CompoSecure, Inc. (CMPO) could be a solid addition to your portfolio given its recent upgrade to a Zacks Rank #2 (Buy). This rating change essentially reflects an upward trend in earnings estimates -- one of the most powerful forces impacting stock prices.A company's changing earnings picture is at the core of the Zacks rating. The system tracks the Zacks Consensus Estimate -- the consensus measure of EPS estimates from the sell-side analysts covering the stock -- for the current and following years.The pow ...

Shares of CompoSecure, Inc. (CMPO) have gained 16.1% over the past four weeks to close the last trading session at $6, but there could still be a solid upside left in the stock if short-term price targets of Wall Street analysts are any indication. Going by the price targets, the mean estimate of $11.60 indicates a potential upside of 93.3%.The average comprises five short-term price targets ranging from a low of $6 to a high of $17, with a standard deviation of $4.62. While the lowest estimate indicates no ...

Part I [Business](index=4&type=section&id=Item%201.%20Business) CompoSecure provides premium metal payment cards and the Arculus digital security platform to global financial institutions and fintechs - The company produced and sold approximately **175 million metal payment cards** worldwide from 2010 through 2023, with about **31 million** sold in 2023 alone[22](index=22&type=chunk) - CompoSecure's Arculus platform transforms a metal payment card into a multifunctional device for traditional payments and 'tap-to-authenticate' hardware token for passwordless, multi-factor authentication and digital asset storage[22](index=22&type=chunk)[48](index=48&type=chunk) - The global addressable market for payment cards was estimated at **9.6 billion** in 2023, with CompoSecure's penetration estimated at less than **0.7%**, indicating substantial room for growth[23](index=23&type=chunk)[27](index=27&type=chunk) [Overview, Mission, and Market Opportunity](index=4&type=section&id=Item%201.%20Business-Overview) CompoSecure delivers trust via metal cards and Arculus, addressing a 9.6 billion card market with growing security demand - The company's mission is to deliver exceptional experiences and peace of mind in the physical and digital world by combining elegance, simplicity, and security[22](index=22&type=chunk) Market Size and Fraud Statistics | Metric | Value/Statistic | Source Year | | :--- | :--- | :--- | | Addressable Payment Cards (Global) | 9.6 billion in circulation | 2023 | | Identity Fraud Losses (U.S.) | $43 billion | 2022 | | Payment Card Fraud Losses (Worldwide) | >$34 billion | 2022 | | Passwordless Authentication Market (Est.) | $21.6 billion (2024), growing to $53.6 billion (2030) | 2024/2030 | [Growth Opportunities](index=7&type=section&id=Item%201.%20Business-Growth%20Opportunities) Growth focuses on expanding metal card presence globally, targeting fintechs, and innovating with Arculus and sustainable manufacturing - Metal payment card unit sales grew from **12.6 million** in 2018 to approximately **31 million** in 2023[40](index=40&type=chunk) - International net sales grew from **$19 million** in 2018 to **$70 million** in 2023, indicating strong overseas expansion[41](index=41&type=chunk) - The company is focusing on technology and innovation, including the Arculus portfolio and manufacturing process improvements, such as using **65% post-consumer recycled stainless steel**[43](index=43&type=chunk) [Key Products](index=8&type=section&id=Item%201.%20Business-Key%20Products) The company offers premium metal payment cards with advanced features and the Arculus platform for secure authentication and digital asset storage Primary Metal Card Form Factors | Form Factor | Key Features | | :--- | :--- | | **Embedded Metal** | Metal core with polymer faces, dual-interface, ~12 grams | | **Metal Veneer** | Metal front with polymer back, dual-interface, ~16 grams | | **Full Metal** | Greatest metal density and weight (21-28 grams), dual-interface | | **Lux Glass™** | Corning® Gorilla® Glass with metal bezel, ~8 grams | | **Echo Mirror™** | Buffed stainless-steel with mirror-like finish | | **Ceramic Metal Hybrid** | Metal front with polymer back, ceramic coating, ~20 grams | - Arculus Business Solutions offer customizable, **FIDO2 certified** 'tap-to-authenticate' hardware tokens integrated into metal payment cards for passwordless and multi-factor authentication[48](index=48&type=chunk)[49](index=49&type=chunk) - The consumer Arculus Cold Storage Wallet provides a **three-factor authentication solution** (biometric, PIN, physical card) for securing digital assets, recognized by ABI Research as the most innovative in the industry[55](index=55&type=chunk) [Competitive Strengths and Clients](index=12&type=section&id=Item%201.%20Business-Competitive%20Strengths%20and%20Clients) Competitive strengths include innovation, long-term client relationships, large-scale manufacturing, and IP, with American Express and JP Morgan Chase as major clients - The company has served American Express and JP Morgan Chase for nearly sixteen years, producing cards for over **150 distinct programs**[61](index=61&type=chunk) - As of February 2024, the company held over **60 U.S. and foreign patents** and had more than **35 pending patent applications**[63](index=63&type=chunk)[90](index=90&type=chunk) Client Concentration | Year | American Express & JP Morgan Chase (% of Net Sales) | | :--- | :--- | | 2023 | 70.5% | | 2022 | 67.3% | [Sales, Marketing, and Competition](index=14&type=section&id=Item%201.%20Business-Sales,%20Marketing,%20and%20Competition) Sales channels include direct and indirect for metal cards, and B2B/B2C for Arculus, competing with traditional card and digital security providers - Sales channels include a direct sales force in the U.S., Europe, Asia, and South America, as well as indirect sales through card ecosystem partners[74](index=74&type=chunk)[75](index=75&type=chunk) - Key competitors in the metal card market include Idemia France S.A.S., Thales DIS France SA, and CPI Card Group[78](index=78&type=chunk) - Primary competitors for Arculus include Yubikey in secure authentication and Ledger SAS and Trezor in the cold storage wallet market[82](index=82&type=chunk) [Manufacturing, Supply Chain, and Intellectual Property](index=16&type=section&id=Item%201.%20Business-Manufacturing,%20Supply%20Chain,%20and%20IP) Manufacturing is centralized in New Jersey, supported by a global supply chain and protected by over 60 patents and numerous trade secrets - All manufacturing is conducted in five leased facilities in Somerset, New Jersey, totaling approximately **241,000 square feet**[86](index=86&type=chunk) - The company has a multi-year purchase commitment with an EMV chip supplier to mitigate supply chain risks[87](index=87&type=chunk) - As of February 2024, the company's IP portfolio included over **60 issued U.S. and foreign patents**, with more than **35 applications pending**[90](index=90&type=chunk) [Government Regulations](index=17&type=section&id=Item%201.