CompoSecure (CMPO) 8 Nov 242024 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to CompoSecure Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Steve Feder, General Counsel. Please go ahead.

morning. Good joining CompoSecure's for financial Quarter to results. us you Third review XXXX Thank the Cote, Fitzsimmons, is CompoSecure; me call With on Dave Chief Officer; Officer. Jon Executive Executive and Financial Tim Chief Wilk, of Chairman will call Q&A. the with will for remarks, then and They we begin open prepared

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

words Forward-looking upcoming. as no obligation statements subsequent may views and often be or reflect our update statements to be expect, identified only or any these with views anticipate not We of forward-looking of statements. today such should date. we undertake our revise as we These considered as

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

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

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

section different in and as and U.S. Relations other of available companies. the any press income derived performance available non-GAAP by in earnings of to titled reconciliation accordance used Investor be our financial measures other considered GAAP an to GAAP alternative net presentation measures from our non-GAAP or on website. These not A is should measures non-GAAP with may similarly be release

me to with the you. And Dave call let that over said, Thank turn Cote. Executive Chairman,

the as great attracted to we good differentiation, sales the Honeywell: growth for and see We that you hot evaluate address growth, position, to industry, acquisitions first nice to buttons Chairman of technology CompoSecure. good use expansion. the at organic Executive it's time margin it X We long-term business inorganic hit because opportunity. sales Well, were do

to expenses. That have additional do high-performance work to That capability a require build reinvigorate being our culture, said, work organic sales there's create and operating growth. we will

and range reflected performance for You incurred our fourth sales based estimate, our adjusted can on a quarter it EBITDA combination on we're future. see to lowering in of the position okay where expenses and

In expect a look sales performance we XXXX, delivers actions employees. right our Naturally, growth as investments time. all the lower of do that in than take appears our and future. to EBITDA reflecting and culture again results, we could It's combination the and it growth at it thing a high-performing for show the establish investors does but customers, for it to this was as year, early about be investment and same the XXXX

with turn I'll that, to over So it Wilk. Jon

our joining Dave, thank third us for you call. for Thanks, conference and quarter

Before we discussing where company. are of as to take I and reflect Dave's on a our results, moment want a comments

free deliver tax more Resolute First, as transaction our distributions approximately in talked eliminated share we've dual-class million simplified cash previously structure, is the $XX annually. and flow as about, was important to it expected

pleased add Executive to Cote very to have our Board. highly and as several are we experienced Second, leaders our Dave Chairman

business reinvigorating base company and are through the and for and building diversifying M&A. growth the CompoSecure through time culture customer on exciting we an committed is centered the a the to efficiency System, high performance, this Finally, driving Operating accretive organic

success. the aligned well working expanded to and forward priorities, our Dave with continued look incredibly and drive around these are Board We to

continued programs to on launched driven delivered card few consistent quarter, and our numerous high-profile by I'll during execution quarterly the growth international strong We slides. adjusted third customer which a and highlight had payment the the for performance, We quarter, in sales net double-digit EBITDA in results. demand for sales innovative Now cards.

that And signed place our our extension I'm consistent also a differentiated our the scale. customers, this excited of One. to we believe at contract larger continues one to that demonstrate securing products deliver to ability share trust with in recently X-year Capital extension We customers contract

favorably. and direct million expense, remains Net $XX total investment million Arculus, period in which was turn last the track to XXXX. includes from year on trend investment positive net Year-to-date, continues less versus revenue to during $X.X same

today, As $XXX mentioned between and future now million, is release now outlook. range guidance million between EBITDA and $XXX guidance million for expected investments to growth is sales that our Net expected press range $XXX to XXXX million and adjusted $XXX earlier in spoke reflect we've our about. revised the to Dave

objectives Card; earning company the including significant Now progress this to track Initiative Security have for Best Card. refinancing; Slide industry to throughout several of enhancing Arculus and like X for the Echo Mirror innovations We Mirror debt on by always Board remain We including completing as turning vendor Payment awards, the as such achieved a important Best our to a milestones X. market, year. Directors; Solution the year, and share and key we our bringing I

