debit card solution.

and we are a key player in facilitating the ongoing conversion to contactless calls.

And we're a key player in facilitating the ongoing convergence of contactless cards.

Our quality products and services in Indian Solutions has helped us establish robust and longstanding customer relationships with financial institution issuers of all sizes, bank platforms and resellers, prepaid program managers, and more recently, FinTech.

Our quality products and services in India and solutions has helped us establish robust long standing customer relationships with financial institution issuers of all sizes, Inc platform and resellers prepaid program managers and more recently fintech.

Scott Scheuermann: We believe that the markets where we participate remain healthy and growing, as evidenced in part by the latest figures reported by Visa and MasterCard, which showed U.S. credit, debit, and prepaid cards in circulation have grown at a compounded annual growth rate of 8% over the three-year period ended December 31st, 2021. We have significantly increased profitability and improved our financial position over the past four years, and despite the cost pressures in the current environment, we expect to drive further profit growth in 2022. I remain confident in our strategy, our positioning, our markets, and our people, and I believe we have a great opportunity to continue to deliver share gains and strong performance in the coming years. Now I will turn the call over to Amitosh to review our first quarter results in more detail. Amitosh?

We believe that the markets where we participate remain healthy and growing, as evidenced in part by the latest figures reported by Visa and MasterCard, which showed U.S. credit, debit, and prepaid cards in circulation have grown at a compounded annual growth rate of 8% over the three-year period ended December 31st, 2021. We have significantly increased profitability and improved our financial position over the past four years, and despite the cost pressures in the current environment, we expect to drive further profit growth in 2022. I remain confident in our strategy, our positioning, our markets, and our people, and I believe we have a great opportunity to continue to deliver share gains and strong performance in the coming years. Now I will turn the call over to Amitosh to review our first quarter results in more detail. Amitosh?

We believe that the markets, where we participate remain healthy and growing as evidenced in part by the latest figures reported by visa and Mastercard, which showed us credit debit and prepaid cards in circulation have grown at a compounded annual growth rate of 8% over the three year period ended December 31 2000.

'twenty one.

We have significantly increased profitability and improved our financial position over the past four years. And despite the cost pressures in the current environment, we expect to drive further profit growth in 2022. I remain confident in our strategies, our positioning, our markets, and our people. And I believe we have a great opportunity to continue to deliver share gains and strong performance in the coming years.

We have significantly increased profitability and improved our financial position over the past four years and despite the cost pressures in the current environment, we expect to drive further profit growth in 2022.

I remain confident in our strategy, our positioning our markets and our people and I believe we have great opportunities to continue to deliver share gains and strong performance in the coming years.

Now I will turn the call over to Amateur to review our first quarter results in more detail. Amateur?

Now I will turn the call over to <unk> to review, our first quarter results in more detail inventory.

Amitosh Shankell: Thank you, Scott, and good morning, everyone. I will begin my overview on slide seven. First quarter net sales increased 25% to $111.4 million compared to the prior year quarter, driven by a 32% increase in our debt and credit segments. Debt and credit segment growth was primarily due to increased sales of higher-priced contactless cards, including related personalization and strong growth in our eco-focused cards, and strong increases in card-at-once instant issuance solutions. Prepaid debit segment sales were flat compared with the prior year, as the 2021 first quarter benefited from significant onboarding of new customer portfolios. As we have noted in the outlook we provided in March, we expected prepaid debit sales to be between the 2020 and 2021 levels due to the record year the segment delivered in 2021. Based on our current outlook, we now expect prepaid sales to be only slightly below 2021 levels.

Amintore Shenkel: Thank you, Scott, and good morning, everyone. I will begin my overview on slide seven. First quarter net sales increased 25% to $111.4 million compared to the prior year quarter, driven by a 32% increase in our debt and credit segments. Debt and credit segment growth was primarily due to increased sales of higher-priced contactless cards, including related personalization and strong growth in our eco-focused cards, and strong increases in card-at-once instant issuance solutions. Prepaid debit segment sales were flat compared with the prior year, as the 2021 first quarter benefited from significant onboarding of new customer portfolios. As we have noted in the outlook we provided in March, we expected prepaid debit sales to be between the 2020 and 2021 levels due to the record year the segment delivered in 2021. Based on our current outlook, we now expect prepaid sales to be only slightly below 2021 levels.

Thank you, Scott. And good morning, everyone. I will begin my overview on slide seven.

Thank you Scott and good morning, everyone.

I will begin my overview on slide seven.

The first quarter net sales increased 25% to $111.4 million compared to the prior year quarter, driven by a 32% increase in our debit and credit segment. Debit and credit segment growth was primarily due to increased sales of higher-priced contactless cars, including related personalization, and strong growth in our eco-focused cars, and strong increases in card-at-once instant issuance solutions.

First quarter net sales increased 25% to $111 $4 million compared to the prior year quarter, driven by 32% increase in our debit and credit segment debit and credit segment growth was primarily due to increased sales of higher priced contact list card, including related personalization and.

Strong growth in our eco focus cars and strong increases a card it wants instant issuance solution.

Prepaid debit segment sales were flat compared with the prior year, as the 2021 first quarter benefited from significant onboarding of new customer portfolios.

Prepaid debit segment sales were flat compared with the prior year as the 2021 first quarter benefited from significant onboarding of new customer portfolio.

