Resolute Holdings Management Inc(RHLD) - 2025 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section emphasizes that forward-looking statements are subject to inherent risks and uncertainties, advising against undue reliance Forward-Looking Statements This section highlights that the report contains forward-looking statements based on management's beliefs and assumptions, which are subject to inherent risks and uncertainties - Forward-looking statements are based on management's beliefs and assumptions and are subject to risks, uncertainties, and assumptions[8] - Key factors that could cause actual results to differ include the competitive environment, company strategy and growth prospects, general economic and industry trends, dealings with third-party partners, risks related to the CompoSecure Management Agreement, reliance on CompoSecure Holdings, ability to integrate acquisitions, deployment of the Resolute Operating System, personnel retention, CompoSecure Holdings' growth and customer relationships, economic/business/competitive factors, future exchange and interest rates, reputation damage, legal/regulatory compliance, cybersecurity, legal proceedings, tax matters, transition to a standalone public company, and global economic/political developments[9][11] - The Company undertakes no obligation to update or revise publicly any forward-looking statements, except as required by law[10] Part I. Financial Information This section presents the company's financial performance and position through consolidated statements and detailed notes Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, and cash flows Consolidated Balance Sheets (Unaudited) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Assets | | | | Cash and cash equivalents | $99,862 | $71,589 | | Accounts receivable | $69,260 | $47,449 | | Total current assets | $217,066 | $166,591 | | Total assets | $253,291 | $201,792 | | Liabilities & Equity | | | | Accounts payable | $14,390 | $5,691 | | Total current liabilities | $63,876 | $50,145 | | Long-term debt, net | $177,071 | $184,389 | | Total liabilities | $249,150 | $238,422 | | Total stockholders' equity (deficit) | $9,611 | $(790) | | Total equity (deficit) | $4,141 | $(36,630) | - Total assets increased by $51,499 thousand (25.5%) from December 31, 2024, to June 30, 2025[13] - Total equity (deficit) significantly improved from a deficit of $(36,630) thousand to a positive $4,141 thousand[13] Consolidated Statements of Operations (Unaudited) This section outlines the company's financial performance over periods, reporting net sales, gross profit, and net income or loss Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $119,592 | $108,567 | $223,481 | $212,577 | | Gross profit | $68,800 | $56,072 | $123,347 | $111,285 | | Income from operations | $40,633 | $33,391 | $66,254 | $65,834 | | Net income (loss) | $38,297 | $27,902 | $60,912 | $54,288 | | Net income (loss) attributable to common stockholders | $(611) | $— | $(3,977) | $— | | Net income (loss) per share - basic & diluted | $(0.07) | $— | $(0.47) | $— | - Net sales increased by 10.15% for the three months ended June 30, 2025, and by 5.13% for the six months ended June 30, 2025, compared to the prior year periods[14] - Gross profit increased by 22.69% for the three months and 10.84% for the six months ended June 30, 2025, year-over-year[14] - The company reported a net loss attributable to common stockholders of $(611) thousand and $(3,977) thousand for the three and six months ended June 30, 2025, respectively, compared to zero in the prior year periods[14] Consolidated Statements of Comprehensive Income (Loss) (Unaudited) This section presents net income alongside other comprehensive income items, such as unrealized gains or losses on derivatives Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) including non-controlling interests | $38,297 | $27,902 | $60,912 | $54,288 | | Unrealized gain (loss) on derivative - interest rate swap | $(619) | $(564) | $(1,372) | $(77) | | Comprehensive income (loss) including non-controlling interests | $37,678 | $27,338 | $59,540 | $54,211 | | Comprehensive income (loss) attributable to common stockholders | $(611) | $— | $(3,977) | $— | - Unrealized losses on derivative interest rate swaps increased significantly for the six months ended June 30, 2025, to $(1,372) thousand from $(77) thousand in the prior year[16] Consolidated Statements of Stockholders Equity (Deficit) (Unaudited) This section details changes in equity, including contributions, net income, and distributions, reflecting the company's ownership structure Consolidated Statements of Stockholders' Equity (Deficit) Highlights (in thousands) | Metric | December 31, 2024 | June 30, 2025 | | :-------------------------------- | :---------------- | :------------ | | Total Stockholders' Equity (Deficit) | $(790) | $9,611 | | Non-controlling interest | $(35,840) | $(5,470) | | Total