CompoSecure Inc

Previous wording

The Company’s net sales for the quarter ended March 31, 2024 increased $8.7 million, or 9%, to $104.0 million compared to $95.3 million for the quarter ended March 31, 2023. The increase was primarily driven by continued

Current wording

The Company’s net sales for the quarter ended June 30, 2024 increased $10.0 million, or 10%, to $108.6 million compared to $98.5 million for the quarter ended June 30, 2023. The increase was primarily driven by continued

Previous wording

domestic growth in the Company’s premium payment card business, which was up 26%. This was offset by lower

Current wording

domestic growth in the Company’s premium payment card business, which was up 9% and higher international sales, which was up 14%.

Previous wording

The Company’s gross profit for the quarter ended March 31, 2024 increased $1.9 million, or 3%, to $55.2 million compared to $53.4 million for the quarter ended March 31, 2023. The gross profit margin percentage decreased from 56.0% to 53.1%. The decrease was primarily due to product mix and the impact of inflationary pressure on wages and materials during the quarter ended March 31, 2024.

Current wording

The Company’s gross profit for the quarter ended June 30, 2024 increased $2.1 million, or 4%, to $56.1 million compared to $53.9 million for the quarter ended June 30, 2023. The gross profit margin percentage decreased by 3% to 52% compared to 55% for the quarter ended June 30, 2023. The decrease was primarily due to product mix, specifically lower production efficiencies from new and innovative card constructions as well as the impact of inflationary pressure on wages and materials during the quarter ended June 30, 2024.

Previous wording

Income from operations for the quarter ended March 31, 2024 increased $1.7 million, or 6% to $31.1 million compared $29.4 million for the quarter ended March 31, 2023. The increase was primarily attributable to an increase in net sales. Operating margin for the quarter ended March 31, 2024 decreased by 1% to 30% compared to 31% for the quarter ended March 31, 2023. The decrease in operating margin is attributable to the decrease in gross margin discussed above.

Current wording

Income from operations for the quarter ended June 30, 2024 increased $1.4 million, or 5% to $31.8 million compared to $30.3 million for the quarter ended June 30, 2023. The increase was primarily attributable to an increase in net sales. Operating margin for the quarter ended June 30, 2024 decreased by 2% to 29% compared to 31% for the quarter ended June 30, 2023. The decrease in operating margin was primarily attributable to the decrease in gross margin discussed above.

Previous wording

International: The Company’s international net sales for the quarter ended March 31, 2024 decreased $10.4 million, or 48%, to $11.2 million compared to $21.6 million for the quarter ended March 31, 2023. International sales decreased primarily due to ongoing global economic uncertainty and international markets being a more variable market due to customer mix and a smaller sales base. International net sales were approximately 11% and 23% of the Company's total net sales for the quarter ended March 31, 2024 and 2023, respectively.

Current wording

International: The Company’s international net sales for the six months ended June 30, 2024 decreased $7.6, or 18%, to $34.6 million compared to $42.2 million for the six months ended June 30, 2023. This decrease was primarily due to current global economic conditions and international markets being a more variable market due to customer mix and a smaller sales base. International net sales were approximately 16% and 22% of the Company's total net sales for the six months ended June 30, 2024 and 2023, respectively. As mentioned above, the international market is more variable due to customer mix and a smaller sales base.

Previous wording

Other expense for the quarter ended March 31, 2024 decreased $5.0 million, or 25.3%, to $14.9 million compared to $19.9 million for the quarter ended March 31, 2023. The overall decrease in other expenses is primarily due to changes in the fair value of earnout consideration liability and warrant liability of $3.9 million and changes in a derivative liability related to a make-whole provision as discussed in Note 5 in the unaudited financial statements of $0.4 million. The balance of the decrease was due to a $0.8 million decrease in interest expense related to payments of debt on the outstanding term loan.

