Q1 2022 CompoSecure Inc Earnings Call

[music].

Welcome to the Commvault secure Inc. First quarter 2022 earnings conference call.

All participants will be in listen only mode should.

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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Please note. This event is being recorded I would now like to turn the conference over to Mark Griffin with ICR.

Please go ahead.

Yes.

Good evening and thank you for joining us today to review <unk> Securities first quarter 2022 financial results.

With me on the call Tonight, as John Wilkes Copper secures, Chief Executive Officer, and Tim Fitzgibbon, Chief Financial Officer.

They will begin with prepared remarks, and then we'll open up the call for Q&A.

During the call we will make statements related to our business that maybe considered forward looking including statements concerning our plans to execute on our growth strategy, our ability to maintain existing and acquire new customers and other statements regarding our plans and prospects.

Forward looking statements may often be identified with words, such as we expect we anticipate or upcoming.

These statements reflect our view only as of today and should not be considered our views as of any subsequent date, we undertake no obligation to update or revise these forward looking statements.

Forward looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from expectations.

For a discussion of material risks and other important factors that could affect our actual results. Please refer to the information in our annual report on Form 10-K, and other reports filed with the SEC, which are available on the Investor Relations section of our website accomplish the care com and on the SEC's website at SEC Gov.

Please note.

That the discussion on today's call include certain non-GAAP financial measures as defined by the SEC, including adjusted EBITDA.

The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends impacting the company's financial condition and results of operation.

These non-GAAP financial measures should not be considered as an alternative to net income or any other performance measures derived in accordance with U S. GAAP and may be different from similarly, titled non-GAAP measures used by other companies.

And a reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the Investor Relations section of our website. Thank you and with that let me turn the call over to John to discuss our first quarter earnings John .

Thanks, Marc Good evening, everyone and thank you for joining US Tonight as we discuss our first quarter 2022 earnings release.

We appreciate your interest so thank you for participating.

First let me summarize our operating results for the quarter and then I'll highlight the strides we are making with our strategic growth initiatives before turning it over to Tim Fitzsimmons, Our Chief Financial Officer.

Throughout the quarter, our team continued to exceed expectations and we have established outstanding momentum in early 2022.

We delivered record net sales of $84 million.

Up 32% year over year.

Above our pre COVID-19 revenue levels and up 12% versus fourth quarter 2021.

This was driven by strong sales execution and growth across existing and new clients accentuated by our international performance.

Our adjusted EBITDA was also a record at 33 million for the quarter up 14% year over year, which highlights the impressive margin profile of the premium card business and our relentless commitment to continuous improvement, which had a positive impact on efficiency positioned.

Well to support greater output and help provide incremental lift to margins for the quarter.

International sales for the first quarter of 2022 were $22 million.

178% higher than prior year, and 96% growth quarter over quarter, driven by strong sales execution distributor growth and demand for premium payment cards.

Revenue for <unk> continues to ramp up.

We expanded our direct to consumer distribution channels, adding Amazon and delivered a co branding partnership with BTC, Inc. In the quarter.

And during our last call. We highlighted that we were in advanced discussions with several BTB partners.

I'm excited to share that our payment card plus <unk> digital authentication and or crypto cold storage has been selected by several crypto currency platforms and Fintech partners.

Voyager digital.

Lode.

And mass pay.

I'll touch on these in greater detail in a few moments we expect to launch these programs in the second half of 2022 and additional partnerships continue to progress.

I want to add that it takes a team working together toward our common goal to accomplish these results that we've seen in the first quarter on behalf of the leadership team here accomplished secure.

I think the 700 plus members of our team for their contributions in delivering a strong start to 2022.

We are reaffirming our fiscal year 2022 revenue guidance in the range of 336 million to 376 million of net sales.

We are also reaffirming our adjusted EBITDA guidance of $100 million to $110 million.

And based on this quarter's adjusted EBITDA performance, we are well on track to achieve these results.

On slide three I want to provide a bit more context for our performance.

The backbone of our business continues to be strong sales execution deep customer relationships and our ability to deliver high quality premium products.

We continue to demonstrate momentum with new and existing clients from traditional banks to crypto currency platforms to Fintech partners.

Taking a deeper look at our payment card business, we had some great success, including an expansion of our relationship with bank of America to support the new metal premium rewards elite card.