%20Business-Government%20Regulations) The company operates in a highly regulated payments industry, requiring network certifications, while Arculus digital assets face evolving regulatory uncertainty - The company must obtain and maintain certifications from payment networks, which requires compliance with strict security standards for manufacturing operations and facilities[92](index=92&type=chunk) - The regulatory framework for digital assets and the Arculus Cold Storage Wallet is not yet clearly defined, creating uncertainty; recent market events have led to increased scrutiny from regulators[96](index=96&type=chunk)[98](index=98&type=chunk) - The company relies on legal analysis to determine if a digital asset is a security before supporting purchase and swap transactions to avoid inadvertently acting as an unlicensed broker-dealer[100](index=100&type=chunk)[155](index=155&type=chunk) [ESG and Human Capital](index=20&type=section&id=Item%201.%20Business-ESG%20and%20Human%20Capital) CompoSecure's ESG program includes carbon-neutral operations and recycled materials, with a diverse workforce of 934 employees - Achieved **carbon neutral operations** in 2022 and 2023 through production efficiencies and carbon offsets[107](index=107&type=chunk) - In 2023, the company was awarded the **Ecovadis Silver Medal**, placing it in the **top 15%** of over **150,000 rated companies** for sustainability[109](index=109&type=chunk) - As of March 1, 2024, the company had **934 employees**, with over **85%** being racial/ethnic minorities and **46% female**[112](index=112&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from customer concentration, cybersecurity, production disruptions, digital asset regulatory uncertainty, and substantial indebtedness - A significant business risk is the concentration of revenue from its two largest customers, American Express and JPMorgan Chase, which represented approximately **71% of net sales in 2023**[127](index=127&type=chunk) - The company faces regulatory uncertainty regarding its Arculus Cold Storage Wallet and the classification of digital assets, which could restrict use or impose significant compliance costs[145](index=145&type=chunk)[146](index=146&type=chunk) - The company has a substantial amount of indebtedness (**$340.3 million** as of Dec 31, 2023), which may limit operating flexibility and requires a significant portion of cash flow for debt service[192](index=192&type=chunk) - The Tax Receivable Agreement requires the company to pay certain historical owners **90% of tax benefits realized**, which could result in substantial payments that may exceed actual cash tax savings[183](index=183&type=chunk) [Unresolved Staff Comments](index=45&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None [Cybersecurity](index=45&type=section&id=Item%201C.%20Cybersecurity) Cybersecurity risk management, overseen by the Audit Committee and CIO/CISO, follows NIST and PCI standards, with no material impact from threats - The Board of Directors, through its Audit Committee, provides oversight of cybersecurity risks[238](index=238&type=chunk) - The cybersecurity program is managed by the CIO/CISO, who has over **25 years of relevant industry experience**[239](index=239&type=chunk) - The company's information security programs are designed to be consistent with PCI standards and the National Institute of Standards and Technology (NIST) Cybersecurity Framework[236](index=236&type=chunk) [Properties](index=47&type=section&id=Item%202.%20Properties) The company leases five facilities in Somerset, New Jersey, totaling 241,000 square feet, deemed adequate for current and future operations Leased Facilities in Somerset, NJ | Location (Street) | Operations | Approx. Square Footage | | :--- | :--- | :--- | | Pierce Street | Sales, QA, Design, Marketing, Production | 116,000 | | Memorial Drive | Quality Assurance, Production | 46,000 | | Apgar Drive | Prelams and Subassembly Production | 11,000 | | Roosevelt Avenue | Warehouse and Related Activities | 53,000 | | Davidson Avenue | Executive and Administrative Offices | 15,000 | [Legal Proceedings](index=47&type=section&id=Item%203.%20Legal%20Proceedings) As of March 2024, the company was not a party to any material pending legal proceedings - The company is not involved in any material pending legal proceedings[245](index=245&type=chunk) [Mine Safety Disclosures](index=47&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=48&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Class A Common Stock and Public Warrants trade on Nasdaq; no cash dividends paid, and a **$40 million** securities repurchase program was approved - Class A Common Stock and Public Warrants trade on the Nasdaq Global Market under symbols "**CMPO**" and "**CMPOW**"[248](index=248&type=chunk) - The company has not paid any cash dividends on its Common Stock to date[250](index=250&type=chunk) - In February 2024, the Board approved a repurchase program for up to **$40 million** of outstanding securities, effective for three years starting March 7, 2024[251](index=251&type=chunk) [Selected Financial Data](index=49&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is reserved and not applicable - Item 6 is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2023, net sales increased 3% to **$390.6 million**, while net income decreased 15% to **$112.5 million**, primarily due to mark-to-market adjustments [Results of Operations](index=52&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Results%20of%20Operations) In 2023, net sales grew 3% to **$390.6 million**, but net income fell 15% to **$112.5 million** due to lower gross margin and mark-to-market adjustments Consolidated Results of Operations (2023 vs. 2022) | Financial Metric | 2023 (in thousands) | 2022 (in thousands) | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $390,629 | $378,476 | $12,153 | 3% | | Gross Profit | $209,082 | $219,644 | ($10,562) | (5%) | | Gross Margin | 54% | 58% | - | - | | Income from Operations | $119,087 | $114,895 | $4,192 | 4% | | Net Income | $112,520 | $131,815 | ($19,295) | (15%) | Net Sales by Region (2023 vs. 2022) | Region | 2023 (in thousands) | 2022 (in thousands) | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Domestic | $321,470 | $295,423 | $26,047 | 9% | | International | $69,159 | $83,053 | ($13,894) | (17%) | Consolidated Results of Operations (2022 vs. 2021) | Financial Metric | 2022 (in thousands) | 2021 (in thousands) | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $378,476 | $267,948 | $110,528 | 41% | | Gross Profit | $219,644 | $144,849 | $74,795 | 52% | | Gross Margin | 58% | 54% | - | - | | Income from Operations | $114,895 | $81,425 | $33,470 | 41% | | Net Income | $131,815 | $83,414 | $48,401 | 58% | [Use of Non-GAAP Financial Measures](index=58&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Use%20of%20Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like Adjusted EBITDA, which increased to **$145.0 million** in 2023, to assess performance and align objectives Reconciliation of Net Income to EBITDA and Adjusted EBITDA | (in thousands) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | **Net income** | **$112,520** | **$131,815** | **$83,414** | | Depreciation | $8,387 | $8,575 | $10,428 | | Taxes | $4,556 | $4,360 | ($857) | | Interest expense, net | $24,156 | $22,544 | $11,928 | | **EBITDA** | **$149,619** | **$167,294** | **$104,913** | | Equity compensation expense | $17,562 | $11,465 | $6,113 | | Mark to market adjustments | ($22,145) | ($42,533) | ($13,060) | | **Adjusted EBITDA** | **$145,036** | **$136,226** | **$102,350** | [Liquidity and Capital Resources](index=65&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Liquidity%20and%20Capital%20Resources) As of December 31, 2023, the company had **$41.2 million** cash and **$340.3 million** debt, with operating cash flow at **$104.3 million**, ensuring liquidity Liquidity