Q4 2023 CompoSecure Inc Earnings Call
Operator: Thank you for standing by, and welcome to CompoSecure's fourth quarter and full year 2023 earnings conference call. I would now like to hand the call over to CompoSecure's Investor Relations Advisor, Sean Mansouri, with Elevate IR. Please go ahead.
Thank you for standing by and welcome to Compo secures fourth quarter and full year, 2020 three earnings conference call.
I would now like to hand, the call over to accomplish secures Investor Relations adviser, Sean Mansouri with elevate IR. Please go ahead.
Sean Mansouri: Good afternoon, and thank you for joining us to review CompoSecure's fourth quarter and full year 2023 financial results. With me on the call is John Wilk, CompoSecure's Chief Executive Officer, and Tim Fitzsimmons, Chief Financial Officer. They will begin with prepared remarks, and then we will open the call for Q&A.
Good afternoon, and thank you for joining us to review accomplish secures fourth quarter and full year 2023 financial results.
With me on the call is John Wilke, accomplish secures Chief Executive Officer, and Tim Peterman, Chief Financial Officer.
They will begin with prepared remarks, and then we will open the call for Q&A.
Sean Mansouri: During the call, we will make statements related to our business that may be considered forward-looking, including statements concerning our plans to execute on our growth strategy and our ability to maintain existing and acquire new customers, as well as 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 views only as of today and should not be considered our views as of any subsequent date.
During the call we will make statements related to our business that may be considered forward looking including statements concerning our plans to execute on our growth strategy and our ability to maintain existing and acquire new customers as well as 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 views only as of today and should not be considered our views as of any subsequent date.
Sean Mansouri: 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 actual results to differ materially from our 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 at composecure.com and on the SEC's Please note that the discussion on today's call includes certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, adjusted EPS, and free cash. 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 operations.
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 our 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 at combo secure dot com and on the SEC.
These web site at SEC Gov.
Please note that the discussion on today's call include certain non-GAAP financial measures, including adjusted EBITDA adjusted net income adjusted EPS and free cash flow.
The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends.
<unk>, the Companys financial condition and results of operations.
Sean Mansouri: 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. A reconciliation of gap to non-gap measures is available in our press release and earnings presentation, available in the investor relations section of our website. Thank you.
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.
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.
Jonathan C. Wilk: And with that, I will turn the call over to John to discuss our fourth quarter and full year results. Thank you, Sean. Good afternoon, everyone, and thank you for joining us for our fourth quarter and full year conference call. Our fourth quarter results delivered a strong close to 2023, capping off another year of record revenue and adjusted EBITDA while providing strong free cash flow. I'd like to take a moment to acknowledge the efforts of our team in 2023.
Thank you and with that let me turn the call over to John to discuss our fourth quarter and full year results.
Thank you Sean good afternoon, everyone and thank you for joining us for our fourth quarter and full year conference call.
Our fourth quarter results delivered a strong close to 2023 capping off another year of record revenue and adjusted EBITDA, while providing strong free cash flow.
I'd like to take a moment to acknowledge the efforts of our team in 2023.
Jonathan C. Wilk: While we face challenges in the macroeconomic environment, our deep client relationships, best-in-class products, and a thoughtful approach to managing our business allowed us to deliver Adjusted EBITDA in line with our original guidance issued back in March 2021. We accomplished a lot last year; we extended long-term contracts with our top two clients and produced more than 31 million metal cards, which is another record for the business. And we introduced several innovations, such as the Echo Mirror Card, that are clear examples of how CompoSecure delivers unique value for our customers. I'll share more on this shortly.
While we faced challenges in the macroeconomic environment, our deep client relationships best in class products.
And a thoughtful approach to managing our business allowed us to deliver adjusted EBITDA in line with our original guidance issued back in March 2023.
We accomplished a lot last year, we extended long term contracts with our top two clients and produce more than 31 million metal cards, which is another record for the business.
And we introduced several innovations such as the Echo mirror card that are clear examples of how cabo secure delivers unique value for our customers.
I'll share more on this shortly.
Jonathan C. Wilk: Now to summarize our financial results on slide three. Net sales in the fourth quarter increased to $100 million, due primarily to growth in our domestic business, which exceeded our previous quarterly record set in the third quarter. Looking at our bottom line. Q4 adjusted EBITDA grew more than 20% to $37 million, reflecting our most profitable quarter of the year. As we have often stated, our team is acutely focused on profitability while simultaneously driving investments to capture long-term opportunity and value. I wanted to call out a few additional highlights.
Now to summarize our financial results on slide three.
Net sales in the fourth quarter increased to $100 million due primarily to growth in our domestic business, which exceeded our previous quarterly record set in the third quarter.
Looking at our bottom line Q4, adjusted EBITDA grew more than 20% to $37 million, reflecting our most profitable quarter of the year.
As we have often stated our team is acutely focused on profitability, while simultaneously driving investments to capture long term opportunity and value.
I wanted to call out a few additional highlights in 2023, we supported more than 150, new and ongoing card programs for our customers.
Jonathan C. Wilk: In 2023, we supported more than 150 new and ongoing card programs for our customers, up from more than 125 programs in 2022. Additionally, this past December, ABI Research ranked CompoSecure as the market leader in its assessment of the metal payment card market. We believe Momentum is also building for our Arculous products as FinTechs are beginning to leverage and market our innovative technology. More to come on this later in the call. Card issuers reported growth in 2023 and have maintained a positive outlook for the year ahead, indicating continued investments in customer acquisition and retention due to sustained customer And for Adjusted EBITDA, we're targeting a range between $147 and $157 million.
