CPI Card Group Inc. Q2 FY2025 earnings call

• Secure Card business saw volume and sales growth >15% in first half and won new metal card orders. • Card@Once, a SaaS instant issuance digital solution, grew >20% in first half and expanded to over 17,000 locations. • Open loop prepaid business had 17% sales growth (excluding accounting change) due to value packaging and health care diversification. • Arroweye acquisition is performing better than expectations, with nearly $10M in revenue in less than 2 months. • Strategic pillars include customer focus, quality/efficiency, innovation/diversification, and people/culture. • Arroweye complements CPI's business, providing access to diverse payment card user segments. • Investments in Card@Once expanded into government disbursement space, prepaid packages for closed-loop market, health care payment card solutions, and digital solutions. • Made significant investments in automation, production workflow innovation, and new facilities, with the Indiana facility starting to operate. • Faced challenges like unexpected tariffs (~$5M in 2025), one-time costs in Secure Card business, and margin pressures from sales mix.

Secure Card business: Delivered volume and sales growth >15% in the first half, won new business including metal card orders. Card@Once: Grew >20% in the first half, expanded to over 17,000 locations with 2 consecutive record sales quarters. Open loop prepaid business: Sales up 17% this year (excluding accounting change) driven by value packaging solutions and health care offerings. Digital solutions: Growing, though still immaterial. Arroweye acquisition: Contributed nearly $10 million of revenue in less than 2 months, exceeding sales and profitability expectations.

• Net sales outlook revised to low double-digit to mid-teens growth, up from previous mid- to high single-digit growth, driven by Arroweye acquisition but offset by accounting change impact. • Adjusted EBITDA outlook unchanged at mid- to high single-digit growth, considering Arroweye contribution, tariffs, and sales mix. • No impact from proposed semiconductor chip tariffs included in outlook as details on implementation and exemptions are unknown. • Anticipate similar margin pressures in Q3 as Q2, with margin improvement expected in Q4 as Indiana plant ramps up.

• Unexpected tariffs: Anticipated to be approximately $5 million for 2025. • One-time costs and inefficiencies: In Secure Card business due to focus on new facility and sales mix margin pressures. • Accounting change impact: Affected revenue recognition timing, impacting sales and net income in the quarter.

Q: On the Arroweye acquisition, can you talk about larger orders and backing of balance sheet?

A: Arroweye performed well with nearly $10M in revenue in less than 2 months, but immediate large orders not primarily due to balance sheet, but prospects for synergies ahead.

Q: On Arroweye's revenue contribution and outperformance, how much was from Arroweye?

A: Arroweye contribution was fairly small in relation to overall business, but profitability was a help.

Q: On Card@Once's government program win, what's the opportunity?

A: Card@Once has opportunity in government social safety net programs, starting in one state with potential to penetrate others, a strong recurring market.

Q: On metal cards, thoughts on their growth?

A: Metal cards are a complementary product, positioned well for small to medium customers, a niche but continued focus.

Q: On tariffs, ways to mitigate and inventory coverage?

A: Have ample chips on hand, will work through tariffs as details emerge, and it's an industry-wide impact.

Q: On tariff and Indiana production costs?

A: $1M tariff impact in Q2, ~$5M for year in tariffs, ~$3M incremental this year for Indiana production facility transition.