We also established an important new relationship with Wells Fargo to deliver the built fintech metal card.

This means today, we support seven of the top 10 U S issuers.

With significant opportunity for growth remaining.

Capital one launched venture acts at the end of the year and the program adds another premium segment cards. The number of portfolios that we support with them. In addition to venture Sabre and spark.

The success of the program and continued commitment to invest in the product was highlighted in the capital one earnings call.

J P. Morgan expanded our long tenured partnership by announcing the ink business Premier metal credit card.

Adding to their portfolio of change Chase, Inc. Business credit cards to meet the unique needs of larger business owners.

Moving on to our Fintech wins and expansion with a payment card business. We saw a continued expansion of the crypto dot com relationship with the launch of new countries, including Australia, Mexico, Spain, and the United Kingdom.

Gemini has officially launching their crypto rewards metal debit card program with Mastercard.

One United Bank, the largest black owned bank in America introduced the Greenwood card commemorating the Greenwood district of Tulsa, Oklahoma.

The Greenwood digital banking platform is targeting the black and Latino communities and has a waitlist of over 500000 customers. They are also planning to launch with accomplished secured metal debit card.

One card from F. P. L. A fintech in India has experienced strong growth by highlighting the metal form factor as part of the differentiated value proposition.

Our partnership with crypto currency platforms in fin techs to support cold storage and payment cards with multifactor digital authentication continues to expand as well.

<unk> 2020 to Miami Conference.

Purchased 25000, co branded bitcoin and Oculus key cards to distribute to their attendees, which I'll discuss a bit more later.

Voyager digital a publicly traded crypto currency platform selected us to deliver a product that combine our premium payment card with digital authentication technology.

The same for load a digital gold and silver crypto currency platform, essentially load and voyage or have selected <unk> to make their debit card also a physical security token providing additive functionality for users such as tap to authenticate to a mobile device for high value transactions.

Mass pay a leading payments platform that enables customers to deliver mass payouts globally, and Fiat or crypto currency has selected <unk> integrated payment card with cold storage and digital authentication capabilities.

On slide four we highlight some industry trends something we did last quarter as well.

We are bolstered by positive market momentum.

Card issuers continue to see improving customer acquisition trends for premium card products, such as increased new accounts for premium value fee paying products.

And a strong pace for proprietary card acquisitions.

In their recent earnings call American Express highlighted all time acquisition highs for their U S consumer platinum and gold cards.

U S business platinum cards, and the Delta airline cards.

American Express also shared that millennials and Gen Z represented a growing percentage of their new accounts acquired.

This younger consumer profile is mirrored in other industry research as well.

On slide five you can see some of the highlighted statistics from a recent independent Edgar done survey across 18 countries. It found that metal cards were preferred by millennials across all regions by 77%.

Overall, we continue to have strong confidence in the growth of the metal card market.

On slide six.

We've made good progress on our product roadmap, so far and in the coming year, we plan to continue to expand our product portfolio to better support our customers, whether it's adding digital authentication security to an existing hot wallet or white labeling our crypto cold storage and digital authentication offering.

We're in a strong position to continue to meet the current and growing needs for crypto currency platforms, Fintech partners and financial institutions.

As mentioned, we're excited that our payment card plus oculus digital authentication and or crypto cold storage has been selected by several crypto currency platforms and Fintech partners and we expect additional announcements in the coming quarter.

We are also highly encouraged by the consumer response coming out of our participation that bitcoin 2022 in Miami in April of this year were more than 25000, crypto enthusiast had the chance to experience the benefits of our arcturus cold storage wallet.

Based on feedback from conference attendees. We believe we were one of the standouts of the conference with a potent marketing presence, including delivering 25000 Bitcoin conference co branded arguably key cards.

Our main stage speaking engagement by Adam Lowe, our chief product and innovation officer, and nearly 20 media interviews with both social media Influencers and leading business publications.

During the four day event attendees would regularly stop me to share how excited they were by the ease of use and better security provided by the <unk> wallet and key card.

Moving on to our <unk> product development first half priorities on page seven.

Since the beginning we have been guided by user feedback.

Established consumer feedback forums, and our teams engage regularly with the Oculus user community.

And we're happy to announce that we plan to have viewing sending and receiving of Nf L.

