CompoSecure, Inc. Q3 FY2024 earnings call

• Resolute transaction simplified the dual-class share structure, eliminated tax distributions, and is expected to add ~$20M in annual free cash flow.
• Dave Cote joined as Executive Chairman, and experienced leaders were added to the Board.
• Focus on building a high-performance culture, using the CompoSecure Operating System, reinvigorating organic growth, and pursuing accretive M&A.
• Q3 had double-digit growth in net sales and adjusted EBITDA driven by international performance and innovative payment cards; signed a 2-year contract extension with Capital One.
• Numerous high-profile customer card programs launched during the quarter. Arculus net investment trended favorably, on track to turn positive in 2025.
• Achieved milestones like key innovations, debt refinancing, Board enhancements, and 9 industry awards.

In the third quarter, CompoSecure delivered double-digit growth in net sales and adjusted EBITDA. Net sales increased by 11% to $107.1 million, and adjusted EBITDA rose by 13% to $40 million. Gross profit was up 13% to $26 million with a gross margin of 52%. Year-to-date, the company continues to show growth on the top and bottom lines. International performance was strong, driving the growth, and domestic is expected to rebound in the fourth quarter. Adjusted net income was up 18% in Q3, but GAAP net loss was reported due to non-cash fair value adjustments.

• Revised 2024 net sales guidance: $418M-$424M; adjusted EBITDA guidance: $148M-$151M.
• Q4 implied adjusted EBITDA range: $30M-$33M, including $4M-$6M one-time non-recurring professional expenses.
• 2025 outlook: sales growth may be lower than 2024, EBITDA growth similar, focus on M&A and operating efficiency to drive results.

• Increased competition in the metal card market.
• Impact of digital wallets on card business.
• Rising labor costs and competition for top talent.
• Global uncertainty affecting 2025 prospects.

Q: Can you give a sense on M&A focus, whether supplier side to grow margin or different revenue opportunities?

A: Jon Wilk says they're looking up and down the value chain; Dave Cote talks about Arculus technology and go-to-market for it.

Q: Implied Q4 guide, deceleration vs Q3, and international vs domestic?

A: Jon Wilk says Q4 is reflective of year finish, international performance was strong but lumpier; domestic expected to rebound.

Q: View on Arculus and digital authentication long-term?

A: Jon Wilk discusses Arculus using FIDO standard and being first/only with FIDO authentication token; Dave Cote likes the technology but needs better go-to-market.

Q: How to define culture of excellence and roadmap for improvement?

A: Dave Cote talks about using the CompoSecure Operating System and value stream maps to improve processes, aiming to make all processes more efficient over time.

Q: Detail on Q4 costs for M&A infrastructure?

A: Jon Wilk says investing in M&A capability with ongoing expenses, but specific breakdown not provided yet.