Slide Turning X. to

few Bank examples HSBC as India, well are a others. that customer Singapore in exciting Sachs see IDFC of Goldman programs can Smartly, of in a few card quarter: as You this Debit; launching the US

at Looking trends X. Slide industry on

past customers refresh and marketing product fueled This X our robust factors, ongoing several purchase the quarters, experienced a including and customer investments acquisitions. developments. is in strategy, sustained have new business growth by in Over volumes momentum and

This among Gold Z program their last limited program in their the mentioned a premium Amex has Gen earnings. features gold For QX Amex Card card and example, customers, edition that and spotlighted metal quarter. choice white become top we millennial

spending reflected in experience-based in and the On for suited remains economy ideally consistent Consumer about latest messaging travel the of Slide customers our X, particularly like you from can strength dining, both earnings areas robust, ongoing announcements cards. categories see and partners. and premium the consumers

that cards provide general last was over they now value. XX has exclusivity insight quality, years. customers expanded of the affluent, CompoSecure, a some highly on prefer. who millennials. driven the a cardholder be they provide sense but standpoint, worth expanded significantly wanted It a those That and market, I has tactile in For first the appeal bank payment and From and mass high-net may experience newer why to Gen Z private to drive to

rewards use programs. perspective, a to issuer by ROI top-of-wallet in spend, an attracting increased customers, strong cards relatively expense at metal card From encouraging a cost compared card other and all offer new low

have pending. Last the to offer. that that customer other and when million and needs. we our We than scale in of CompoSecure from look combination developed of alone. capabilities, high-quality there's differentiated we we cards simply metal years XX X, doing is Slide at we can XX products over market can no in On experience unique this. support produced years issued another can we ago property, and this believe year, over at XX patents including XX Intellectual scale XX this more scratch provide innovation company over And market. We believe the

XX. security help used reduce and for Slide can authentication Storage assets, any securely to digital to takes platform assets. payment Which both and to and on enhanced Arculus Arculus Arculus be fiat store Arculus login step-up card for our be and can fraud digital technology We provide me to used protect add Cold and to Authenticate use can assets.

With Tim turn for our financial that, it performance. over I'll to on more information

Jon detailed year-over-year a and of you, otherwise, Unless back more to everyone. variance overview morning, good call then provide stated XXXX a QX the Jon, and I'll Thank for we all and before comparisons basis. on open are financial performance, turn it commentary questions. our

by In to million $XXX.X $XX.X to XX% sales increased compared net QX, million.

the the continue more driven doubled international was products. As our by increase see mentioned, new we from growth, strong prior Jon momentum to year, than compared to primarily which as

a We also quarter, even period. solid though ago year had to it down was compared the domestic

We quarter. the rebound fourth expect domestic growth to in

prior $XX mainly efficiency. sales to the was up from and mix million from up Gross The well compared year, quarter, due prior to XX% margin increase million profit favorable compared of mentioned, $X in prior for XX% to year. $XX XX% improved this gross performed million or was product margins As to product XX% with gross international QX the the year. in

in year, with $XX by business our stock fair prior revaluations in we QX efficiencies XX% third in adjusted the an quarter QX cost net increased XX income, to $XX.X compensation, in as and million. adjustments leverage of noncash excludes the management. and XX% warrants, earnout, EBITDA operating to impact to to the improved XX.X% which margin Adjusted drive million up value $XX compared of The was reflects inherent Adjusted of basis million in the EBITDA compared the point increase XXXX. XX.X% to

GAAP today, quarter, during our entirely net in we detailed for stock loss to led press our improvement in a which As the the the release the change to quarter, a driven significant reported million fair price ago million $XXX compared liability offset this consideration a quarter liability, noncash value by in earnout adjustments of benefit and year liability. income derivative warrant the noncash net the These to period. value $X by

year-to-date our and year. per growth EPS XX which line. the addition XX, diluted diluted continued to results and the with our Slide share like prior to adjusted was top the per see in bottom and you We Our year-to-date you the quarter. diluted share provide results, reflect On $X.XX $X.XX in on always could financial