As we have noted in the outlook we provided in March, we expected prepaid debit sales to be between the 2020 and 2021 levels due to the record year the segment delivered in 2021.

As we have noted in the outlook we provided in March we expected prepaid debit sales to be between the 2020 and 2021 levels due to the record year. This segment delivered in 2021.

Based on our current outlook, we now expect prepaid sales to be only slightly below 2021 levels.

Based on our current outlook, we now expect prepaid sales to be only slightly below 2021 level.

Amitosh Shankell: First quarter gross profit of $39.3 million increased 10% from the prior year, while gross profit margin decreased from 40.1% to 35.3% due to the inflationary impacts on materials and labor costs. Gross margin increased 200 basis points from the fourth quarter 2021 levels due to operating leverage from higher sales. SG&A expenses increased by $3.7 million in the quarter compared to the prior year, primarily due to $2 million of increased compensation expenses and $800,000 of increased consulting and accounting costs related to Sarbanes-Oxford. SG&A was $16 million in the first quarter of last year before increasing to approximately $20 million per quarter the rest of the year as we began incurring SOC compliance costs and increased compensation expenses.

First quarter gross profit of $39.3 million increased 10% from the prior year, while gross profit margin decreased from 40.1% to 35.3% due to the inflationary impacts on materials and labor costs. Gross margin increased 200 basis points from the fourth quarter 2021 levels due to operating leverage from higher sales. SG&A expenses increased by $3.7 million in the quarter compared to the prior year, primarily due to $2 million of increased compensation expenses and $800,000 of increased consulting and accounting costs related to Sarbanes-Oxford. SG&A was $16 million in the first quarter of last year before increasing to approximately $20 million per quarter the rest of the year as we began incurring SOC compliance costs and increased compensation expenses.

First quarter gross profit of $39.3 million increased 10% from the prior year, while gross profit margins decreased from 40.1% to 35.3% due to the inflationary impact on materials and labor costs.

First quarter gross profit of $39 $3 million increased 10% from the prior year, while gross profit margin decreased from 41% to 35, 3% due to the inflationary impact on materials and labor costs.

Gross margin increased 200 basis points from the fourth quarter 2021 levels due to operating leverage from higher sales.

Gross margin increased 200 basis points from the fourth quarter of 2021 levels due to operating leverage from higher sales.

SG&A expenses increased by $3.7 million in the quarter compared to the prior year, primarily due to $2 million of increased compensation expenses and $800,000 of increased consulting and accounting costs related to Sarbanes-Oxford.

SG&A expenses increased by $3 $7 million in the quarter compared to the prior year, primarily due to $2 million of increased compensation expenses and $800000 of increased consulting and accounting costs related to Sarbanes Oxley.

SG&A was $16 million in the first quarter of last year before increasing to approximately $20 million per quarter the rest of the year as we began incurring SOX compliance costs and increased compensation expenses.

SG&A was $16 million in the first quarter of last year before increasing to approximately $20 million per quarter. The rest of the year as we began incurring sox compliance costs and increased compensation expenses.

Amitosh Shankell: Net income in the quarter increased 149% to $6 million, primarily due to the impact of debt refinancing costs incurred in the 2021 first quarter, as well as increased sales growth and the resulting operating leverage, partially offset by the increased materials, labor, and SG&A costs. Adjusted EBITDA increased 2% to $22.5 million, while adjusted EBITDA margins declined from 24.8% in the prior year to 20.2% in the 2022 first quarter. Last year's first quarter adjusted EBITDA margins were particularly high, primarily due to lower SG&A expenses, so the comparisons will not be as challenging in the remaining quarters. While our adjusted EBITDA margin was 24.8% in the 2021 first quarter, it averaged 19% in the remaining three quarters as the higher SG&A expenses and increased labor costs impacted results.

Net income in the quarter increased 149% to $6 million, primarily due to the impact of debt refinancing costs incurred in the 2021 first quarter, as well as increased sales growth and the resulting operating leverage, partially offset by the increased materials, labor, and SG&A costs. Adjusted EBITDA increased 2% to $22.5 million, while adjusted EBITDA margins declined from 24.8% in the prior year to 20.2% in the 2022 first quarter. Last year's first quarter adjusted EBITDA margins were particularly high, primarily due to lower SG&A expenses, so the comparisons will not be as challenging in the remaining quarters. While our adjusted EBITDA margin was 24.8% in the 2021 first quarter, it averaged 19% in the remaining three quarters as the higher SG&A expenses and increased labor costs impacted results.

Net income in the quarter increased 149 percent to $6 million, primarily due to the impact of debt refinancing costs incurred in the 2021 first quarter, as well as increased sales growth and the resulting operating leverage, partially offset by the increased materials, labor, and SD&A costs.

Net income in the quarter increased 149% to $6 million pre.

Primarily due to the impact of debt refinancing costs incurred in the 2021 first quarter as well as increased sales growth and the resulting operating leverage partially offset by the increase in materials labor and SG&A economy.

Adjusted EBITDA increased 2% to $22.5 million, while adjusted EBITDA margins declined from 24.8% in the prior year to 20.2% in the 2022 first quarter.

Adjusted EBITDA increased 2% to $22 5 million.