Up from more than 125 programs in 2022.
This past December Abi research ranked combo secure at the market leader in its assessment of the metal payment card market.
We believe momentum is also building for our <unk> products as fin tax are beginning to leverage and market our innovative technology.
More to come on this later in the call.
Card issuers reported growth in 2023 and have maintained a positive outlook for the year ahead.
Indicating continued investments in customer acquisition and retention.
Due to sustained customer demand.
Okay.
Okay.
For 2024, we are issuing net sales guidance of $408 million to $428 million.
And for adjusted EBITDA, we are targeting a range between 147 and $157 million.
Jonathan C. Wilk: These targets reflect our expectation for continued to strengthen our business. Our Adjusted EBIT.Target also factors in a net investment for our. If you remember, in 2022, we had a net investment of $21 million, which we reduced to $14 million in 2023. For 2024, we expect that number to improve once again before turning positive for fiscal year 2024. I am also very excited to announce that our board has approved a securities repurchase program for up to $40 million over three years, providing us with a mechanism to acquire securities in CompoSecure. We believe our securities trade at a discounted valuation for a growing business that commands a leading market share, with gross margins north of 50%, adjusted EBITDA margins in the high 30s, and meaningful free cash generation, and we are trading at only five times trailing enterprise value to EBITDA. Moving on to slide four, we wanted to share several new metal card programs since our last call. Let's begin with one of the unique innovations I mentioned earlier, our Echo Mirror Card. The card's surface is as shiny as a mirror, hence the name.
These targets reflect our expectation for continued strength in our business.
Our adjusted EBITDA target also factors in our net investment for our keyless.
If you remember in 2022, we had a net investment of $21 million, which we reduced to $14 million in 2023.
For 2024, we expect that number to improve once again before turning positive for fiscal year 2025.
Yeah.
I am also very excited to announce that our board has approved a securities repurchase program for up to $40 million over three years.
Providing us with a mechanism to acquire securities accomplish secure.
We believe our securities trade at a discounted valuation for a growing business that commands a leading market share.
With gross margins north of 50% adjusted EBITDA margins in the high Thirty's and meaningful free cash generation.
And we are trading at only five times trailing enterprise value to EBITDA.
Moving on to slide four we wanted to share several new metal card programs since our last call.
Let's begin with one of the unique innovations I mentioned earlier, our echo mirror card to <unk>.
Hard surface is a shiny as amir hence the name.
Jonathan C. Wilk: Trade Republic, a European fintech, began marketing the card recently, and it's proven to be extremely popular. As a matter of fact, the Echo Mirror card has become the main backsplash image on Trade Republic's homepage. You can also see several vertical-focused programs on this slide, such as the BMW or Fan Inc. card, as well as international examples for Kotak in India and Bank Palatine in Europe. Continuing on slide five, I wanted to share how our customers are leveraging our products and brand in their marketing. I already mentioned Trade Republic, but you can see an example of how they are marketing this on social media.
Trade Republic of European Fintech began marketing the card recently and it's proven to be extremely popular.
As a matter of fact, the Echo mirror card has become the main backsplash image on trade Republic homepage.
You can also see several vertical focused programs on this slide such as the BMW are fan ink card.
As well as international examples for Kodak in India and Bank Palatin in Europe.
Okay.
Continuing on slide five.
I wanted to share how our customers are leveraging our products and brand in their marketing efforts.
I already mentioned trade Republic, but you can see an example of how they are marketing this on social.
Jonathan C. Wilk: In the past, I've mentioned change finance. Change is an international fintech that has started selling a company-branded cold storage wallet powered by ARC, and Venus.io, a Latin American company, is using a similar approach for their branded cold storage wallet and for Radix, a DeFi-based FinTech. We also created a co-branded card that allows them to leverage the strength of our Arculous brand in the market for their cold storage follows. I mentioned card issuer trends earlier, and I'd like to provide some further insight. The information is based on quarterly reported public information.
In the past I've mentioned change finance.
Change is an international Fintech that has started selling the company branded cold storage wallet powered by Oculus.
Venus start Io of Latin American based company is using a similar approach for their branded cold storage wallet.
And for radical a five based Fintech. We also created a co branded card that allows them to leverage the strength of our <unk> brand.
In the market for their cold storage wallet.
On slide six.
Mentioned card issuer trends earlier and I'd like to provide some further insight the information it based on quarterly reported public information.
Jonathan C. Wilk: After seeing accelerated growth driven by pent-up demand during the pandemic, our large customers continue to see strong purchase volume. In addition, you'll notice similar trends around new card acquisitions, as well as a continued commitment to marketing. Looking at the overall payment card market, we highlighted several customer and partner quotes on slide seven. We're hearing positive sentiment related to growth and consumer spending in 2024, backed by a strong labor market and wage growth. Consumer demand for products is expected to continue, and card issuers remain committed to marketing investment to drive customer acquisition.
After seeing accelerated growth driven by pent up demand during the pandemic, our large customers continue to see strong purchase volume.
In addition, youll notice similar trends around new card acquisitions as well as our continued commitment to marketing spend.
Looking at the overall payment card market, we highlighted several customer and partner quotes on slide seven.
We're hearing positive sentiment related to growth in consumer spending in 2024 backed by a strong labor market and wage growth.
Consumer demand for products is expected to continue and card issuers remain committed to marketing investment to drive customer acquisition.
Jonathan C. Wilk: These factors point towards continued growth for the premium payment card market. I always like to take the opportunity to outline our Arculous platform on every call to provide clarity around our product capabilities. Let me start on the right side with our Arculous B2B cold storage, which allows users to securely store, send, and receive digital assets. As you know, we offer both white-label and co-branded solutions for our customers. On the left, you can see several use cases for our Arculus Authenticate office, such as secure login, new device authentication, and High-Risk Transaction Verification.
