Q2 2019 Earnings Call

August 7, 2019

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Cogs to grow Q2 earnings call.

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In accordance with U.S. gap.

Michael Salop: In accordance with US GAAP, the disposition of the CPI Canada business closed on 1 April 2019 and does not qualify as a discontinued operation in accordance with US GAAP. Results for the Canada business through the date of disposition, as well as disposition-related costs, are reflected in the other segment. 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 10Q for the quarter and six months ended 30 June 2019 was filed with the SEC earlier today and is also available on CPI's investor relations website. Please note that this call will conclude after our prepared remarks. Now, I'd like to turn the call over to Scott Scheuermann, President and Chief Executive Officer of CPI.

Jane Haarala: In accordance with US GAAP, the disposition of the CPI Canada business closed on 1 April 2019 and does not qualify as a discontinued operation in accordance with US GAAP. Results for the Canada business through the date of disposition, as well as disposition-related costs, are reflected in the other segment. 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 10Q for the quarter and six months ended 30 June 2019 was filed with the SEC earlier today and is also available on CPI's investor relations website. Please note that this call will conclude after our prepared remarks. Now, I'd like to turn the call over to Scott Scheuermann, President and Chief Executive Officer of CPI.

The disposition of the CPR, Canada business closed on April one 2019, and does not qualify as a discontinued operation in accordance with U.S. GAAP.

Results for the Canada business through the date of this position as well at disposition related costs are reflected in the other segment.

Copies of today's press release as well as a presentation that accompanies this conference call are accessible on Cpis Investor Relations website, Investor Dot C.P. I'd card group Dotcom.

In addition, cpis Form 10-Q for the quarter and six months ended June 32019 was filed with the FCC earlier today and is also available on Cpis Investor Relations Web site.

Please note that this call will conclude after our prepared remarks.

And now I'd like to turn the call over to Scott Chairman, President and Chief Executive Officer of Cpis.

Thanks, Jen and good morning, everyone. Thank you for joining us today I will begin my prepared remarks on slide four.

Scott Scheirman: Thanks, Jen, and good morning, everyone. Thank you for joining us today. I will begin my prepared remarks on slide four. Our second quarter results reflect solid execution against our customer-centric strategy. During the quarter, we delivered a 9% year-over-year increase in net sales, resulting in first half 2019 net sales increase of 15% over the prior year. Turning to our segments, in the second quarter, we delivered a 17% increase in net sales from our US debit and credit segment through continued volume increases and a more favorable mix of products and services. Net sales from our prepaid debit segment was up 3%, outperforming our strong 2018 second quarter results, which, as you recall, included significant net sales associated with the new portfolio launch.

Our second quarter results reflect solid execution against our customer centric strategy.

During the quarter, we delivered a 9% year over year increase in net sales, resulting in first half 2019, net sales increase of 15% over the prior year.

Turning to our segments in the second quarter, we delivered a 17% increase in net sales from our US debit and credit segment through continued volume increases and a more favorable mix of products and services.

Net sales from our prepaid debit segment was up 3% outperforming our strong 2018 second quarter results, which as you recall included significant net sales associated with the new portfolio launch.

During the second quarter, we generated net income of $1.6 million or 14 cents per share inclusive of the 6 million dollar cash gain related to a settlement of a previously disclosed litigation.

Scott Scheirman: During the second quarter, we generated net income of $1.6 million, or $0.14 per share, inclusive of a $6 million cash gain related to a settlement of a previously disclosed litigation. This brings the year-to-date bottom line to a net loss of $1.5 million. Adjusted EBITDA, which excludes the $6 million cash gain, was $8.5 million for the second quarter, bringing our year-to-date total to $16.5 million, a year-over-year increase of 28%. We believe the top line and bottom line momentum we have been experiencing thus far in 2019 puts us on track to achieve the goals we set out for ourselves this year. Turning to slide five, we continue to execute on our four strategic priorities. First, deep customer focus. Second, market-leading quality products and customer service. Third, market-competitive business model. Fourth, continuous innovation.