While adjusted EBITDA margins declined from 24, 8% in the prior year to 22% in the 2020 to first quarter.

Last year's first quarter adjusted even the margins were particularly high.

Last year's first quarter, adjusted EBITDA margins were particularly high.

primarily due to lower FD&A expenses, so the comparisons will not be as challenging in the remaining quarter.

Primarily due to lower SG&A expenses, so the comparisons will not be as challenging in the remaining quarters.

While our adjusted EBITDA margin was 24.8 percent in the 2021 first quarter, it averaged 19 percent in the remaining three quarters as the higher FG&A expenses and increased labor costs impacted results.

While our adjusted EBITDA margin was 24, 8% of the 2021 first quarter. It averaged 19% in the remaining three quarters as the higher SG&A expenses and increased labor costs impacted results.

Amitosh Shankell: Our first quarter adjusted EBITDA margin of 20.2% this year increased substantially from the 14.6% margin recorded in the fourth quarter, as we expected. Turning now to our segments on slide eight, I mentioned the segment sales drivers earlier, so I will just discuss segment profitability on this slide. Income from operations for the debt and credit segment increased 20% in the quarter to $24.1 million, driven by the higher net sales and operating leverage, partially offset by increased materials and labor costs. Prepaid debit segment income from operations decreased 15% in the quarter to $6 million due to higher labor and materials costs on flat sales growth. Turning to the balance sheet, liquidity, and cash flow on slide nine.

Our first quarter adjusted EBITDA margin of 20.2% this year increased substantially from the 14.6% margin recorded in the fourth quarter, as we expected. Turning now to our segments on slide eight, I mentioned the segment sales drivers earlier, so I will just discuss segment profitability on this slide. Income from operations for the debt and credit segment increased 20% in the quarter to $24.1 million, driven by the higher net sales and operating leverage, partially offset by increased materials and labor costs. Prepaid debit segment income from operations decreased 15% in the quarter to $6 million due to higher labor and materials costs on flat sales growth. Turning to the balance sheet, liquidity, and cash flow on slide nine.

Our first quarter adjusted EBITDA margin of 20.2% this year increased substantially from the 14.6% margin recorded in the fourth quarter as we expected.

Our first quarter adjusted EBITDA margin of 22% this year increased substantially from the 14, 6% margin recorded in the fourth quarter as we expected.

Turning now to our segments on slide eight. I mentioned the segment sales drivers earlier, so I will just discuss segment profitability on this slide.

Turning now to our segments on slide eight.

I mentioned the segment sales drivers earlier, so I will just discuss segment profitability on this slide.

Income from operations for the debit and credit segment increased 20% in the quarter to $24.1 million, driven by the higher net sales and operating leverage, partially offset by increased materials and labor costs.

Income from operations for the debit and credit segment increased 20% in the quarter to $24 1 million driven by the higher net sales and operating leverage partially offset by increased material and labor costs.

Prepaid debit segment income from operations decreased 15% in the quarter to $6 million due to higher labor and materials costs on flat sales.

Prepaid debit segment income from operations decreased 15% in the quarter to $6 million.

The higher labor and materials costs on flat sales growth.

Turning to the balance sheet, liquidity and cash flow on slide nine.

Turning to the balance sheet liquidity and cash flow on slide nine.

Amitosh Shankell: Our cash balance as of March 31st was $12.1 million, and we had $30 million of borrowings outstanding on our $75 million ADR revolver, with proceeds utilized to fund our notes redemption and temporary working capital needs. We had $290 million of senior secured notes outstanding, and our net leverage ratio as of March 31st was just over four times. Cash flow from operating activities was a usage of $16 million, and we utilized $3.2 million on capital expenditures. This resulted in free cash flow being a usage of $19.1 million, which compared to a $2.4 million usage in the first quarter of 2021. Increased working capital usage in the first quarter was expected, primarily driven by increased inventory purchases of $13 million to continue to support future growth and a $10 million increase in accounts receivable due to the 25% sales growth in the quarter.

Our cash balance as of March 31st was $12.1 million, and we had $30 million of borrowings outstanding on our $75 million ADR revolver, with proceeds utilized to fund our notes redemption and temporary working capital needs. We had $290 million of senior secured notes outstanding, and our net leverage ratio as of March 31st was just over four times. Cash flow from operating activities was a usage of $16 million, and we utilized $3.2 million on capital expenditures. This resulted in free cash flow being a usage of $19.1 million, which compared to a $2.4 million usage in the first quarter of 2021. Increased working capital usage in the first quarter was expected, primarily driven by increased inventory purchases of $13 million to continue to support future growth and a $10 million increase in accounts receivable due to the 25% sales growth in the quarter.

Our cash balance as of March 31st was $12.1 million, and we had $30 million of borrowings outstanding on our $75 million ADL revolver, with proceeds utilized to fund our notes redemption and temporary working capital needs.

Our cash balance as of March 31 was $12 1 million and.

And we had $30 million of borrowings outstanding on our $75 million ABL revolver with proceeds utilized to fund our notes redemption and temporary working capital needs.

We've had $290 million of senior secured notes outstanding, and our net leverage ratio as of March 31st was just over four times.

We had $290 million of senior secured notes outstanding and our net leverage ratio as of March 31, with just over four times.

