Welcome to CPI Card Group Inc.'s Fourth Quarter 2025 Earnings Call. My name is Kate, and I will be your operator today. If you are viewing on the webcast, you may advance the slides forward by pressing the arrow buttons. 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 followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Now I would like to turn the call over to Michael A. Salop.

Thanks, operator. Welcome to CPI Card Group Inc.'s fourth quarter 2025 earnings webcast and conference call. Today's date is March 5, 2026, and on the call today from CPI Card Group Inc. are John D. Lowe, President and Chief Executive Officer, and Tara Grantham, Interim Chief Financial Officer. Before we begin, I would 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 Inc.'s most recent filings with the SEC. All forward-looking statements made today reflect our current expectations only; we undertake no obligation to update any statement to reflect the events that occurred 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, free cash flow, and net sales growth excluding the impact of the accounting change implemented in the second quarter. 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 Card Group Inc.'s investor relations website investors.cpicardgroup.com. In addition, CPI Card Group Inc.'s 2025 Form 10-K will be available on CPI Card Group Inc.'s investor relations website. On today's call, all growth rates refer to comparisons with the prior-year period unless otherwise noted. The agenda for today's call can be found on slide three. We will open the call for questions after our remarks. I will now turn the call over to John D. Lowe.

Thanks, Mike, and good morning, everyone. We are very pleased to report strong fourth quarter performance and solid results for 2025, a year which featured significant strategic, operational, and technological advancements. As we discussed throughout the year, we anticipated our business to accelerate in the fourth quarter, and we successfully executed to deliver that growth with a record quarter, growing revenue 22%. In addition to the contribution from AeroEye, this performance exceeded our expectations. We delivered strong growth across our debit and credit portfolio in the fourth quarter, driven by sales of contactless cards and ongoing double-digit growth from our software-as-a-service-based instant issuance solution. Revenue growth and the resulting operating leverage contributed to a 34% increase in adjusted EBITDA in the quarter and a 170 basis point increase in margins, and we generated exceptional cash flow. For the full year, we delivered 13% revenue growth and 5% adjusted EBITDA growth despite more than $4,000,000 of tariff expenses. We generated $60,000,000 of cash from operating activities and $41,000,000 of free cash flow, both large increases over 2024, allowing us to maintain net leverage around three times at year end. Overall, I am proud of our team's execution, which resulted in a solid end to 2025 and significant advances with our strategic initiatives. Now before I cover some of our significant accomplishments in 2025, I would like to take you to slide five covering how CPI Card Group Inc. is continuing to evolve with the market and the successes we are having executing on that strategic evolution. After being CEO for two years, and after nearly eight years here at CPI Card Group Inc., I have recognized we are a company that is constantly adapting with our markets, evolving with technology, and finding new solutions for our customers in whatever forms they…

I am pleased to be here and look forward to meeting many of you in the coming months. I will begin the detailed review on slide nine with the fourth quarter results. Fourth quarter revenue increased 22% to a record $153,000,000, which reflects a strong $18,000,000 contribution from ArrowEye as well as double-digit organic growth from our debit and credit portfolio. Debit and Credit segment revenue increased 40% including the impact of ArrowEye. Organic growth for this segment was 20%, driven by strong sales of contactless cards and continued excellent performance from our instant issuance solutions. Our personalization services also delivered a solid sales increase in the quarter. Prepaid revenue declined 27% compared to the exceptionally high prior-year fourth quarter, when sales increased 59% to $33,000,000, but revenue increased 4% compared to the third quarter. As we said at the beginning of the year, we expected prepaid growth to be constrained due to comparisons with the very strong year in 2024, and we ended the year down 3% when adjusting for the impact of the revenue recognition accounting change in the second quarter. And as John said, the prepaid market is transitioning, but we expect that to be a positive for CPI Card Group Inc. We began closed-loop prepaid shipments in 2025, and we expect this business to ramp significantly in 2026. Turning to profitability, fourth quarter gross profit margin declined from 34.1% to 31.5%, although it increased from 29.7% in the third quarter. Compared to prior year, the margin decline was driven by increased production costs including increased depreciation and tariffs, and unfavorable sales mix, partially offset by benefits from operating leverage on sales growth. Mix trends stabilized, though, and were comparable to the third quarter. Production costs in the quarter compared to prior year included $2,000,000 of increased…