Equity (Deficit) | $(36,630) | $4,141 | - Total equity (deficit) improved from $(36,630) thousand at December 31, 2024, to $4,141 thousand at June 30, 2025, driven by contributions from CompoSecure Holdings and equity-based compensation, partially offset by net loss and distributions[18] - Additional paid-in capital increased from $1,544 thousand to $15,922 thousand, reflecting equity-based compensation and contributions by CompoSecure Holdings[18] Consolidated Statements of Cash Flows (Unaudited) This section reports cash inflows and outflows from operating, investing, and financing activities, showing liquidity changes Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $67,288 | $71,760 | | Net cash used in investing activities | $(2,798) | $(3,527) | | Net cash used in financing activities | $(36,217) | $(79,352) | | Net increase (decrease) in cash and cash equivalents | $28,273 | $(11,119) | | Cash and cash equivalents, end of period | $99,862 | $27,072 | - Net cash provided by operating activities decreased by $4,472 thousand (6.23%) for the six months ended June 30, 2025, compared to the prior year[20] - Net cash used in financing activities significantly decreased by $43,135 thousand (54.36%) for the six months ended June 30, 2025, primarily due to lower distributions to CompoSecure Holdings members[20] - Cash and cash equivalents at the end of the period increased to $99,862 thousand from $27,072 thousand year-over-year[20] Notes to Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the consolidated financial statements, clarifying accounting policies 1. Description of Organization and Business Operations This note describes the company's formation, business model, and the spin-off of CompoSecure Holdings, detailing the management agreement - Resolute Holdings Management, Inc. (RHLD) was formed on September 27, 2024, to provide operating management services to CompoSecure Holdings, L.L.C. and other future managed companies, aiming to generate recurring management fees[21] - CompoSecure Holdings, a manufacturer and designer of metal and composite financial transaction cards, was spun off from CompoSecure, Inc. on February 28, 2025, with RHLD shares distributed to CompoSecure Class A Common Stockholders[22][24] - RHLD consolidates CompoSecure Holdings as a Variable Interest Entity (VIE) due to a management agreement, despite not owning equity interests in CompoSecure Holdings[25] - RHLD receives a quarterly management fee equal to 2.5% of CompoSecure Holdings' last 12 months' Adjusted EBITDA, as defined in the CompoSecure Management Agreement[26] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition and consolidation policies - The financial statements are prepared in accordance with U.S. GAAP and SEC rules, with all dollar amounts in thousands unless otherwise noted[30] - CompoSecure Holdings is consolidated as a VIE, with its assets and liabilities initially measured at amounts carried in CompoSecure's records due to common control[31] - Revenue is recognized when performance obligations are satisfied, typically upon transfer of control of goods to customers, with contract liabilities of $1.9 million as of June 30, 2025[39] - The Company operates two reportable segments: Resolute Holdings and CompoSecure Holdings, based on distinct operations and the CODM's assessment[47][48] - Software development costs are capitalized after the preliminary project stage and amortized over one to two years; $822 thousand was capitalized for the six months ended June 30, 2025[49] - Recent accounting pronouncements include ASU 2025-03 (determining accounting acquirer in VIE acquisition), ASU 2024-03 (expense disaggregation disclosures), ASU 2023-07 (improvements to reportable segment disclosures, adopted by the Company), and ASU 2023-09 (improvements to income tax disclosures)[53][54][56][57] 3. Equity-Based Compensation This note details the company's equity compensation plans, including expense recognition and unrecognized costs for restricted stock units Total Equity-Based Compensation Expense (in thousands) | Plan | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Resolute Equity Plan | $43 | $— | $51 | $— | | CompoSecure Equity Plan | $6,359 | $5,043 | $12,397 | $9,210 | | Total | $6,402 | $5,043 | $12,448 | $9,210 | - Total equity-based compensation expense increased by 26.9% for the three months and 35.16% for the six months ended June 30, 2025, primarily due to the CompoSecure Equity Plan[59] - Unrecognized compensation cost for restricted stock units under the CompoSecure Equity Plan totaled $40,545 thousand as of June 30, 2025, to be recognized over approximately 4.8 years[61] 4. Income Taxes This note provides information on the company's income tax provision and effective tax rate, explaining deviations from the statutory rate Income Tax Provision and Effective Tax Rate | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax provision | $299 | $0 | $867 | $0 | | Effective tax rate | 0.8% | 0% | 1.4% | 0% | - 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 in CompoSecure Holdings is pass-through income[66] 5. Earnings (Loss) Per Share This note presents the calculation of basic and diluted earnings per share, including the impact of anti-dilutive awards Net Income (Loss) Per Share Attributable to Common Stockholders | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------------------------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders | $(611) | $— | $(3,977) | $— | | Weighted average common shares outstanding (in thousands) | 8,526 | 8,526 | 8,526 | 8,526 | | Net income (loss) per share attributable to common stockholders - basic & diluted | $(0.07) | $— | $(0.47) | $— | - The company reported a basic and diluted net loss per share of $(0.07) and $(0.47) for the three and six months ended June 30, 2025, respectively, compared to zero in the prior year periods[69] - All Resolute Equity Plan awards outstanding as of June 30, 2025, were anti-dilutive and thus excluded from diluted EPS calculation[69][70] 6. Inventories This note details the composition of inventories, including raw materials, work in process, finished goods, and the inventory reserve Inventory Composition (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :------------------ | | Raw materials | $43,873 | $46,109 | | Work in process | $2,760 | $1,024 | | Finished goods | $1,509 | $505 | | Inventory reserve | $(3,903) | $(2,805) | | Total | $44,239 | $44,833 | - Raw materials decreased by $2,236 thousand, while work in process and finished goods increased, indicating a shift in inventory stages[71] - The inventory reserve for slow-moving or obsolete amounts increased by $1,098 thousand[71] 7. Property and Equipment This note provides a breakdown of property and equipment, net of accumulated depreciation, and related depreciation expenses Property and Equipment, Net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Machinery and equipment | $40,096 | $38,012 | | Leasehold improvements | $12,704 | $11,711 | | Construction in progress | $1,167 | $2,664 | | Total | $56,248 | $54,272 | | Less: Accumulated depreciation and amortization | $(35,067) | $(30,824) | | Property and equipment, net | $21,181 | $23,448 | - Net property and equipment decreased by $2,267 thousand (9.67%) from December 31, 2024, to June 30, 2025, primarily due to increased accumulated depreciation and a decrease in construction in progress[72] - Depreciation and amortization expense for property and equipment was $4,243 thousand for the six months ended June 30, 2025, a decrease from $4,601 thousand in the prior year period[72] 8. Debt This note describes the company's debt instruments, including revolving credit facilities, term loans, and interest rate swap agreements - Resolute Holdings entered into a $5,000 thousand senior secured revolving credit facility on February 28, 2025, maturing May 31, 2026, with no outstanding balance as of June 30, 2025[73][74] - CompoSecure Holdings has a credit facility with a $200,000 thousand term loan and a $130,000 thousand revolving credit facility, maturing August 7, 2029. The effective interest rate was 6.87% at June 30, 2025[75][78] CompoSecure Holdings Term Loan Balance (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :------------------ | | Loan Balance | $192,500 | $197,500 | | Less: current portion of term loan | $(13,750) | $(11,250) | | Less: net deferred financing costs | $(1,679) | $(1,861) | | Total Long Term debt | $177,071 | $184,389 | - CompoSecure Holdings was in compliance with all financial covenants as of June 30, 2025[78] - An interest rate swap agreement with a notional amount of $125,000 thousand is in place to hedge variable interest rate fluctuations, with a fair value of $1,377 thousand as of June 30, 2025[82][83] - All Exchangeable Notes, with an aggregate principal amount of $130,000 thousand, were exchanged for CompoSecure Class A Common Stock prior to November 29, 2024, and were extinguished[85] 9. Equity Structure This note outlines the company's authorized and outstanding common stock, the impact of the spin-off, and non-controlling interests - As of June 30, 2025, the Company had 1,000,000,000 shares of common stock authorized, with 8,525,998 shares issued and outstanding[88] - The Spin-Off on February 28, 2025, resulted in the distribution of 8,525,998 common shares of Resolute Holdings to CompoSecure's Class A Common Stockholders[89] - Non-controlling interest represents equity interests in CompoSecure Holdings held by CompoSecure, which is reflected in the consolidated financial statements due to RHLD being the primary beneficiary of CompoSecure Holdings (a VIE)[90] 10. Leases This note details the company's operating lease commitments, lease expenses, and the present value of lease liabilities - The Company leases office and