On sales earlier, million to revised guidance that range now we've Jon $XXX guidance adjusted million, and mentioned million $XXX range net EBITDA note, XXXX our We and $XXX between as $XXX between expect guidance. million. to to

million will adjusted to excluded expenses $X M&A rates I $XX between implied that the onetime to build the of provided. professional nonrecurring capabilities. QX, the range For out QX Separately, just $XX reflecting million, to $X is from our million million, EBITDA include adjusted investment

the balance sheet. Turning to

term equivalents This and As cash million cash at $XXX had and includes million. equivalents XX, of XXXX. of $XX.X million XXXX, debt XXXX, cash and of September This equivalents XX, of million and of and of million compares million notes. total and of to and exchangeable XX, of cash debt cash total September $XXX.X we million $XXX debt loan at $XXX of cash and $XXX total million December $XX.X $XX.X

was bank both is ratio compared ratio ratio XX, XXXX. X.XXx X.XXx and Looking as at debt agreement secured our at overall to leverage and leverage CompoSecure leverage at differences. XXXX, debt bank XXXX December ratios, debt X.XXx we secured September September slight XX, provide our our calculated with our leverage XX, at agreement

to of XXXX, trailing bank ratio debt total $XXX XX, senior debt secured September and of compares This a up secured mention we able agreement our this bank credit secured like our on of refinancing of million XX-month our to $XX by At a December as adjusted in cash we're EBITDA XXXX. leverage at X.XXx million X.XX based million. senior XX, $XXX facility, result on to reduce recent had hand senior that adjusted of We'd a to indebtedness calculation.

to cash Now Slide XX. statement turning flow our on

that our Resolute Holdings want completed the XX% net year. comparable moment up by the was September You of I year-to-date a take million, can the activities operating $XX period provided see impact reiterate also versus XX. to last cash the transaction on to

a shares, CompoSecure's representing approximately exchanged B their the Resolute of shares, A all million As and selling XX% for Class of shares. reminder, A acquired shareholders XX.X outstanding units Class Class

tax Therefore, place. will former take subsidiary, no unitholders of the to LLC, distributions longer our

shares, which will anticipation of from million additional had were September of shares At of forward per the transaction. corp A Holdings the million outstanding, C all cash free taxes We Resolute CompoSecure $XX pay flow the Class XX.X the increase XXXX, with resulting year. XX, at with going approximately

back Jon to closing to remarks. it provide turn now I'll

you, Thank Tim.

we some the provide to thoughts want closing take on early from out year, to I are months X opportunity As the XXXX.

some and XX, can You Page headwinds on tailwinds. see

we market continue of the expands, competition well wallets. to closely as our As digital as monitor increased use

Authenticate, that as we, some labor top and XXXX, at got to the many we Arculus growing to positive tailwinds, looms talent, for to look strong addition, robust face uncertainty see for in supported a focus make innovation fraud we continue confidence impact continue to XXXX. When in card we've backlog the market sentiment. into a still by reduction, costs In With with long-term competition customer contracts, heading addition and we and an on rising to plan our companies, commitment pipeline. global opportunities with metal solid

and greater business to also enabling chain consistent We M&A flow diversification material accretive supply through expect cash and more stability, anticipate support activity. strong growth costs,

top and a few highlighting performance growth today. covered by with want by strong both consistent points execution, conclude the signed extension We results one a I line, delivered sales we driven X-year with our to customers. contract bottom key of and on and larger we international

to card premium we growth growing in continues net cards. to which for Arculus' in on programs, commitment favorably, track sustained investment a and marketing market reporting remain ongoing metal Our are investment customers to and Arculus reaffirms for for trend profitable our strong XXXX. credit turn belief

as new growth, through our continue business operating equipped Chairman pursuing and opportunities the the With well Dave the addition growth are on and Executive we Cote of new maximizing prominent driving Board, efficiencies to leaders organic M&A. in strategic