During the second quarter, we generated net income of $1.6 million, or $0.14 per share, inclusive of a $6 million cash gain related to a settlement of a previously disclosed litigation. This brings the year-to-date bottom line to a net loss of $1.5 million. Adjusted EBITDA, which excludes the $6 million cash gain, was $8.5 million for the second quarter, bringing our year-to-date total to $16.5 million, a year-over-year increase of 28%. We believe the top line and bottom line momentum we have been experiencing thus far in 2019 puts us on track to achieve the goals we set out for ourselves this year. Turning to slide five, we continue to execute on our four strategic priorities. First, deep customer focus. Second, market-leading quality products and customer service. Third, market-competitive business model. Fourth, continuous innovation.

This brings the year to date bottom line to a net loss of $1.5 million.

Adjusted EBITDA, which excludes the $6 million cash gain was $8.5 million for the second quarter, bringing our year to date total to $16.5 million a year over year increase of 28%.

We believe the topline and bottom line momentum, we havent experienced thus far in 2019 puts us on track to achieve the goals, we set out for ourselves this year.

Turning to slide five.

We continue to execute on our four strategic priorities first deep customer focus.

Second market, leading quality products and customer service.

Third market competitive business model and fourth continuous innovation.

On slide six I will take a few moments to update you on our progress against these priorities and highlight some initiatives we have delivered on during the first half of this year.

Scott Scheirman: On slide six, I will take a few moments to update you on our progress against these priorities and highlight some initiatives we have delivered on during the first half of this year. Beginning with our first priority, deep customer focus, we continue to listen to the needs of our customer and focus our energy on helping them deliver unique and differentiated solutions that elevate their customer's experience. For the emerging dual interface market, we continue to meet the needs of our customers. This resulted in a double-digit percentage increase in EMV card manufacturing volumes during the second quarter, propelled by dual interface EMV cards. During the first half of the year, we also invested in our strategic priorities by increasing operating capacity for our prepaid and Card-at-Once businesses to meet the needs of our customers and the opportunities we see over the long term.

On slide six, I will take a few moments to update you on our progress against these priorities and highlight some initiatives we have delivered on during the first half of this year. Beginning with our first priority, deep customer focus, we continue to listen to the needs of our customer and focus our energy on helping them deliver unique and differentiated solutions that elevate their customer's experience. For the emerging dual interface market, we continue to meet the needs of our customers. This resulted in a double-digit percentage increase in EMV card manufacturing volumes during the second quarter, propelled by dual interface EMV cards. During the first half of the year, we also invested in our strategic priorities by increasing operating capacity for our prepaid and Card-at-Once businesses to meet the needs of our customers and the opportunities we see over the long term.

Beginning with our first priority deep customer focus we continue to listen to the needs of our customer and focus our energy on helping them deliver unique and differentiated solutions that elevate their customers experience.

For the emerging dual interface market, we continue to meet the needs of our customers.

This resulted in double digit percentage increase in EMV card manufacturing volumes during the second quarter propelled by dual interface EMV cards.

During the first half of the year, we also invested in our strategic priorities by increasing operating capacity for our prepaid and card at once businesses to meet the needs of our customers and the opportunities we see over the long term.

Our second strategic priority is providing market, leading quality products and five star customer service.

Scott Scheirman: Our second strategic priority is providing market-leading quality products and five-star customer service. By effectively executing on this priority, we further established CPI as a partner of choice. For example, we were recognized by the International Card Manufacturers Association, or ICMA, for the manufacturing of the Pinnacle Financial Partners CoServe Holdings World Elite Encased Tungsten Card. This sleek, sophisticated card provides our customer with a distinctive, highly differentiated, and luxurious card that showcases the best of their brand to their customers. By partnering with this customer, we were able to bring their vision to life, and we are proud of the accolades this product and the services that support it have received. Turning to our third strategic priority, market-competitive business model. We remain focused on driving increased productivity and efficiency.

Our second strategic priority is providing market-leading quality products and five-star customer service. By effectively executing on this priority, we further established CPI as a partner of choice. For example, we were recognized by the International Card Manufacturers Association, or ICMA, for the manufacturing of the Pinnacle Financial Partners CoServe Holdings World Elite Encased Tungsten Card. This sleek, sophisticated card provides our customer with a distinctive, highly differentiated, and luxurious card that showcases the best of their brand to their customers. By partnering with this customer, we were able to bring their vision to life, and we are proud of the accolades this product and the services that support it have received. Turning to our third strategic priority, market-competitive business model. We remain focused on driving increased productivity and efficiency.