Thanks, Tara. Turning to slide 14 to summarize before we open the call for Q&A, we had an exceptional fourth quarter with revenue growth acceleration, strong adjusted EBITDA growth and margins, and excellent cash flow generation. For the full year, we achieved solid revenue and adjusted EBITDA growth and generated over $40,000,000 free cash flow. We accomplished many strategic and operational objectives, including the ArrowEye acquisition and investment in Carta, the completion of our new Secure Card production facility, entry into the closed-loop prepaid market, and the ongoing build-out for our other digital solutions. We are excited about our new organizational structure to drive our strategy and the long-term opportunities to enhance incremental growth. We intend to continue leveraging our expanding proprietary technology platform, our extensive marketable base, and our evolving portfolio of payment solutions to meet the market needs, drive growth, and enable our customers to win. We are confident in our strategies and teams, and we expect to deliver another good year in 2026. Operator, we will now open the call up for any questions.

We will now open the call for your questions. If you would like to ask a question, press star then the number 1 on your telephone keypad. Your first question comes from the line of Jacob Stephan with Lake Street Capital Markets. Your line is open.

Hey, guys. Good morning. Congrats on the results. Welcome, Tara. Maybe just to touch on something that you kind of talked on, the closed-loop market being five times larger, so pretty significant opportunity for you guys. How are these sales cycles any different from, you know, potentially other prepaid deals? And, you know, do you have to change anything internally to kind of capture this market?

Yeah, Jacob, good morning. So it is interesting. The closed-loop market, you are right, five times larger in volume, probably slightly higher than that. The value of closed-loop we expect to continue to grow and become even greater as we expect packaging to become more pervasive, if you will, across the United States mainly due to regulatory changes and fraud. From the sales cycle perspective, we actually have a slightly accelerated sales cycle versus our normal, just our broader portfolio in general. And that is because, you know, on the open-loop side, we have been working for most all the program managers that are out there. With the addition of ArrowEye, now we work for all of the major program managers. So we have relationships with, I would say, more than half the market that is already selling into the closed-loop space. So as we build out our capabilities, we have the proven ability to execute and deliver, and so that has given us the right, if you will, to move into the closed-loop market fairly quickly, winning some deals, locking down contracts, and really building out the whole operation in late last year. And, ultimately, we believe we are going to have a decent growth out of that in 2026.

Okay. Got it. Helpful. Maybe just to kind of put a cap on that. So can you kind of help us think through the recent announcement with the TDS, and, you know, how the closed-loop opportunity kind of plays into the high single-digit growth guidance for 2026? I know you guys kind of talked about that being an important driver this year.

Yeah. Yeah. No. And, Jacob, good question. There are a lot of moving parts in our business. We have diversified quite a bit over the years. You know, the prepaid market in general is—it is kind of odd because it is actually a little bit choppy right now, but that is positive for us. And the reason I say that is because if you look at the broader prepaid market, fraud has been prevalent for a number of years. It has been a bit of a cat-and-mouse game. That has caused, on the open-loop side where we are the market leader by far, that has caused significant kind of improvement in fraud-preventive packaging, if you will, that, you know, we are constantly trying to innovate with our customers to stay ahead of the, you know, I would say, the criminal activity from a fraud perspective. But because of that, you are also starting to see on the closed-loop side the same thing happen. Right? You are starting to see states' regulations that say the closed-loop gift card has to be in a package or has to have a chip in it. And you are starting to see, as an example, the open-loop side, just like, you know, our investment in Carta, where we own 20%, have a call option to grow to 51%. We are using their unique technology with one of our larger customers on the prepaid side and ultimately one of the larger national retailers in the United States to go through a second stage of pilot where we are putting chips in prepaid cards to reduce fraud, and those results have been very strong. That said, it creates kind of this environment in the prepaid market where the program managers, the distributors, others, the merchandisers are trying to understand, okay, do we move towards greater packaging? Do we move towards putting chips in prepaid cards more broadly? It is more expensive. But, ultimately, you know, if you think about CPI Card Group Inc. and what we do, right, we are by far the leader in open-loop packaging. We have the scale that no one else in the market has. We are also one of the leaders in the United States from a chip-embedding perspective in the debit and credit market. So we are the only player in the U.S. market that has strong capabilities on both sides. And so while the prepaid market is choppy this year, and actually, you know, we are starting the year slow, and we would expect that to ramp up over the course of the year but still have a fairly flat year to slow-growth year, ultimately, over the long term, it is going to be really positive for us given how we are positioned in the market. So I know a lot to take in there, but hopefully that helps.