Cash flow from operating activities with a usage of $16 million, and we utilize $3.2 million in capital expenditure.

Cash flow from operating activities with a usage of $16 million and we utilized $3 2 million on capital expenditures.

This resulted in free cash flow being a usage of $19.1 million, which compared to a $2.4 million usage in the first quarter of 2021.

This resulted in free cash flow being a usage of $19 1 million, which compared to a $2 $4 million of usage in the first quarter of 2021.

Increased working capital usage in the first quarter was expected, primarily driven by increased inventory purchases of $13 million to continue to support future growth and a $10 million increase in account receivables due to the 25% sales growth in the quarter.

Increased working capital usage in the first quarter was expected primarily driven by increased inventory purchases of $13 million to continue to support future growth and a $10 million increase in accounts receivable due to the 25% sales growth in the quarter.

Amitosh Shankell: We anticipate improvement in free cash flow for the remainder of the year, but we will also continue to be opportunistic with inventory purchases based on customer demand levels and availability of supply materials, as our first priority is to ensure we can meet our customers' needs. Our capital structure and allocation priorities remain focused on maintaining ample liquidity, investing in the business, including possible strategic acquisitions, deleveraging the balance sheet, and potentially returning funds to stockholders through share repurchases. Consistent with these priorities, we continue to target further lowering our net leverage ratio over time. To reiterate what Scott mentioned earlier, we have updated our full year 2022 expectations to reflect low double-digit sales growth, mid to high single-digit adjusted EBITDA growth, and an adjusted EBITDA margin of slightly below 20%. I will now pass the call back to Scott for closing remarks. Scott?

We anticipate improvement in free cash flow for the remainder of the year, but we will also continue to be opportunistic with inventory purchases based on customer demand levels and availability of supply materials, as our first priority is to ensure we can meet our customers' needs. Our capital structure and allocation priorities remain focused on maintaining ample liquidity, investing in the business, including possible strategic acquisitions, deleveraging the balance sheet, and potentially returning funds to stockholders through share repurchases. Consistent with these priorities, we continue to target further lowering our net leverage ratio over time. To reiterate what Scott mentioned earlier, we have updated our full year 2022 expectations to reflect low double-digit sales growth, mid to high single-digit adjusted EBITDA growth, and an adjusted EBITDA margin of slightly below 20%. I will now pass the call back to Scott for closing remarks. Scott?

We anticipate improvement in free cash flow for the remainder of the year, but we will also continue to be opportunistic with inventory purchases.

Based on customer demand levels and availability of supply materials as our first priority is to ensure we can meet our customers' needs.

Our capital structure and allocation priorities remain focused on maintaining ample liquidity, investing in the business, including possible strategic acquisitions, deleveraging the balance sheet, and potentially returning funds to stockholders through share repurchase.

Our capital structure and allocation priorities remain focused on maintaining ample liquidity investing in the business, including possible strategic acquisitions deleveraging the balance sheet and potentially returning some to stockholders through share repurchases.

Consistent with these priorities, we continue to target further lowering our net leverage ratio over time. To reiterate what Scott mentioned earlier, we have updated our full year 2022 expectations to reflect low double-digit sales growth, mid to high single-digit adjusted EBITDA growth, and an adjusted EBITDA margin of slightly below 20%.

Consistent with these priorities, we continue to target further lowering our net leverage ratio over time to.

To reiterate what Scott mentioned earlier, we have updated our full year 2022 expectations reflect low double digit sales growth.

The high single digit adjusted EBITDA growth and an adjusted EBITDA margin was slightly below 20%.

I will now pass the call back to Scott for closing remarks.

Scott Scheuermann: Thanks, Amitosh. Overall, I am pleased with the business performance to start the year. Customer demand remains strong, and we were able to execute in a challenging environment to deliver a 25% sales increase in the first quarter. As always, I'd like to thank all of our employees for working hard to deliver these results. We have updated our 2022 outlook to reflect higher sales expectations and a higher top end of the range for adjusted EBITDA, despite labor, supply chain, and inflationary pressures and uncertainties. We are also pleased to have completed the redemption of $20 million of our senior secured notes in the first quarter, and I expect improved cash flow for the remainder of the year. We are excited about our long-term opportunities, and we look forward to updating you on our progress as we move forward.

Thanks, Amitosh. Overall, I am pleased with the business performance to start the year. Customer demand remains strong, and we were able to execute in a challenging environment to deliver a 25% sales increase in the first quarter. As always, I'd like to thank all of our employees for working hard to deliver these results. We have updated our 2022 outlook to reflect higher sales expectations and a higher top end of the range for adjusted EBITDA, despite labor, supply chain, and inflationary pressures and uncertainties. We are also pleased to have completed the redemption of $20 million of our senior secured notes in the first quarter, and I expect improved cash flow for the remainder of the year. We are excited about our long-term opportunities, and we look forward to updating you on our progress as we move forward.

Got.

Thanks, Amateur. Overall, I am pleased with the business performance to start the year. Customer demand remains strong, and we were able to execute in a challenging environment to deliver a 25% sales increase in the first quarter.

Thanks <unk>.

<unk> I am pleased with the business performance to start the year.

Customer demand remains strong and we were able to execute in a challenging environment to deliver a 25% sales increase in the first quarter.