These factors point towards continued growth for the premium payment card market.
I always like to take the opportunity to outline our <unk> platform on every call to provide clarity around our product capabilities.
Let me start on the right side with our <unk> cold storage.
Which allows users to securely store send and receive digital assets.
As you know we offer both white label and co branded solutions for our customers.
On the left you can see several use cases for our <unk> authenticate offering such as secure log in new device authentication and high risk transaction verification.
Okay.
Jonathan C. Wilk: On slide nine, we recently partnered with Forbes to help us better understand business leader perceptions related to fraud and user authentication as we drive forward on Arculous opportunities. Forbes surveyed 200 U.S.-based leaders from medium to large organizations across a variety of financial institutions. The results show that passwords remain a challenge for the industry with negative impacts on consumer experience, organizational efficiency, and the bottom line.
On slide nine we recently partnered with Forbes to help us better understand business leader perceptions related to fraud and user authentication as we drive forward on <unk> opportunities.
Forbes surveyed 200 U S based leaders from medium to large organizations across a variety of financial institutions.
The results showed that passwords remain a challenge for the industry with negative impacts on consumer experience organizational efficiency and the bottom line.
Jonathan C. Wilk: While passwords are a clear issue, the real challenge highlighted by the research continues to be, how do businesses deliver a higher level of security while maintaining or improving the consumer experience? We believe that Arculous technology tied to a payment card can help deliver the right solution for both improved security and an enhanced customer experience. With that, I'll hand it over to Tim to review our financials before returning for closing remarks. Thanks, John, and good afternoon, everyone. I'll provide a more detailed overview of our Q4 and full year 2023 financial performance and then turn it back to John before we open the call for questions. Unless stated otherwise, all comparisons and variance commentary are on a year-over-year basis. In Q4, net sales increased 7% to $99.9 million compared to $93.8 million.
While passwords are clear issue the real challenge highlighted by the research continues to be how do businesses deliver a higher level of security.
Maintaining or improving the consumer experience.
We believe that <unk> technology tied to a payment card.
Can help deliver the right solution for both improved security and an enhanced customer experience.
With that I'll hand, it over to Tim to review our financials before returning for closing remarks.
Thanks, John and good afternoon, everyone I'll.
I will provide a more detailed overview of our Q4 and full year 2023 financial performance and then turn it back to John before we open the call for questions.
<unk> stated otherwise all comparisons and variance commentary are on a year over year basis.
In Q4, net sales increased 7% to $99 9 million compared to $93 8 million. The increase was driven by continued domestic growth and our metal payment card offerings, partially offset by lower international sales, which is a more variable market due to customer mix and a <unk>.
Jonathan C. Wilk: The increase was driven by continued domestic growth in our metal payment card offerings, partially offset by lower international sales, which is a more variable market due to customer mix and smaller sales. Gross margin for the quarter was 53% compared to 54% in the prior year. The decrease was primarily due to lower production efficiencies from new quad constructions and customer design.
Lower sales base.
Gross margin for the quarter was 53% compared to 54% in the prior year.
The decrease was primarily due to lower production efficiencies from new card constructions and customer designs.
Timothy W. Fitzsimmons: That revenue for the quarter increased 39% to $31 million, compared to $22.4 million in the prior year. The increase was driven by prudent operating expense controls, as reflected by a reduction in selling and general administrative expenses, as well as changes to the fair value of warrants, earn out consideration, and derivative liability. Adjusted EBITDA in Q4 increased 22% to $37.2 million compared to $30.6 million in the prior year, and our adjusted EBITDA margin increased approximately 461 basis points to 37% compared to 33% in the fourth quarter of 2022. The increase in adjusted EBITDA was driven by net sales growth and the aforementioned operating expense control. On slide 12, you can see how fully you have... Net sales were up 3% to a record $390.6 million, driven by continued strong U.S. demand, partially offset by our international business, which was impacted by global economic conditions.
Net income for the quarter increased 39% to $31 million compared to $22 4 million in the prior year.
The increase was driven by prudent operating expense controls as reflected by a reduction in selling and general administrative expenses as well as changes to the fair value of warrants earn out consideration and derivative liabilities.
Adjusted EBITDA in Q4 increased 22% to $37 2 million compared to $30 6 million in the prior year.
Our adjusted EBITDA margin increased approximately 461 basis points to 37% compared to 33% in the fourth quarter of 2022.
The increase in adjusted EBITDA was driven by net sales growth in the <unk>.
Four mentioned operating expense controls.
On Slide 12, you can see our full year performance net sales were up 3% to a record $396 million driven by continued strong U S demand.
The offset by our international business, which was impacted by global economic conditions.
Timothy W. Fitzsimmons: Our full-year gross margin was 54% compared to 58% the prior year due to lower production efficiencies from new quad constructions and customer design. That revenue from the year was $112.5 million compared to $131.8 million in the prior year. Lower net income was driven primarily by the non-cash changes for the fair value of the warrant, earn-out consideration, and derivative liability.
Our full year gross margin was 54% compared to 58% in the prior year due to lower production efficiencies from new card constructions and customer designs.
Net income from the year was $112 5 million compared to $131 8 million in the prior year.
Lower net income was driven primarily by the noncash changes in the fair value of the warrant earn out consideration and derivative liabilities.