And we'll implement wallet connect to allow connectivity to the broader <unk> community both launching in mid June .

As well as adding support for more points.

Let me expand further on page eight.

We show a drill down on <unk> securing in Ftes is as you know in Ftes have become an important part of the digital asset market.

Consumers have been asking for Oculus and F T functionality and in mid June we will launch the capability to securely store view send and receive that theory them in ftes and the arguments wallet.

Wowing users to securely hold ft, private keys, and enabling self custody.

You can see visually what the NFC screens look like in the Oculus wallets move.

Moving from left to right you can see the choice for coins or Ftes in the far left if you click on an FTE as you can see the theory.

T Gallery.

And clicking on that will bring up a display of all of the N F. T that you hold in your Arcturus wallets.

And you can drill into the detail gaining more information on each one.

And Ftes are now secured by our multi factor authentication that includes a biometric scan a six digit pin and the touch of the Oculus key card.

We plan to launch with a theory and Ftes, but we expect to add others in the future such as Salon, a flow finance and smart chain to name a few.

Let me also share wallet connect is expected to look like.

If you move to slide nine you can see where you can access wallet connect in the App.

Once you click on that you'll be able to connect to any <unk> exchange.

Our platform you choose such as open Sea Rarer Bowl unit swap et cetera.

The benefit is that youre accessing from a secure environment with multifactor authentication requiring transactions to be signed with the Arcturus key card.

Moving to slide 10, you can see how this opens the larger defy ecosystem are keyless users, but with the user friendly familiar process tap to authenticate.

What you do every day when you buy something at a store hour.

Our three factor authentication as transparent simple and secure for the user.

We've accomplished a lot in the past quarter for <unk> and I thought it would be interesting to provide you with a view of our progress on slide 11.

We've seen strong media and social media impact as well as brand coverage at key events and expanded our distribution channels.

We expect to continue to ramp our Oculus investment in line with our overall strategy.

With that let me hand, it over to Tim to walk through the financials in more detail.

Thanks, John and good evening, everyone I will provide a more detailed overview of our first quarter 2022 financial performance and then briefly turn it back to John before we open up the call for questions.

The first quarter net sales grew 32% to $84 million up from $64 million in the same quarter of the prior year.

Moreover, our quarterly trend demonstrated strength.

Up 12% in the first quarter of 2022 over the fourth quarter of 2021.

As John mentioned demand continues to grow across our customer base due to strong execution on our sales strategy that led to growth from existing and new customers, both domestic and international.

Moving on to gross margin gross margins were 58% in the first quarter of 2022 versus 54% in the first quarter of 2021. This increase in gross margin was driven by production efficiencies and increased scale.

Net income for the first quarter of 2022 was $26 9 million up 16% compared to net income of $23 2 million in the first quarter of 2021.

As John mentioned adjusted EBITDA was a record $33 million in the first quarter of 2022.

The combination of Oculus revenue and investment as well as other costs associated with being a public company provided a net negative impact of approximately $6 million in the quarter.

An important fact to note is that our ocular spend is not linear due to our strategic execution and rollout. Therefore, we anticipate increased quarterly oculus spend throughout the remainder of the year.

Yeah.

International sales in the quarter increased by $14 million or 178% in the first quarter of 2022 versus the quarter first quarter of 2021.

Domestic sales were also robust increasing 12% year over year to $62 million as you can see on slide 14.

National sales as a percentage of revenue has trended up from 12% in Q1 of 2021% to 26% this quarter.

We had an operating cash flow of $12 million and free cash flow from operations of $11 million when you back out $1 million of capital spend.

Turning to the balance sheet.

As of March 31, we have secured debt of $272 million.

$247 million of a term loan $25 million of revolver.

Unsecured convertible debt of $130 million, we had cash of $15 million on the balance sheet, resulting in a secured net debt ratio of 2.5 and total net debt ratio of three seven based on a $104 million in trailing 12 month EBITDA per our bank agreement.

The secured debt facility provides a revolving loan up to $60 million with $25 million drawn as of March 31, 2020 to the.

The company forecasted results and the debt facility are anticipated to provide adequate working capital to fuel our growth plans.

Let's speak about earnings per share our basic EPS for the first quarter of 2022 was 32 per share.

To cover how we calculate the earnings per share due to the structure of the company, we had $27 million of total company net income.

