CompoSecure, Inc. Q1 FY2025 earnings call

• Dave Cote discussed the implementation of the Compo Operating System, the accounting change due to the Resolute spin-off, and non-GAAP financials to help investors understand the economics of both CompoSecure and Resolute Holdings.
• Jon Wilk mentioned Q1 results were in line with expectations, momentum building, strong program activity with high-profile customers, Arculus delivering a net positive contribution and record results, and focus on the CompoSecure Operating System driving efficiencies.
• Tim Fitzsimmons reviewed financials, including net sales, gross margin, pro forma adjusted EBITDA, and detailed the accounting change related to the equity method of accounting for CompoSecure's results following the Resolute spin-off.

Consolidated net sales were essentially flat at $103.9 million in Q1 2025 compared to the prior year. Domestic net sales decreased by $3.3 million (4%), while international net sales increased by $3.1 million (28). Consolidated gross margin was 52.5% of net sales compared to 53.1% in the prior year. Pro forma adjusted EBITDA decreased by 2% to $33.7 million, driven by higher general and administrative expenses. Adjusted net income increased 21% to $28.4 million, and adjusted diluted EPS was $0.25 compared to $0.24 in the prior year. The non-GAAP CompoSecure financials remain consistent with historical, with a deduction of the management fee paid to Resolute Holdings.

• Reiterated full year 2025 guidance for mid-single-digit growth in both consolidated net sales and pro forma adjusted EBITDA.
• Stated sales momentum is building through the year and remains focused on executing the strategy despite macro headwinds like rising labor costs and economic uncertainty.

• Macro headwinds including rising labor costs and broader economic uncertainty.

Q: Moshe Orenbuch asked about whether the maintained guidance is conservative due to macro environment and how much more momentum is needed.

A: Jon Wilk responded that sales momentum is building into Q2, Q3, and Q4, and they feel good about the current cycle.

Q: Moshe Orenbuch followed up on acquisition areas.

A: Jon Wilk said they will look at areas in and around Compo's space, up and down the value chain, and be disciplined about accretive results.

Q: Cassie Chan asked about the remainder of the year's revenue growth cadence, macro environment, and supply chain.

A: Jon Wilk said mid-single-digit growth is expected, they are proactive in supply chain, and not seeing consumer impact concerns yet.

Q: Cassie Chan asked about Arculus wins, resonance, and revenue.

A: Jon Wilk discussed Arculus' value proposition resonating, but they haven't broken out specific Arculus revenue due to accounting change.

Q: Hal Goetsch asked about Arculus' authentication and payment combination on unit economics.

A: Jon Wilk said it leads to improved economics, better contribution margin, and potential software revenue over time.

Q: Hal Goetsch asked about metal card market broadening.

A: Jon Wilk said the market is broadening from elite to mass affluent, including younger demographics.

Q: John Todaro asked about Arculus' traction with legacy issuers and PassKey.

A: Jon Wilk said they are seeing impact in traditional banks, fintechs, and gaming, and PassKey technology is gaining traction.

Q: John Todaro asked about Robinhood program growth and upside.

A: Jon Wilk said they are excited about the partnership but are conservative in guidance.

Q: Jacob Stephan asked about Arculus' traction with legacy issuers and M&A deal flow.

A: Jon Wilk said they are seeing impact in traditional banks, fintechs, gaming, and the M&A pipeline is healthy.

Q: Joe Flynn asked about Arculus' design wins and capital allocation.

A: Jon Wilk said Arculus' wins are in traditional banks, fintechs, gaming, and capital allocation includes buybacks, M&A, etc., with board decision-making.

Q: Reggie Smith asked about manufacturing improvements and Resolute progress.

A: Jon Wilk talked about manufacturing improvements from Compo Operating System, and Dave Cote said Resolute's progress is evaluated by pipeline quality and quantity.