Position | Metric (in millions) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $41.2 | $13.6 | | Total debt principal | $340.3 | $363.1 | Cash Flow Summary | (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operations | $104.3 | $92.8 | | Net Cash Used in Investing | ($10.9) | ($9.1) | | Net Cash Used in Financing | ($65.8) | ($92.0) | - As of December 31, 2023, the company had full availability of its **$60.0 million revolving loan facility**[336](index=336&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is interest rate fluctuations on **$210.3 million** variable-rate debt, mitigated by an interest rate swap - The company is exposed to interest rate risk on its **$210.3 million** of variable-rate debt outstanding under its 2021 Credit Facility[351](index=351&type=chunk) - A **100 basis point (1%)** increase or decrease in the applicable interest rate would cause an approximate **$4.0 million** change in annual interest expense[352](index=352&type=chunk) - The company utilizes an interest rate swap agreement with a notional amount of **$125 million**, effective through December 2025, to hedge its exposure to variable interest rate payments[353](index=353&type=chunk) [Audited Financial Statements](index=69&type=section&id=Item%208.%20Audited%20Financial%20Statements) This section presents the company's audited consolidated financial statements for 2021-2023, with an unqualified opinion from Grant Thornton LLP - The independent registered public accounting firm, Grant Thornton LLP, issued an **unqualified audit opinion** on the consolidated financial statements[360](index=360&type=chunk) [Consolidated Financial Statements](index=71&type=section&id=Item%208.%20Audited%20Financial%20Statements-Financial%20Statements) Consolidated financial statements show **$201.0 million** in total assets, **$406.8 million** in liabilities, and **$112.5 million** net income for 2023 Key Balance Sheet Data (as of Dec 31, 2023) | Account | Amount (in thousands) | | :--- | :--- | | Total Current Assets | $139,377 | | Total Assets | $201,041 | | Total Current Liabilities | $40,910 | | Total Liabilities | $406,814 | | Total Stockholders' Deficit | ($802,360) | Key Income Statement Data (Year Ended Dec 31, 2023) | Account | Amount (in thousands) | | :--- | :--- | | Net Sales | $390,629 | | Gross Profit | $209,082 | | Income from Operations | $119,087 | | Net Income | $112,520 | [Notes to Financial Statements](index=77&type=section&id=Item%208.%20Audited%20Financial%20Statements-Notes%20to%20Financial%20Statements) Notes detail accounting policies, the 2021 Business Combination, customer concentration, **$340.3 million** debt, equity compensation, and fair value measurements - The 2021 merger was accounted for as a **reverse recapitalization**, with CompoSecure Holdings, L.L.C. treated as the accounting acquirer[377](index=377&type=chunk) - Two major customers accounted for **70.5% of total revenue in 2023**, highlighting significant customer concentration[431](index=431&type=chunk)[510](index=510&type=chunk) - As of Dec 31, 2023, total debt consisted of a **$210.3 million term loan** and **$130.0 million in exchangeable senior notes**[456](index=456&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosures](index=115&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None [Controls and Procedures](index=115&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, based on the COSO framework - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2023[543](index=543&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2023, based on the criteria set forth in the Internal Control-Integrated Framework (2013) by COSO[546](index=546&type=chunk) [Other Information](index=116&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None Part III [Directors, Executive Officers and Corporate Governance](index=117&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2024 Proxy Statement[550](index=550&type=chunk)[551](index=551&type=chunk)[553](index=553&type=chunk) [Executive Compensation](index=117&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding executive compensation is incorporated by reference from the forthcoming 2024 Proxy Statement[556](index=556&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=117&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding security ownership is incorporated by reference from the forthcoming 2024 Proxy Statement[557](index=557&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=117&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information regarding related transactions and director independence is incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding related transactions and director independence is incorporated by reference from the forthcoming 2024 Proxy Statement[559](index=559&type=chunk) [Principal Accounting Fees and Services](index=118&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the forthcoming 2024 Proxy Statement[560](index=560&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=119&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section lists financial statements and all exhibits filed or incorporated by reference, with schedules omitted as information is included elsewhere - This item contains a list of all exhibits filed with the Form 10-K, including material contracts, debt agreements, and corporate charters[563](index=563&type=chunk) [Form 10-K Summary](index=123&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no information for this item - None

CompoSecure, Inc. (NASDAQ:CMPO) Q4 2023 Earnings Conference Call March 6, 2024 5:00 PM ET Company Participants Sean Mansouri - IR Advisor, Elevate IR Jon Wilk - CEO Tim Fitzsimmons - CFO Conference Call Participants John Todaro - Needham Hal Goetsch - B. Riley FBR Mark Palmer - Benchmark Joe Flynn - Compass Point Research and Trading Reggie Smith - JPMorgan Operator Thank you for standing by, and welcome to CompoSecure's Fourth Quarter and Full Year 2023 Earnings Conference Call. I would now like to hand th ...

CompoSecure, Inc. (CMPO) came out with quarterly earnings of $0.26 per share, beating the Zacks Consensus Estimate of $0.22 per share. This compares to earnings of $0.20 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 18.18%. A quarter ago, it was expected that this company would post earnings of $0.24 per share when it actually produced earnings of $0.24, delivering no surprise.Over the last four quarters, the company has sur ...

Q4 Net Sales up 7% to $100 Million; Q4 Net Income up 39% to $31 Million; Q4 Adj. EBITDA up 22% to $37 Million Issues 2024 Guidance of Net Sales Between $408-$428 Million; Adj. EBITDA Between $147-$157 Million        Announces up to $40 Million Securities Repurchase Program to Capitalize on Strong Financial Position SOMERSET, N.J., March 06, 2024 (GLOBE NEWSWIRE) -- CompoSecure, Inc. (NASDAQ:CMPO), a leader in metal payment cards, security, and authentication solutions, today announced its financial and ope ...

LONDON, Feb. 27, 2024 (GLOBE NEWSWIRE) -- CompoSecure, Inc. (NASDAQ:CMPO), a leader in metal payment cards, security, and authentication solutions, today announced that Dr. Adam Lowe, Chief Product and Innovation Officer, will speak on a panel at Finovate Europe 2024 in London on February 28 at 9:40 am GMT. Finovate brings together financial institutions, fintech startups and industry experts to explore the latest trends and innovations in the financial technology sector. The panel, titled "Power Panel: Fin ...

