CompoSecure (CMPO) 14 Aug 232023 Q2 Earnings call transcript

Thank you for standing by and welcome to CompoSecure Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the call over to Sean Mansouri Investor Relations. ahead. go Please

CFO. thank for Second and the joining to will Tim us is remarks with Good then and XXXX you financial CompoSecure's we Fitzsimmons, and CEO; Quarter Wilk, the on will results. review begin Jon prepared call afternoon open CompoSecure's for They Q&A. With call me

our our the we will our business to considered be may statements and call, customers make concerning our acquire and our During as other forward-looking, to and plans growth maintain existing on well execute that prospects. ability statements statements related strategy plans, including new to regarding as

Forward-looking upcoming. and be considered statements as or These such statements any words our views reflect should not as only be date. may today identified of our with of anticipate we expect, subsequent we views often as

We statements. obligation forward-looking or revise undertake these to no update

cause variety differ to statements and uncertainties promises are Forward-looking not are could subject actual guarantees of and expectations. of risks from performance our the future results a or that materially to

filed are For risks Investor website on our the the section and affect factors sec.gov. could refer that please composecure.com other results, at which the on of actual in material discussion and reports XX-K website and our SEC, at Annual information of Form available other Report SEC's on important a our with Relations to the

of trends on company's non-GAAP net management financial the condition call certain measures, impacting business financial includes discussion to useful that today's adjusted company results provide financial information regarding and and income, adjusted Please EPS. the certain and believes adjusted measures note EBITDA, and operations. non-GAAP financial investors The including these

titled other with considered should not as different companies. or net alternative from non-GAAP and maybe in US accordance measures non-GAAP used similarly other derived income measures by an These measures performance to GAAP be financial any

of our available and on available GAAP Relations A Investor section is reconciliation measures non-GAAP our press the of in release to website. presentation earnings

me turn Jon the second let discuss our with results. And you. quarter to to call that, Thank over

joining Sean. us Good you, for call. second thank our you for Thank quarter afternoon, conference everyone, and

read hopefully exclusive extension of our This with now afternoon, filed renewals of Express this December as the comes we which their excited metal last American a quarter you of As X-K on have largest cards. the long-term extension to from customers five-year XXXX announce provider our our with means we through contract one customers. secured two I'm with announced largest heels

innovation, business our Company delivering partnerships market. across for Throughout long-term we driven has value unique all while continued and proud value I'm our unmatched history, our well the And as XX-year impact demonstrate by proposition. establishing as been clients, that to that

increased page and performance quarter results Now by strong to quarter driven to net bit consistency which once by three, detail. sales the X% as for summarize again second lower the of XX% million international on $XX.X cover a quarter in growth more domestic reflected offset of business was Tim our will our the which sales

year-to-date X% net a sales $XXX up On were to million. basis,

maintaining while customers trends, have uncertainty. outlook and despite macroeconomic issuer customer rewards continued our the growth to strong a investment their card and at report positive in Looking acquisition

executing During growth and expanding including the position our quarter, we payment sales team, Arculus continuing opportunities, card trade continued product offerings our partnership in to and strategy. for BXB show, marketing our

adjusted million $XXX between which million $XXX with for million EBITDA we between ranging and calls and finally, XXXX $XXX net to our reaffirming million. $XXX sales guidance for And are range

to for take I'd of a slide quarter, other like four. the turning some the cover to and minute highlights

partially sighted feature Bank, to quarter. card from another. few we're innovative a to help touch that previously addition which design programs from one blind with To a deliver top the we've cards with several integrates card or distinguish metal launched their people about, Citizens extension, payment In helping new card talked this contract I metal issuers Mastercard easily highlight to an

UK, We launched in that four the of of one market banks with and markets biggest the which the is Barclays Europe. largest in in also overall one

with launched From Mastercard. a the now premium we and at continue both is based in a which activity through we strong addition, that a events trade internationally. offering Mars, shows Fintech In Turkey, marketing a ramp had we to and go and we'll year, metal presence domestically perspective, as

industry card recognition have Arculus efforts our to excited to well. payment These team also company, our four for on both product we that I'm offerings, leadership our and as and for increase pipeline helped our highlighted page opportunities. see

issuers insight and to from which on slide payment networks. Moving five provides

these As card even see remain domestic business spend greater that One believes around expect EPS emphasized Visa stable. the payment Capital will growth. and continues double-digit marketing to Amex on in their and callouts, from world can you growth revenue volumes growth continued

These positioned comments well benefit leader we're show market payment and for to confidence in a in cards believe we metal cards. the as market

on reliance become authentication and lives six, digital, growing have passwords slide worrisome. Turning more the is on to our highly for secure becoming opportunity

spoken issue. recognize to well. beginning this previous I've calls this as is consumers issue an and are to that on This

consumers side, provide visible see security. with better side, to XX% recent methods transition the consumers non-password willing on left-hand more want many you'll passwords use the a that log-in methods, right from On to that are shows study and looking that

