CompoSecure, Inc. Q4 FY2024 earnings call

• Dave Cote emphasized investing in a high-performance culture, implementing the CompoSecure Operating System (COS) to enhance efficiency, and reinvigorating organic growth.
• Jon Wilk noted 2024 was a foundational year with 8% net sales growth, robust free cash flow, and a 60% reduction in net debt. Q4 net sales were flat, adjusted EBITDA down 10% due to investments. High-profile metal card launches globally, largest customers reporting purchase volume growth, strength in the payment card industry. Arculus had first quarter positive net contribution, with $10.5 million revenue in 2024.
• Tim Fitzsimmons provided detailed financials for Q4 and full year 2024, including net sales, gross profit, net loss, adjusted EBITDA, and balance sheet details. Cash flow showed net cash provided by operating activities up 24% in 2024, free cash flow up 62%.

In Q4, net sales increased by 1% to $100.9 million. Domestic sales were flat year-over-year, while international net sales were up 7% to $15.4 million. Gross profit for Q4 was $52.5 million (52.1% of net sales) compared to $52.9 million (52.9%) in the prior year's same quarter. For the full year 2024, net sales grew 8% to $420.6 million. Domestic sales increased 7%, and international sales grew 11%. Gross profit for the full year was $219.2 million with a gross margin of 52.1%. Arculus generated $10.5 million of revenue in 2024 and had a net investment of $3.5 million of adjusted EBITDA when adding back depreciation and stock-based compensation. Q4 marked the first quarter of positive net contribution for Arculus.

• Expect mid-single-digit growth in both net sales and adjusted EBITDA for 2025, with sales momentum building throughout the year.
• Focus on accelerating payment card organic growth, driving efficiency through the CompoSecure Operating System, gaining traction with Arculus, and delivering accretive M&A.
• Adjusted EBITDA expectations include the payment of the new Resolute Holdings management fee for 2025 and 2024 on a pro forma basis.

• Forward-looking statements are subject to risks and uncertainties, refer to annual report on Form 10-K for details.
• Economic uncertainty around tariffs and pressure on consumer spending may impact business. Raw material costs and inflationary pressures on wages and materials are risks.
• Risks related to the execution of forward-looking plans, including challenges in achieving organic growth and M&A targets.

Q: Can you talk about what rate revenue might end 2025 and factors causing acceleration?

A: We're not giving quarter-by-quarter guidance, but we have backlog and pipeline with good visibility.

Q: What to expect from CompoSecure Operating System in 2025 and beyond?

A: It looks at every function from order to cash, with a focus on manufacturing and lean concepts, expecting efficiencies to build through the year.

Q: What's the annualized run rate revenue for Arculus and contribution vs 2024?

A: Run rate exit was strong, Q4 was very strong, and we expect net positive results in 2025.

Q: Thoughts on metal card business funnel and pipeline for domestic and international?

A: International growth was stronger last year, expect balance in 2025, with international typically around 20% of revenue.

Q: Impact of Resolute on P&L and M&A strategy?

A: Resolute has a robust pipeline, active input in organic growth, OS work, and M&A, with accretive M&A as top criteria.

Q: Guidance breakdown for mid-single-digit growth and Arculus revenue sources?

A: Mix of existing programs, new programs, and new clients, Arculus has strength in both authentication and cold storage.

Q: Resolute strategy and Arculus sales process?

A: Spin-off delivers more value long-term, Arculus sales cycle involves card buyers and fraud teams, longer for larger banks, quicker for fintechs.

Q: Resolute scope and COS expenses?

A: Primary intention is to drive CompoSecure share price, COS is a process, people, and cultural focus with long-term benefits.

Q: Follow-up on Resolute scope and size of deals interested in?

A: We look at small, medium, and large deals, with criteria of delivering value and accretive M&A.

Q: Follow-up on Arculus and investments?

A: We're making investments in engineering and sales talent, with COS focusing on process and cultural change despite initial no big number impact