Q1 2025 CompoSecure Inc Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to the CompoSecure Q1 2025 earnings call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. I would not like to hand a conference over to your speaker today, Sean Mansouri, Investor Relations for CompoSecure.
Good afternoon.
Speaker Change: With me on the call is Dave Cote, Executive Chairman of CompoSecure, John Wilk, Chief Executive Officer, and Tim Fitzsimmons, Chief Financial Officer.
Speaker Change: They will begin with prepared remarks and then we will open the call for a Q&A.
Speaker Change: 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.
Speaker Change: Forward-looking statements may often be identified with words such as, we expect, we anticipate, or upcoming.
Speaker Change: These statements reflect our views only as of today and should not be considered our views as of any subsequent dates.
Speaker Change: We undertake no obligation to update or revise these forward-looking statements.
Speaker Change: And the operating companies, which are subsidiaries are not consolidated in the financial statements included in this report and instead are accounted for under the equity method of accounting.
Speaker Change: In the earnings release, we issued earlier today and in the discussion on today's call. We also present non-GAAP results to help investors reconcile and better understand our operating performance in.
Speaker Change: In addition, our discussion will include non-GAAP financial measures, including EBITDA adjusted EBITDA pro forma adjusted EBITDA consolidated net sales consolidated gross profit consolidated gross margin consolidated total cash adjusted EPS and consolidated net debt.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the IR section of our web.
Speaker Change: Thank you and with that let me turn the call over to executive Chairman, Dave Cody.
Dave Cody: Afternoon, everyone. Since we last spoke to you in March we have continued to spend a considerable amount of time working with John and his team.
Dave Cody: The strength of incomparable secures operating capabilities with the comparable operating system driving organic growth and building a high performance culture that has the intensity and sense of urgency to deliver now and into the future.
Dave Cody: I am pleased with the team's engagement, we're beginning to see early results from their efforts and while implementation of C. O S and development of that critical institutional intensity will take time I'm encouraged by the progress we're making.
Dave Cody: I'm also pleased with the first quarter's results complete copper secure is well positioned to deliver through 2025 and beyond.
Dave Cody: As I have said since first investing in Cabos secure we're far and away the leader in metal cards, but still have less than 1% penetration of the current credit card market.
Dave Cody: Even though the financial and brand benefits our metal cards offer to an issuer are huge we believe the upside for us and our customers it's significant.
Dave Cody: To execute against this big opportunity, we believe our focus on the copper copper operating system and the related investments, we're making will drive meaningful results over time.
Dave Cody: Panther encompass curious ability to continue building a culture of excellence that delivers for our customers employees and investors as we've proven before it really does work.
Dave Cody: Before turning the call over to John I wanted to take a moment to address the accounting change we've had to make this quarter Pembina.
Dave Cody: Tim will discuss this in more detail later in the call, but we're now required to report Capa secures results using the equity method of accounting following the spinoff of Resolute Holdings and Redwood Holdings is required to consolidate the financial results accomplished secures wholly owned operating subsidiary in accordance with U S. GAAP.
Dave Cody: This consolidation accounting is quite technical in nature and does not reflect the underlying economics of copper secure ore resolute holdings to help investors better understand each businesses financial performance. We have provided non-GAAP financials that do reflect the economics of each business and allow for Dirk.
Dave Cody: Comparisons to past periods Acampo secure.
Dave Cody: We have also included a summary chart on page four of the earnings presentation to simply summarize how I think about the financials of both accomplish secure and resolute holdings.
Dave Cody: The non-GAAP comp will secure financials are the same as they have been historically with the only change being a deduction of the management fee that is paid to resolute holdings.
Dave Cody: For Resolute holdings, the non-GAAP financial show management fee revenue from comp or secure less salaries and ongoing operating expenses.
Dave Cody: Both are that simple and our how we look at both businesses.
Dave Cody: So you may find yourself, saying Gee, Dave if it does not make sense for how investors should look at the results economically for both companies.
Dave Cody: Why are you doing the accounting this way.