Arculus our a offerings for on by with BXB connects what can we roadmap. slide pleased cold our card. and/or seven. progress payment provide well against the to Arculus really I'm Arculus storage That authentication combining customers our And with

online and and Wallet to decentralized network. marketing team a crypto continued including bolster to customers added DeFi BXB sales and We our Arculus efforts we've our Radix Plug BXB new wallet, quarter, add an this

financials hand Tim over our returning to for before to now review closing it remarks. I'll

our it I'll before QX evening, call a more detailed the performance then Jon, XXXX Jon of up everyone. overview Thanks, provide open good we for to and turn questions. financial and back

otherwise, a basis. all various and commentaries Unless stated on comparisons year-over-year

up domestic sales driven base. by offset in sales company's customer lower net a increased compared was payment to market to a growth smaller continued XX%, more variable metal sales was the which The partially $XX.X by mentioned, international Jon to due increase card mix As X% million is $XX.X business, which and million. primarily

the inflationary target. line company's International in the labor XX%. note targeted pressures to for XX% less costs the XXXX. in year. primarily margin XX% resulting mix and continues mid-XX% stated remained margin line to quarter margin sales our material product higher of gross was The mix favorable from that due Gross in approximately previously prior decrease compared important and compared revenue to to with to be It's with was

XXXX $XX.X added consideration, items QX for to are derivative year. the by changes in was million. QX result $XX.X difference non-cash the from income XXXX of while year-over-year. $X.X at These net was is prior of the million adjustments earn-out Net valuations compared warrants, primarily driven the which million quarter driven liabilities, had stock of million $XX.X income $XX.X and company's the price non-cash non-cash in items. of of improvement the the million to by

year EBITDA XX% adjusted second to QX of margin $XX.X Adjusted compared million XX% compared of the in in with was in the an to million EBITDA prior $XX.X quarter 'XX.

adjusted Adjusted investment product in $X.X that inflationary of The impact EBITDA pressures was the our Arculus. well spoken continued and EBITDA continued impact as of already million the support sales of investment mix in decrease teams. I've and our driven the in as to, includes by net margin

and in with long-term our below As be ongoing 'XX to line managing at overall our we or investment investments have efforts for our stated is this in to in net shareholders. value right our the past, deliver

sales our XX, you $XXX strong X% up year-to-date million, results. demand slide, metal year-to-date slide by to our XXXX this Net driven On On for payment continued execution performance. see can sales cards. were and

half $XX.X in $XX.X $XX.X is despite line income in target items. margin first million compared the to material Our of I've costs with the XX% the mentioned. year-to-date, Net that our prior labor gross million non-cash by year. and was the driven higher of difference mid-XX% million just for was

income net $X.X million year. 'XX year XXXX the million the Adjusted first $XX $XX $XX items to was for full Full-year the million at of had compared for in for non-cash prior added EBITDA million. half to

XX% the margin in continued decrease support sales for This the includes compared XX% in and million. half was first up investment by gross teams. margin the investment net prior year-to-date EBITDA was $X.X impacted year. our to Arculus This in and

at industry of see net and of for strength increasing $XX international XXXX execution sales in favorable and remaining to sales. trends, of sales with our million, second looking quarter that roughly quarter of domestic of were our long-term second line the again our due continued improve slide total domestic net On sales XX% can the closer between $XX million split target XX% you XX, the international, to the to

exchangeable $XXX notes. Moving net million million million appendix, cash loan results and in debt a of $XXX find in million, $XXX of and $XXX you'll the of cash million. which debt of total on term balance which of we includes $XX equivalents had to and sheet, total This the

to EBITDA ratio, as want both provide and XX, leverage debt we million leverage of and our $XXX XX-month is slight ratio agreement our debt on calculated with was of $XXX leverage debt our bank our X.X always, June differences. agreement, At overall based times a overall net secured As bank million. trailing adjusted

bank $XXX trailing and times to XX-month X.X At at the down secured secured based leverage bank adjusted a compares increased of This times improvement June of million, XXXX, million. XX, EBITDA EBITDA. a three adjusted trailing on agreement, of XX, $XXX June had XXXX we debt total by paying debt driven and XX-month debt ratio with

times June XX, XXXX. flow X.X of earnings operating now I share. per generated at cash to want to We've compares $XX turn to This year-to-date, million.

