[Management View]
CPI Card Group reported a 11% increase in net sales for Q3 2025, driven by the ArrowEye acquisition and growth in instant issuance solutions. Despite facing margin pressures from unfavorable sales mix, tariffs, and increased depreciation, the company is focused on strategic initiatives such as supplier negotiations, automation, and expanding ArrowEye synergies.

[Outlook]
The company revised its full-year 2025 guidance to low double-digit to low teens net sales growth and flat to low single-digit adjusted EBITDA growth, citing ongoing margin pressures. CPI anticipates strong sales and adjusted EBITDA growth in Q4, with certain prepaid orders potentially shifting into 2026.

[Financial Performance]
Adjusted EBITDA decreased 7% YoY to $23.4 million, with margins contracting from 20.1% to 17.0%. Net sales rose 11% due to ArrowEye, while gross profit margin declined to 29.7% from 35.8% due to sales mix and increased production costs.

[Q&A Highlights]
Question 1: Could you provide more details on the impact of tariffs, given the previous guidance of $5 million in charges for the year?
Answer: Tariffs amounted to $1.6 million in Q3, with expectations now adjusted to $4-$5 million for the year due to a 45% reduction in China rates. CPI is actively negotiating with suppliers to mitigate tariff impacts.

Question 2: Can you elaborate on the changes in your prepaid segment, including new programs like healthcare and payroll cards?
Answer: CPI is the market leader in prepaid packaging solutions, facing increased complexity due to rising fraud. The company is investing in closed-loop prepaid solutions, with shipments expected in Q4, and has partnered with Carta to pilot chip-enabled prepaid cards with a large US retailer.

Question 3: How does the Visa and Mastercard data impact your guidance, particularly regarding prepaid shipments?
Answer: Prepaid ordering can be lumpy, with some orders potentially delayed to early 2026. CPI remains confident in card growth, supported by new account openings and market share gains.

Question 4: What is the significance of adding chip capability to prepaid cards, and how does it affect ASP?
Answer: Chip-enabled prepaid cards significantly reduce fraud risk and increase value, similar to the transition from MagStripe to chip in debit and credit markets. While ASPs are higher, exact figures will be shared as pilots progress.

Question 5: How are you positioning inventories in light of potential semiconductor tariffs?
Answer: CPI has increased chip inventory to mitigate potential supply constraints, although the timing and impact of tariffs remain uncertain.

Question 6: What are the growth prospects for the instant issuance business outside of financial institutions?
Answer: The instant issuance business is on track for a record year, with expansion into non-financial sectors. It remains a high-margin segment, contributing significantly to CPI's digital solutions suite.

[Sentiment Analysis]
Analysts expressed interest in CPI's strategic initiatives and tariff management, with a positive tone towards the company's growth prospects in prepaid and instant issuance segments. Management conveyed confidence in overcoming margin pressures and executing long-term growth strategies.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 | YoY Change |
|--------|---------|---------|------------|
| Net Sales | $X million | $X million | +11% |
| Adjusted EBITDA | $23.4 million | $X million | -7% |
| Gross Profit Margin | 29.7% | 35.8% | -6.1% |

[Risks and Concerns]
CPI faces risks from tariff impacts, increased production costs, and potential semiconductor tariffs. The complexity of prepaid orders and fraud prevention requirements may affect revenue timing and margins.

[Final Takeaway]
CPI Card Group demonstrated resilience in Q3 2025, leveraging strategic acquisitions and innovations to drive sales growth despite margin pressures. The company's proactive approach to managing tariffs and expanding its prepaid and instant issuance offerings positions it well for future growth. Investors should monitor CPI's ability to execute its strategic initiatives and navigate external challenges, particularly in the prepaid segment and potential semiconductor tariffs.