With that, open call to Q&A. up I'd for like the

[Operator John from comes Todaro Instructions] Needham Co. the Our question line first of from &

seen where M&A, all last Arculus second, more I different to grow would business whether be that are And term Or with on get we've get bit kind the strategy just view of over and focused there? business digital us into, and you kind first, if that the progress see better any one, David's long the authentication, Congrats guess, segments? I a supplier then can quarter. love talking would that on I on to opportunities sense side could of margin? we revenue you give little different on

take I'll first. John. one first Thanks, the

So we've talked or wheelhouse what about down experience into M&A, about the that today, we we to things that Think and Compo's when to about that of sort do today that adjacent things to, well expertise to think we things fall Dave's really be do in, things and/or aligned chain. things closed his right, we set. would looking and value up

and it's chain, in terms talking So we down for still more than specifically the sort are that. early of of looking value us up but

general. and let I'll that, that in with answer Arculus technology around Authenticate And Dave

Arculus, to impressive. technology little pretty takes actually the it a what in understand doing. beginning once a of to you exactly like for I'd try comes neophyte work say it it me, to do, But When it's bit is

there. job internalize and to So can go-to-market better the develop need we the themselves having thing what with there spent a customers a save like. to to The use lot it We fraud. like of preventing just and it it. is looks technology money that do they money what's is how I

we of part I that's solve do that. So here, the that to do how have we thing But the technology. is like

question Bank comes from of line the of next Our Chan from America. Cassie

really Can bit just gave. pretty XX% ask implied relative piece. quarter as just that the revenue you I then quarter carry to guys international wanted fourth growth? you the to expectations guide international into you little third obviously, strong expecting the And Obviously, a are give implies color any growth, on a And the significant over cash that fourth guess to around quarter domestic the to more versus well? just flow. follow-up saw versus a as it I have free on -- a deceleration

Thanks, Cassie.

at look we million $XXX had year, step the when So start million. and at we year, the the right, guided $XXX to back of

$XXX is Our to million. updated guide $XXX for million

we down look for finished Just not quarter we some think reflective as of the you see where us, abnormal QX you us. Fourth that's and last relative year. for year, to at

year. of where the above overall, think, we we midpoint guided up, finishing So for the

quarter. range, of XX%, Think XX%. where started be last business. the on that for I've international yes, of saw given lower will about of approximately the the domestic think we lumpier I've is than to side, we -- think third that the said perhaps range. And a international definitely strong year. just said What year, end the at the it on right, international quarter, And XX%

in we'll performance see number. QX, international volatility of always in that some terms in recovery nice a So QX, but

And flow. helpful. That's on free Okay. just then cash guess I

the flow there? Just helped obviously look what like guess free what's going you another Resolute million. growth forward? unlock levers could driving what have as that? well, anything about then the And future $XX And I cash investment

annually flow million is the transaction. What use distributions, we because the in we've the business. to believe about given see forward payments Cassie, haven't with tax a a of think we we free So in reinvest increase tax net last I drive tax levers actual that of $XX that X we'll Resolute cash we that And flow year given the increase with back agreement. cash forecast. those we talked reduced time can it an believe, cash of, the The being free increased receivable the

Our next Markets. the question from Jacob comes Street of Lake Stephan line from Capital

the Congrats made the well. last you progress guys as on have in all here quarter

in ask Arculus commentary, track to turn last on Just kind kind little some over guys of announcements some 'XX. And seen fraud on in to positive there bit. prevention. wanted differentiate can currently week here, yourself we've kind a or this does on Capital of of environment? One Obviously, that anything Visa to the Arculus you up? But positive How there so is stack do

Yes.

individual. and novel that right, being step-up it's way do see same able it are companies ties only our cardholder the in as look, at see a use other not -- to large new Facebook, at cetera, we into It tech to a high-risk authentication that this terms yes, out there. the doing it coalescing the Microsoft, of to the Visa the we we're around authentication problems to And understanding in using in And first doesn't with FIDO of you believe technologies people terms The et for if but payment medium we Apple, token Jacob, incorporating the So solve people that X-factor market authentication are FIDO fraud benefit card. -- point. transactions. a we for that to by solution, believe in and which standard, is Google, Arculus, leveraging

ahead, that. I'll the want we've terms more we feel we pleased when built. of, technology look the I'm about in said see we with I've pipeline really having at progress So conversations and And we say in comments market. to share Dave's the in the good we're again,

ask little at for Dave, bit seeing business I the in just are improve What And areas broader a you could Got you've helpful. here Compo strategy it. could overall a you if efficiency now. question. That's today? kind that of maybe internally been

for there's at I that's associated can with ever whether in sales, look me Well, kind little any very M&A. it's operations, question that a of comprehensive that be I don't I'm better, because company think

like at So I Vertiv did I like did would just I point everything, to Honeywell. just at and

you'll see working everything. on us So

Okay.