manufacturing space, recognizing lease expense on a straight-line basis over lease terms ranging from one to nine years[91][93] Total Lease Cost (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $678 | $581 | $1,334 | $1,168 | | Variable lease cost | $254 | $218 | $549 | $458 | | Total lease cost | $932 | $799 | $1,883 | $1,626 | - Future minimum commitments under non-cancelable operating leases total $12,632 thousand, with a present value of lease liabilities of $10,362 thousand as of June 30, 2025[95] 11. Retirement Plans This note describes the company's 401(k) plans and matching contributions, along with the associated retirement plan expenses - Both Resolute Holdings and CompoSecure Holdings offer 401(k) profit sharing plans with matching contributions[96] Retirement Plan Expense (in thousands) | Period | Retirement Plan Expense | | :------------------------------- | :---------------------- | | Three months ended June 30, 2025 | $616 | | Three months ended June 30, 2024 | $461 | | Six months ended June 30, 2025 | $1,473 | | Six months ended June 30, 2024 | $1,052 | - Retirement plan expense increased by 33.62% for the three months and 39.92% for the six months ended June 30, 2025, year-over-year[97] 12. Fair Value Measurements This note provides fair value information for derivative instruments, specifically the interest rate swap, and its impact on comprehensive income Fair Value of Derivative Asset - Interest Rate Swap (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Derivative asset - interest rate swap | $1,377 | $2,749 | - The fair value of the interest rate swap derivative asset decreased by $1,372 thousand from December 31, 2024, to June 30, 2025[99] - The interest rate swap is designated as a cash flow hedge to manage interest rate risk on variable rate debt, with unrealized changes in fair value reflected in other comprehensive income[100] 13. Segments This note presents financial information for the company's two reportable segments, including net sales and income from operations - The Company operates two reportable segments: Resolute Holdings and CompoSecure Holdings, which are distinct operating businesses consolidated for U.S. GAAP[101] - Resolute Holdings' sole source of revenue is management fees from CompoSecure Holdings, which are eliminated in consolidation[102] Segment Net Sales (in thousands) | Segment | Three months ended June 30, 2025 | Six months ended June 30, 2025 | | :---------------- | :------------------------------- | :----------------------------- | | Resolute Holdings | $3,419 | $4,548 | | CompoSecure Holdings | $119,592 | $223,481 | | Eliminations | $(3,419) | $(4,548) | | Consolidated | $119,592 | $223,481 | Segment Income from Operations (in thousands) | Segment | Three months ended June 30, 2025 | Six months ended June 30, 2025 | | :---------------- | :------------------------------- | :----------------------------- | | Resolute Holdings | $(385) | $(3,182) | | CompoSecure Holdings | $41,018 | $67,626 | | Eliminations | $— | $1,810 | | Consolidated | $40,633 | $66,254 | 14. Variable Interest Entities This note explains the consolidation of CompoSecure Holdings as a Variable Interest Entity due to the management agreement - CompoSecure Holdings is deemed a VIE in which Resolute Holdings is the primary beneficiary, requiring consolidation due to the management agreement[107][108] - Resolute Holdings has no direct ownership interest in CompoSecure Holdings, and creditors of each entity have no recourse to the assets or liabilities of the other[108][109] 15. Geographic Information and Concentrations This note provides a breakdown of net sales by region and highlights significant customer concentrations in revenue and receivables Net Sales by Region (in thousands) | Region | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Domestic | $104,303 | $85,184 | $193,836 | $177,974 | | International | $15,289 | $23,383 | $29,645 | $34,603 | | Total | $119,592 | $108,567 | $223,481 | $212,577 | - Domestic sales increased by 22.44% for the three months and 8.91% for the six months ended June 30, 2025, while international sales decreased by 34.61% and 14.33% respectively[110] - Three customers accounted for 67.2% and 76.6% of total revenue for the three months ended June 30, 2025 and 2024, respectively, indicating significant customer concentration[111] - Four customers accounted for approximately 76% of accounts receivable as of June 30, 2025[112] 16. Commitments and Contingencies This note outlines the company's non-cancelable operating lease commitments and potential liabilities from legal disputes and claims - The Company has non-cancelable operating leases with $12,632 thousand in minimum undiscounted future lease payments[114] - The Company may be subject to various disputes and claims arising from normal business activities and accrues for probable and estimable legal liabilities[115] 17. Related Party