Yeah. And you kind of touched on my last question. Obviously, fraud has been a pretty important theme over the last, you know, year, year and a half. As we kind of look out to 2026 and maybe even beyond, you know, is there potentially another sort of, like, recurring revenue-type business that you would be interested in, you know, potentially acquiring with, you know, AI kind of boosting fraud rates? And I am wondering if there is any sort of additional software solution that can help on the fraud prevention side that you guys might be interested in?

Well, we do already resell one major fraud solution that uses AI in their modeling, if you will, in their machine learning, to prevent fraud on the debit and credit side. That is something that—they are a fairly large player in the debit and credit market—connected into a lot of the processors to kind of—it builds off our proprietary technology platform and our ability to provide those types of services to our financial institution base broadly. But fraud is a market that is constantly changing, and so from an acquisition perspective, it would have to be a software that is proven and has an ability to constantly pivot on the fly. So right now, our strategy on fraud is really to help from kind of the production perspective as well as producing technology from what Carta produces to be able to prevent fraud on the prepaid side where we believe there is probably a lot more value, and ultimately, on the debit and credit side, provide solutions from a more commercial perspective. But if you think about on the prepaid side of our business, what Carta does—they are taking data off the prepaid card and ultimately using their solution to not only reduce fraud just by the fact that you cannot steal the data off the card, but their solution also loads the prepaid gift card onto your mobile wallet and is a digital issuance platform as well. So there are kind of multiple value propositions on the Carta side. But from a fraud side, it is constantly changing, so it has to be someone who has really unique technology to look at them from an M&A perspective.

Okay. Got it. I appreciate it, guys. Thanks.

Your next question comes from the line of Craig Irwin with ROTH Capital Partners.

So, John, when I look at my wallet, I am seeing new cards from Chase, Wells Fargo, and Fidelity, provided by CPI Card Group Inc. These are large issuers. Now I am not asking you to comment about any of these specific large issuers, but I am sure there are probably others. Can you maybe just give us a high-level commentary on, you know, these customers that I do not think you did a lot of business with over the last several years? Are you seeing an increased capture rate with large issuers? You know, what was the contribution, if you could give us color, on the 40% growth there in debit and credit from large issuers?

Yeah. Craig, thanks for the callout. We will be happy to have you on our marketing team anytime you want to join. But, no, in all seriousness, the largest—we are based—I mean, we have said this over time. We work with about half of them. You know, you mentioned a couple different names there. One of those we are actually doing metal with as part of our metal growth. I will not name names, but—so very positive in terms of our relationships we have with the large issuers. We have been growing share over the last, I would say, five years with the larger issuers. But I would not comment specifically on their growth rates in Q4 or 2025. What I would say is just broadly the larger players in general. So go beyond the large issuers that are the names you are thinking of. Think of the credit union service organizations. We mentioned Valera this morning, that we signed another four-year deal with. Think of the large processors out there. There are a number of partners that we have that are fairly large that we also have been growing share with. And so we are excited about our position in the debit and credit market. Our Secure Card Solutions side, between our card production, our personalization business, the acquisition of ArrowEye, really gives us a unique value proposition and allows us to continue to execute on our strategy and win share not only in the large issuer market but in the broader FI, fintech, and other markets.