By effectively executing on this priority we further establish CPI as a partner of choice.

For example, we were recognized by the International card manufacturers Association or IC in May for the manufacturing of the Pinnacle financial partners co serve holdings World Elite encased tungsten card.

This sleek sophisticated card provides our customer with a distinctive highly differentiated unlike serious car that showcases the best of their brand to their customers.

By partnering with this customer we were able to bring their vision to life and we are proud of the accolades this product and the services that supported have received.

Turning to our third strategic priority market competitive business model, we remain focused on driving increased productivity and efficiency.

Over the last 18 months, we better positioned ourselves to serve customers by focusing on our core businesses, including secure card manufacturing.

Scott Scheirman: Over the last 18 months, we've better positioned ourselves to serve customers by focusing on our core businesses, including secure card manufacturing, personalization, instant issuance, and prepaid. We divested our UK and Canadian businesses, and consolidated our personalization facilities from three to two, streamlining our operations and enabling us to allocate resources to provide customers with unmatched solutions, innovation, and world-class service. As a result of our top-line strategic initiatives and our focus on operational efficiencies, our operating margins are up meaningfully compared to last year. Our fourth strategic priority is continuous innovation, which is integral to winning business and helping our customers differentiate themselves with distinctive products. Considering the growing popularity of wearables and non-wearable payment devices globally, we recently announced the launch of our embedded contactless technology, Adaptives.

Over the last 18 months, we've better positioned ourselves to serve customers by focusing on our core businesses, including secure card manufacturing, personalization, instant issuance, and prepaid. We divested our UK and Canadian businesses, and consolidated our personalization facilities from three to two, streamlining our operations and enabling us to allocate resources to provide customers with unmatched solutions, innovation, and world-class service. As a result of our top-line strategic initiatives and our focus on operational efficiencies, our operating margins are up meaningfully compared to last year. Our fourth strategic priority is continuous innovation, which is integral to winning business and helping our customers differentiate themselves with distinctive products. Considering the growing popularity of wearables and non-wearable payment devices globally, we recently announced the launch of our embedded contactless technology, Adaptives.

Personalization instant issuance and prepaid.

We divested our UK and Canadian businesses and consolidated our first personalization facilities from three to two.

Streamlining our operations and enabling us to allocate resources to provide customers with unmatched solutions innovation and World Class service.

As a result of our topline strategic initiatives and our focus on operational efficiencies, our operating margins are up meaningfully compared to last year.

Our fourth strategic priority is continuous innovation, which is integral to winning business and helping our customers differentiate themselves with distinctive products.

Considering the growing popularity of Wearables and non wearable payment devices globally, we recently announced the launch of our embedded contact with technology adaptive.

This technology enables our customers to create payment devices for various end uses and form factors, reflecting their unique brands and addressing evolving customer preferences.

Scott Scheirman: This technology enables our customers to create payment devices for various end uses and form factors, reflecting their unique brands and addressing evolving customer preferences. One recent example is our collaboration with FitPay. FitPay is using Adaptives to power contactless transactions for Flip, its new compact contactless payment device. Flip allows consumers to make purchases at millions of retail locations that accept contactless payments and address FitPay's commitment to advancing payment technology and options for their customers. Turning to slide seven, in wrapping up, we remain committed to providing market-leading quality products and customer service with a market-competitive business model as we build upon CPI's position as a partner of choice. We believe our second quarter and first half results reflect solid execution towards our goals as we continue to focus on our key priorities.

This technology enables our customers to create payment devices for various end uses and form factors, reflecting their unique brands and addressing evolving customer preferences. One recent example is our collaboration with FitPay. FitPay is using Adaptives to power contactless transactions for Flip, its new compact contactless payment device. Flip allows consumers to make purchases at millions of retail locations that accept contactless payments and address FitPay's commitment to advancing payment technology and options for their customers. Turning to slide seven, in wrapping up, we remain committed to providing market-leading quality products and customer service with a market-competitive business model as we build upon CPI's position as a partner of choice. We believe our second quarter and first half results reflect solid execution towards our goals as we continue to focus on our key priorities.

