Good day, ladies and gentlemen, and thank you for standing by. Welcome to the fourth quarter 2017 CPI Card Group Incorporated Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. Now, I will like to welcome and turn the call to Mr. Will Maina, Investor Relations.

Thank you and good afternoon everyone. Welcome to the CPI Card Group fourth quarter and full year 2017 earnings conference call. Participating on today's call from CPI Card Group are Scott Scheirman, President and Chief Executive Officer; and Lillian Etzkorn, 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 Reform Act of 1995. Please refer to the disclosures at the end of the company's earnings press release for information about forward-looking statements that may be made or discussed on this call. The earnings press release is posted on CPI's website. Please note there is also a presentation that accompanies this conference call and is also accessible in the IR section of our website. Please review the information along with our filings with the SEC and on SEDAR for a disclosure of the factors that may impact subjects discussed on this call. All forward-looking statements made today reflect our current expectations only and we undertake no obligation to update any statements 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 EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income and loss, adjusted diluted earnings loss per share, free cash flow and constant currency. Please see the earnings press release on CPI's website for all the disclosures required by the SEC, including reconciliations to the most comparable GAAP measures. And now, I'd like to turn over the call to Scott Scheirman, President and Chief Executive Officer.

Thanks, Will and good afternoon, everyone. Thank you for joining us on our fourth quarter and full year 2017 conference call. It's great to be here today to discuss our results and I'm excited to share with you our strategy and plan for CPI in 2018 and beyond. I’ll begin the call by briefly summarizing our Q4 and full year 2017 financial results, which can be found on slide 4. Our fourth quarter operating results were broadly in line with our expectations. We generated revenue of $65 million, down 3.6% year-over-year, an improvement to the year-to-date year-over-year decline of 21.3% through the third quarter of 2017. We recorded GAAP net loss of approximately $15 million and adjusted net loss of $400,000. We had adjusted EBITDA of $3 million in the fourth quarter and positive operating and free cash flow of $9 million and $8 million respectively. For the full year, we reported total net sales of $255 million, a GAAP net loss of $22 million and an adjusted net loss of $2 million. We generated adjusted EBITDA of $26 million in 2017. We delivered positive operating cash flow of $2 million for the year. While 2017 was a challenging year for us, looking forward, we remain confident and excited by CPI’s opportunities for growth in the broader payments market. As you recall, during our third quarter earnings call, I shared with you that we would be undertaking a comprehensive review of our business to assess our strategies and opportunities, as we navigate the current challenging US card manufacturing and issuance market. As part of this process, I've spoken with many of our customers and employees and visited each of our US facilities. I've listened to feedback and gained valuable insights on CPI’s strengths, where we need to improve to where…

Thanks Scott and good afternoon, everyone. Turning to Slide 12, you will see an overview of our fourth quarter and full year 2017 results. Fourth quarter net sales were $65 million, down 3.6% from $67.4 million in the fourth quarter of 2016. For full year 2017, we generated net sales of $254.9 million. Product net sales decreased 15.8% year-over-year to $30.3 million in the fourth quarter, primarily reflecting a 23.8% decline in the number of US debit and credit EMV chip cards sold and lower EMV card average selling prices. Services net sales increased 10.4% year-over-year to $34.7 million, primarily driven by growth in our US prepaid debit segment. For full year 2017, product net sales decreased by 25.6% and services net sales declined by 7.6%. Gross profit for the fourth quarter was $18.6 million, representing a gross margin of 28.7% compared with 30.3% in the fourth quarter of 2016. For the full year 2017, gross profit was $75 million or 29.4% of net sales compared with $101.9 million and 33% in 2016. Loss from operations in the fourth quarter of 2017 was $21.8 million compared with an operating loss of $909,000 in the prior year period. Included in our loss from operations during the fourth quarter of 2017 are $19.1 million of non-cash goodwill impairment charges, resulting from our annual impairment test, primarily related to the sales decline in our US card manufacturing business. This non-cash charge is included in our operating loss for the period and full year. For the full year 2017, loss from operations was $18.1 million, or a positive $1 million, excluding the impairment. The year-over-year changes in our gross profit and income from operations for the fourth quarter and full year 2017 primarily reflect the decline in our revenue as well as the aforementioned…

[Operator Instructions] And our first question is from the line of Bob Napoli with William Blair.

I guess as you look at 2018, what are your thoughts on free cash flow, the ability to generate free cash flow. I mean, it sounds like you're looking for flattish type of revenue as kind of a reasonable case, flat to down a little bit and I know you've closed one facility. What can you do on the cost side? Do you expect to have positive free cash flow in 2018?

Thanks for the question, Bob. Appreciate that. As you probably realized, as we went through the materials and reviewing the press release and the presentation, we're not actually providing financial guidance as we move into 2018, which would include guidance on the free cash flow or cash in general. But what I can characterize is, we do believe that we have adequate cash and liquidity to support the business and that includes investing into the business, as Scott was describing in his prepared comments and supporting the overall business plan. We are going to be aggressively working on the cost structure. Scott highlighted three key areas that we’ll be addressing as we move through this year. The first is just on ongoing efficiencies, which is the continuation of the discipline that we've instilled and implemented within the organization this past year. So continuing to refine the business with those improvements. Additionally, we're going to be going after very aggressively our procurement spend, both on the direct front, but also on the indirect front. And then the third area that we're focused on from a cost improvement perspective that Scott touched on is the footprint. And as we've announced, we have closed or we're in the process of closing one of our personalization facilities and migrating that business to the other two personalization facilities, one in Nashville, Tennessee and the other in Minnesota and that will help us reduce our cost structure and service our customers more efficiently as we move forward.

Okay. And how much was pricing down in 2017 for EMV cards. I mean, it does seem like it’s stabilized. Has pricing -- you are saying that you expect prices to go down again in 2018.

Yeah. So, prices have gone down in 2017, excuse me. So 2017, I think we're at about $0.97 for the full year and we ended, I’m sorry, 2016, we ended the year at about $0.97 and we're down to about $0.90 for the full year of 2017.

Okay. And you expect a similar decline in 2018?

Well, I mean, it may not be the exact cents decline, but yeah, there is definitely downward pressure on the pricing that we're seeing across the industry. So yes, I would expect to continue to see that pricing pressure continue.

What could go right? Well, how -- on the metal cards, how much is it possible you’re going to see a significant ramp up in metal cards and what is the pricing on metal cards today?

Yeah. There's a number of things that we’re optimistic about, Bob, metal cards could be one of those for sure we've seen good interest from our customers and prospects and those carry a significantly higher average selling price than traditional EMV cards. Another thing that could go on our way is just the mix between large issuers and small issuers, just depending upon what fits that mix sales, and then I'd say we're equally excited about Card@Once. I know we've been talking about EMV cards, but Card@Once, the number of printers or installations we had were up 30% year-over-year and when we feel like there's a lot of demand in the marketplace for that, we can continue to grow that, and then CPI On-Demand. So there's a number of puts and takes as we look forward to 2018, but I think what's key is we have a strategy. We've got four key strategic priorities that center around the customer, market leading quality, cost competitiveness, and continuing to innovate products. I just feel like we've got a business plan that long term we can win and grow this company.

[Operator Instructions] Okay. And I'm not showing any further questions in the queue. I would like to turn the call back to Scott Scheirman for his final remarks.

Thank you, Carmen. Thank you for participating on our earnings call today. I look forward to speaking with you again during our first quarter earnings call. Operator, you can now end the call. Everybody, have a great day. Thank you.