As always, I'd like to thank all of our employees for working hard to deliver these results.

As always I'd like to thank all of our employees for working hard to deliver these results.

We have updated our 2022 outlet to reflect higher sales expectations.

and a higher top end of the range for adjusted EBITDA despite labor, supply chain and inflationary pressures and uncertainty.

And a higher top end of the range for adjusted EBITDA, Despite labor supply chain and inflationary pressures and uncertainties.

We are also pleased to have completed the redemption of $20 million of our senior secured notes in the first quarter, and I expect improved cash flow for the remainder of the year. We are excited about our long-term opportunities, and we look forward to updating you on our progress as we move forward.

We're also pleased to have completed the redemption of $20 million of our senior secured notes in the first quarter and I expect improved cash flow for the remainder of the year.

We're excited about our long term opportunities and we look forward to updating you on our progress as we move forward.

Scott Scheuermann: Thank you for joining our call today, and we will now open the call for any questions.

Thank you for joining our call today, and we will now open the call for any questions.

Thank you for joining our call today and we will now open the call for any questions.

Thank you for joining our call today, and we will now open the call for any questions.

Operator: We will now open the call for your questions. If you would like to ask a question, please press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Jason Smith from Lake Street. Your line is now open.

We will now open the call for your questions. If you would like to ask a question, please press par one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster.

We will now open the call for your questions. If you would like to ask a question. Please press star one on your telephone or withdraw your question press the pound key.

And I wanted to compile the Q&A roster.

Our first question comes from Jason Smith from Lake Street. Your line is now open.

Our first question comes from Jason.

Jason Smith from Lake Street. Your line is now open.

Jason Smith: Hey, guys. Thanks for taking my questions, and congrats on some really impressive results. You know, just want to start with kind of Q1. Sorry if I missed it, but was there any demand that you were unable to fulfill because of the supply chain backdrop? And then, I guess relatedly, just given how strong Q1 was, are you at all concerned about any sort of pull forward in demand?

Jaeson Schmidt: Hey, guys. Thanks for taking my questions, and congrats on some really impressive results. You know, just want to start with kind of Q1. Sorry if I missed it, but was there any demand that you were unable to fulfill because of the supply chain backdrop? And then, I guess relatedly, just given how strong Q1 was, are you at all concerned about any sort of pull forward in demand?

Hey guys, thanks for taking my questions and congrats on some really impressive results. You know, just want to start with kind of Q1, sorry if I missed it, but was there any demand that you were unable to fulfill because of the supply chain backdrop? And then I guess relatedly, just given how strong Q1 was, are you at all concerned about any sort of pull forward in demand?

Hey, guys. Thanks for taking my questions and congrats on some early impressive results.

Just wanted to start with kind of Q1, sorry, if I missed it but was there any demand that you were unable to fulfill because of the supply chain backdrop, and then I guess relatedly just given how strong Q1 was are you at all concerned about any sort of pull forward in demand.

Scott Scheuermann: Jason, good morning to Scott. Appreciate you joining the call. First, I would say customer demand is very strong. It's very robust. So clearly, in Q1, we had great results, but still have concerns around capacity, some of the labor, some of the materials. So I feel like, yes, we could have sold more in Q1 than we did. Customer demand is very strong and very robust. On the second part of your question on pull forward, I would say, you know, there may be some. However, we've broadly worked very closely with our customers to do planning. We meet their needs. We have appropriate capacity and so forth. So as we have worked with our customers, I know many customers would like more product than we can provide today, so to speak, with the prosity, and that's seen a lot of pull forward in the market today.

Scott Scheirman: Jason, good morning to Scott. Appreciate you joining the call. First, I would say customer demand is very strong. It's very robust. So clearly, in Q1, we had great results, but still have concerns around capacity, some of the labor, some of the materials. So I feel like, yes, we could have sold more in Q1 than we did. Customer demand is very strong and very robust. On the second part of your question on pull forward, I would say, you know, there may be some. However, we've broadly worked very closely with our customers to do planning. We meet their needs. We have appropriate capacity and so forth. So as we have worked with our customers, I know many customers would like more product than we can provide today, so to speak, with the prosity, and that's seen a lot of pull forward in the market today.

Jason, good morning to Scott. I appreciate you joining us all.

Hi, good.

Good morning, Scott I appreciate it.

Paul.

Of course, I would say customer demand is very strong, it's very real time.

First on customer demand.

Very strong very robust.

So clearly in Q1, we have great results, but still have some of the labor, some of the materials. So I feel like, yes, we could have sold more in Q1 than we did in Q3, and is very strong and very reliable. Thank you.

So clear.

Clearly in Q1, we have great results.

But still have.

Brian .

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Some of them waited for some material so.

Yes.

So more in Q1, because we did it.

Customer demand is.

<unk> strong and very robust.

I would say, you know, there may be some, however, we broadly work very closely with our customers to do planning. I'm not sure we need to do that.

On the second part of your question on pull forward.

There may be some.

We broadly.

Were very closely with our customers.

And planning.

Sure.

If there are needs, we have appropriate capacity and so forth. So as we have worked with our customers, I know many customers would like more.

Okay.

As we have appropriate capacity and so forth.

As we have worked with our customers.

Many customers will buy more.

that we can provide today, so to speak, privately, I think a lot of support for it.