One recent example is our collaboration with fit pay.

Did pay is using adaptive to power contact close transactions for flip its new compact contact with payment device flip allows consumers to make purchases at millions of retail locations that except contact with payments and address fit pays commitment to advancing payment technology and options for their customers.

Turning to slide seven.

In wrapping up we remain committed to providing market, leading quality products and customer service with a market competitive business model as we build upon cpis position as a partner of choice.

We believe our second quarter and first half results reflects solid execution towards our goals as we continue to focus on our key priorities.

I will now turn the call over to John low to review, our second quarter and first half financial and operating results John .

Scott Scheirman: I will now turn the call over to John Lowe to review our second quarter and first half financial and operating results. John.

I will now turn the call over to John Lowe to review our second quarter and first half financial and operating results. John.

Thanks, Scott and good morning, everyone.

John Lowe: Thanks, Scott, and good morning, everyone. I will begin my overview of our results from the second quarter and first half of 2019 on slide nine. As a reminder, 2018 comparative results are on a continuing operations basis and exclude the UK business that was divested and reported as a discontinued operation during 2018, as required by US GAAP. The disposition of our Canadian business, which closed 1 April 2019, did not qualify as a discontinued operation under US GAAP, and therefore the results from this business are included in the other segment. Second quarter net sales increased 9% compared with the second quarter of 2018, driven by a 17% increase in net sales from our US debit and credit segment, and 3% net sales growth from our US prepaid debit segment.

I will begin my overview of our results from the second quarter and first half of 2019 on slide nine as a reminder, 2018 comparative results are on a continuing operations basis and exclude the UK business that was divested and reported as a discontinued operation during 2018 as required by Us GAAP.

The disposition of our Canadian business, which closed April Onest 2019 to not qualify as a discontinued operation under us GAAP and therefore the results from this business are included in the other segment.

Second quarter net sales increased 9% compared with the second quarter of 2018, driven by a 17% increase in net sales from our us debit and credit segment and 3% net sales growth from our us prepaid debit segment.

These quarterly gains were partially offset by a $2.4 million year over year decrease in Canada sales due to the recent disposition.

John Lowe: These quarterly gains were partially offset by a $2.4 million year-over-year decrease in Canada sales due to the recent disposition, net of the Canadian secure card business that migrated to our US operations. For the first half of 2019, net sales were $133.8 million, up 15% over the same period in 2018. Second quarter gross profit was $22.4 million, up 13% over the second quarter of last year. Gross margins for the second quarter increased 120 basis points year-over-year to 33.5%, our fourth consecutive quarter of improved year-over-year gross margins. Looking year to date, we generated gross profit of $43.9 million, up 28% from the first half of 2018. On a year-to-date basis, we expanded gross margins by 330 basis points year-over-year.

These quarterly gains were partially offset by a $2.4 million year-over-year decrease in Canada sales due to the recent disposition, net of the Canadian secure card business that migrated to our US operations. For the first half of 2019, net sales were $133.8 million, up 15% over the same period in 2018. Second quarter gross profit was $22.4 million, up 13% over the second quarter of last year. Gross margins for the second quarter increased 120 basis points year-over-year to 33.5%, our fourth consecutive quarter of improved year-over-year gross margins. Looking year to date, we generated gross profit of $43.9 million, up 28% from the first half of 2018. On a year-to-date basis, we expanded gross margins by 330 basis points year-over-year.

Net of the Canadian secured card business that migrated to our us operations.

For the first half of 2019 net sales were $133.8 million up 15% over the same period in 2018.

Second quarter gross profit was $22.4 million up 13% over the second quarter of last year gross margins for the second quarter increased 120 basis points year over year to 33.5% our fourth consecutive quarter of improved year over year gross margins.

Looking year to date.

We generated gross profit of $43.9 million up 28% from the first half of 2018.

On a year to date basis, we expanded gross margins by 330 basis points year over year.

This gross margin growth was due to higher net sales, which led to more favorable cost absorption and a reduction in expenses, resulting from last year's consolidation of our personalization operations.