Timothy W. Fitzsimmons: Adjusted EBITDA for 2023 increased 6% to a record $145 million compared to $136 million in the prior year. Adjusted EBITDA margin for the full year increased 114 basis points to 37% compared to 36% in year 22. Looking closer at the split between domestic and international, you can see that our fourth-quarter domestic net sales remain strong at 86 million, which is up 9% year over year and surpassed our record result in Q3. International net sales for the fourth quarter of 2023 were 14 million, which was up sequentially, but down year over year. As we have communicated in the past, we expect our international business to account for roughly 20% of our annual total net sales mix. It was 18% of the mix in 2023 and 22% in 2022.
Adjusted EBITDA for 2023 increased 6% to a record $145 million compared to $136 million in the prior year.
Adjusted EBITDA margin from a full year increased 114 basis points to 37% compared to 36% and year 'twenty two.
Looking closer at the split between domestic and international you can see that our fourth quarter domestic net sales remained strong at $86 million, which is up 9% year over year and surpassed our record result in Q3.
International net sales for the fourth quarter of 2023 were $14 million, which was up sequentially, but down year over year.
As we have communicated in the past, we expect our international business to account for roughly 20% of our annual total net sales mix. It was 18% of the mix in 2023 and 22% in 2022.
Timothy W. Fitzsimmons: Moving on to the balance sheet, at December 31st, 2023, we have cash and cash equivalents of $41.2 million, and total debt of $340.3 million, which includes $210 million of term loans and $130 million of exchangeable notes. This results in a total net debt of $298.5 million.
Moving onto the balance sheet at December 31, 2023, with cash and cash equivalents of $41 2 million and total debt of $343 million, which includes $210 million of term loan and $130 million of exchangeable notes. This <unk>.
Results in a total net debt of $298 5 million.
Timothy W. Fitzsimmons: In addition, I want to mention our inventory. John often shares our thoughtful approach to managing the business while effectively balancing our investments. One such example is that we have proactively increased inventory levels near the end of 2023 to ensure we are in the best position to deliver on our clients' needs throughout 2024. As always, we provide both our overall debt leverage ratio and our bank agreement secured debt leverage ratio, as our bank agreement is calculated with slight differences.
In addition, I want to mentioned our inventory levels, John often shares our thoughtful approach to managing the business, while effectively balancing our investments. One. Such example is that we are proactively increased inventory levels.
End of 2023 to ensure we are in the best position to deliver on our clients' needs throughout 2024.
As always we provide both our overall debt leverage ratio and our bank agreement secured debt leverage ratio as our bank agreement is calculated with slight differences.
Timothy W. Fitzsimmons: At December 31st, 2023, our overall leverage ratio was 2.35 times, based on a total net debt of $340.3 million and trailing 12-month adjusted EBITDA of $145 million. This compares to 2.6 times at December 31st, 2022, with the improvement driven by paying down debt and increasing TTM adjusted EBITDA. At December 31st, 2023, we had a bank agreement secured debt leverage ratio of 1.39 times based on a total secured debt of $210.3 million and trailing 12-month bank adjusted EBITDA of $151 million. This compares to 1.62 times at December 31st, 2022. Turning to slide 15.
At December 31, 2023, our overall leverage ratio was 235 times.
Based on a total net debt.
$343 million and trailing 12 month adjusted EBITDA of 145 million. This compares to two six times at December 31, 2022, with the improvement driven by paying down debt and increased TTM adjusted EBITDA.
At December 31, 2023, we had a bank agreement secured debt leverage ratio of 139 times based on a total secured debt of $210 3 million and trailing 12 month bank adjusted EBITDA of 151 million. This compares to one six.
Two times at December 31, 2022.
Turning to slide 15.
Timothy W. Fitzsimmons: At December 31st, 2023, we had free cash flow of $55 million based on $104 million in net cash from operations, less investment in capital equipment of $11 million, and tax distributions of $38 million. This resulted in a free cash flow yield of 13%, based on a market cap of $429 million. This compares to a free cash flow at December 31st, 2022 of $47 million, which also gives us a free cash flow yield of 13%. Note: you can see the gap cash flow statement and a footnote on the calculations of the market cap on this slide. I want to turn now to Earnings Per Share. As a reminder, our method under GAAP for calculating basic and diluted EPS allows us to allocate changes and adjustments of mark-to-market instruments among the public company and the operating subsidiaries to better reflect the actual economic impact of the conversion of such instruments on our net income and our per-share basis. GAP EPS for the three months ended December 31st, 2023 was $0.17 per basic and diluted share.
At December 31, 2023, we had free cash flow of 55 million based on $104 million in net cash from operations less investment in capital equipment of $11 million.
And tax distributions of $38 million.
This resulted in a free cash flow yield of 13% based on a market cap of $429 million.
This compares to a free cash flow at December 31, 2022 of $47 million, which also gave us a free cash flow yield of 13%.
No you can see the GAAP cash flow statement and the footnote on the calculations of the market cap on this slide.
I want to turn now to earnings per share.
As a reminder, our method under GAAP for calculating basic and diluted EPS allows us to allocate changes and adjustments of mark to market and instruments among the public company and the operating subsidiaries to better reflect the actual economic impact of the conversion of such instruments and our net income.
And our per share basis.
GAAP EPS for the three months ended December 31, 2023 was <unk> 17 per basic and diluted share. This compares to 14.
Our basic and diluted share in the year ago period the.
The increase was driven by operating expense controls as well as changes to the fair value of the warrants earn out consideration and derivative liabilities, primarily due to changes in our stock price you.
Timothy W. Fitzsimmons: This compares to $0.14 per basic and diluted share in the year-ago period. The increase was driven by operating expense controls, as well as changes to the fair value of the warrants, earn out consideration, and derivative liabilities, primarily due to changes in our stock price. You can read through the footnotes on the slide that take you through the complexities of the allocation of net income due to the FC structure and the shares that are included in the basic and diluted calculation.
