CompoSecure Reports Third Quarter 2023 Financial Results
“During the quarter, we exceeded our record US revenue from the year-ago period overcoming global economic uncertainty that impacted our international business, which was down albeit on a smaller revenue base,” said
“Consumer demand for premium metal cards remains strong based on card issuer feedback and industry sentiment. At the same time, select customers are more tightly managing inventory levels, which impacted order volumes in Q3 and into Q4. As a result, we are revising our full year 2023 outlook which lowers our sales guidance and captures the low end of our previously issued Adjusted EBITDA guidance.”
Q3 2023 Financial Highlights (vs. Q3 2022)
Net Sales: Net Saleswere $96.9 millioncompared to $103.3 million. The decrease was driven by lower international sales, which is a more variable market due to global economic uncertainty, customer mix and a smaller sales base. Domestic sales increased modestly compared to the record year-ago period.
- Gross Profit: Gross Profit was
$48.9 millionor 50.5% of Net Sales, compared to $61.8 millionor 59.8%. The decrease was primarily due to lower production efficiencies from new and innovative card constructions, as well as an impact from inflationary pressure on wages and materials.
- Net Income/EPS: Net Income increased 74% to
$38.0 millioncompared to $21.9 million. The increase was primarily driven by prudent operating expense controls, as reflected by a reduction in selling, general and administrative expenses, as well as changes to the fair value of warrant liabilities, earnout consideration liability and derivative liability. Net Income per share attributable to class A common stockholders was $0.39(Basic) and $0.34(Diluted), compared to $0.18(Basic) and (Diluted) in the year-ago period.
- Adjusted Net Income/Adjusted EPS: Adjusted Net Income (a non-GAAP measure) increased 10% to
$21.7 millioncompared to $19.8 millionin the year-ago period. Adjusted EPS (a non-GAAP measure), which includes both class A and class B shares, was $0.27(Basic) and $0.24(Diluted) compared to $0.26(Basic) and $0.22(Diluted) in the year-ago period (see reconciliation of non-GAAP measures shown in table below).
- Adjusted EBITDA: Adjusted EBITDA (a non-GAAP measure) increased 9% to
$35.5 millioncompared to $32.7 million, with the increase driven in-part by the aforementioned operating expense controls.
- Balance Sheet: At
September 30, 2023, the Company’s secured debt leverage ratio decreased to 1.48x compared to 2.92x at September 30, 2022.
Recent Operational Highlights
- Customers launched several new metal card programs this quarter including Amex
Hilton Aspire, Amex SAS Elite and Axis Magnus, to name a few.
- Arculus Authenticate hardware passkeys received official designation as a Microsoft FIDO2 security key vendor and is now compatible within the Microsoft ecosystem, offering users a reliable and user-friendly secure passwordless authentication solution
- Arculus Cold Storage enhancements included:
- Custom tokens across three additional chains—Binance Smart Chain, Ethereum, and Polygon; now supporting 95% of crypto tokens by market cap.
- Expanded Arculus integration with MetaMask, bolstering security by enabling the Arculus card as a signing device for safe offline private key storage.
- Cross-chain DeFi capabilities via WalletConnect across major chains—Binance Smart Chain, Ethereum, Polygon, Avalanche.
2023 Financial Outlook
The Company is revising its guidance for full year 2023 results, and now expects net sales to be in the range of
The Company will host a conference call and live audio webcast today at
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A live webcast and replay of the conference call will be available on the investor relations section of the Company’s website at https://ir.composecure.com/news-events/events.
Founded in 2000,
This press release 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 expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Generally, statements that are not historical facts, including statements concerning the Company’s possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. In some instances, these statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negatives of these terms or variations of them or similar terminology. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors, among others, could affect the Company’s future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company’s forward-looking statements: the ability of the Company to grow and manage growth profitably, maintain relationships with customers, compete within its industry and retain its key employees; the possibility that the Company may be adversely impacted by other global economic, business, competitive and/or other factors; the outcome of any legal proceedings that may be instituted against the Company or others; future exchange and interest rates; and other risks and uncertainties, including those under “Risk Factors” in filings that have been made or will be made with the
Use of Non-GAAP Financial Measures
This press release includes certain non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in
Head of Communications,
Investor Relations Contact
|Condensed Consolidated Balance Sheet Data|
|Cash and cash equivalents||$||23,817||$||13,642|
|Accounts Receivable, net||48,533||37,272|
|Prepaid expenses and other current assets||3,911||3,824|
|Property and equipment, net||23,076||22,655|
|Right of use assets operating, net||7,950||8,932|
|Deferred tax asset||27,693||25,569|
|Derivative asset - interest rate swap||8,055||8,651|
|Deposits and other assets||24||24|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Current portion of long-term debt||$||10,333||$||14,372|
|Current portion of lease liabilities||1,910||1,846|