Transactions This note details transactions and agreements between Resolute Holdings and CompoSecure, both under common control, following the spin-off - Resolute Holdings and CompoSecure are under common control by Tungsten 2024 LLC and its affiliates[116] - Agreements related to the Spin-Off include a Separation and Distribution Agreement, a Letter Agreement delegating authority for CompoSecure equity issuances to Resolute Holdings, a Registration Rights Agreement, and a U.S. State and Local Tax Sharing Agreement[117][118][120][122][123] - CompoSecure Holdings made $15,933 thousand in distributions to CompoSecure during the three and six months ended June 30, 2025[126] 18. Subsequent Events This note describes significant events occurring after the balance sheet date, including new tax legislation and its potential impact - The One, Big, Beautiful Bill Act (OBBB) was signed into law on July 4, 2025, permanently extending certain tax provisions and restoring favorable tax treatment for businesses[127] - The Company is evaluating the OBBB's impact but expects it will likely not materially affect its financial statements[127] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operational results, focusing on the business model and key performance metrics Overview This overview describes Resolute Holdings' business model of providing management services to CompoSecure Holdings, a VIE - Resolute Holdings Management, Inc. (RHLD) aims to provide operating management services to CompoSecure Holdings and other companies to generate recurring management fees[130] - RHLD consolidates CompoSecure Holdings as a Variable Interest Entity (VIE) due to the management agreement, despite not holding equity interests[131] - CompoSecure Holdings specializes in innovative, customized financial payment card products for banks and issuers globally, with a niche in the financial technology market[132] Recent Developments This section highlights the recent spin-off of Resolute Holdings and the subsequent management agreement with CompoSecure Holdings - On February 28, 2025, CompoSecure completed the Spin-Off of Resolute Holdings, distributing one share of RHLD common stock for every twelve shares of CompoSecure Class A Common Stock[133] - In connection with the Spin-Off, Resolute Holdings entered into a management agreement with CompoSecure Holdings, requiring RHLD to consolidate CompoSecure Holdings for financial reporting[134] - Resolute Holdings receives a quarterly management fee equal to 2.5% of CompoSecure Holdings' last 12 months' Adjusted EBITDA, with an initial term of 10 years[135][137] Economic Conditions - Globally and in the Digital Asset Marketplace This section addresses the impact of global economic trends and digital asset market cycles on the company's financial performance - The Company's financial performance is subject to global economic trends and developments impacting CompoSecure Holdings, including market cycles affecting the ramp-up of its Arculus offering[138] Key Components of Results of Operations This section defines the primary drivers of financial results, including net sales from product sales, cost of sales, and operating expenses - Net sales primarily reflect revenue from CompoSecure Holdings' product sales (metal cards, Prelams), with RHLD's management fee revenue eliminated in consolidation[139] - Cost of sales includes direct and indirect manufacturing costs, raw materials, labor, equipment, and operational overhead[140] - Operating expenses mainly comprise selling, general, and administrative expenses for both Resolute Holdings and CompoSecure Holdings, including personnel, professional services, and marketing[142] Results of Operations This section provides a comparative analysis of the company's financial performance for the current and prior year periods Three months ended June 30, 2025 vs. three months ended June 30, 2024 This subsection compares key financial metrics for the three-month periods, highlighting changes in sales, profit, and expenses Financial Performance (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | $ Change | % Change | | :--------------------------------------- | :----- | :----- | :------- | :------- | | Net sales | $119,592 | $108,567 | $11,025 | 10% | | Gross profit | $68,800 | $56,072 | $12,728 | 23% | | Operating expenses | $28,167 | $22,681 | $5,486 | 24% | | Income from operations | $40,633 | $33,391 | $7,242 | 22% | | Net (loss) income | $38,297 | $27,902 | $10,395 | 37% | | Net income (loss) attributable to common stockholders | $(611) | $— | $(611) | n/a % | | Gross Margin | 58% | 52% | | | | Operating margin | 34% | 31% | | | - Net sales increased by $11.0 million (10%) driven by a 22% increase in domestic sales, partially offset by a 35% decrease in international sales due to timing of customer orders[148][149][150] - Gross profit increased by $12.7 million (23%), and gross margin improved to 