Current wording

Other expenses for the six months ended June 30, 2024 decreased $3.8 million, or 22.7%, to $12.8 million compared to $16.6 million for the six months ended June 30, 2023. The overall decrease in other expenses was primarily due to changes in the fair value of earnout consideration liability and warrant liability of $2.4 million and changes in a derivative liability related to a make-whole provision as discussed in Note 5 in the unaudited financial statements of $0.4 million. The balance of the decrease was primarily related to lower interest resulting from principal payments made on the outstanding term loan.

Previous wording

The Company's income tax benefit for the quarter ended March 31, 2024 was $0.8 million compared to $1.3 million for the quarter ended March 31, 2023.

Current wording

The Company's income tax benefit for the six months ended June 30, 2024 was $0.6 million, compared to $0.3 million for the six months ended June 30, 2023. The increase in the income tax benefit is attributable to a change in the Company's interim effective tax rate. The Company's interim effective tax rate, inclusive of any discrete items, was (1.15)% and (0.68)% for the six months ended June 30, 2024 and June 30, 2023, respectively.

Previous wording

This Form 10-Q includes certain non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and that may be different from non-GAAP financial measures used by other companies. The Company believes EBITDA, Adjusted EBITDA and non-GAAP earnings per share are useful to investors in evaluating the Company’s financial performance. The Company uses these measures internally to establish forecasts, budgets and operational goals to manage and monitor its business, as well as evaluate its underlying historical performance and to measure incentive compensation, as we believe that these non-GAAP financial measures depict the true performance of the business by encompassing only relevant and controllable events, enabling the Company to evaluate and plan more effectively for the future. In addition, the Company’s debt agreements contain covenants that use a variation of these measures for purposes of determining debt covenant compliance. The Company believes that investors should have access to the same set of tools that its management uses in analyzing operating results. EBITDA, Adjusted EBITDA and non-GAAP earnings per share should not be considered as measures of financial performance under U.S. GAAP, and the items excluded from EBITDA, Adjusted EBITDA and non-GAAP earnings per share are significant components in understanding and assessing the Company’s financial performance. Accordingly, these key business metrics have limitations as an analytical tool. They should not be considered as an alternative to net income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flows from operating activities as a measure of the Company’s liquidity, and may be different from similarly titled non-GAAP measures used by other companies.

Current wording

This Quarterly Report on Form 10-Q may include certain non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and that may be different from non-GAAP financial measures used by other companies. The Company believes EBITDA, Adjusted EBITDA, Adjusted net income, and Adjusted net income per share are useful to investors in evaluating the Company’s financial performance. The Company uses these measures internally to establish forecasts, budgets and operational goals to manage and monitor its business, as well as evaluate its underlying historical performance and to measure incentive compensation, as we believe that these non-GAAP financial measures depict the true performance of the business by encompassing only relevant and controllable events, enabling the Company to evaluate and plan more effectively for the future. In addition, the Company’s debt agreements contain covenants that use a variation of these measures for purposes of determining debt covenant compliance. The Company believes that investors should have access to the same set of tools that its management uses in analyzing operating results. EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per share should not be considered as measures of financial performance under U.S. GAAP, and the items excluded from EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted net income per share are significant components in understanding and assessing the Company’s financial performance. Accordingly, these key business metrics have limitations as an analytical tool. They should not be considered as an alternative to net income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flows from operating activities as a measure of the Company’s liquidity, and may be different from similarly titled non-GAAP measures used by other companies.

Previous wording

(1)Includes amortization of deferred financing cost for the three months ended March 31, 2024 and 2023, respectively.

Current wording

(1)Includes amortization of deferred financing cost for the three and six months ended June 30, 2024 and 2023, respectively.

Previous wording

(2)Includes the changes in fair value of warrant liability, derivative liabilities and earnout consideration liability for the three months ended March 31, 2024 and 2023, respectively.

Current wording

(2)Includes the changes in fair value of warrant liability, derivative liabilities and earnout consideration liability for the three and six months ended June 30, 2024 and 2023, respectively.

Previous wording

As of March 31, 2024, the Company had cash and cash equivalents of $55.1 million and debt principal outstanding of $335.6 million. As of December 31, 2023, the Company had cash and cash equivalents of $41.2 million and total debt principal outstanding of $340.3 million.