$4 7 million as used in the EPS calculation based on the public ownership of approximately 20% of the overall company the.

The outstanding public shares were approximately $14 9 million, resulting in a basic EPS of <unk> 32 per share.

With that let me hand, it back over to John for final summary, before we take questions.

Thanks, Tim.

I wanted to take a minute to address macro trends and the overall economy.

We have been able to outpace rising material and labor costs through volume and efficiency.

In addition, we feel our focus on operational excellence positions us well to continually manage macro challenges as we move forward.

On slide 18, I won't go through this in detail, but I wanted to quickly share some of our ESG initiatives and corporate recognition that we highlighted and laid out on this page.

Turning to slide 19, I also want to re share our strategic priorities. As these will continue to drive our focus as we pursue long term value creation for our shareholders.

Finally, I'll close by returning to where I began.

We are off to a strong start for 2022.

We believe we will continue to see increased demand for our offerings from both new and existing customers.

Driven by strong sales execution deep relationships and market momentum.

We expect that our relentless focus on operational excellence will allow us to meet increasing customer demand and continued to deliver high quality products.

We remain encouraged by both the business and consumer response to articulate and believe we will gain more momentum as we increase our marketing efforts in the coming quarters.

I'll also delivering enhanced features and functionality for our customers.

With that I want to thank you all for taking the time to join us today.

We very much appreciate your attention and we look forward to updating you throughout the year as we progress.

I will now open the call to questions.

Thank you.

We will now begin the question and answer session.

Ask a question you May press Star then one on your telephone keypad, if you're using a speaker phone.

Please pickup your handset before pressing the keys to withdraw your questions Press Star then two at this time, we will pause momentarily to assemble utmost us.

First question is from John Daniel with need.

Needham.

Please go ahead.

Great. Thanks for taking my call and congrats on the beat this quarter and another quarter down.

A couple of questions here one.

We still hear a decent amount about supply chain issues and just if there's anything worth highlighting there and touching on if there's any.

Additional supply chain concerns that are cropping up for you guys and then too.

Have you guys publish any of the price points for the arduous card that that Bitcoin conference.

And do you have any any just commentary details on what percent of those might be actively use or anything additional there.

Yeah.

Thanks, Sean I appreciate I appreciate the question here.

Start on the supply chain side. So it is something that we are monitoring.

We continue to monitor very closely.

We have been able to manage the impacts of.

Supply chain slowdowns and other things, we think quite well so well we had very modest impacts in Q4, we think the results in Q1.

What speak for themselves in terms of the growth in delivery that we were able to achieve so something we're definitely still watching very closely.

Yes.

As it is affecting many people across the globe, but so far our team has done an excellent job, helping us manage through this.

With respect to.

Our oculus and the work we did with BTC, we did not put that in our publicly public disclosures beyond that the number of cards.

I will say reiterate what I my comments in the.

The communication itself the feedback that we got.

Throughout the conference for many many folks was very positive around user experience around security and as you saw being down there.

25000.

Influential people in that space. So we were pleased with the partnership.

Continuing to get our name out there.

More importantly is some of the progress we're making on the partnership side with folks like Voyager load in mass pay to.

To name a few with many other conversations underway.

That's great. Thank you guys.

I appreciate it.

Next question is from Steve Moss.

B Riley's. Please go ahead.

Good afternoon.

Okay.

Maybe just starting here with the.

Good to see all the announcements on the origin side of the business.

John during the road show you guys try to range for 2022 of $20 million to $60 million in revenues for Oculus, just kind of curious how you're thinking about the.

Where are these announcements put you relative to that range and.

Any color you could give there.

Sure. Thanks for the question, Steve So when we think about the Oculus revenue I think we would describe it as Tim mentioned in his comments right that we would expect some of the spend to ramp up through the year. We would expect I think revenue to be ramping up.

Through the year as well so my comments around the partnerships.

Our debt.

Those will be executed in Q3 and Q4 of this year. So you can sort of think of revenue.

Ramping up through the year on the <unk> side.

Okay.

And then in terms of the metal.

Most of that came from B.

Most of the revenues is working for the metal metal card business, just kind of curious as to.

How you know how are you guys thinking about revenue for the rest of the year for.

For that business.

Relative to the first quarter levels.