58% from 52%, due to higher volumes, mix, and improved operational execution[151] - Operating expenses increased by $5.5 million (24%) primarily due to incremental salaries and equity-based compensation from hiring at Resolute Holdings[152] - Other expense decreased by $3.4 million (63%) due to lower interest expense following the extinguishment of Exchangeable Notes in Q4 2024[154] Six months ended June 30, 2025 vs. six months ended June 30, 2024 This subsection compares key financial metrics for the six-month periods, detailing changes in sales, profit, and expenses Financial Performance (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | $ Change | % Change | | :--------------------------------------- | :----- | :----- | :------- | :------- | | Net sales | $223,481 | $212,577 | $10,904 | 5% | | Cost of sales | $100,134 | $101,292 | $(1,158) | (1)% | | Gross profit | $123,347 | $111,285 | $12,062 | 11% | | Operating expenses | $57,093 | $45,451 | $11,642 | 26% | | Income from operations | $66,254 | $65,834 | $420 | 1% | | Net (loss) income | $60,912 | $54,288 | $6,624 | 12% | | Net income (loss) attributable to common stockholders | $(3,977) | $— | $(3,977) | n/a % | | Gross Margin | 55% | 52% | | | | Operating margin | 30% | 31% | | | - Net sales increased by $10.9 million (5%) driven by a 9% increase in domestic sales, partially offset by a 14% decrease in international sales[157][158][159][160] - Gross profit increased by $12.1 million (11%), and gross margin improved to 55% from 52%, due to higher volumes, mix, and improved operational execution[161] - Operating expenses increased by $11.6 million (26%) primarily due to incremental salaries and equity-based compensation from hiring at Resolute Holdings[162] - Other expense decreased by $7.1 million (61%) due to lower interest expense following the extinguishment of Exchangeable Notes in Q4 2024[164] Segments This section presents the financial performance of the Resolute Holdings and CompoSecure Holdings segments, including net income or loss Segment Net Income (Loss) (Six Months Ended June 30, 2025, in thousands) | Segment | Net Income (Loss) | | :---------------- | :------------------ | | Resolute Holdings | $(3,977) | | CompoSecure Holdings | $63,079 | | Eliminations | $1,810 | | Consolidated | $60,912 | - Resolute Holdings reported a net loss of $(3,977) thousand, while CompoSecure Holdings generated a net income of $63,079 thousand for the six months ended June 30, 2025[167] Use of Non-GAAP Financial Measures This section explains the use of non-GAAP financial measures like Fee-Related Earnings (FRE) to assess performance, with reconciliation to GAAP - The Company uses non-GAAP financial measures like Fee-Related Earnings (FRE) and FRE per share to evaluate financial performance, calculated by adjusting net income (loss) attributable to common stockholders for equity-based compensation, pro forma management fees, Spin-Off costs, and net tax impact[168] Non-GAAP Fee-Related Earnings (in thousands, except per share) | Metric | Three months ended June 30, 2025 | Six months ended June 30, 2025 | | :------------------------------------------------------------------------------------------------ | :------------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders | $(611) | $(3,977) | | Add: Equity-based compensation expensed at Resolute Holdings under CompoSecure Equity Plan | $1,310 | $2,458 | | Add: Pro forma management fees from Jan 1, 2025 to Feb 27, 2025 | $— | $2,046 | | Add: Spin-Off costs | $— | $290 | | Net tax impact of adjustments | $— | $(724) | | Fee-Related Earnings | $699 | $93 | | Fee-Related Earnings per share | $0.08 | $0.01 | - FRE per share was $0.08 for the three months and $0.01 for the six months ended June 30, 2025[169] Critical Accounting Policies and Estimates This section discusses the significant accounting policies and estimates that require management judgment, particularly regarding variable interest entities - Critical accounting policies are detailed in the Company's Annual Report on Form 10-K for 2024, with new policies including reclassifications and variable interest entities[171][172][173] - The Company evaluates contractual and ownership interests to determine if an entity is a VIE and if it is the primary beneficiary, requiring consolidation[173] New Accounting Pronouncements This section refers to the notes to financial statements for details on recently adopted and upcoming accounting standards - Information on recent accounting pronouncements is provided in Note 2 of the Notes to Financial Statements[175] Liquidity and Capital Resources This section analyzes the company's liquidity position, including cash sources, debt, and cash flow from operations - Resolute Holdings' liquidity sources are the CompoSecure Management Agreement, existing cash, and a $5.0 million revolving credit facility; CompoSecure Holdings' sources are cash, operations, and