Current wording

As of June 30, 2024, the Company had cash and cash equivalents of $35.4 million and debt principal outstanding of $330.9 million. As of December 31, 2023, the Company had cash and cash equivalents of $41.2 million and total debt principal outstanding of $340.3 million.

Previous wording

At March 31, 2024, there was $205.6 million of total debt outstanding under the Company’s existing credit facilities (the “2021 Credit Facility”). The 2021 Credit Facility comprised a term loan of $250.0 million as well as a $60.0 million revolving loan facility, of which $60.0 million was available for borrowing as of March 31, 2024. Additional amounts may be available for borrowing during the term of the revolving loan, up to the remaining full $60.0 million, as long as the Company maintains a net leverage ratio as stipulated in the credit facility agreement. As of March 31, 2024, the Company’s net leverage ratio met the requirement for the available borrowing as defined in the terms of the credit facility agreement. The 2021 Credit Facility will mature on December 16, 2025.

Current wording

At June 30, 2024, there was $200.9 million of total debt outstanding under the Company’s existing credit facilities (the “2021 Credit Facility”). The 2021 Credit Facility comprised a term loan of $250.0 million (initial principal amount) as well as a $60.0 million revolving loan facility, of which $60.0 million was available for borrowing as of June 30, 2024. Additional amounts may be available for borrowing during the term of the revolving loan, up to the remaining full $60.0 million, as long as the Company maintains a net leverage ratio as stipulated in the credit facility agreement. As of June 30, 2024, the Company’s net leverage ratio met the requirement for the available borrowing as defined in the terms of the credit facility agreement. The 2021 Credit Facility will mature on December 16, 2025.

Previous wording

On April 19, 2021, concurrently with the execution of the Merger Agreement, the Company and its subsidiary, Holdings entered into subscription agreements (the “Note Subscription Agreements”) with certain investors ("Notes Investors") pursuant to which such Notes investors, severally and not jointly, purchased on the Closing Date of the Business Combination, senior notes (the “Exchangeable Notes”) issued by the Company and guaranteed by the Company's subsidiary, Holdings, in an aggregate principal amount of up to $130.0 million that are exchangeable into shares of Class A common stock at a conversion price of $11.50 per share, subject to the terms and conditions of an Indenture entered by the Company and its subsidiary, Holdings and the trustee under the Indenture. The Exchangeable Notes will bear interest at a rate of 7% per year, payable semiannually in arrears. The Exchangeable Notes will mature in five years on December 27, 2026, and be convertible into shares of Class A common stock at a conversion price of $11.50 per share. The Company will settle any exchange of the Exchangeable Notes in shares of Class A common stock, with cash payable in lieu of any fractional shares. Additional interest may be payable as set forth in the Indenture. See Note 5 in Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Current wording

On April 19, 2021, concurrently with the execution of the Merger Agreement, the Company and its subsidiary, Holdings entered into subscription agreements (the “Note Subscription Agreements”) with certain investors ("Notes Investors") pursuant to which such Notes investors, severally and not jointly, purchased on the Closing Date of the Business Combination, senior notes (the “Exchangeable Notes”) issued by Holdings and guaranteed by its operating subsidiaries, CompoSecure, L.L.C. and Arculus Holdings, L.L.C., in an aggregate principal amount of up to $130.0 million that are exchangeable into shares of Class A common stock at a conversion price of $10.98 per share, subject to the terms and conditions of an Indenture entered into with the trustee under the Indenture. The Exchangeable Notes bear interest at a rate of 7% per year, payable semiannually in arrears. The Exchangeable Notes will mature on December 27, 2026, and are exchangeable for shares of Class A common stock at a present conversion price of $10.98 per share. The Company will settle any exchange of the Exchangeable Notes in shares of Class A common stock, with cash payable in lieu of any fractional shares. Additional interest may be payable as set forth in the Indenture. See Note 5 in Notes to Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Previous wording

Cash provided by the Company’s operating activities for the three months ended March 31, 2024 was $33.8 million compared to cash provided by operating activities of $24.9 million during the three months ended March 31, 2023. The increase in cash provided by operating activities of $8.9 million was primarily attributable to net income of $17.1 million, the favorable mark to market fair value net changes of $9.2 million, equity compensation expense of $4.4 million, depreciation and amortization expense of $2.2 million, changes in working capital of $2.4 million, and amortization of deferred financing costs of $0.3 million. This was partially offset by deferred tax benefit of $1.9 million.