Part I. Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents CompoSecure, Inc.'s unaudited consolidated financial statements and detailed notes for periods ended September 30, 2023, and December 31, 2022 [Consolidated Balance Sheets (Unaudited)](index=6&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) Consolidated Balance Sheet Highlights (Unaudited) | Metric | Sep 30, 2023 ($ in thousands) | Dec 31, 2022 ($ in thousands) | Change ($ in thousands) | Change (%) | | :--------------------------------- | :----------------------------- | :----------------------------- | :---------------------- | :--------- | | **ASSETS** | | | | | | Cash and cash equivalents | 23,817 | 13,642 | 10,175 | 74.59% | | Accounts receivable, net | 48,533 | 37,272 | 11,261 | 30.21% | | Inventories | 51,988 | 42,374 | 9,614 | 22.69% | | Total current assets | 128,249 | 97,112 | 31,137 | 32.06% | | Total assets | 195,047 | 162,943 | 32,104 | 19.70% | | **LIABILITIES** | | | | | | Current portion of long-term debt | 10,333 | 14,372 | (4,039) | -28.10% | | Accounts payable | 14,065 | 7,127 | 6,938 | 97.34% | | Total current liabilities | 52,869 | 47,360 | 5,509 | 11.63% | | Total liabilities | 433,890 | 454,941 | (21,051) | -4.63% | | Total stockholders' deficit | (835,430) | (892,232) | 56,802 | -6.37% | [Consolidated Statements of Operations (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Operations%20(Unaudited)) Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended Sep 30, 2023 ($ in thousands) | Three Months Ended Sep 30, 2022 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :---------------------- | :--------- | | Net sales | 96,886 | 103,305 | (6,419) | -6.21% | | Gross profit | 48,896 | 61,758 | (12,862) | -20.83% | | Income from operations | 28,801 | 25,642 | 3,159 | 12.32% | | Net income | 38,049 | 21,894 | 16,155 | 73.80% | | Net income attributable to CompoSecure, Inc. | 7,475 | 2,817 | 4,658 | 165.39% | | Net income per share attributable to Class A common stockholders - basic | 0.39 | 0.18 | 0.21 | 116.67% | | Net income per share attributable to Class A common stockholders - diluted | 0.34 | 0.18 | 0.16 | 88.89% | | Metric | Nine Months Ended Sep 30, 2023 ($ in thousands) | Nine Months Ended Sep 30, 2022 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :---------------------- | :--------- | | Net sales | 290,729 | 284,687 | 6,042 | 2.12% | | Gross profit | 156,187 | 169,369 | (13,182) | -7.78% | | Income from operations | 88,560 | 90,044 | (1,484) | -1.65% | | Net income | 81,496 | 109,459 | (27,963) | -25.55% | | Net income attributable to CompoSecure, Inc. | 15,843 | 15,486 | 357 | 2.31% | | Net income per share attributable to Class A common stockholders - basic | 0.86 | 1.02 | (0.16) | -15.69% | | Net income per share attributable to Class A common stockholders - diluted | 0.75 | 0.94 | (0.19) | -20.21% | [Consolidated Statements of Comprehensive Income (Unaudited)](index=9&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) Consolidated Statements of Comprehensive Income Highlights (Unaudited) | Metric | Three Months Ended Sep 30, 2023 ($ in thousands) | Three Months Ended Sep 30, 2022 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :---------------------- | :--------- | | Net income | 38,049 | 21,894 | 16,155 | 73.80% | | Other comprehensive (loss) income, net | (264) | 3,642 | (3,906) | -107.25% | | Comprehensive income | 37,785 | 25,536 | 12,249 | 47.97% | | Metric | Nine Months Ended Sep 30, 2023 ($ in thousands) | Nine Months Ended Sep 30, 2022 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :---------------------- | :--------- | | Net income | 81,496 | 109,459 | (27,963) | -25.55% | | Other comprehensive (loss) income, net | (637) | 8,999 | (9,636) | -107.08% | | Comprehensive income | 80,859 | 118,458 | (37,599) | -31.74% | [Consolidated Statements of Stockholders' Deficit (Unaudited)](index=10&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Deficit%20(Unaudited)) Stockholders' Deficit Changes (Unaudited) | Metric | As of Dec 31, 2022 ($ in thousands) | As of Sep 30, 2023 ($ in thousands) | Change ($ in thousands) | | :--------------------------------- | :---------------------------------- | :---------------------------------- | :---------------------- | | Class A Common Stock Shares | 16,446,748 | 19,293,287 | 2,846,539 | | Class B Common Stock Shares | 60,325,057 | 59,958,422 | (366,635) | | Additional Paid-in Capital | 24,107 | 34,765 | 10,658 | | Accumulated Other Comprehensive Income | 8,283 | 7,646 | (637) | | Accumulated Deficit | (924,630) | (877,849) | 46,781 | | Total Stockholders' Deficit | (892,232) | (835,430) | 56,802 | - During the nine months ended September 30, 2023, the company issued **2,479,904** new **shares** of Class A common stock primarily due to vesting of restricted stock units, exercise of stock options, and employee stock purchase plan transactions. Additionally, **366,635** Class B units were exchanged for Class A common stock and subsequently canceled[77](index=77&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=15&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric | Nine Months Ended Sep 30, 2023 ($ in thousands) | Nine Months Ended Sep 30, 2022 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :---------------------- | :--------- | | Net cash provided by operating activities | 77,879 | 81,961 | (4,082) | -4.98% | | Net cash used in investing activities | (6,669) | (7,221) | 552 | -7.64% | | Net cash used in financing activities | (61,035) | (81,254) | 20,219 | -24.88% | | Net increase (decrease) in cash and cash equivalents | 10,175 | (6,514) | 16,679 | -256.04% | | Cash and cash equivalents, end of period | 23,817 | 15,430 | 8,387 | 54.36% | [Notes to Consolidated Financial Statements (Unaudited)](index=17&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) [1. Description of Organization and Business Operations](index=17&type=section&id=1.%20DESCRIPTION%20OF%20ORGANIZATION%20AND%20BUSINESS%20OPERATIONS) - CompoSecure, Inc. is a manufacturer and designer of complex metal, composite, and proprietary financial transaction cards, serving global financial institutions, plastic card manufacturers, system integrators, and security specialists since 2000[28](index=28&type=chunk) - The company's offerings include innovative payment card technology and metal cards with Arculus secure authentication and digital asset storage capabilities, aiming to enhance customer acquisition, retention, and spending for banks and card issuers[29](index=29&type=chunk)[30](index=30&type=chunk) - CompoSecure operates as an umbrella partnership C corporation (Up-C), consolidating CompoSecure Holdings, L.L.C.'s financial results and reporting a non-controlling interest for units not owned by CompoSecure, Inc[32](index=32&type=chunk) [2. Summary of Significant Accounting Policies](index=17&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - The financial statements are prepared in conformity with U.S. GAAP and SEC regulations, with all intercompany accounts and transactions eliminated in consolidation[33](index=33&type=chunk)[34](index=34&type=chunk) - Revenue is recognized when performance obligations are satisfied, typically upon transfer of control of goods (metal cards, high security documents, pre-laminated materials) to customers, net of variable consideration like discounts and rebates[38](index=38&type=chunk)[41](index=41&type=chunk) - The Company operates as one reportable operating segment, as its business is managed by a single team, and resource allocation and performance assessment are based on aggregate financial information[44](index=44&type=chunk)[45](index=45&type=chunk) - The Company adopted ASU 2020-4 and ASU 2022-6 regarding Reference Rate Reform in Q1 2023, transitioning its 2021 Credit Facility from LIBOR to SOFR, which did not materially impact financial statements[48](index=48&type=chunk)[49](index=49&type=chunk) [3. Inventories](index=20&type=section&id=3.