We can provide.

Steve.

Property obtain Nevada pull forward in the market today.

Jason Smith: Okay. That's really helpful. And then looking at the prepaid segment, sort of the upgrader vision here, is that being more driven by just overall improving market conditions or share gains or, I guess, a combination of both?

Jaeson Schmidt: Okay. That's really helpful. And then looking at the prepaid segment, sort of the upgrader vision here, is that being more driven by just overall improving market conditions or share gains or, I guess, a combination of both?

Okay, that's really helpful. And then looking at the prepaid segment, sort of the upward or vision here, is that being more driven by just overall improving market conditions or share gains or I guess a combination of both?

Okay. That's really helpful. And then looking at the prepaid segments are the upgrade or ambition here is that being driven by just overall improving market conditions or share gains or I guess a combination of both.

Scott Scheuermann: You know, I think it's a couple of things. I'd first say just the customer demand has been a bit stronger than what we anticipated, call it 60 or 90 days ago. But I think more importantly, it really just speaks to our product set. Our team in Minneapolis does a great job up in Minnesota. Their quality is very high. Our prepaid solutions are very innovative with our packaging. It helps prevent fraud, but also helps drive shelf appeal. So I think just being a market leader here, customers continue to turn to us, and we continue to, over time, we've won new programs. We continue to win share of wallet with our customers. So very pleased with that business.

Scott Scheirman: You know, I think it's a couple of things. I'd first say just the customer demand has been a bit stronger than what we anticipated, call it 60 or 90 days ago. But I think more importantly, it really just speaks to our product set. Our team in Minneapolis does a great job up in Minnesota. Their quality is very high. Our prepaid solutions are very innovative with our packaging. It helps prevent fraud, but also helps drive shelf appeal. So I think just being a market leader here, customers continue to turn to us, and we continue to, over time, we've won new programs. We continue to win share of wallet with our customers. So very pleased with that business.

You know, I think it's a couple of things. I would first say just the customer demand has been a bit stronger than what we had anticipated, call it 60 or 90 days ago. But I think more importantly, it really just speaks to our products that our team in Minneapolis does a great job up in Minnesota.

I think it's a couple of things I would I'd first say just the.

Customer demand has been a bit stronger than what we and statistic beta to call. It 60, or 90 days ago, but I think more importantly, it really just speaks to our product set.

Our team in Minneapolis does does a great job at Minnesota.

The quality is very high. Our prepaid solutions are very innovative with our packaging. It helps prevent fraud, but also helps drive shish help appeal. So I think just being a market leader here, customers continue to turn to us, and we continue to...

<unk> is very high our prepaid solutions are very innovative with our packaging. It helps prevent fraud, but also helps drive shelf appeal. So I think just being a market leader here.

Customers continue to turn to us and we continue to.

over time we've won new programs and continue to win share of wallet with our customers so very pleased with that business.

Over time, we've won new programs will continue to win share of wallet with our customers. So very pleased with that business.

Jason Smith: Okay. Perfect. And then just the last one from me, and I'll jump back into Q. Really nice rebound in gross margin. I know the situation's fluid with the supply chain and lots of dynamics going on, but is it fair to think about sort of that 35.3% being the low watermark for the year?

Jaeson Schmidt: Okay. Perfect. And then just the last one from me, and I'll jump back into Q. Really nice rebound in gross margin. I know the situation's fluid with the supply chain and lots of dynamics going on, but is it fair to think about sort of that 35.3% being the low watermark for the year?

Okay, perfect. And then just the last one from me and I'll jump back into Q. Early nice rebound in gross margin. I know the situation's fluid with the supply chain and lots of dynamics going on, but is it fair to think about sort of that 35.3% being the low watermark for the year?

Okay Perfect and then just the last one from me and I'll jump back in the queue early nice rebound and gross margin I know the situation is fluid with the supply chain and lots of dynamics going on but is it fair to think about sort of that 35, 3% being the low <unk>.

Scott Scheuermann: You know, Jason, what I'd probably guide you towards is the top-line outlook we've provided and the EBITDA guidance, adjusted EBITDA guidance that we've provided. You know, you've mentioned that there still is a bit of uncertainty out there. We're in a very dynamic environment with inflation, low unemployment levels, supply chain challenges, and so forth. But I would say with the outlook we've provided, we are quite confident in the top-line growth in our outlook and the adjusted EBITDA guidance that we've provided today.

Scott Scheirman: You know, Jason, what I'd probably guide you towards is the top-line outlook we've provided and the EBITDA guidance, adjusted EBITDA guidance that we've provided. You know, you've mentioned that there still is a bit of uncertainty out there. We're in a very dynamic environment with inflation, low unemployment levels, supply chain challenges, and so forth. But I would say with the outlook we've provided, we are quite confident in the top-line growth in our outlook and the adjusted EBITDA guidance that we've provided today.

Earmark for the year.

You know, Jason, what I'd probably guide you towards is the, you know, the top line outlook we've provided and the EBITDA guidance, adjusted EBITDA guidance that we've provided.

Jason what I'd probably guy.

Guy do towards us.

The top line outlook, we provided in the EBITDA guidance adjusted EBITDA guidance that we provided.