John Lowe: This gross margin growth was due to higher net sales, which led to more favorable cost absorption, and a reduction in expenses resulting from last year's consolidation of our personalization operations. This growth was partially offset by higher card manufacturing materials costs, driven primarily by a mix of certain products. During the second quarter, we reported income from operations of $10.1 million, yielding an operating margin of 15.1%. Included in income from operations is a $6 million cash gain stemming from the settlement of litigation, the details of which are in the 10Q we filed earlier today. Excluding this $6 million gain, second quarter operating margins were 6.1%, up from 4.3% in the second quarter of last year. This improvement was due to higher net sales and a more favorable mix of products and services, which in turn drove greater operating leverage.

This gross margin growth was due to higher net sales, which led to more favorable cost absorption, and a reduction in expenses resulting from last year's consolidation of our personalization operations. This growth was partially offset by higher card manufacturing materials costs, driven primarily by a mix of certain products. During the second quarter, we reported income from operations of $10.1 million, yielding an operating margin of 15.1%. Included in income from operations is a $6 million cash gain stemming from the settlement of litigation, the details of which are in the 10Q we filed earlier today. Excluding this $6 million gain, second quarter operating margins were 6.1%, up from 4.3% in the second quarter of last year. This improvement was due to higher net sales and a more favorable mix of products and services, which in turn drove greater operating leverage.

This growth was partially offset by higher card manufacturing materials cost driven primarily by a mix of certain products.

During the second quarter, we reported income from operations of $10.1 million, yielding an operating margin of 15.1%.

Included in income from operations is a $6 million cash gains stemming from the settlement of litigation the details of which are in the 10-Q, we filed earlier today.

Excluding the $6 million gain second quarter operating margins were 6.1% up from 4.3% in the second quarter of last year. This improvement was due to higher net sales and a more favorable mix of products and services, which in turn drove greater operating leverage.

First half operating margins were 10.2% or 5.7%, excluding the litigation gain.

John Lowe: First half operating margins were 10.2%, or 5.7% excluding the litigation gain, up from 0.3% last year. Turning to slide ten, we generated net income of $1.6 million, or $0.14 per diluted share, and a net loss of $1.5 million, or a $0.14 loss per diluted share during the second quarter and first half of 2019, respectively. Both are improvements from the year-ago periods. In addition to the $6 million cash litigation settlement, the second quarter 2019 results include a $1.3 million non-cash foreign currency loss resulting from the required GAAP accounting related to the disposition of our Canadian business. Adjusted EBITDA, which excludes the $6 million cash litigation settlement gain, was $8.5 million, down 4% from the $8.9 million we reported in the second quarter of 2018.

First half operating margins were 10.2%, or 5.7% excluding the litigation gain, up from 0.3% last year. Turning to slide ten, we generated net income of $1.6 million, or $0.14 per diluted share, and a net loss of $1.5 million, or a $0.14 loss per diluted share during the second quarter and first half of 2019, respectively. Both are improvements from the year-ago periods. In addition to the $6 million cash litigation settlement, the second quarter 2019 results include a $1.3 million non-cash foreign currency loss resulting from the required GAAP accounting related to the disposition of our Canadian business. Adjusted EBITDA, which excludes the $6 million cash litigation settlement gain, was $8.5 million, down 4% from the $8.9 million we reported in the second quarter of 2018.

Up from 0.3% last year.

Turning to slide 10.

We generated net income of $1.6 million or 14 cents per diluted share and a net loss of $1.5 million were 14 cents loss per diluted share during the second quarter and first half of 2019, respectively.

Both our improvements from the year ago periods.

In addition to the $6 million cash litigation settlement. The second quarter 2019 results include a $1.3 million noncash foreign currency loss, resulting from the required GAAP accounting related to the disposition of our Canadian business.

Adjusted EBITDA, which excludes the $6 million cash litigation settlement gain was $8.5 million down 4% from the $8.9 million, we reported in the second quarter of 2018.