%20INVENTORIES) Inventory Breakdown ($ in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :-------------- | :----------- | :----------- | | Raw materials | 49,771 | 43,313 | | Work in process | 4,811 | 2,892 | | Finished goods | 454 | 450 | | Inventory reserve | (3,048) | (4,281) | | Total | 51,988 | 42,374 | - The company monitors inventory costs relative to selling prices and reviews for slow-moving or obsolete amounts, providing reserves as appropriate, which may fluctuate based on changing assumptions[51](index=51&type=chunk) [4. Property and Equipment](index=21&type=section&id=4.%20PROPERTY%20AND%20EQUIPMENT) Property and Equipment, Net ($ in thousands) | Category | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------- | :----------- | :----------- | | Machinery and equipment | 70,071 | 64,626 | | Leasehold improvements | 13,891 | 11,993 | | Construction in progress | 3,472 | 4,145 | | Total | 92,536 | 85,866 | | Less: Accumulated depreciation and amortization | (69,460) | (63,211) | | Property and equipment, net | 23,076 | 22,655 | Depreciation and Amortization Expense ($ in thousands) | Period | 2023 | 2022 | | :----------------------------------- | :--- | :--- | | Three months ended September 30 | 2,078 | 2,010 | | Nine months ended September 30 | 6,249 | 6,577 | [5. Debt](index=21&type=section&id=5.%20DEBT) [Exchangeable Senior Notes](index=21&type=section&id=Exchangeable%20Senior%20Notes) - The Company has Exchangeable Notes with an aggregate principal amount of **$130,000**, maturing on December 27, 2026, bearing **7%** annual interest, and exchangeable into Class A common stock at **$11.50** per share[54](index=54&type=chunk) - The Exchangeable Notes include an optional redemption with a make-whole provision, which is bifurcated and measured quarterly at fair value as a derivative liability. Its fair value was **$650** at September 30, 2023, up from **$285** at December 31, 2022[56](index=56&type=chunk)[62](index=62&type=chunk) Interest Expense on Exchangeable Notes ($ in thousands) | Period | 2023 | 2022 | | :----------------------------------- | :--- | :--- | | Three months ended September 30 | 2,416 | 2,407 | | Nine months ended September 30 | 7,167 | 7,127 | [Term Loan](index=24&type=section&id=Term%20Loan) - The 2021 Credit Facility, including a term loan and revolving loan, was amended in February 2023 to transition from LIBOR to SOFR-based interest rates and waive a technical default. It was further amended in May 2023, resulting in a write-off of **$589 thousand** in debt issuance costs[68](index=68&type=chunk)[69](index=69&type=chunk) - The effective interest rate on the Revolver and Term Loan was **7.99%** at September 30, 2023, up from **5.15%** at September 30, 2022. The Company was in compliance with all financial covenants as of September 30, 2023[70](index=70&type=chunk)[72](index=72&type=chunk) Interest Expense on Revolver and Term Loan ($ in thousands) | Period | 2023 | 2022 | | :----------------------------------- | :--- | :--- | | Three months ended September 30 | 4,997 | 3,439 | | Nine months ended September 30 | 14,870 | 9,609 | [Maturity of Borrowing Facilities & Interest Rate Swap](index=27&type=section&id=Maturity%20of%20Borrowing%20Facilities%20%26%20Interest%20Rate%20Swap) Maturity of Borrowing Facilities ($ in thousands) | Year | Amount | | :------------ | :----- | | 2024 | 15,000 | | 2025 | 200,000 | | 2026 | 130,000 | | Total debt | 345,000 | - The Company uses an interest rate swap agreement with a notional amount of **$125,000**, maturing in December 2025, designated as an effective cash flow hedge. Its fair value was **$8,055** at September 30, 2023[74](index=74&type=chunk) [6. Equity Structure](index=27&type=section&id=6.%20EQUITY%20STRUCTURE) - As of September 30, 2023, the Company had **19,293,287** Class A common **shares** and **59,958,422** Class B common **shares** outstanding. During the nine months ended September 30, 2023, **2,479,904** new Class A **shares** were issued, and **366,635** Class B units were exchanged for Class A shares and canceled[75](index=75&type=chunk)[77](index=77&type=chunk) - The Company had **300,000** private warrants and **22,115,389** public warrants outstanding as of September 30, 2023, each exercisable for one Class A common stock at **$11.50** per share[78](index=78&type=chunk)[80](index=80&type=chunk) - Non-controlling interests, represented by Class B Units, are classified as temporary equity and adjusted to redemption value (**$596,587** at September 30, 2023) based on the Class A common stock trading price[81](index=81&type=chunk) [7. Stock-Based Compensation](index=28&type=section&id=7.%20STOCK-BASED%20COMPENSATION) Stock-Based Compensation Expense ($ in thousands) | Expense Type | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Stock option expense | 33 | 273 | 269 | 956 | | Restricted stock unit expense | 3,875 | 3,442 | 10,880 | 6,741 | | Performance stock unit expense | 698 | — | 1,796 | — | | Employee stock purchase plan | 31 | — | 107 | — | | Total | 4,637 | 3,715 | 13,052 | 7,736 | - Unrecognized compensation cost for unvested stock options, restricted stock awards, and performance stock units totaled **$33,710 thousand** as of September 30, 2023, expected to be recognized over approximately **2.1** years[88](index=88&type=chunk) [8. Retirement Plans](index=30&type=section&id=8.%20RETIREMENT%20PLANS) Retirement Plan Expense ($ in thousands) | Period | 2023 | 2022 | | :----------------------------------- | :--- | :--- | | Three months ended September 30 | 405 | 319 | | Nine months ended September 30 | 1,326 | 1,156 | - The Company's 401(k) plan matches **100%** of the first **1%** and **50%** of the next **5%** of employee contributions. A deferred compensation plan was terminated in 2021, with the remaining liability paid in the nine months ended September 30, 2023[89](index=89&type=chunk)[90](index=90&type=chunk) [9. Fair Value Measurements](index=30&type=section&id=9.%20FAIR%20VALUE%20MEASUREMENTS) Fair Value Measurements (Level 1, 2, 3) as of September 30, 2023 ($ in thousands) | Instrument | Level 1 | Level 2 | Level 3 | Total | | :----------------------------------------------- | :------ | :------ | :------ | :------ | | **Assets Carried at Fair Value:** | | | | | | Derivative asset - interest rate swap | — | 8,055 | — | 8,055 | | **Liabilities Carried at Fair Value:** | | | | | | Public warrants | 14,375 | — | — | 14,375 | | Private warrants | — | — | 195 | 195 | | Earnout consideration | — | — | 4,550 | 4,550 | | Derivative liability - redemption make-whole provision | — | — | 650 | 650 | - The fair value of private warrants and earnout consideration is classified as Level 3 liabilities, requiring substantial judgment and estimation of unobservable market factors[97](index=97&type=chunk)[99](index=99&type=chunk) Earnout Consideration Liability Reconciliation ($ in thousands) | Metric | Amount | | :----------------------------------- | :----- | | Estimated fair value at Dec 31, 2022 | 15,090 | | Change in estimated fair value | (10,540) | | Estimated fair value at Sep 30, 2023 | 4,550 | [10. Geographic Information and Concentrations](index=32&type=section&id=10.