Hello. And welcome to CPI Card Group's Second Quarter 2022 Earnings Conference Call. My name is Alex, and I will be coordinating the call today. [Operator Instructions]. I would now like to hand over to our host, Mike Salop, Head of Investor Relations. Mike, over to you.

Thanks, operator, and good morning, everyone. Welcome to the CPI Card Group's Second Quarter 2022 Earnings Webcast and Conference Call. Today's date is August 8, 2022, and on the call today from CPI Card Group are Scott Scheirman, President and Chief Executive Officer; and Amintore Schenkel, 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. These 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 a 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. Reconciliations of these non-GAAP financial measure to 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 a presentation that accompanies this conference call are accessible on CPI’s Investor Relations website, investor.cpicardgroup.com. In addition, CPIs Form 10-Q for the quarter ended June 30, 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 Sherman.

Thanks Mike. And good morning everyone. During today's call, I will provide an overview of CPI’s performance in the second quarter, update our 2022 expectations and review our long-term strategy. Amintore will review the quarterly financial results in more detail, and then we will open up the call for questions. We will start on slide 4. We continued our strong start to the year with second quarter sales increasing 22% to $113 million. Another record quarterly sales level driven by strong customer demand across our business. Second quarter sales growth has led by our debit and credit segments which increased 29% and included strong contributions from contactless cards, including eco focus cards and our Software-as-a-Service-based Card@Once instant issuance solutions. We sold more than 18 million eco-focused cards in the quarter led by our recovered ocean-bound plastic offerings, increasing our total to nearly 80 million cards sold since launch in late 2019. Although, the higher average selling prices of contactless cards benefit our revenue and continue to be an increased part of the mix. The majority of our card sales growth in the quarter was due to unit volume increases. Our SaaS base instant issuance solution, Card@Once was also a major growth driver for the debit and credit segments in the second quarter, as small and medium sized financial institutions continue to desire our plug and play solution. Prepaid segment sales declined 6% compared to the exceptionally strong performance in 2021, which benefited from a significant new portfolio addition and retail inventory replenishment related to COVID impacts. Based on first half results and anticipated orders, we now expect 2022 full year prepaid sales to be similar to the 2021 record level. Adjusted EBITDA increased 2% to $20 million in the quarter as the strong sales growth offset continued inflation impacts on…

Thank you, Scott. And good morning, everyone. I will begin my overview on slide 7. Second quarter net sales increased 22% to $113.3 million compared to the prior year quarter, driven by a 29% increase in our debit and credit segment. Debit and credit segment growth was primarily due to increased sales of higher priced contactless cards, including strong growth in our eco-focused cards. Strong increases in Card@Once instant issuance solutions, and personalization services for contactless cards. Prepaid debit segment sales declined 6% compared with the prior year, as a 2021 second quarter benefited from onboarding of significant new customer portfolios and retail inventory replenishment. Second quarter gross profit of $40.6 million increased 9% from the prior year, while gross profit margin decreased from 39.8% to 35.8%. Primarily due to the inflationary impacts on materials cost and partially offset by operating leverage from sales growth. Gross profit margin stabilized relative to the first quarter increasing from 35.3% in Q1 to the 35.8% in Q2. SG&A expenses increased by $4.3 million in the quarter compared to the prior year, primarily due to $2 million of increased compensation expenses, which reflect increased headcount and includes $1 million of stock compensation expense that we did not have in the prior year quarter. Approximately $1 million of incremental professional services costs, and approximately $1 million related to various items including increased IT expenses, and comparisons with a sales tax benefit in the prior year quarter. Net income in the quarter decreased 1% to $6.2 million and adjusted EBITDA increased 2% to $19.7 million. Adjusted EBITDA margin declined from 20.7% in the prior year to 17.4% in this 2022 second quarter due to the inflationary impact on production costs, which offset operating leverage and higher SG&A expenses. Net income in the quarter also benefited from…

Thanks Amintore Schenkel, The second quarter built on our strong first quarter performance. And we're pleased to be able to raise our outlook for the year. We have been able to navigate a challenging supply chain, labor and inflationary environment and deliver for our customers. Our portfolio of innovative products and end-to-end solutions continues to generate strong demand. And we have experienced very high growth from eco-focused contactless cards, and our SaaS base instant issuance solutions among other products. In addition, our prepaid business is doing well relative to expectations after the record sales year in 2021. As always, I would like to thank all of our employees for working hard to deliver these results. Execution of our strategic priorities are deep customer focus, market leading quality products and customer service, continuous innovation and a market competitive business model continued to produce results and position as well to realize the long-term opportunities in our growing markets. Thank you for joining our call today. And we will now open up the call for any questions.

[Operator Instructions] Our first question for today comes from Jaeson Schmidt of Lake Street.

Hi, guys, thanks for taking my questions. And congrats on this really impressive results there. Just want start with for Q2, just curious if there was any demand, you were unable to ship because of the supply chain backdrop.

Hey, Jason, good morning. I would say yes, clearly, customer demand is still very strong and robust. And so we continue to work on improving our capacity hiring talent, and making sure we've got a robust supply chain. So I would say, yes, we could have done more. And I think that's reflective of we've increased our full year outlook this morning, just because of the strong customer demand. Our quality and our innovative products are winning in the marketplace.

Okay, that's helpful. And just following up on that. I mean, with the lifted full year outlook, does that assume you guys are anticipating at least some easing in the supply chain? Or is this really a function of demand is so robust than even if supply chain remains tight just given the demand profile? You guys should be able to kind of hit that new range?

Yes, we worked closely with a lot of our customers. So we've got really good visibility for the next five months. July is already in the books for us, right, Jason. So we've got really good visibility with our customers. We anticipate having chips and other supplies we need and the labor in place. So just given the visibility with our customers, we feel really good about our outlook for 2022.

Okay, got it. And then just the last one for me, and I'll jump back into queue. I know you outlined some of the dynamics that went into sort of that increase in operating expenses. Just curious if this kind of Q2 level is more the run rate we should expect here in the second half of this year.

Yes, I'll let Amintore, you address that.

Yes, no, I mean. I think as we think about the second quarter, we did have some expenses in the SG&A side that were a little bit higher than we would think they'd be on a normal run rate. But overall, I'd say, yes, but I'd try to say the run rate that we had in the second quarter outside of some of those SG&A expenses was probably a good run rate going forward here.

[Operator Instructions] Okay, currently we have no further questions. So I'll hand back to Mike Salop for any further remarks.

Okay, thank you, Alex. Thanks, everyone for joining our call today and hope everyone has a good day.

Thank you for joining today’s call. You may now disconnect your line.