You could read through the footnotes on the slide that take you through the complexities of the allocation of net income due to the up sea structure and then shares that are included in the basic and diluted calculations.
Turning to slide 17 for our full year, GAAP, EPS, which was $1 <unk> per basic share and 96 cents per diluted share. This compares to $1 21, and a $1 13 per basic and diluted share respectively in 2022.
Timothy W. Fitzsimmons: Turning to slide 17 for our full-year gap EPS, which was $1.03 per basic share and $0.96 per diluted share. This compares to $1.21 and $1.13 per basic and diluted share, respectively, in 2022. Again, this was impacted by the same factors I outlined on the previous slides as non-cash adjustments can have either a positive or negative impact on netting.
Again this was impacted by the same factors I outlined on the previous slides as noncash adjustments can have either a positive or negative impact on net income.
On Slide 18, we're also providing a non-GAAP adjusted net income and adjusted EPS, which excludes the impact of noncash fair value adjustments on the warrants.
Timothy W. Fitzsimmons: On slide 18, we're also providing a non-GAAP adjusted net income and adjusted EPS, which excludes the impact of non-cash fair value adjustments for the warrants, turnout revaluations, and stock compensation. We believe that this provides a clearer picture of the economics of the company's operating results. With that background, our non-GAAP EPS for the fourth quarter of 2023 was $0.29 per basic share and $0.26 per diluted share. This compares to $0.23 per basic share and $0.20 per diluted share in the year-ago period. In the appendix, you'll find a reconciliation between the GAAP and non-GAAP net income used in these calculations.
Valuations and stock compensation.
We believe that this provides a clearer picture of the economics of the Companys operating results.
With that background, our non-GAAP EPS for the fourth quarter of 2023 was 29 per basic share and 26 per diluted share.
This compares to 23 per basic share and <unk> per diluted share in the year ago period.
In the appendix you will find a reconciliation between the GAAP and non-GAAP net income used in these calculations.
Turning to slide 19.
Adjusted EPS for the 12 months ended December 31, 2023 put us at $1 12 per basic share and 97 per diluted share. This compares to $1 10, and <unk> 94 per basic and diluted share respectively in 2022.
I'll now turn it back to John to discuss our guidance and give closing remarks.
Thanks, Tim as I mentioned earlier, we expect our 2020 for net sales to range between 408 and $428 million.
Timothy W. Fitzsimmons: Turning to slide 19, adjusting EPS for the 12-month end of December 31, 2023, puts us at $1.12 per basic share and $0.97 per diluted share. This compares to $1.10 and $0.94 per basic and diluted share, respectively, in 2022. I'll now turn it back to John to discuss our guidance and give closing remarks. Thanks, Tim. As I mentioned earlier, we expect our 2024 net sales to range between $408 and $428 million, and Adjusted EBITDA to come in between $147 and $157 million. Turning to slide 21, I want to conclude by summarizing a few key themes that we covered today, as I've stated in the past. We've always had a thoughtful approach to managing the business while effectively balancing our investment, which has resulted in a long history of delivering profitable growth. Our team delivered a record year in 2023, including meeting our original adjusted EBITDA guidance. The consumer continues to prove resilience, and global issuers are actively expanding their metal payment card programs to satisfy that growing demand.
And adjusted EBITDA to come in between 147 and $157 million.
Turning to slide 21, I want to conclude by summarizing a few key themes that we covered today.
As I've stated in the past.
We've always had a thoughtful approach to managing the business, while effectively balancing our investments which has resulted in a long history of delivering profitable growth.
Our team delivered a record year in 2023, including meeting our original adjusted EBITDA guidance.
The consumer continues to prove resilient and global issuers are actively expanding their metal payment card programs to satisfy that growing demand.
We believe <unk> is starting to gain momentum as fintech seek to leverage our innovative technology to expand their capabilities.
As mentioned, we expect the net investment for <unk> to continue to improve and turn positive for fiscal 2025.
And last we believe our current market valuation reflects a discount for our category leading business.
In our securities repurchase program, we announced today equips us with another tool to deliver shareholder value as we execute on our growth and profitability objectives.
Jonathan C. Wilk: We believe Arculus is starting to gain momentum as fintech seeks to leverage our innovative technology to expand their capability, as mentioned. We expect a net investment for Arculus to continue to improve and turn positive for fiscal 2025. And last, we believe our current market valuation reflects a discount for our category-leading business, and the Securities Repurchase Program we announced today equips us with another tool to deliver shareholder value as we execute on our growth and profitability objectives. With that, I'd like to open up the call to questions. To ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the question queue, you may press star 1-1 again.
With that I'd like to open up the call to Q&A.
You ask a question you will need to press star one on your telephone to remove yourself from the question queue. You May Press Star one again, please standby, while we compile the Q&A roster.
Our first question comes from the line of John <unk> of Needham <unk> Company. Please go ahead John.
Hey, Thanks for taking my question I just have one here. So you mentioned the minimum investment for Arco is turning positive in <unk>.
2025.
Is there.
Any metrics, we can get an arduous and that growth because just thinking bitcoin around all time highs here.
A lot of volume activity has picked up in the state.
Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of John Todaro of Niederman Company. Please go ahead, John. Hey, thanks for taking my question. I just have one here.
Is there kind of almost night and day differences and what we're starting to see an argument now versus maybe six months or so ago and if not kind of what environment is needed then to really get arguments and start contributing.