You know, you've mentioned that there still is a bit of uncertainty out there. We're in a very dynamic environment with inflation, low unemployment levels, supply chain challenges, and so forth. But I would say with the outlook we've provided, we are quite confident in the top line growth in our outlook and the adjusted EBITDA guidance that we've provided today.

You've mentioned that there still is a bit of uncertainty out there we're in a very dynamic environment with inflation.

Low unemployment levels.

Fly chain challenges and so forth, but I would say with the outlook. We provided we are quite confident in the topline growth in our outlook and the adjusted EBITDA guidance that we've provided today.

Jason Smith: Okay. That makes sense. That's it for me. Thanks again, guys.

Jaeson Schmidt: Okay. That makes sense. That's it for me. Thanks again, guys.

Okay, that makes sense. That's it for me. Thanks again, guys. Thanks, appreciate it.

Okay that makes sense that's it from me Thanks again guys.

Scott Scheuermann: Thanks. Appreciate it.

Scott Scheirman: Thanks. Appreciate it.

Jason Smith: Thank you.

Scott Scheuermann: Appreciate your input. Thank you.

Jaeson Schmidt: Thank you.

Scott Scheirman: Appreciate your input. Thank you.

Correct.

Great. Thank you I appreciate your insight thank you.

Operator: Again, as a reminder, if you would like to ask a question, just press star one on your telephone keypad. Again, that's star, then the number one on your telephone keypad. Again, if you would like to ask a question, just press star one on your telephone keypad. Our next question comes from the line of Karthik Mehta from North Coast Research. Your line is now open.

Again, as a reminder, if you would like to ask a question, just press star 1 on your telephone keypad. Again, that's star, then the number 1 on your telephone keypad.

Again as a reminder, if you would like to ask a question just press star one on your telephone keypad again, that's fine then the number one on your telephone keypad.

Again, if you would like to ask a question, just press star 1 on your telephone keypad.

Again, if you would like to ask a question just press star one on your telephone keypad.

Our next question comes from the line of Karthik Mehta from North Coast Research. Your line is now open. Hey Scott, how are you? I was hoping to get your perspective on what you think could happen to the business or if you see any pressure from the business if banks start making underwriting standards more stricter because of what's happening in the economy and have you seen any signs of that? Good morning, Karthik. Good to hear your voice. Have not seen any signs of that. In fact, if you look at the banks who have reported in the first quarter of 2022, their underwriting has been robust. They're issuing more cards. In fact, Visa and MasterCard over the last three years have said on an average annual basis, their cards outstanding are up 8% per year, pretty robust. We have not seen any pullback on that. I think one thing that's really important in our business, about 600 million cards are issued every year. 90% of that is really driven by reoccurring issues. It could be a lost or sold credit card. It could be fraud. It could just be a normal reoccurring cycle. So the good news in our business, at least 90% of that 600 million cards that are issued every year are reoccurring in nature. So any potential impact in the future, hard to predict for sure, but don't see that having a real meaningful impact giving that 90% of it's reoccurring with what we see with card issuance.

Our next question comes from the line of Kartik Mehta.

Karthik Mehta: Hey, Scott. How are you? I was hoping to get your perspective on what you think could happen to the business or if you see any pressure from the business if banks start making underwriting standards more stricter because of what's happening in the economy. And have you seen any signs of that?

Im Northcoast research your line is now open.

Hey, Scott how are you.

I would like to get your perspective on.

What do you think could happen.

Any questions.

Thanks, Charlie.

Making underwriting standards more stricter because of what's happening in economy.

Scott Scheuermann: Good morning, Karthik. Good to hear your voice. Have not seen any signs of that. In fact, if you look at the banks who have reported in the first quarter of 2022, their underwriting has been robust. They're issuing more cards. In fact, Visa and MasterCard over the last three years have said, on an average annual basis, cards outstanding are up 8% per year. It's pretty robust. So we have not seen any pullback on that. I think one thing that's really important in our business, about 600 million cards are issued every year. 90% of that is really driven by reoccurrence issues. So it could be a lost or stolen credit card. It could be fraud. It could just be a normal reissuance cycle.

Scott Scheirman: Good morning, Karthik. Good to hear your voice. Have not seen any signs of that. In fact, if you look at the banks who have reported in the first quarter of 2022, their underwriting has been robust. They're issuing more cards. In fact, Visa and MasterCard over the last three years have said, on an average annual basis, cards outstanding are up 8% per year. It's pretty robust. So we have not seen any pullback on that. I think one thing that's really important in our business, about 600 million cards are issued every year. 90% of that is really driven by reoccurrence issues. So it could be a lost or stolen credit card. It could be fraud. It could just be a normal reissuance cycle.

And any signs of that.

Good morning, Scott.

Good to hear your voice.

We have not seen any.

Signs of that in fact, if you look at the.

Banks, who have reported in the first quarter of 2022 there.

They're they're underwriting has been robust the originating more cards in fact visa Mastercard over the last three years.

On an average annual basis cards outstanding are up 8% per year per year, it's a pretty robust.

But we have not seen any any.

Any pullback on that I think one thing that's really important in our business.

About 600 million cards are issued every year, 90% of that is really driven by reoccurring.

So.

It could be a lot of soul.

Credit card.

It could be broad industry, a normal vehicle cycle.