Yeah, Steve we're seeing strength in that business and that was messaging we tried to be very specific in terms of what we put in.

The discussion today it was a combination.

Growth with some important clients like a bofa, which was a small client opening up wells Fargo is a client success.

The success of venture acts in their launch.

As well as chase launching new cards, the fin techs that we're talking about.

All of that for US, we think bodes well for the metal payment card business. We also included some of the trends that we're seeing in the industry.

Express.

There is one issue that releases data in their earnings release, and we shared some of that where it was a record number of customers acquired strengths in areas like platinum and gold the premium fee based products, which.

Many many many of those cards are metal. So we we think that bodes well for the metal payment card business.

Okay, great. Thank you very much I appreciate that.

Yeah.

Thanks, Steve.

Thank you.

Our next question is from the line of.

Dan.

But <unk>. Please go ahead.

Guys. Congratulations you guys you can hear me right.

We can hear you Dan thanks.

Hello.

So.

First off are you going to be doing something similar.

Or do you have plans to do something similar at consensus.

I asked because im going to be attending so.

I was curious.

And then I've got a probably a little bit more detailed questions on some other things too.

Yes, we do plan to have a significant presence at consensus are a lot of team members down there with.

Yeah, a lot of buzz that we're trying to generate the partnership will be a little bit different down there.

But look for a big presence there from us.

I'll see you down there and then.

No.

Can you walk me through what the relationship is.

An example, with Voyager.

Other companies that you mentioned.

And then a trial is it.

Are there shared economics.

Isn't it just a straight out purchase of <unk>.

Cards, and then they use them however, they want to use them.

Dan each one is going to be a little different and unique our typical model right as we're selling cards that have functionality, whether it's payments or payments plus.

Digital authentication.

That is our typical model it gets a little different if folks need our digital wallet.

Folks that have their own wallet already wouldn't need our wallet.

So I don't want to go through and comment specifically on each one.

That's part of proprietary strategy that each of them are executing.

But.

Each of those partners was willing to.

Step up and say Hey, yes, we selected articulate.

And accomplished care teams to partner with because we believe in the additional security features.

The cards enable whether that's payments plus digital authentication payments plus cold storage or in some cases trying to bring together all three of those so.

Yes, we had talked on the last call about progress that we're making and I wanted to share some of those updates with the group at this point.

Yeah, just to help you guys understand the momentum that we think we're building in the business.

Thank you.

I follow you.

Totally respect.

Hi, you've disclosed it for competitive reasons.

Yeah.

Cards to the MSP side.

Is that something that people.

I have asked you to do and you're seeing.

Serious demand pull through as a result of inbound request or expectations would be that that would be the case.

Yes.

So on Ftes.

That functionality for us will launch in June .

And you know.

It is absolutely feedback we've gotten from the community. So we are actively listening through.

User groups through reviews other forums.

And yes, we're taking that feedback from those places and enhancing features and functions. All the time, it's part of the normal course.

The point that we're making on this call is that we view three of these things as most important and that is.

Ft, storing viewing sending and receiving.

Connectivity to the <unk> community and then continuing to add additional currencies does or in our view. The three most important things to help make sure that we're delivering for our customers.

And we're excited that that those will be launching in the quarter.

Consistent with our discussion last time in terms of the priorities for the first half of the year.

Thanks, Thank you as a user I look forward to I'm, putting my NFC on the card.

Yes, it's really terrific, we have it running and data at this point and.

It.

It just helps give you peace of mind.

The same way it does with your crypto currency that you've got.

The three factor authentication to leverage to keep your FTE secure in addition to other digital assets. So we're we're very excited about that.

I have no more questions. Thank you.

Thanks, Dan.

Operator, if you could see if there are any other questions out there.

Thank you ladies and gentlemen, if you have a question. Please press Star then one.

So while we see if there are any other questions out there I will I'll take a moment to thank the group four.

For assembling for their interest.

In the company and just reiterate some of the messages that we had throughout which is.

We believe we're off to a very strong start to the year and look forward to continuing to update the market.

As we move through additional quarter share.

So if there are no other questions operator in the queue. Please.

Please let me know.

<unk>.

We'll wrap up.

There are no more questions in the queue.

Yeah.

Great.

Thanks, everyone and have a good evening.

Okay.

Thank you.

Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.