[Management View]
CPI Card Group's management highlighted the successful integration of the ArrowEye acquisition, which exceeded revenue and profitability expectations. Strategic investments in product diversification, including digital issuance and government disbursement verticals, are key priorities to gain market share in recurring revenue markets.

[Outlook]
The company raised its full-year net sales guidance, projecting low double-digit to mid-teens growth for fiscal 2025, driven by the ArrowEye acquisition and strong demand for CardOnce and contactless cards. Adjusted EBITDA growth is expected in the mid- to high-single-digit range.

[Financial Performance]
Net sales increased 9% to $129.8 million, or 15% excluding an $8 million accounting change. Adjusted EBITDA rose 3% to $22.5 million, with a margin decline to 17.3% due to sales mix and tariff expenses. Debit and credit segment sales grew 16%, while prepaid segment sales declined 19% due to accounting changes.

[Q&A Highlights]
Question 1: Can you elaborate on the ArrowEye acquisition's impact on larger customer orders and potential synergies?
Answer: ArrowEye's performance exceeded expectations with nearly $10 million in revenue in less than two months. While immediate revenue synergies are not yet realized, opportunities exist for leveraging digital solutions and larger customer orders due to CPI's stronger balance sheet.

Question 2: How does the ArrowEye acquisition affect chip procurement and potential cash flow improvements?
Answer: CPI's stronger purchasing power allows for leveraging chip procurement, potentially freeing up cash flows by procuring chips at cheaper rates for ArrowEye's EMP cards.

Question 3: What is the potential of the CardOnce solution in government programs?
Answer: CardOnce has entered the government disbursement space, providing on-site payment card issuance for social safety net programs. This vertical is seen as a strong recurring market with opportunities for expansion.

Question 4: How is CPI managing potential chip tariff impacts?
Answer: CPI has ample chip inventory and is prepared to manage supply chain challenges. The company is monitoring the situation and will work with customers and suppliers to mitigate impacts.

Question 5: What are the financial impacts of tariffs and dual production facilities?
Answer: Tariff expenses are projected at $5 million for 2025, with $1 million incurred in Q2. Dual production facilities in Indiana are expected to incur $3 million in incremental costs this year.

[Sentiment Analysis]
Analysts expressed optimism about the ArrowEye acquisition and strategic investments, while management maintained a confident tone regarding growth prospects and the ability to manage tariff impacts.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 |
|-------------------------|---------|---------|
| Net Sales | $129.8M | N/A |
| Adjusted EBITDA | $22.5M | N/A |
| Gross Profit Margin | 30.9% | 35.7% |
| Net Income Decline | 91% | N/A |
| Net Leverage Ratio | 3.6x | 3.1x |

[Risks and Concerns]
Key risks include tariff expenses, which are expected to impact profitability, and the transition costs associated with the Indiana facility. The potential impact of proposed semiconductor chip tariffs remains uncertain.

[Final Takeaway]
CPI Card Group's strategic acquisition of ArrowEye and investments in product diversification are driving growth, despite challenges from tariffs and facility transition costs. The company is well-positioned to capitalize on emerging opportunities in government disbursement and digital solutions, with a strong outlook for the remainder of 2025. Management's focus on leveraging synergies and managing supply chain risks underscores their commitment to delivering long-term value.