John Todaro: So you mentioned the net investment for Arcula is turning positive and, in 2025. Are there any other metrics we can get on Arculus and that growth? Because, you know, just thinking Bitcoin around all-time highs here, a lot of volume activities picked up in the space. Are there kind of almost night and day differences in what we're starting to see in Arculus now versus maybe six months or so ago? And if not, what kind of environment is needed then to really get Arculus to start contributing?
Thanks, John for the question.
<unk>.
We're not disclosing deeper metrics at this point, we are going to continue to show you and others are examples of our Oculus executions.
The change finance, Radick venous Io and others.
Where we are seeing exactly the types of things, we want to see John where people are.
White labeling co branding the solution in various.
Alternatives.
Jonathan C. Wilk: Thanks, John, for the question. We're not disclosing deeper metrics at this point, but we are going to continue to show you and others examples of Arculus executions, like Change Finance, Radix, VenusIO, and others, where we are seeing exactly the types of things we want to see, John, where people are white labeling, co-branding the solution in various alternatives, and delivering those to the market through their channels. So, you know, we are seeing that kind of momentum in both executions in our pipeline and the discussions that we're having as well. And yes, we've seen an uptick from the market, and I think an increase in crypto prices, and that's certainly, we believe, a positive. You know, if you look at the net investment in Q4 at roughly 2.4, it's headed in exactly the right direction that we want, and we think that it'll improve again next year while turning positive in 25. I got it.
Delivering those to the market through their channels. So we are seeing that kind of momentum in both execution in our pipeline and the discussions that we're having as well.
Yes, we have seen an uptick from.
The market.
I think the increase in.
Crypto prices and that certainly we believe.
Positive if you look at the net investment in <unk>.
Q4, Q4 at roughly $2 four.
<unk> headed in exactly the right direction that we want.
We think that will improve again next year, while turning positive in 'twenty five.
Got it thanks.
Thank you.
Our next question comes from the line of how gets a B Riley Securities. Please go ahead Hal.
Hey, you guys mentioned inventory they've been actually flat since the Q1 report, but you called out.
Maybe elevated versus maybe year end 2022.
What do you think inventories are in the channel.
John Todaro: Thanks. Thank you. Our next question comes from the line of Hal Goetsch of B. Reilly Securities. Please go ahead, Hal.
And do you think over time.
Inventory levels are.
Around 2022 levels as possible again or are you just really comfortable at this level going forward.
Harold Lee Goetsch: Hey, you guys mentioned inventories, you know, they've been flat since the Q1 report, but you called them out as maybe elevated versus maybe year-end 2022. What do you think inventories are on the channel? And do you think over time...
Yes, so how we separate those issues of.
Inventory in channel, we touched on it briefly.
Last time, we spoke with a couple of limited examples of people managing.
Inventory on there and we think those.
Jonathan C. Wilk: Inventory Levels, around 2022 levels as possible again, or are you just really comfortable with this level going forward? Yeah, so how do we separate those, I think, issues of, you know, inventory in the channel, we touched on it briefly last time we spoke with, you know, a couple limited examples of people managing inventory on their end, we think those have largely subsided. From our perspective, you know, we were almost inventory limited for a long time in terms of our ability to ensure that we had enough chips, metal, and other sort of key items for us.
Have largely subsided.
From our perspective.
We were almost inventory limited for a long time in terms of our ability to ensure that we had enough chips metal and other sort of key items for us and we feel comfortable at the levels that we're operating to ensure that we can deliver against the growth that we've outlined.
Okay.
Okay, just one follow up on new program wins.
Great New information going.
125 to 150 150, or so how many of them are new new products like Echo mirror and some of the other other products can you just kind of give us a feel.
Jonathan C. Wilk: And, you know, we feel comfortable at the levels that we're operating to ensure that we can deliver against the growth that we've outlined. Thank you. That's one follow-up on a new program, Wins. There was some great new information going on. 125 to 150 or so.
Those new products are part of those programs.
Yes.
There is new products products like our led card Echo mirror.
And others are definitely part of those wins and typically.
We see those ramps build from sort of initial executions with clients that make a big splash and have early success followed by others in the market. So we're quite encouraged how I would say by.
Jonathan C. Wilk: How many of them are in new products like Ecomir and some of the other products? Can you just kind of give us a feel for whether those new products are part of those programs? Yeah, those new products, products like our LED card, echo mirror, and others are definitely part of those wins. And typically, you know, we see those ramps build from sort of initial executions with clients that make a big splash and have early success, followed by others in the market. So we're quite encouraged, Hal, I would say, by the take-up of some of these new products and look forward to seeing that build with products like our Lux glass card which, you know, we expect to see take up here over time. All right.
The take up of some of these new products and look forward to seeing that build with products like our <unk> card.
We expect to see tick up here over time.
Alright terrific. Thank you thanks al.
Thank you once again to ask a question. Please press star one on your telephone again star one on your telephone to ask a question.
Our next question comes from the line of Mark Palmer of Benchmark. Your line is open Mark.
Yes. Thank you for taking my question.
Harold Lee Goetsch: Terrific. Thank you. Thanks, John. Thank you. Once again, to ask a question, please press star 11 on your telephone. Again, that's star 11 on your telephone to ask a question.
What.
Would you say are the main swing factors between the top end and the lower end of your guidance for net sales and adjusted EBITDA for for 2024, and what portion of that is simply due to the macro.
Operator: Our next question comes from the line of Mark Palmer of Benchmark. Your line is open, Mark. Yes, thank you for taking my question. What would you say are the main swing factors between the top end and the lower end of your guidance for net sales and adjusted EBITDA for 2024? And what portion of that is simply due to macro?