say of and me truly more It just of I be but work efficient say this lot you've you can a effective, if and of processes, any before, you that back process heard of is And lot -- most do every always company to a an to them upside. believe more cross-functional. accumulation comes made probably gives

the, feel that have here. I So good about all opportunity say, let's we

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

Give you give Can an may permanent infrastructure. little to more fixed it a thoughts be detail a people? ongoing of on Is in increasing just entire structure Can you that. more us it a dollar your million several for that? M&A infrastructure? the color Like give on us just team the is some cost QX, implement cost little on your

Hal, capability this starts and building working an So investments and company. with Dave transaction. M&A team were as inside Tom And actually opportunity out we're with Knott led folks in CompoSecure identified to making this that there that yes, a

a the We have of brought those the would it's be that about we see. for talked expenses help those We function Dave this think resources that some critical earlier. in-house investment that will for Yes, future to drive ongoing company.

In some are for future addition, out look transaction onetime to ourselves as M&A. there we closing position costs the just

-- cost, would a $X you million $X quarter? thought on Is it the to give -- the a it's what is? one it us ongoing say But million

more We estimate bucket. out and that that Hal, haven't there's broken yet, in

be that your as forward. please use right that your not don't No, as the So would number. guide

So...

Smith of next JPM. from line the question comes Our Reggie from

got heard rather, up. or you at excellence. that may that and that curious And could, define Or covered mentioned question a Does would road -- David. I'm like I was or map about take question. I culture about I require follow-up operators? like everything last if give But so to have answer, things of this But the different how achieve kind you you how a you and looks? looking it improving disconnected last that? about already, And you of the of And us that? how curious, up how think do and long cleaning do cleaning

Reggie. Thanks,

Vertiv Dave look continue well. Honeywell CompoSecure we when as and have So Reggie, I at work and Operating building refer will an the to kind as example, that that on is System. This done team at to work, did of at

at putting In ways of more terms at and the of had of improving effectiveness far the that we've all here. systematic in efficiency processes looking

we've So when Reggie, were revenue. grown if $XX right? company, in million This I we're started, you right, think year, plus, a about we $XXX million it, about from

of room these literally using the efficiency and the that company drive how value a As on the attack can that and them. you opportunities about and maps up operational we tools walls, we're and in speak conference effectiveness, think frameworks maturing sitting to looking processes at out we with stream as

that margins look serious we reinvest and/or incredibly help But these business So we side through embracing will concepts growth. move as of to improvements we some tools. 'XX are about make to it to in and our our fuel from in the back

and And like about that. digital there comment guys. but sounds those the included where about, slide mentioned, in sure a a And it. or the guys if you acknowledged all I release think, out, the are I called was challenges. challenges presentation Dave exciting I talked where at bit little competition metal linked, a X wasn't noticed you that wallets. they cards maybe in and opportunities appreciate you I talk were It in what concepts phrase then

Yes.

of other give So a state happening. Dave and what's starting something of headwinds Vertiv help and and the and stylistically, historically has this to -- state we're ending I Reggie, likes and that done a year, Honeywell both places, at we highlighted tailwinds, year, sort is as think and

which we about on to others, of terms closely on manufacturers And we've to every the tailwinds, of in that and we the things some talked, side continue the the competing tried X, been years time that right with We've card last think, are have and almost years. it's page. as a competitors monitor out traditional both outline of number for past we So I competition is in there. and something X

work the night, lot that one the it's And right, people something keeps system, if me a you digital over position competitive wallet time. But that more is watching, around what we're that in and wallets digital what us ask we're puts at The terms of operating comment conclusions going at a up Cards time by that consumers. point about lot a in capability pay of from my be haven't changed. Reggie. always around are tap we've seen of to its to A long fueled of doing sale.

I I think cards makes sense. while well. will a for be That as agree, around

Thanks, Reggie.

This you. today's for call. conference concludes you Thank Thank participating.

You now may disconnect.