Dave Cody: The best answer I think comes from Paraphrasing Warren Buffett, who once said about Berkshire Hathaway accounting that quote the GAAP earnings are 100% misleading and they serve to Misinform investors.
Dave Cody: So to restate, how best for investors to understand the economics of bulk companies one look at compo historical reporting and deduct the management fee and to look at our H L. B as management fee revenue minus cost of the investment team.
John: So with that I'll turn the call over to John.
Dave Cody: Yeah.
John: Thank you Dave Good afternoon, everyone and thank you for joining us for our first quarter conference call.
John: We started the year in line with our expectations across our payment card and Oculus business with consolidated net sales essentially flat compared to prior year.
John: Pro forma adjusted EBITDA, which incorporates a full quarter of resolute management fees on a pro forma basis for both the current and year ago period.
John: Decrease slightly due to higher G&A expenses tied to growth investments and the implementation of the comp are secure operating system, where C O S.
John: We also had strong program activity during the quarter with several high profile customers.
John: Oculus delivered a net positive contribution and record results for the quarter.
John: With new vertical industry wins.
John: Our focus on operational excellence to accomplish that your operating system remains a critical enabler.
John: Positioning us to drive more efficiency and long term value creation.
John: Importantly, we are already beginning to see the benefits from implementing Pos, particularly at the factory in production level, which we believe will deliver positive net impact in 2025.
John: As expected and highlighted in our March conference call. We are seeing momentum building in the second quarter for both payment cards and Oculus.
John: And we anticipate this sustained growth trajectory will carry through the remainder of the year.
John: As mentioned in our press release earlier today, we are reaffirming our full year 2025 guidance with expectations for mid single digit growth in both consolidated net sales and pro forma adjusted EBITDA.
Speaker Change: As Dave mentioned, a moment ago, we have provided slides four to help you understand how we think about the financials are both accomplished secure and resolute holdings.
Speaker Change: Our non-GAAP accomplish secure financials remain consistent with our historical practice.
Speaker Change: With the only change being the deduction of the resolute management fee.
Speaker Change: For Resolute holdings, the non-GAAP financials show the management fee revenue from accomplish secure less salaries in ongoing operating expenses, Tim will go into some additional detail around this later on.
Speaker Change: Now turning to slide five.
Speaker Change: We had a strong quarter of program activity with several high profile metal payment cards across the globe.
Speaker Change: These included Citibank Robinhood Carta co her wealth simple and scotiabank spanning both the traditional issuers and syntax.
Speaker Change: Several new vertical industry wins for Oculus include met amassed in Moneygram.
Speaker Change: Showcasing our ability to diversify across industries.
Speaker Change: Moving on to slide six we continue to see a strong metal payment card market. Both in terms of issuer adoption and end user preference.
Speaker Change: As Dave mentioned, the financial and brand benefits, our metal cards offered to an issuer are huge and.
Speaker Change: And we see this clearly reflected in our pipeline as demand has continued to strengthen in the second quarter.
Speaker Change: We anticipate this sustained growth trajectory will carry through the remainder of the year.
Speaker Change: Turning to slide seven and <unk> as I mentioned earlier, we delivered record results generating another net positive contribution in the quarter.
Speaker Change: I highlighted some recent examples of vertical success earlier with Moneygram is net of mask.
Speaker Change: In addition, we are encouraged to see metal card customers beginning to future proof their offerings by bundling arcturus authenticate with payment capabilities.
Speaker Change: We believe Oculus remains a powerful differentiator that sets Cabo secure apart in the evolving web III and digital security landscape.
Tim: I'll now hand, it over to Tim to review our financials before returning for closing remarks.
Tim: Thank you John and good afternoon, everyone.
Tim: I will provide a detailed overview of our Q1 2025 financial performance.
Tim: Unless stated otherwise all comparisons in variance commentary are on a year over year basis.
Tim: In Q1 consolidated net sales were essentially flat at $103 9 million compared to our prior year.