Current wording

Cash provided by the Company’s operating activities for the six months ended June 30, 2024 was $66.0 million compared to cash provided by operating activities of $53.0 million during the six months ended June 30, 2023. The increase in cash provided by operating activities of $13.0 million was primarily attributable to net income of $50.7 million, the favorable mark to market fair value net changes of $1.4 million, equity compensation expense of $9.6 million, depreciation and amortization expense of $4.6 million, changes in working capital of $1.9 million, and amortization of deferred financing costs of $0.7 million. This was partially offset by deferred tax benefit of $2.9 million.

Previous wording

Cash used in the Company’s investing activities for the three months ended March 31, 2024 was $1.6 million, primarily relating to capital expenditures, compared to cash used in investing activities for the three months ended March 31, 2023 of $3.7 million.

Current wording

Cash used in the Company’s investing activities for the six months ended June 30, 2024 was $3.5 million primarily relating to capital expenditures of $3.1 million and capitalized software expenditures of $0.4 million, compared to cash used in investing activities for the six months ended June 30, 2023 of $5.7 million.

Previous wording

Cash used in the Company’s financing activities for the three months ended March 31, 2024 was $18.2 million compared to cash used in the Company's financing activities for the three months ended March 31, 2023 of $12.3 million. Cash used in financing activities for the three months ended March 31, 2024 primarily related to distributions to non-controlling interest holders of $10.2 million, repayment of scheduled principal payments of term loan of $4.7 million, and payments for taxes related to net share settlement of equity awards of $3.5 million. This was partially offset by proceeds of $0.1 million pursuant to the exercise of equity awards and issuance of shares for ESPP transactions. Cash used in financing activities for the three months ended March 31, 2023, primarily related to payment of distributions to non-controlling interest, repayment of scheduled term loan principal payments, payments for taxes related to net share settlement of equity awards and proceeds from employee stock purchase plan and exercise of equity awards.

Current wording

Cash used in the Company’s financing activities for the six months ended June 30, 2024 was $68.3 million compared to cash used in the Company's financing activities for the six months ended June 30, 2023 of $38.3 million. Cash used in financing activities for the six months ended June 30, 2024 primarily related to distributions to non-controlling interest holders of $26.2 million, special distribution to non-controlling interest holders of $15.6 million, repayment of scheduled principal payments of the term loan of $9.4 million, dividends to Class A shareholders $8.9 million and payments for taxes related to net share settlement of equity awards of $8.5 million. This was partially offset by proceeds of $0.2 million pursuant to the exercise of equity awards and issuance of shares for ESPP transactions. Cash used in financing activities for the six months ended June 30, 2023, primarily related to payment of distributions to non-controlling interests, repayment of scheduled term loan principal payments, payments for taxes related to net share settlement of equity awards, payments of tax receivable agreement liability and proceeds from employee stock purchase plan and exercise of equity awards.

Previous wording

A summary of our minimum contractual obligations related to our material outstanding contractual commitments is included in Notes 7, 8 and 16 of our Annual report on Form 10-K for the year ended December 31, 2023 as filed with the SEC. Our long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal course of business. As of March 31, 2024, the Company had inventory-related purchase commitments totaling approximately $31.0 million.

Current wording

A summary of our minimum contractual obligations related to our material outstanding contractual commitments is included in Notes 7, 8 and 16 of our Annual report on Form 10-K for the year ended December 31, 2023 as filed with the SEC. Our long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal course of business. As of June 30, 2024, the Company had inventory-related purchase commitments totaling approximately $31.8 million.