Scott Scheuermann: So the good news in our business, you know, at least 90% of that 600 million cards that are issued every year are reoccurring in nature. So any potential impact in the future, hard to predict for sure, but don't see that having a real meaningful impact, given that 90% of it's reoccurring with what we see with card issuance.

So the good news in our business, you know, at least 90% of that 600 million cards that are issued every year are reoccurring in nature. So any potential impact in the future, hard to predict for sure, but don't see that having a real meaningful impact, given that 90% of it's reoccurring with what we see with card issuance.

The good news in our business with 90% of that 600 million cards that are issued every year.

Reoccurring in nature.

Any potential impact in the future hard to predict for sure but don't see that.

Having a real meaningful impact given that 90% of the reoccurring with what we see with card issuance.

Karthik Mehta: And then just as a plus, Scott, I know that at least banks in the last probably year have been very aggressive trying to get new card holders out there because they kind of slowed down during the pandemic. I'm wondering, I don't know if you look at this on a quarterly basis, but if you do, any change in that 90/10 percentage from last quarter to this quarter in terms of renewals or expirations versus new cards?

And then just as a plug, Scott, I know that at least the banks in the last couple of years have been very aggressive trying to get new card holders out there because of – they kind of slowed down during the pandemic. I'm wondering – I don't know if you look at this on a quarterly basis, but if you do, any change in that 90-10 percentage from last quarter to this quarter in terms of renewals or expiration versus new cards?

And then just as a pause.

Scott I know that.

And the last probably year have been very aggressive trying to get new card.

Holders out there because of the data.

Kind of slowed down during the pandemic I'm wondering I don't know if you look at this on a quarterly basis.

Any change in that 90, 10 percentage from last quarter, but this quarter in terms of.

Scott Scheuermann: You know, it's hard to look at it on a quarterly basis. It's more something we view on an annual basis. But your point is spot on as far as issuing banks are competing hard for share of wallet. And that's where I think, for example, our EcoFocus cards are a very innovative product. We know through customer research that over 50% of consumers would switch to an EcoFocus card if it had the same benefits. So I think one of the reasons why we're winning in the marketplace, we sold 10 million EcoFocus cards. So I think we've got products and solutions that will help our customers continue to gain share of wallet.

Scott Scheirman: You know, it's hard to look at it on a quarterly basis. It's more something we view on an annual basis. But your point is spot on as far as issuing banks are competing hard for share of wallet. And that's where I think, for example, our EcoFocus cards are a very innovative product. We know through customer research that over 50% of consumers would switch to an EcoFocus card if it had the same benefits. So I think one of the reasons why we're winning in the marketplace, we sold 10 million EcoFocus cards. So I think we've got products and solutions that will help our customers continue to gain share of wallet.

Exploration versus new cards.

You know, it's hard to look at it on a quarterly basis. This is more something we do on an annual basis. But, you know, your point is spot on as far as, you know, issuing banks or competing cars for credit.

It's hard to look at it on a quarterly basis is this more something we do on an annual.

But.

Your point is spot on as far as.

Issuing banks are competing hard for.

share of wallet, and that's where I think, for example, our eco-focused cars are a very innovative product. We know through customer research that over 50% of consumers would switch to an eco-focused car if it had the same...

Our share of wallet.

And that's where I think for example, our equal focus cars are a very innovative product.

Customer research that over 50% of consumers with switch to an equal focus card. If it had the same benefit. So I think one of the reasons why we're winning in the marketplace. We sold $10 million Eco focused cards. So I think we've got products and solutions that will help our customers continue to gain share.

benefit. So I think, you know, one of the reasons why we're winning in the marketplace is still 10 million eco focused cards. So I think we've got

products and solutions that will help our customers continue to gain share of wallets. Well, hey, thanks, Scott. I really appreciate it. It was good to

Karthik Mehta: Well, hey, thanks, Scott. I really appreciate it. It was good to hear your voice.

Share of wallet.

Scott Scheuermann: You too. Thanks, Karthik.

Scott Scheirman: You too. Thanks, Karthik.

Hey, Thanks, Scott I really appreciate it was good to hear your voice.

You too thanks Kartik.

Operator: As a reminder, if you would like to ask a question, just press star one on your telephone keypad. There are no further questions at this time. I will now turn the call back to Mark Salop for the closing remarks.

As a reminder, if you would like to ask a question, just press star 1 on your telephone keypad.

As a reminder, if you would like to ask a question just press star one on your telephone keypad.

There are no further questions at this time. I will now turn the call back to Mark Phelop for the closing remarks.

There are no further question at this time I will now turn the call back to Mark Siegel for any closing remarks.

Mike Salop: Okay. Thank you, Charlotte. Thanks, everyone, for joining our first quarter call today. I hope you have a good day. Thank you.

Okay. Thank you, Charlotte. Thanks, everyone, for joining our first quarter call today. I hope you have a good day. Thank you.

Okay. Thank you Charlotte.

Thanks, everyone for joining our first quarter call today.

Good day.

Operator: That concludes today's CPI Card Group first quarter earnings call. Thank you.

Operator: That concludes today's CPI Card Group first-quarter earnings call. Thank you.

That concludes today's CPI card group first quarter earnings call. Thank you.

That concludes todays CPI card group first quarter earnings call. Thank you.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Q1 2022 CPI Card Group Inc Earnings Call

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