John Lowe: This was largely due to higher card manufacturing materials costs resulting from a certain mix of products, and increased employee performance incentive compensation, commensurate with the improved performance of the business relative to our expectations. Year to date, adjusted EBITDA, excluding the cash litigation settlement gain, was $16.5 million, up 28% compared with the first half of 2018. Turning to our segments on slide 11, second quarter US debit and credit segment net sales were up 17% year-over-year to $51.1 million. During the quarter, we benefited from year-over-year volume increases in financial payment card manufacturing, personalization, and fulfillment services, as well as a shift towards higher-priced products and services. During the quarter, EMV card manufacturing volumes, propelled by dual interface EMV cards, increased by a double-digit percentage year-over-year. The increase in dual interface manufacturing volumes was driven primarily by demand from larger issuers, as expected.

This was largely due to higher card manufacturing materials costs resulting from a certain mix of products, and increased employee performance incentive compensation, commensurate with the improved performance of the business relative to our expectations. Year to date, adjusted EBITDA, excluding the cash litigation settlement gain, was $16.5 million, up 28% compared with the first half of 2018. Turning to our segments on slide 11, second quarter US debit and credit segment net sales were up 17% year-over-year to $51.1 million. During the quarter, we benefited from year-over-year volume increases in financial payment card manufacturing, personalization, and fulfillment services, as well as a shift towards higher-priced products and services. During the quarter, EMV card manufacturing volumes, propelled by dual interface EMV cards, increased by a double-digit percentage year-over-year. The increase in dual interface manufacturing volumes was driven primarily by demand from larger issuers, as expected.

This was largely due to higher card manufacturing materials cost, resulting from a certain mix of products and increased employee performance incentive compensation commensurate with the improved performance of the business relative to our expectations.

Year to date adjusted EBITDA, excluding the cash litigation settlement gain was $16.5 million up 28% compared with the first half of 2018.

Turning to our segments on slide 11.

Second quarter Us debit and credit segment net sales were up 17% year over year to $51.1 million.

During the quarter, we benefited from year over year volume increases in financial payment card manufacturing and personalization and fulfillment services as well as a shift towards higher priced products and services.

During the quarter EMV card manufacturing volumes propelled by dual interface CMB cards increased by a double digit percentage year over year.

The increase in dual interface manufacturing volumes was driven primarily by demand from larger issuers as expected.

Record at once printer sales were down year over year. Those sales remained healthy at approximately 500 printers sold in the quarter.

John Lowe: For Card-at-Once, printer sales were down year-over-year, though sales remained healthy at approximately 500 printers sold in the quarter. We believe the second quarter softness to be largely the result of timing, as printer sales tend to be lumpy. Net sales of Card-at-Once personalization and consumables were up by a double-digit percentage for both the quarter and first half of 2019, underscoring the value of this Software-as-a-Service solution, and our confidence in long-term potential for this differentiated product offering. Second quarter US debit and credit income from operations was $8 million, up 20% year-over-year. Income from operations benefited from higher sales and reduced costs resulting from the consolidation of our personalization facilities last year. This was partially offset by higher card manufacturing materials costs that I discussed previously, as we continue to make investments to deliver quality products and services to our customers.

For Card-at-Once, printer sales were down year-over-year, though sales remained healthy at approximately 500 printers sold in the quarter. We believe the second quarter softness to be largely the result of timing, as printer sales tend to be lumpy. Net sales of Card-at-Once personalization and consumables were up by a double-digit percentage for both the quarter and first half of 2019, underscoring the value of this Software-as-a-Service solution, and our confidence in long-term potential for this differentiated product offering. Second quarter US debit and credit income from operations was $8 million, up 20% year-over-year. Income from operations benefited from higher sales and reduced costs resulting from the consolidation of our personalization facilities last year. This was partially offset by higher card manufacturing materials costs that I discussed previously, as we continue to make investments to deliver quality products and services to our customers.

We believe the second quarter softness to be largely the result of timing as printer sales tend to be lumpy.

Net sales of cart once personalization and consumables were up by a double digit percentage for both the quarter and first half of 2019 underscoring the value of the software as a service solution and our confidence in long term potential for this differentiated product offerings.

Second quarter Us debit and credit income from operations was $8 million up 20% year over year income from operations benefited from higher sales and reduce costs, resulting from the consolidation of our personalization facilities last year.

This was partially offset by higher card manufacturing materials cost that I discussed previously as we continue to make investments to deliver quality products and services to our customers.

For the first half us debit and credit segment net sales were up 24% year over year to $100 million and income from operations was up 72% to $15.8 million.