Thanks Mark.
Look we've laid out a range.
For sales, we've got we think very good visibility.
We look out into the year.
Through our top clients.
Mark Anthony Palmer: Thanks, Mark. Look, we've laid out a range, you know, for sales. We've got, we think, very good visibility as we look out into the year, you know, through our top clients. And, as in any year, there are things that we need to lock down, both with our largest clients and the visibility that we've been given with high confidence, as well as, you know, the other identified opportunities. And so it's just essentially executing against what we can see in front of us.
In a year.
There are things that we need to lock down both with our largest clients and the visibility that we have been given with high confidence.
As well as the other identified opportunities and so it's just essentially executing against what we can see in front of us.
Sure.
And that's how we laid out that range and feel quite good about it.
Okay.
Just one follow up with regard to the $40 million.
Jonathan C. Wilk: And, you know, that's how we laid out that range and feel quite good about it. And just one follow-up, with regard to the $40 million that repurchase program over the next three years. What will drive the decision making with regard to the allocation across common stock warrants and converts?
That repurchase program.
Over the next three years.
What will drive the decision, making with regard to the allocation across common stock warrants and converts.
Jonathan C. Wilk: So, Mark, our board has been and will continue to look at capital allocation. Historically, it's been focused on driving organic growth and paying down debt. We've had conversations throughout about sort of all of the different things we could do with capital to help drive shareholder value. You know, the board authorized the plan to enable us to do any of those things that we outlined. And, you know, we will continue those discussions with the board around, you know, which of those avenues, what prices, all of those things would be sort of in consultation with the board as we proceed. Thank you very much.
So mark.
Our board.
Has been and will continue to look at capital allocation historically, it's been focused on driving organic growth and paying down debt.
We've had the conversations throughout about sort of all of the different things we could do.
With capital to help drive shareholder value.
The board authorized the plan to enable us to do any of those things that we outlined.
We will continue those discussions with the board.
Around which of those avenues.
At what price at all of those things.
Would be sort of.
Consultation with the board as we as.
As we execute.
Thank you very much.
Mark Anthony Palmer: Thanks, Mark. Thank you. Our next question comes from the line of Joe Flynn of Compass Point Research and Trading. Your question, please, Joe. Alright guys, I know we're still relatively early. Comment, maybe, on the Kappa 1 Discovery.
Thanks Mark.
Thank you.
Our next question comes from the line of Joe Flynn of Compass Point Research and trading your question. Please Joe.
Hi, guys.
Relatively early until ultimately the deal close.
But if you guys could comment maybe on the capital one discovery.
Joe Flynn: I'll, motocarte. Thanks, Joe. When we think about that deal, Capital One is a client today, you know; we do cards like Venture X and Venture Spark and others. Discover, you know, we have very little business. We see this as, I'd say, neutral to positive for us, as it may open up additional opportunities. But no additional comments really beyond that.
Ultimately your kind of outlook of how that.
Thanks.
Volume of metal cards longer term that'd be really helpful.
Thanks, Joe.
When we think about that deal.
Capital one is a client today, we do cards like <unk>.
Venture Ax adventure spark and others.
Discover.
<unk>.
Very little of business.
We see this as I'd say neutral to positive for us as it may open up additional opportunity.
No additional comments really beyond that.
Jonathan C. Wilk: There's one more question on the.., have a lot of occasion aside, I guess, you know.., with the... ... ... ... .., and the rest of the board. Thank you. Thank you. I'm paying that down, and now the buyback.
I wanted to ask one more question on the kind of the capital allocation side sure I guess.
You guys have definitely shown like increased flexibility with a focus on paying that down and now the buyback.
Joe Flynn: Thank you. Thank you. Thank you. are doing like shared distribution, www.composecure.com, to lower some of the impact.
Wanted to.
Spread the discussions over time.
You're doing like share distributions to potentially.
Yeah.
Lower some of the impact of the up sea structure or just anything you could provide there would be helpful.
Jonathan C. Wilk: Yeah, just foundationally, as I said in my prepared remarks, we believe our stock is undervalued. We have a market-leading company with strong gross margins north of 50% or EBITDA margins at 37%, and we're trading at, you know, near five times enterprise value to EBITDA. Like we fundamentally believe our stock is undervalued. And so, you know, we've looked at that and said, you know, the board has authorized what I call additional flexibility around, uh, you know, stock buyback warrants, notes, or other levers that, you know, we in the board deem appropriate to drive shareholder value. And so this is, to me, us leaning towards saying, you know, we fundamentally believe we're undervalued and, uh, you know, we're going to make sure that we've got the necessary tools to address that in the market. And your comments were right.
Yes.
Foundation Lee as I said in my prepared remarks.
We believe our stock is undervalued, we have a market leading company with strong gross margins north of 50% or EBITDA margins at 37%.
And we're trading at <unk>.
Near five times enterprise value to EBITDA like we fundamentally believe our stock is undervalued and so.
We've looked at that and said.
<unk> is authorized what I call additional flexibility.
Around.
Stock buyback words notes or other levers that we and the board deem appropriate to drive shareholder value and so this is to me us leaning in.
<unk>.
We fundamentally believe we're undervalued.
We're going to make sure that we've got the necessary tools to address that in the market and your comments were right. We've been very successful in.
Joe Flynn: We've been very successful in paying down debt. You know, our leverage ratios are at 2.4 times total debt, and 1.4 times on our bank leverage. You know, we paid down additional debt this year, incrementally. If you look at the cash position at the end of the year, we both paid down additional debt and ended the year with, you know, substantially increased cash. And that's what we believe we can do in this business. So, you know, beyond that, I'm not going to get more specific at this point, but we believe we have the tools in our tool set to address challenges we see to drive shareholder value. Great, thanks.