in and for income better such operating the our our reminder, basic basis. actual to economic a of of calculating changes impact the public conversion mark-to-market allocate share on subsidiaries of As net per the EPS method our instruments among under diluted instruments and to company and allows reflect GAAP us adjustments

basic share months primarily per primarily and derivative the basic stock warrants, in fair improvement. and $X.XX changes and the This diluted was by share XXXX $X.XX price per to was GAAP EPS compares our for period. $X.XX by share. year-ago three The earn-out and driven liabilities of the diluted decrease June per driven $X.XX consideration, ended the to value respectively XX,

the due included calculations. that the read you the basic to can complexities Up-C net slide footnotes and You diluted the of the take of through are income the shares allocation structure the on that and through in

six let's months look at EPS. the Now

share XX, and are basic puts Turning GAAP we $X.XX for how see per at you could diluted with the which year, $X.XX to now share. EPS per us tracking slide

as and on respectively the impacted have $X.XX to the impact previous same slides net compares outlined or share this negative Again a either $X.XX I in income. on basic can factors and positive period. per the This year-ago adjustments was a non-cash by diluted

of of slide and earn-out the warrants company's provides On stock-based non-GAAP EPS, the economics a income are this net picture impact adjusted non-cash We on results. excludes comp. fair adjusted which that the operating XX, adjustments providing of and we also clearer value the believe

that With period. and diluted the background, $X.XX share to compares non-GAAP basic in the per per year-ago $X.XX our share. This was quarter share second $X.XX XXXX diluted for basic share and EPS per per $X.XX

The a appendix, you'll GAAP pressures, adjusted between income was in our the primarily decrease and and In sales these outlined teams. and the non-GAAP used EPS inflationary product support in continued investment mix, driven calculations. net previously by the in find reconciliation

per again for XX, to outlined $X.XX EPS impacted [Technical put previous the factors $X.XX on the same $X.XX share. the in and basic have share diluted I adjusted respectively diluted per year-ago Turning Difficulty] share per period, basic this slides. compares to and $X.XX and slide by us This at

to remarks. it our give to turn discuss Jon back now guidance I'll closing and

Tim. Thanks,

XX. slide to turning Now

between XXXX earlier, and $XXX expected and and range our $XXX sales mentioned for million are we to million the track with mid-XXs between issued I range $XXX previously from anticipate $XXX gross to EBITDA in remain adjusted margin As net we We on finish million guidance. million. to reaffirming

a customers. today. largest To our that want and to with close covered One, long-term on we've XX, slide I now we've our reaffirmed have highlight re-signed guidance few contracts things two

customers to Difficulty] the outlook maintain premium a payment continued authentication for opportunity and positive cold around Arculus [Technical Our storage.

to position on BXB our by our advantage of and salespeople bolstering are take efforts. adding focusing marketing We growth opportunities

driving simultaneously off about that better capture long-term investments margin and our and opportunities. for thoughtful shareholders growth continues remain to We value supporting pay to our

With open I'd [Technical that, Difficulty] like

question Our the Reggie Instructions] from first JPMorgan. of comes of [Operator Smith you. Thank line

uncertainty and Thanks Hi, curious taking business. or that in release. saw macro guess I And good any the the was macro -- first for you Yes, the weakness question. felt my you how manifests if press evening, in cited I

solid. just question, a the at point say, out that this Thanks there for for been closely. our to is positive. I'd signs data that issuer we remains, still item partners We're continue and us But There Reggie. so seeing those have watch far monitor for

you by obviously, I was what's you half -- accurate implied here, of nit-pick for or the outcomes your band range. great. back think is wider range if with one maintaining for follow just reiterated about because curious And you're Not quarters. guess that guidance half not of back two could you the I in and if up but think I implied for same Understood. that kind And about when last more, guidance, guess just to outcomes the the which is the of somewhat if how there message trying it's the curious that even that. sure convey a but

the got $XX essentially, of the year my the follow So last of performance similar you've where if over over you had range before three question a range you two million quarters quarters

be And What feel given. if good to it it We we're Yeah, imply from that the I that have perspective. right that come Reggie, look updated where that We end the from that on half guidance is bottom are would not standpoint does revenue ranges much range. think at too as year-to-date you we've back quarter-to-quarter. about the into well. typically about a may of be you we stronger into to reading EBITDA, halfway range

we've mean more than other wouldn't ranges I that those into than given. SoI we comfortable with feel it the implications very read are the

That's If in a one and was so for amazing quickly, guys XXXX year fine. I very can I appreciate comp. get it's difficult obviously, it. you more

were business, how thinking for long-term? kind kind you to of are If of control you of growth that, of the the kind about

as move through back guidance the Reggie, What So, this that's able margins to mid-XXs issue believe mid-teens operate in continue this the is so year. with in we past business can the it. XX core we the updated grow gross given being will updated around in said mid-XXs, half of we long-term average we do about on we guidance, think north in the but we more perhaps investments of specifically implications business, to how EBITDA haven't

you. Thank Perfect.

you. Thank

you. Thank

John question and Todaro the from of Company. line comes next Our of Needham

Great. on Thanks questions. Congrats the contract taking for my renewal.

to Are First you we that back one two, of there does aware for dig have imply of? but the if too here. trying it, into an sales go deep without about drivers should any as we moment outlook and mentioned, uptick. kind I just it to be thinking could a second-half

which of and of hit clients, domestic fintechs continued domestic them coming drivers try almost in growth The us are growth, our for international fairly areas across on each I call, feel and really clients, from consistent. John, top top And good and to across about outside all we're those is those opportunities four expansion international. seeing the that.