John Lowe: For the first half, US debit and credit segment net sales were up 24% year-over-year to $100 million, and income from operations was up 72% to $15.8 million. For our US prepaid debit segment, net sales were $16 million in the second quarter of 2019, a year-over-year increase of 3%. This increase, and, moreover, the 6% year-over-year increase in the first six months of 2019, is on top of strong performance for the segment in 2018, which included significant net sales associated with a new portfolio launch. While net sales for the segment tend to be lumpy, our second quarter and year-to-date results are encouraging. Prepaid debit segment income from operations was $5.4 million in the second quarter of 2019, up 27% from the prior year. For the first half, income from operations was $10.7 million, up 25% from the same period in 2018.

For the first half, US debit and credit segment net sales were up 24% year-over-year to $100 million, and income from operations was up 72% to $15.8 million. For our US prepaid debit segment, net sales were $16 million in the second quarter of 2019, a year-over-year increase of 3%. This increase, and, moreover, the 6% year-over-year increase in the first six months of 2019, is on top of strong performance for the segment in 2018, which included significant net sales associated with a new portfolio launch. While net sales for the segment tend to be lumpy, our second quarter and year-to-date results are encouraging. Prepaid debit segment income from operations was $5.4 million in the second quarter of 2019, up 27% from the prior year. For the first half, income from operations was $10.7 million, up 25% from the same period in 2018.

For our US prepaid debit segment net sales were $16 million in the second quarter of 2019, a year over year increase of 3%.

This increase in Moreover, the 6% year over year increase in the first six months of 2019 is on top of strong performance for the segment in 2018, which included significant net sales associated with the new portfolio launch.

While net sales for the segment tend to be lumpy, our second quarter and year to date resort results are encouraging.

Prepaid debit segment income from operations was $5.4 million in the second quarter of 2019 up 27% from the prior year.

For the first half income from operations was $10.7 million up 25% from the same period in 2018.

Year over year prepaid debit segment operating margins were up approximately 630 basis points in the quarter and more than 500 basis points for the first half, reflecting higher sales improved cost absorption and a more favorable product mix.

John Lowe: Year-over-year, prepaid debit segment operating margins were up approximately 630 basis points in the quarter, and more than 500 basis points for the first half, reflecting higher sales, improved cost absorption, and a more favorable product mix. As a reminder, with the 1 April 2019 completion of the disposition of the Canadian business, results from our other segment now reflect the loss of the associated net sales. Turning to slide 12, our cash balance as of 30 June 2019 was $17.5 million. As of 30 June 2019, we had $20 million available for borrowing on a revolving credit facility, bringing total available liquidity to $37.5 million at the end of the second quarter. We ended the quarter with total debt principal outstanding of $312.5 million. At the end of the second quarter, our net debt leverage ratio was 9.8x, an improvement from 10.9x a year in 2018.

Year-over-year, prepaid debit segment operating margins were up approximately 630 basis points in the quarter, and more than 500 basis points for the first half, reflecting higher sales, improved cost absorption, and a more favorable product mix. As a reminder, with the 1 April 2019 completion of the disposition of the Canadian business, results from our other segment now reflect the loss of the associated net sales. Turning to slide 12, our cash balance as of 30 June 2019 was $17.5 million. As of 30 June 2019, we had $20 million available for borrowing on a revolving credit facility, bringing total available liquidity to $37.5 million at the end of the second quarter. We ended the quarter with total debt principal outstanding of $312.5 million. At the end of the second quarter, our net debt leverage ratio was 9.8x, an improvement from 10.9x a year in 2018.

As a reminder, with the April 1st completion of the disposition of the Canadian business results from our other segment now reflect the loss of the associated net sales.

Turning to slide 12.

Our cash balance as of June Thirtyth, 2019 was $17.5 million as of June Thirtyth 2019, we had $20 million available for borrowing on a revolving credit facility, bringing total available liquidity to $37.5 million at the end of the second quarter.

We ended the quarter with total debt principal outstanding of $312.5 million at the end of the second quarter. Our net debt leverage ratio was 9.8 times an improvement from 10.9 times at year end 2018.