Paying down debt.
Our leverage ratios.
Two four times total debt one four times on our bank leverage we paid down additional debt.
Yet this year.
Incrementally if you look at the cash position at the end of the year, we both paid down additional debt and ended the year with substantially increased cash and Thats. What we believe we can do in this business so beyond that I'm not going to get more specific at this point, but we've got the tools.
And our tool set we believe.
To address challenges, we see to drive shareholder value.
Great. Thanks, that's all for me.
Reginald Lawrence Smith: Thank you. Our next question comes from the line of Reggie Smith of J.P. Morgan. Please go ahead, Reggie. Hey, good evening.
Thank you.
Our next question comes from the line of Reggie Smith of Jpmorgan. Please go ahead Reggie.
Reginald Lawrence Smith: Thanks for taking the question. I was hoping that you could maybe talk a little bit about, I guess, the revenue cadence for next year, think about kind of a similar profile to previous years or how you guys are thinking about that, and have a follow-up as well. Thanks, Reggie. We don't generally see seasonality in our business driven by, I'd say, time of year. Right, it's typically just driven by the timing of different programs as we move through the year. Beyond that, you know, it's not something we look at and say, you know, X quarter is always typically higher or lower than others. And, you know, we believe we are well positioned to kind of hit the total ranges that we've laid out for the year. And then, you know, kind of looking at it.
Hey, good evening, thanks for taking the question.
Was hoping you could maybe talk a little bit about.
I guess the revenue cadence for next year.
I think.
And think about kind of a similar.
While the previous years or how you guys are thinking about that and I have a follow up as well. Thank you.
Thanks, Rajiv, we don't generally see seasonality in our business.
Driven by its a time of year right. It's typically just driven by timing of different programs as we move through the year.
Beyond that it is.
Not something we look at it and say.
X quarter is always typically higher or lower.
And then others.
We believe well positioned to kind of hit the total ranges.
That we've laid out for the year.
Got it. Thank you and then kind of looking at.
Jonathan C. Wilk: Look at how historically, your revenue growth rate has bounced around quite a bit. Obviously, 2022 was a record year in terms of growth, and I know you talked about, you know, kind of double-digit growth longer term. I'm curious, like, what your thinking is currently on the long-term outlook for metal cards in your business?
Looking back historically like your revenue growth rate has bounced around.
Quite a bit I was <unk> 22 was a record year in terms of growth and I know you've talked about.
That kind of double digit growth longer term.
Just curious if that was just thinking is currently on the long term.
Outlook for for metal cards and gift business.
Reginald Lawrence Smith: in general. And then just included in that, if it's significantly higher than what it is today, is that macro, or is it adoption? Like, what's the bridge to kind of get back to whatever you deem to be kind of the longer term growth profile? Thanks, Reggie. Look, when we look at the growth rate of this company over the last five years, 10 years, it's a double-digit grower. And, you know, we have done that consistently, literally over that kind of timeframe.
General.
And then this improve.
Included in that if it is significantly higher than what it is today is that.
Macro or is adoption like what's the bridge to kind of get back to.
Whatever you deem to be kind of longer term growth profile banking.
Thanks Rajiv.
Look when we look at the growth rate of this company over the last five years 10 years.
It's a double digit grower.
We have done that consistently literally over.
That kind of timeframe so.
Jonathan C. Wilk: So, you know, yes, you look at our growth since we went public, and you've got the 41% growth; you've got obviously lower growth last year. But, net net, we still believe, you know, over time, this business is a double-digit grower. And when you talk about what helps it get there, over time, I go back to kind of the core tenants that we're going after to grow the business, which is, you know, continued domestic expansion outside of our, you know, including, but then outside of our top clients. And I think we've continued to demonstrate progress on that front with the number of new clients that we're opening, top 10, top 20, U.S. banks. Second, is international, and well, you do see some variability over there. It did come in for the year at right about 20%, a little bit under. But, you know, we look to see that continue to grow and be an important part of that as well. And on top of that, we've got fintechs, U.S. and international fintechs, that help drive that growth.
Yes, you look at our growth.
Since we went public and you've got the 41% growth you've got obviously lower growth last year.
<unk>.
Net net we still believe.
Over time this business is.
Double digit grower.
When you talk about.
What helps us get there over time I go back to kind of the core tenants that we're going after to grow the business which is.
Tenured domestic expansion.
Outside of our <unk>.
Including but then outside of our top clients.
I think we've continued to demonstrate.
Progress on that front with the number of new clients that were opening top 10 top 20.
U S banks.
Second is international and well you do see some variability over there.
It did come in for the year right about 20% a little bit under.
But we look to see that continue to grow and be an important part of that as well.
And on top of that we've got fin Techs U.
U S and international Fintech that helped drive that growth and so for us its continuing to build out the sales force build out our distribution partners and execute on that.
Jonathan C. Wilk: And so for us, it's continuing to build out the sales force, build out our distribution partners, and, you know, execute on that. So that's the way we think about it. It makes a lot of sense.
So that's the way we think about it.
That makes a lot of sense perfect. Thank you guys. Thanks.
Reginald Lawrence Smith: Perfect. Thank you, guys. Thanks, Reggie. Thank you. As I show no further questions in queue, that does conclude today's conference call. Thank you for participating. You may now disconnect, www.composecure.com
Thanks Rajiv.
Thank you I show no further questions in queue that does conclude today's conference call. Thank you for participating you may now disconnect.
Okay.
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Okay.
Yeah.
Okay.
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