Got least Thank number little a is if were there of would and from Inflationary the forward some love pressures moving color rest if there margin question. kind to hear of at that we expect new any should 'XX. for declines. additional gross for of imagine the And Great. Would then the But margin gross as you. second just inflationary maybe it. here, pressures? recorded

that So is and margins be We thinking right be sometimes we sometimes higher, points it say range be a should a could we reiterated times. points -- And the lower. think could few people think I've said this about. gross quarter, it right few be mid-XXs we're Tim mid-XXs, to I'll number the of in continue on a for number. that We to

came quarter second and net-net of long but were we on a and continuing Tim saying feel mid-XXs spent target the difference examples been that, think those about exactly he the gave, time, right was we last times around the in we is between the that for explaining So year good and we've

guys. you Thank Appreciate Great. it.

John. you, Thank

you. Thank

of comes from B Riley. Hal question the next Our Goetsch of line

My Thanks. channel question. sector the was think or impact of do in big of it's in Hey, inventories guys, for banking right and bit the any both your any and there is, question little scale inventory company at a been of partners. my shape QX the the in if drawdown you with half what wondering are, in your back QX. thanks I'm taking And

regional watching so activity the Hal, among monitoring certainly we've been banks. things Thanks, and like

We them. impact our have an on not from business seen

I be change around could higher there. more levels that, a carrying conversation great of which that think, new level safety very don't seen inventory perfect really keeping have amounts proud we're stock haven't reference wanted we've levels a what that. continued say we've We have in, into clients items and of generally of appropriate about carried I across I'd in is levels, feel of to material With I'd launch, key going Citizens issuers, next of. US of bank say seen a good and generally visibility speaking, of inventory on hand the strong we post-COVID, cards example inventory raw are

Okay, thank you.

you, Thank Hal.

Thank Our White Chase comes next Research of the Trading. Compass question from you.[Operator Point Instructions] of and line

Thanks, guys.

Is just does to got extension better now safe extended. similar any kind on that contract contract to earlier, a other announced the XXXX and then comes So Obviously terms terms assume on after have escalators that. extension, but top And into better two clients on you business. your you've you it of in KPIs? this touched give when it that visibility visibility? follow-up the you And that any early I is of

yes. coming towards on having and say year contract have I'm terms that in clients guidance the we all planned opportunities, end we'll give all the for a of think of contract renewals just We to context top the for here, our move business, as statement except is under remain normal comfortable updated question, to very our of we those the around overall and our winning we guidance the cycle. of of our Chase. our and conditions important but up going Thanks not business renewal as renewals comment of we with part had the

exchange about more partner hear or on Thanks. when Arculus could And we it. that your follow-up, for Got any updates

we're to about to take with some as we and the highlighted So and outlook authentication some programs around a up feel previously to you're maintain partnerships, continued we announced are platform, than we seem trying technology. there. piloting I anticipate bit Arculus you the to exchange of this the to today. the year a continuing product earlier advance that And running roadmap, announced, built, positive some maintain these terrific through longer the we've partner Things continued always little get Arculus continued and to work

we well. as move to as So more look updates through year the forward

Got it. Thanks, guys.

Thank you.

you. Thank Markets. Palmer comes Capital line from Berenberg next Our (Operator Instructions) the Mark of of question

cash, evening, for The of cash regard very my thanks overall a optimal as are is leverage What to basis. level continued as you and that on throwing now you leverage that an being good right think and question. maintain business? Yes, you pretty that X.X ratio is healthy taking of the to your amount operate you consistent want you. to company a times. see off What your at do of flow use Thank priorities with the

Yes, and for amount continue of Mark, throw question. the thanks Thanks, to cash. significant we off

As are in highlighted we've organic to continuing pay Tim and to ratios. priorities two And we leverage stated down you and your continued growth debt. question, as highlighted highlighted before, our those lower

feel you continue and from look to back growing of even point. public, paying June same and deleveraging combination we those would that, do it's year that we of both time good were a go of down debt EBITDA if about to further points So things. through for further when reference look there And you got to when last went

around allocation basis. level an and capital that monitor will to continue Board it's we ongoing conversations that, beyond So on have

Thank you.

Thank you.

conference you to in does queue, there further no this Thank for As questions participating. conclude appear call. today's be

You disconnect. now may