its term loan/revolving credit facility[176][178] Cash and Debt Balances (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $99,862 | $71,600 | | Debt principal outstanding | $192,500 | $197,500 | - Resolute Holdings and CompoSecure Holdings are distinct legal entities with non-recourse debt, requiring separate liquidity management[178] - Net cash provided by operating activities decreased by $4.5 million to $67.3 million for the six months ended June 30, 2025, primarily due to increased receivables[185] - Net cash used in financing activities decreased significantly to $36.2 million from $79.4 million year-over-year, mainly due to lower distributions to CompoSecure[187][189] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's exposure to market risks, primarily interest rate risk on its variable rate debt - The Company is exposed to interest rate risk on $192.5 million of variable rate debt outstanding under the CompoSecure Holdings Credit Facility as of June 30, 2025[192] - A 100 basis point increase or decrease in the applicable interest rate would result in an approximate $1.9 million annual change in interest expense[193] - CompoSecure Holdings uses an interest rate swap agreement with a notional amount of $125,000 thousand and a fixed rate of 1.90% to hedge against variable interest rate fluctuations, designated as an effective cash flow hedge[194] Item 4. Controls and Procedures This section reports on the effectiveness of the Company's disclosure controls and procedures, concluding they were functioning effectively as of June 30, 2025 - The Company's disclosure controls and procedures were functioning effectively as of June 30, 2025, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[195][196] - During the six months ended June 30, 2025, the Company implemented new corporate and governance functions (e.g., external reporting, treasury, stock administration) to meet regulatory requirements as a standalone public company following the Spin-Off[198] Part II. Other Information This section provides additional disclosures not covered in the financial statements, including legal matters, risk factors, and equity transactions Item 1. Legal Proceedings This section states that as of July 25, 2025, the Company was not a party to any material pending legal proceedings, beyond routine claims incidental to its business - As of July 25, 2025, the Company was not involved in any material pending legal proceedings, other than ordinary routine claims[201] Item 1A. Risk Factors This section updates the Company's risk factors, noting no material changes since the 2024 Form 10-K, except for the added risk concerning tariffs and other restrictions on imported goods - No material changes to risk factors since the 2024 Form 10-K, except for the added risk of tariffs and other restrictions on imported goods[202] - Tariffs and trade restrictions, particularly from the U.S. government, could materially and adversely affect the Company's business, financial condition, and results of operations by increasing raw material costs and impacting supplier relationships[203] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities during the three months ended June 30, 2025, and no repurchases under the authorized stock repurchase program - No unregistered sales of equity securities occurred during the three months ended June 30, 2025[204] - The Board authorized a stock repurchase program on February 8, 2025, but no shares were repurchased during the three and six months ended June 30, 2025[205] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - There were no defaults upon senior securities[206] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[207] Item 5. Other Information This section reports that no directors or officers informed the Company of the adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025 - No directors or officers reported the adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[208] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements related to the Spin-Off, corporate governance documents, compensation policies, certifications, and XBRL financial data - The exhibit index includes the Separation and Distribution Agreement, Amended and Restated Certificate of Incorporation and Bylaws, Director Compensation Policy, Option Conversion Program, CEO/CFO certifications, and XBRL financial data[210] Signatures This section contains the required certifications and signatures from the company's executive officers, affirming the accuracy of the report Signatures This section contains the required signatures for the Form 10-Q, affirming its submission on behalf of Resolute Holdings Management, Inc. by its Chief Executive Officer, Thomas Knott, and Chief Financial Officer, Kurt Schoen, on August 7, 2025 - The report was signed by Thomas Knott, Chief Executive Officer, and Kurt Schoen, Chief Financial Officer, on August 7, 2025[213]