%20GEOGRAPHIC%20INFORMATION%20AND%20CONCENTRATIONS) Net Sales by Region ($ in thousands) | Region | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Domestic | 84,277 | 83,842 | 235,933 | 216,335 | | International | 12,609 | 19,463 | 54,796 | 68,352 | | Total | 96,886 | 103,305 | 290,729 | 284,687 | - Three customers accounted for **84.6%** of total revenue for the three months ended September 30, 2023, and **79.1%** for the nine months ended September 30, 2023, indicating high customer concentration[102](index=102&type=chunk) - Two customers accounted for approximately **73%** of accounts receivable as of September 30, 2023. One vendor accounted for approximately **15%** of total purchases for the nine months ended September 30, 2023[102](index=102&type=chunk)[103](index=103&type=chunk) [11. Income Taxes](index=34&type=section&id=11.%20INCOME%20TAXES) Income Tax Provisions ($ in thousands) | Period | 2023 | 2022 | | :----------------------------------- | :--- | :--- | | Three months ended September 30 | 949 | 393 | | Nine months ended September 30 | 656 | 3,738 | Interim Effective Tax Rates | Period | 2023 | 2022 | | :----------------------------------- | :----- | :----- | | Three months ended September 30 | 1.48% | 1.76% | | Nine months ended September 30 | 0.80% | 3.30% | | :----------------------------------- | :----- | :----- | | Effective tax rate | 0.80% | 3.30% | - The effective tax rate differs from the U.S. statutory rate primarily due to the non-controlling interest adjustment, as income attributable to non-controlling interest is pass-through income[106](index=106&type=chunk) [12. Earnings Per Share](index=34&type=section&id=12.%20EARNINGS%20PER%20SHARE) Net Income Per Share Attributable to Class A Common Stockholders (Unaudited) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income attributable to Class A Common Stockholders - basic ($ in thousands) | 7,475 | 2,817 | 15,843 | 15,486 | | Weighted average common shares outstanding - basic | 19,074,679 | 15,433,438 | 18,420,069 | 15,141,169 | | Net income per share - basic | 0.39 | 0.18 | 0.86 | 1.02 | | Net income attributable to Class A Common Stockholders after adjustment ($ in thousands) | 12,285 | 3,550 | 26,548 | 30,932 | | Weighted average common shares outstanding - diluted | 35,764,654 | 19,662,060 | 35,362,059 | 32,814,683 | | Net income per share - diluted | 0.34 | 0.18 | 0.75 | 0.94 | - Potentially dilutive securities, including warrants, Class B common units, exchangeable notes, and equity awards, are excluded from diluted EPS calculation if their effect is anti-dilutive[112](index=112&type=chunk)[113](index=113&type=chunk) [13. Commitments and Contingencies](index=36&type=section&id=13.%20COMMITMENTS%20AND%20CONTINGENCIES) Future Minimum Operating Lease Commitments ($ in thousands) | Year | Amount | | :------------ | :----- | | 2023 (remainder) | 552 | | 2024 | 2,245 | | 2025 | 2,319 | | 2026 | 2,083 | | 2027 | 912 | | Later years | 1,205 | | Total lease payments | 9,316 | | Less: Imputed interest | (655) | | Present value of lease liabilities | 8,661 | Tax Receivable Agreement Obligations ($ in thousands) | Year | Amount | | :------------ | :----- | | 2023 (remainder) | 174 | | 2024 | 1,494 | | 2025 | 1,484 | | 2026 | 1,513 | | 2027 | 1,544 | | Later years | 19,412 | | Total payments | 25,621 | - The Company expects significant cash obligations under the tax receivable agreement, which will generally reduce cash flows available to the Company. The liability is expected to increase with future purchases, redemptions, or exchanges of Holdings' interests[115](index=115&type=chunk)[117](index=117&type=chunk) [14. Related Party Transactions](index=37&type=section&id=14.%20RELATED%20PARTY%20TRANSACTIONS) Sales Representation Agreement Expenses ($ in thousands) | Period | 2023 | 2022 | | :----------------------------------- | :--- | :--- | | Three months ended September 30 | 2,414 | 13,356 | | Nine months ended September 30 | 9,876 | 19,435 | - The Company made a **$2,193 thousand** payment related to the tax receivable agreement liability in Q3 2023. Holdings distributed **$38,362 thousand** in net tax distributions to non-controlling interest holders for the nine months ended September 30, 2023[120](index=120&type=chunk)[121](index=121&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses CompoSecure's financial condition, operational results, key drivers, economic impacts, and liquidity, comparing performance for the three and nine months ended September 30, 2023, versus prior year [Overview](index=38&type=section&id=Overview) - CompoSecure designs and manufactures customized financial payment card products for banks and card issuers globally, focusing on customer acquisition, retention, and spending[123](index=123&type=chunk) - The company's Arculus platform offers secure authentication and digital asset storage solutions, including the Arculus Cold Storage Wallet, addressing consumer needs for enhanced digital asset protection amidst volatile digital asset market conditions[125](index=125&type=chunk) - Uncertain and volatile economic conditions, including inflation and geopolitical conflicts, make forecasting difficult and could adversely affect business, financial condition, and results of operations[124](index=124&type=chunk) [Key Components of Results of Operations](index=38&type=section&id=Key%20Components%20of%20Results%20of%20Operations) - Net sales are primarily from the design and manufacturing of metal cards and Prelams, net of discounts and volume-based rebates[126](index=126&type=chunk) - Cost of sales includes direct and indirect manufacturing costs, raw materials, labor, equipment, operational overhead, and shipping, influenced by volume, efficiency, and procurement costs[128](index=128&type=chunk) - Operating expenses mainly comprise selling, general, and administrative expenses, covering personnel, professional services, facilities, and marketing[130](index=130&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) [Three months ended September 30, 2023 vs three months ended September 30, 2022](index=40&type=section&id=Three%20months%20ended%20September%2030,%202023%20vs%20three%20months%20ended%20September%2030,%202022) Key Financial Performance (Three Months Ended September 30) | Metric | 2023 ($ in thousands) | 2022 ($ in thousands) | Change ($ in thousands) | % Change | | :------------------------- | :-------------------- | :-------------------- | :---------------------- | :------- | | Net sales | 96,886 | 103,305 | (6,419) | -6% | | Cost of sales | 47,990 | 41,547 | 6,443 | 16% | | Gross profit | 48,896 | 61,758 | (12,862) | (21)% | | Selling, general and administrative expenses | 20,095 | 36,116 | (16,021) | (44)% | | Income from operations | 28,801 | 25,642 | 3,159 | 12% | | Other income (expense), net | 10,197 | (3,355) | 13,552 | (404)% | | Net income | 38,049 | 21,894 | 16,155 | 74% | | Gross Margin | 50.5% | 59.8% | -9.3% | | | Operating margin | 29.7% | 24.8% | 4.9% | | - Net sales decreased by **6%** due to lower international sales (**-35%**), while domestic sales increased by **1%**. Gross profit declined by **21%** due to lower production efficiencies and inflationary pressures on wages and materials[137](index=137&type=chunk)[138](index=138&type=chunk)[140](index=140&type=chunk) - Operating expenses decreased by **44%**, primarily driven by reductions in bonus (**$3.3M**), commission (**$10.9M**), marketing (**$1.8M**), and insurance (**$1.0M**) expenses. This led to a **12%** increase in income from operations[141](index=141&type=chunk)[142](index=142&type=chunk) - Net income increased by **74%**, largely due to favorable operating expenses and positive changes in the