|Current portion of tax receivable agreement liability||1,668||2,367|
|Long-term debt, net of deferred finance costs||202,839||216,276|
|Convertible notes, net of debt discount||127,708||127,348|
|Derivative liability - convertible notes||650||285|
|Earnout consideration liability||4,550||15,090|
|Lease liabilities, operating||6,751||7,766|
|Tax receivable agreement liability||23,953||24,475|
|Total stockholders' (deficit)||(238,843||)||(291,998||)|
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY||$||195,047||$||162,943|
|Consolidated Statements of Operations|
|(in thousands, except per share amounts)|
|Three Months Ended
||Nine Months Ended
|Cost of sales||47,990||41,547||134,542||115,318|
|Selling, General and administrative||20,095||36,116||67,627||79,325|
|Total operating expenses||68,085||77,663||202,169||194,643|
|Income from operations||28,801||25,642||88,560||90,044|
|Total other income (expense), net||10,197||(3,355||)||(6,408||)||23,153|
|Income before income taxes||38,998||22,287||82,152||113,197|
|Income tax (expense) benefit||(949||)||(393||)||(656||)||(3,738||)|
|Net income attributable to non-controlling interests||30,574||19,077||65,653||93,973|
|Net income attributable to
|Net income per share attributable to Class A common stockholders -basic||$||0.39||$||0.18||$||0.86||$||1.02|
|Net income per share attributable to Class A common stockholders - diluted||$||0.34||$||0.18||$||0.75||$||0.94|
|Weighted average shared used to compute net income per share attributable to Class A common stockholders - basic (in thousands)||19,075||15,433||18,420||15,141|
|Weighted average shared used to compute net income per share attributable to Class A common stockholders - diluted (in thousands)||35,765||19,662||35,362||32,815|
|Consolidated Statements of Cash Flows|
|Nine Months Ended
|CASH FLOWS FROM OPERATING ACTIVITIES:|
|Adjustments to reconcile net income to net cash provided by operating activities|
|Stock-based compensation expense||13,052||7,736|
|Amortization of deferred finance costs||1,262||1,798|
|Change in fair value of earnout consideration liability||(10,540||)||(21,676||)|
|Revaluation of warrant liability||(1,771||)||(16,363||)|
|Change in fair value of derivative liability||364||(185||)|
|Deferred tax (benefit) expense||(1,485||)||3,191|
|Changes in assets and liabilities|
|Prepaid expenses and other assets||(87||)||(225||)|
|Deposits and other assets||-||(14||)|
|Net cash provided by operating activities||77,879||81,961|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Acquisition of property and equipment||(6,669||)||(7,221||)|
|Net cash used in investing activities||(6,669||)||(7,221||)|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Proceeds from employee stock purchase plan and exercise of equity awards||1,024||2|
|Payments for taxes related to net share settlement of equity awards||(3,126||)||-|
|Payment of line of credit||-||(5,000||)|
|Payment of Tax receivable agreement liability||(2,193||)||-|
|Deferred finance costs related to debt modification||(256||)||-|
|Payment of term loan||(18,122||)||(16,878||)|
|Payment of issuance cost related to business combination||-||(23,833||)|
|Net cash used in financing activities||(61,035||)||(81,254||)|
|Net increase (decrease) in cash and cash equivalents||10,175||(6,514||)|
|Cash and cash equivalents, beginning of period||13,642||21,944|
|Cash and cash equivalents, end of period||$||23,817||$||15,430|
|Supplementary disclosure of cash flow information|
|Cash paid for interest expense||$||18,296||$||14,937|
|Supplemental disclosure of non-cash financing activity:|
|Derivative asset - interest rate swap||$||8,055||$||9,392|
|Non-GAAP Adjusted EBITDA Reconciliation|
|Three Months Ended
||Nine Months Ended
|Interest expense, net (1)||6,010||5,850||18,355||16,362|
|Income tax expense (benefit)||949||393||656||3,738|
|Mark to market adjustments (2)||(16,207||)||(1,204||)||(11,947||)||(38,224||)|
(1) Includes amortization of deferred financing cost for the three and nine months ended
(2) Includes the changes in fair value of warrant liability, derivative liabilities and earnout consideration liability for the three and nine months ended
|Non-GAAP Adjusted EPS Reconciliation|
|Three Months Ended
||Nine Months Ended
|(in thousands) except per share amounts|
|Basic and Diluted:|
|Add: provision for income taxes||949||393||656||3,738|
|Income before Income taxes||38,998||22,287||82,152||113,197|
|Income tax expense (1)||(5,868||)||(5,266||)||(17,639||)||(17,432||)|
|Adjusted net income before adjustments||33,130||17,021||64,513||95,765|
|(Less): mark-to-market adjustments (2)||(16,058||)||(957||)||(12,311||)||(38,040||)|
|Add: stock-based compensation||4,637||3,715||13,052||7,736|
|Adjusted net income||$||21,709||$||19,779||$||65,254||$||65,461|
|Common shares outstanding used in computing earnings per share, basic:|
|Class A and Class B common shares (3)||79,033||76,020||78,378||75,728|
|Common shares outstanding used in computing earnings per share, diluted:|
|Warrants (Public and Private) (4)||8,094||8,094||8,094||8,094|
|Total Shares outstanding used in computing adjusted earnings per share - diluted||90,817||88,343||90,414||88,496|
|Adjusted net income per share- basic||$||0.27||$||0.26||$||0.83||$||0.86|
|Adjusted net income per share- diluted||$||0.24||$||0.22||$||0.72||$||0.74|
1) Calculated using the Company's blended tax rate.
2) Includes the changes in fair value of warrant liability and earnout consideration liability.
3) Assumes both Class A shares and Class B shares participate in earnings and are outstanding at the end of the period.
4) Assumes treasury stock method, valuation at assumed fair market value of
5) The Company did not include the effect of Exchangeable Notes to its total shares outstanding used in diluted adjusted net income per share.
Source: CompoSecure, Inc.