Thank you for that. My second question is about headcount. Right? When I looked at your K, I saw you now have about 1,700 employees beginning 2026. It is up about 13% or a little over 13% consistent with your revenue growth last year. Now that does not kind of point to leveraging the model. And I know there are a bunch of initiatives you were staffing up, particularly on the technology side and some of these things with, you know, incredible long-term potential. Can you maybe flesh out for us, you know, where you would likely be hiring in 2026? And, you know, would you expect mid- to high single-digit growth consistent with revenue, or do we potentially see a more tempered rate of hiring?

So a lot of our hiring last year, when you just look at a headcount perspective, was through the acquisition of ArrowEye. Right? I mean, they have—I do not know the exact number, I think it is 250 people roughly in Las Vegas. So fairly decent-sized business there. So you have to kind of take that into account, Craig. But if you went out and looked at who we are hiring and who we have hired over time, it has been predominantly in the go-to-market side to try to, you know, push our solutions further into the market, expand our go-to-market efforts, as well as on the technology side within our Integrated PayTech segment. So those are probably the two areas where we will continue to invest in, and we continue to invest broadly in the business as we grow. But I think if you stripped out ArrowEye, you would realize we are definitely growing in the number of people that we have, but I would not say we are not getting leverage out of the model, and you saw that in Q4 from our growth in Q4 and what we pushed to the bottom line.

No, that—an excellent quarter, the fourth quarter. Congratulations. Thanks for taking my questions. I will hop back in the queue.

Your next question comes from the line of Hal Goetsch with B. Riley Securities.

Hey. Questions on CapEx. CapEx was up, you know, from $8,000,000 to in the high teens. You said it is going to be similar to that in 2026. Is this a number we should expect going forward, or is this a number that might come back down after, you know, a two- or two-year investment period.

Yeah. That is a good question, Hal. I would say it probably will come down in the outer years. It has grown, you know, quite a bit in 2025 as we built out closed loop. We built out Indiana. But I would say it is more on the physical side in 2025 than more on the digital side in 2026 and what we might expect in coming years. But, Tara, do you want to add to that?

Yeah, just to add to that, we did spend about $5,000,000 in CapEx in 2025 on our new factory in Indiana. So that is going away. But we are replacing that with higher investments in our technology spend. So that is on the CapEx side to the growth of our Integrated PayTech business and also to help upgrade some of our other technology as well. I will say that even with that CapEx spend, we are expecting similar cash flow conversion in 2026 as we had in 2025. So we are happy to be investing in the business and continuing to convert on the cash flow side as well.

Yep. Goal is to drive leverage down even while investing. So could you share with me on the tax side? It seems like your tax rate is higher than most of the companies I follow that are, you know, mostly domestic. And I think you said over 30%. Is that correct? And what was the cash flow impact, free cash flow impact, this year from the big, beautiful bill or tax change that might have lifted free cash flow this year, and what might be the impact next year from tax law changes to your free cash flow?

Hal, we did get a slight benefit; I do not think it is a huge number. I think it is in the few-million range. Just on the tax rate in general, I think the big impact this year was due to the ArrowEye acquisition and integration costs that are not necessarily tax deductible. But I do not know if you have any other comments. Yeah, so we are expecting a benefit between 2025 and 2026 from the U.S. budget bill of $3,000,000 to $5,000,000 across 2025–2026. Just a reminder, though, that that is a cash impact, and it does not impact our ETR.

Yeah. And follow-up, last question for me. On kind of, like, modeling. Are you going to provide pro formas for the new three segments going back maybe at least quarters for 2025? That we can project trends and margins off of? Thank you.

Hal, I think we did. I think there is a filing this morning, if I am not mistaken. It has 2025 quarters as well as the full year.

Okay. Terrific. Thanks.

As there are no further questions in the queue, I would now like to turn the call back over to John Lowe for closing remarks.

Thanks, operator. Well, first, I would like to thank all of our CPI Card Group Inc. employees for what they accomplished in 2025 and their ongoing commitment to serving the company, our customers, and executing on our strategy to win in the market. I hope everyone enjoyed learning more about CPI Card Group Inc.'s evolution this morning. We are proud of our 2025 and year-end performance, and we look forward to sharing more on our progress in future calls. Thank you all for joining, and we hope you have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.