fair value of warrant and earnout consideration liabilities, despite the decrease in gross profit[143](index=143&type=chunk)[144](index=144&type=chunk) [Nine months ended September 30, 2023 vs nine months ended September 30, 2022](index=43&type=section&id=Nine%20months%20ended%20September%2030,%202023%20vs%20nine%20months%20ended%20September%2030,%202022) Key Financial Performance (Nine Months Ended September 30) | Metric | 2023 ($ in thousands) | 2022 ($ in thousands) | Change ($ in thousands) | % Change | | :------------------------- | :-------------------- | :-------------------- | :---------------------- | :------- | | Net sales | 290,729 | 284,687 | 6,042 | 2% | | Cost of sales | 134,542 | 115,318 | 19,224 | 17% | | Gross profit | 156,187 | 169,369 | (13,182) | -8% | | Selling, general and administrative expenses | 67,627 | 79,325 | (11,698) | -15% | | Income from operations | 88,560 | 90,044 | (1,484) | -2% | | Other (expense) income, net | (6,408) | 23,153 | (29,561) | -128% | | Net income | 81,496 | 109,459 | (27,963) | -26% | | Gross Margin | 53.7% | 59.5% | -5.8% | | | Operating margin | 30.5% | 31.6% | -1.1% | | - Net sales increased by **2%** driven by **9%** domestic growth, offset by a **20%** decrease in international sales due to global economic uncertainty. Gross profit decreased by **8%** and gross margin fell to **53.7%** due to lower production efficiencies and inflationary pressures[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[151](index=151&type=chunk) - Operating expenses decreased by **15%** (**$11.7M**), primarily from lower bonus (**$1.5M**), commission (**$9.6M**), marketing (**$4.5M**), and insurance (**$2.9M**) expenses, partially offset by increased stock-based compensation (**$5.3M**) and salaries (**$2.8M**)[152](index=152&type=chunk) - Net income decreased by **26%** (**$28.0M**), mainly due to a reduction in favorable changes in the fair value of warrant liabilities, earnout consideration liability, and derivative liability, despite controlled operating expenses[155](index=155&type=chunk) [Use of Non-GAAP Financial Measures](index=46&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) - The Company uses non-GAAP measures like EBITDA, Adjusted EBITDA, and non-GAAP earnings per share to evaluate financial performance, manage the business, and measure incentive compensation, believing they reflect true business performance by focusing on relevant and controllable events[157](index=157&type=chunk) EBITDA and Adjusted EBITDA Reconciliation ($ in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | 38,049 | 21,894 | 81,496 | 109,459 | | Depreciation and amortization | 2,078 | 2,010 | 6,249 | 6,577 | | Interest expense, net | 6,010 | 5,850 | 18,355 | 16,362 | | Income tax expense | 949 | 393 | 656 | 3,738 | | **EBITDA** | **47,086** | **30,147** | **106,756** | **136,136** | | Stock-based compensation expense | 4,637 | 3,715 | 13,052 | 7,736 | | Mark-to-market adjustments, net | (16,207) | (1,204) | (11,947) | (38,224) | | **Adjusted EBITDA** | **35,516** | **32,658** | **107,861** | **105,648** | Non-GAAP Adjusted Net Income and EPS Reconciliation | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Adjusted net income ($ in thousands) | 21,709 | 19,779 | 65,254 | 65,461 | | Adjusted net income per share - basic | 0.27 | 0.26 | 0.83 | 0.86 | | Adjusted net income per share - diluted | 0.24 | 0.22 | 0.72 | 0.74 | [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary liquidity sources include existing cash, cash flows from operations, and borrowings from its term loan, revolving credit facility, and Exchangeable Notes. Cash and cash equivalents increased to **$23.8 million** as of September 30, 2023, from **$13.6 million** at December 31, 2022[165](index=165&type=chunk)[166](index=166&type=chunk) - The Company believes current liquidity is sufficient for at least the next **12** months, with additional liquidity potentially from revolving credit facility borrowings or other indebtedness[167](index=167&type=chunk) - As of September 30, 2023, total debt outstanding was **$345.0 million**, including **$215.0 million** under the 2021 Credit Facility (with **$60.0 million** available on the revolving loan) and **$130.0 million** in Exchangeable Notes[166](index=166&type=chunk)[168](index=168&type=chunk)[173](index=173&type=chunk) - Net cash provided by operating activities decreased by **$4.1 million** to **$77.9 million** for the nine months ended September 30, 2023. Net cash used in financing activities decreased by **$20.2 million** to **$61.0 million**, primarily due to lower distributions to non-controlling interests and reduced debt repayments[174](index=174&type=chunk)[176](index=176&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Details the Company's exposure to market risks, primarily interest rate risk on variable rate debt, and strategies like interest rate swaps to manage this risk [Interest Rate Risk](index=49&type=section&id=Interest%20Rate%20Risk) - As of September 30, 2023, CompoSecure had **$215.0 million** in variable rate debt under its 2021 Credit Facility and **$130.0 million** in Exchangeable Notes. A **100 basis point** change in interest rates would impact annual interest expense by approximately **$4.0 million**[180](index=180&type=chunk)[181](index=181&type=chunk) - The Company uses an interest rate swap agreement with a notional amount of **$125.0 million**, maturing in December 2025, designated as a cash flow hedge. The swap converted from LIBOR to SOFR in February 2023, aligning with the 2021 Credit Facility amendment[182](index=182&type=chunk)[183](index=183&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) Outlines the Company's evaluation of disclosure controls and procedures, confirming their effectiveness and no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=50&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were functioning effectively as of September 30, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[184](index=184&type=chunk)[185](index=185&type=chunk) [Changes in Internal Control Over Financial Reporting](index=51&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - There have been no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[188](index=188&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) CompoSecure, Inc. was not involved in any material pending legal proceedings beyond ordinary routine business claims as of November 2, 2023 - As of November 2, 2023, the Company was not a party to any material pending legal proceedings, other than ordinary routine claims incidental to the business[191](index=191&type=chunk) [Item 1A. Risk Factors](index=52&type=page&id=Item%201A.