Earning Date, Transcript Summary & Report

Business Strength and Potential: Over the past several months, I’ve spent considerable time with the team, and I’ve developed an even deeper appreciation for the strength of this business, its leadership in metal credit cards, strong culture of innovation and most importantly, the significant long-term potential of the business.

Long-Term Success Initiatives: We’ve taken foundational steps in the last 6 months to position the company for long-term success.

High-Performance Culture Investment: We’ve initiated investments to build a high-performance culture and strengthen our operating capabilities.

Operational Efficiency Enhancement: We’ve begun implementing the CompoSecure Operating System, or COS, to enhance efficiency and execution across all areas of the business.

Investment for Excellence: We believe these investments will drive meaningful results over time, enhancing our ability to foster a culture of excellence that delivers for our customers, employees and investors.

Sales Growth and Innovation: 2024 was a foundational year for CompoSecure. We delivered 8% growth in net sales with robust free cash flow generation, while continuing to drive product innovation and expand our business internationally.

Balance Sheet Improvement: We also materially improved our balance sheet last year with a 60% reduction in net debt down to $120 million.

Flat Sales, Declining EBITDA: Our fourth quarter net sales were essentially flat, and our fourth quarter adjusted EBITDA was down 10%, reflecting the investments we are making in our business to ignite organic growth and drive improved operating efficiencies throughout the organization.

Positive Net Contribution: We’re also excited to announce our first quarter of positive net contribution for Arculus in Q4.

Payment Card Growth Strategy: Looking ahead, we continue to focus on accelerating payment card organic growth, driving efficiency through the CompoSecure Operating System, gaining additional traction with Arculus and delivering accretive M&A.

Sales and EBITDA Growth: For the upcoming year, we expect mid-single-digit growth for both net sales and adjusted EBITDA, with sales momentum building through the year.

Adjusted EBITDA Expectations: Our adjusted EBITDA expectations also include the payment of the new Resolute Holdings management fee for 2025 and 2024 on a pro forma basis.

Metal Payment Card Launches: On Slide 4, you’ll see that we had several high-profile metal payment card launches around the globe for both traditional banks and fintechs.

Metal Card Launch: These launches included the Citi American Airlines Card, which represents our first domestic metal card program with Citi.

Co-Branding Initiatives: Barclays, the Private Bank card in the U.K. and JetBlue co-branding card in the U.S.

Company Examples: In addition, other examples included HSBC and Capital on Top, among others.

Customer Purchase Volume Growth: On Slide 5, you can see CompoSecure’s largest customers continue to report purchase volume growth year-after-year – year-over-year, even in the face of economic uncertainty around tariffs.

Payment Card Industry Strength: On Slide 6, we also see continued strength in the payment card industry, supported by healthy consumer spending and demand for premium products and the commentary from these players.

New Account Growth: As an example, Capital One continues to see strong new account growth in its domestic card business with increased investment in premium benefits and differentiated experiences.

Value-Added Services Resilience: Meanwhile, Visa and Mastercard highlight value-added services, fraud prevention solutions and the resilience of consumer spending even amid economic fluctuations.

Metal Card Popularity: For those of you new to our story on Slide 7, we showcase why metal cards continue to gain traction.

Metal Card Benefits: Beyond aesthetics, metal cards deliver real business value, enhancing issuer branding, driving higher customer acquisition and increasing top-of-wallet positioning.

Consumer Payment Preferences: Despite the introduction of digital wallets over the past decade, payment cards remain the preferred choice for consumers.

Security and Authentication Solutions: On Slide 8, we highlight the Arculus Security and Authentication Solutions.

Secure Authentication Solutions: Arculus Authenticate provides seamless multifactor authentication for secure log-ins and fraud prevention, while Arculus Cold Storage enables users to safeguard their digital asset keys with advanced encryption.

Positive Net Contribution: As I mentioned earlier, we’re pleased to report that Q4 marked our first quarter of positive net contribution from Arculus, and we remain well positioned to achieve our net positive target for Arculus for the full year of 2025.

Revenue and EBITDA Overview: On a full year basis for 2024, Arculus generated $10.5 million of revenue and a net investment of $3.5 million of adjusted EBITDA when adding back depreciation and stock-based compensation.

Sales Performance Overview: Net sales increased by 1% to $100.9 million. Domestic sales were flat year-over-year. International net sales were up 7% to $15.4 million.

Gross Profit Comparison: Gross profit for the quarter was $52.5 million or 52.1% of net sales compared to $52.9 million or 52.9% for the same quarter of the prior year.

Adjusted Net Income Increase: Adjusted net income was up 8% in Q4 to $24.8 million, with the improvements driven by interest rate savings from the conversion into equity of $130 million of exchangeable notes.

EBITDA and Net Income Growth: Adjusted EBITDA increased 4% to $151.4 million. Adjusted net income increased 11% to $98.2 million.

Sales Growth Overview: Net sales grew 8% to $420.6 million. Domestic sales increased 7%, reflecting continued demand for premium metal cards. International sales grew 11%, highlighting our successful expansion in key global markets.

Debt Leverage Ratio Analysis: Our bank agreement senior secured debt leverage ratio was 1.25 times at December 31, 2024, based on total secured debt of $197.5 million and trailing 12-month bank adjusted EBITDA of $157.8 million. This compares to a leverage ratio of 1.39 times at December 31, 2023.

Operating Cash Flow Increase: Net cash provided by operating activities for 2024 was $129.6 million, up 24% compared to last year, with free cash flow up 62% to $84.9 million.

Earnings Miss Reported: CompoSecure, Inc. misses on earnings expectations with reported EPS of $0.20, below the expected $0.23.

Significant Profitability Decline: Net loss of $48.4 million in Q4 compared to net income of $31 million last year, indicating a significant downturn in profitability.

Q4 Adjusted EBITDA Decline: Adjusted EBITDA in Q4 decreased by 10% to $33.6 million, reflecting the impact of strategic investments without immediate returns.

Gross Profit Margin Decline: Gross profit margin declined to 52.1% in Q4 from 52.9% in the prior year, attributed to production costs and inflationary pressures.

Net Loss Decline: Net loss for the full year was $83.2 million compared to net income of $112.5 million in 2023, highlighting a drastic decline in overall financial performance.

Sales Growth vs. Net Loss: Despite an 8% growth in net sales for the full year, the company still reported a net loss, raising concerns about sustainability of growth amidst losses.