During the second quarter, we generated $9.2 million in cash from operating activities inclusive of cash received from the litigation settlement.

John Lowe: During the second quarter, we generated $9.2 million in cash from operating activities, inclusive of cash received from the litigation settlement. In addition, we spent $0.5 million in cash on capital expenditures as we continued to leverage equipment financing. This resulted in adjusted free cash flow for the quarter of $2.7 million. As a reminder, our business results fluctuate from quarter to quarter based on several factors, including customer ordering patterns, broader economic cyclicality, and quarterly seasonality. In recent years, net sales and adjusted EBITDA have been lower in the first half and higher in the second half of the year, resulting in a use of cash until the latter part of the year, due in part to the seasonality of our business. As we have said in the past, we continue to believe we have adequate cash and liquidity to support our business plan.

During the second quarter, we generated $9.2 million in cash from operating activities, inclusive of cash received from the litigation settlement. In addition, we spent $0.5 million in cash on capital expenditures as we continued to leverage equipment financing. This resulted in adjusted free cash flow for the quarter of $2.7 million. As a reminder, our business results fluctuate from quarter to quarter based on several factors, including customer ordering patterns, broader economic cyclicality, and quarterly seasonality. In recent years, net sales and adjusted EBITDA have been lower in the first half and higher in the second half of the year, resulting in a use of cash until the latter part of the year, due in part to the seasonality of our business. As we have said in the past, we continue to believe we have adequate cash and liquidity to support our business plan.

In addition, we spent zero point $5 million in cash on capital expenditures as we continue to leverage equipment financing.

This resulted in adjusted free cash flow for the quarter of $2.7 million.

As a reminder, our business results fluctuate from quarter to quarter based on several factors, including customer ordering patterns broader economic cyclicality in quarterly seasonality.

In recent years net sales and adjusted EBITDA had been lower in the first half and higher in the second half of the year, resulting in a use of cash until the latter part of the year due in part to the seasonality of our business.

As we have said in the past we continue to believe we have adequate cash and liquidity to support our business plan.

As a quick update on the market. We continue to expect that us industry EMV card manufacturing will will grow in 2019.

John Lowe: As a quick update on the market, we continue to expect that US industry EMV card manufacturing will grow in 2019, driven by dual interface conversions, primarily from larger issuers, and contact EMV reissuances, primarily from smaller financial institutions. This is consistent with what we have been experiencing. For dual interface or Tapping Go, we continue to expect card issuance to grow as a proportion of the market in the US in 2019, but view the US migration to dual interface as one that will occur gradually over the next few years. I will now turn the call back over to Scott for some closing remarks. Scott? Thanks, John. We are pleased with our business performance in the first half of 2019, and we believe that we are well positioned to deliver on our strategies and 2019 goals as we enter the second half of the year.

As a quick update on the market, we continue to expect that US industry EMV card manufacturing will grow in 2019, driven by dual interface conversions, primarily from larger issuers, and contact EMV reissuances, primarily from smaller financial institutions. This is consistent with what we have been experiencing. For dual interface or Tapping Go, we continue to expect card issuance to grow as a proportion of the market in the US in 2019, but view the US migration to dual interface as one that will occur gradually over the next few years. I will now turn the call back over to Scott for some closing remarks. Scott?

Driven by dual interface conversions, primarily from larger issuers and contact EMV Reissuances, primarily from smaller financial institutions. This is consistent with what we have been experiencing.

For dual interface or tap and go we continue to expect card issuance to grow as a proportion of the market in the us and 2019, but view the U.S. migration to dual interface is one that will occur gradually over the next few years I will now turn the call back over to Scott for some closing remarks Scott.

Scott Scheirman: Thanks, John. We are pleased with our business performance in the first half of 2019, and we believe that we are well positioned to deliver on our strategies and 2019 goals as we enter the second half of the year.

Thanks, John we are pleased with our business performance in the first half of 2019, and we believe that we are well positioned to deliver on our strategies and 2019 goals as we enter the second half of the year.

John Lowe: I look forward to updating you on our progress. Operator, you may now end the call.

I look forward to updating you on our progress. Operator, you may now end the call.

I look forward to updating you on our progress.

Operator, you may now in the call.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Q2 2019 Earnings Call

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