%20Risk%20Factors) Outlines substantial risks that could materially affect CompoSecure's business, financial condition, and operations, categorized by business, Tax Receivable Agreement, indebtedness, and securities ownership [Summary of Risk Factors](index=52&type=section&id=Summary%20of%20Risk%20Factors) - Investment in CompoSecure securities involves substantial risk, including those related to business operations, indebtedness, and ownership of securities, which could materially adversely affect the company's performance[192](index=192&type=chunk)[194](index=194&type=chunk) [Risks Related to Our Business](index=53&type=section&id=Risks%20Related%20to%20Our%20Business) - Rapidly evolving global economic conditions, including inflation, geopolitical conflicts, and supply chain disruptions, create uncertainty and could materially adversely affect the business, particularly the new Arculus segment[197](index=197&type=chunk) - The Company faces risks related to sustaining revenue growth, retaining major customers (American Express and JPMorgan Chase accounted for **67%** of 2022 net sales), and potential adverse impacts from data breaches, system outages, and disruptions at its primary production facility[202](index=202&type=chunk)[203](index=203&type=chunk)[205](index=205&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) - Challenges include developing and commercializing new products, especially in the digital assets industry (Arculus Platform), where the company has limited experience and faces regulatory uncertainty regarding digital asset classification and potential misuse[211](index=211&type=chunk)[220](index=220&type=chunk)[221](index=221&type=chunk)[223](index=223&type=chunk) - Other risks include supply chain disruptions, dependence on distribution partners, intense competition, potential impairment of long-lived assets, compliance with payment card industry security standards, and adverse effects from product liability claims and international sales[216](index=216&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk)[248](index=248&type=chunk)[250](index=250&type=chunk)[253](index=253&type=chunk)[256](index=256&type=chunk) [Risks Related to the Tax Receivable Agreement](index=64&type=section&id=Risks%20Related%20to%20the%20Tax%20Receivable%20Agreement) - CompoSecure's ability to pay dividends or meet financial obligations, including under the Tax Receivable Agreement (TRA), depends on distributions from Holdings, which may be insufficient[261](index=261&type=chunk) - The Company is obligated to pay certain holders **90%** of the tax benefits realized from increased tax basis, and these payments are expected to be substantial and could exceed actual cash tax benefits, potentially impairing liquidity[262](index=262&type=chunk)[265](index=265&type=chunk) - Payments under the TRA may be accelerated upon certain changes of control, potentially exceeding actual benefits and negatively impacting the value received by Class A Common Stock owners in such transactions[264](index=264&type=chunk)[266](index=266&type=chunk) - Holdings is required to make pro rata tax distributions to unit holders, which may exceed CompoSecure's tax liabilities and TRA obligations, potentially benefiting Class B unit holders upon exchange for Class A Common Stock[267](index=267&type=chunk)[269](index=269&type=chunk) [Risks Related to Our Indebtedness](index=66&type=section&id=Risks%20Related%20to%20Our%20Indebtedness) - The Company has substantial indebtedness (**$363.1 million** as of December 31, 2022), which limits operating flexibility, requires significant cash flow for debt service, and restricts ability to borrow additional funds[271](index=271&type=chunk)[272](index=272&type=chunk) - An event of default under the credit facility could lead to accelerated payments and termination of credit commitments, with lenders potentially foreclosing on collateral[273](index=273&type=chunk) - The variable interest rate on the credit facility, now based on SOFR, introduces unpredictability and may increase borrowing costs. Restrictive covenants in the credit facility limit business operations and may impair the ability to raise capital[274](index=274&type=chunk)[275](index=275&type=chunk) - Guarantees of indebtedness, including for Exchangeable Notes, could limit cash flow, expose the company to risks, and potentially lead to default if obligations are not met[277](index=277&type=chunk)[278](index=278&type=chunk) [General Risks Related to Ownership of our Securities](index=68&type=section&id=General%20Risks%20Related%20to%20Ownership%20of%20our%20Securities) - CompoSecure's profitability and ability to pay dividends depend on its subsidiaries' business operations, which may be limited by legal and contractual restrictions[280](index=280&type=chunk) - Provisions in the Company's Charter and Delaware law, including classified board and anti-takeover measures, may discourage unsolicited takeover proposals and entrench management[281](index=281&type=chunk)[282](index=282&type=chunk)[284](index=284&type=chunk) - Failure to maintain Nasdaq listing requirements, significant costs as a public company, and reliance on 'emerging growth company' exemptions could adversely affect securities trading and investor attractiveness[285](index=285&type=chunk)[286](index=286&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk) - The Public Warrants and Resale Warrants may expire worthless as their exercise price (**$11.50**) exceeds the current Class A Common Stock market price (**$5.97** as of Nov 2, 2023). Warrant terms can be amended adversely to holders with majority approval, and the Company may redeem unexpired warrants at a disadvantageous time[294](index=294&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk) - Future sales of securities, including from warrant exercises and registration rights, could dilute existing stockholders and depress market prices. Significant shareholder control (LLR Parties **44%**, Logan Parties **27%**) may influence corporate decisions that conflict with other stockholders' interests[297](index=297&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=75&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports no Class B Units were exchanged for Class A Common Stock during the quarter ended September 30, 2023, with such exchanges exempt from registration under Section 4(a)(2) of the Securities Act - During the quarter ended September 30, 2023, no Class B Units were tendered for exchange into Class A Common Stock. Shares issued in such exchanges are exempt from registration under Section 4(a)(2) of the Securities Act[312](index=312&type=chunk)[313](index=313&type=chunk) [Item 3. Defaults Upon Senior Securities](index=76&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[314](index=314&type=chunk) [Item 4. Mine Safety Disclosures](index=76&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[315](index=315&type=chunk) [Item 5. Other Information](index=76&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the Company - Other Information is not applicable to the Company[316](index=316&type=chunk) [Item 6. Exhibits](index=76&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed as part of the Form 10-Q, including certifications, XBRL financial data, and the interactive data file - The exhibits include certifications from the CEO and CFO (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), XBRL formatted financial statements, and the interactive data file[324](index=324&type=chunk)[325](index=325&type=chunk) [Signatures](index=77&type=section&id=Signatures) - The report was signed on November 13, 2023, by Jonathan C. Wilk, President and Chief Executive Officer, and Timothy Fitzsimmons, Chief Financial Officer[322](index=322&type=chunk)

CompoSecure, Inc. (NASDAQ:CMPO) Q3 2023 Earnings Conference Call November 9, 2023 5:00 PM ET Company Participants Sean Mansouri - IR Advisor, Elevate IR Jon Wilk - CEO Tim Fitzsimmons - CFO Conference Call Participants John Todaro - Needham Hal Goetsch - B. Riley Chase White - Compass Point Research & Trading, LLC Operator Ladies and gentlemen, thank you for standing by, and welcome to CompoSecure's Third Quarter 2023 Earnings Call. I would now like to hand the call over to CompoSecure's Investor Relations ...

Q3 2023 Earnings Presentation Disclaimers 2 Forward Looking Statements This presentation contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management. Although the Company believes that its plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions, or exp ...