Tim: Consolidated gross margin for the quarter was 52, 5% of net sales compared to 53, 1% for the same quarter of the prior year.
Tim: Pro forma adjusted EBITDA in Q1 decreased by 2% to $33 $7 million with the decline driven by higher general and administrative expenses.
Tim: The pro forma adjusted EBITDA comparison includes approximately $3 2 million in expense in both the first quarter in 2025 and the first quarter. In 2024. We include the full quarter of management fees in 2024, and 2025 to allow for comparability across periods.
Tim: Yes.
Tim: The actual payment to resolute holdings in the first quarter of 2025 was $1 1 million because the contract became effective February 28.
Tim: Nothing was paid in the first quarter of 2024 as Resolute holdings did not exist.
Tim: Pro forma adjusted EBITDA margin was 32, 4% compared to 33, 2% in the prior year.
Tim: On slide 10, you can see that the domestic net sales were down $3 3 million or 4% from the prior year, while international net sales were up $3 1 million or 28% from the prior year.
Tim: Adjusted net income increased 21% to $28 4 million.
Tim: Adjusted diluted EPS was <unk> 25.
Tim: Compared to 24 per diluted share in the prior year with a slight increase driven by higher net income offset by a higher share count.
Tim: I want to add some additional commentary related to the required accounting change as of February 28, following the spin of Resolute holdings and the execution of a new management agreement accomplished secure is required to use the equity method of accounting and resolute is required to consolidate the financials of accomplished secured.
Tim: Wholly owned operating subsidiary in accordance with U S GAAP.
Tim: As a result of this change the results of our operating businesses are no longer consolidated in our GAAP financials.
Tim: Instead, our share of earnings from accomplished each of our holdings is presented as a single line item in our income statement and the carrying value and the assets of holdings is now reflected on our balance sheet.
Tim: To reiterate what Dave and John said, our non-GAAP comp a secure financials of the same as they have been historically with the only change being the deduction of the management fee paid to Resolute holdings.
Tim: For original holdings, the non-GAAP financials show management fee revenue from comps to secure that salaries and ongoing operating expenses.
Tim: To help you better understand let's turn to slide 13.
Tim: Okay.
Tim: Slide 13 provides further clarity and shows a reconciliation from GAAP results to the consolidated non-GAAP. Following the February 28 spinoff of Resolute holdings and the adoption of the equity method of accounting.
Tim: Let me walk you through this.
Tim: Collimate provides.
Tim: GAAP results, which include two months of consolidated holdings financials, and one month under the equity method of accounting.
Tim: Column B shows the elimination of the equity method investment, which represents the removal of the net income that we recorded from the equity method and holdings.
Tim: Column C has the addition of holdings one month results as that they would have historically been presented.
Tim: Column D shows the statement of operations as the company had reported historically.
Roy: Roy provides adjustments for one time spin costs.
Roy: And ROE App shows pro forma adjustments to show accomplished.
Roy: <unk> results on a go forward basis, assuming full management fees in both periods.
Roy: We are providing this view to help bridge the gap between our new equity method presentation and the full underlying performance of our operating companies.
Roy: Turning to the balance sheet as of March 31, 2025 on a non-GAAP basis, we had $71 7 million of cash and cash equivalents and total debt of $195 million.
Roy: This compares to cash and cash equivalents of $55 1 million and total debt of $335 6 million at March 31 2024.
Roy: Our bank senior secured debt leverage ratio was 1.15 times at March 31, 2025, with a trailing 12 month adjusted Bank EBITDA of $156 million. This compares to 1.34 times at March 31 2024.
Roy: Turning to our cash flow statement on slide 15, you can see that the net cash provided by operating activities for the quarter was $18 2 million compared to $33 7 million in the prior year period.
Roy: I'll now turn it back to John to discuss our guidance and closing remarks.
John: Thanks, Tim as mentioned earlier, we are reiterating our previously issued full year 2025 guidance.
John: Which calls for mid single digit growth in both consolidated net sales and pro forma adjusted EBITDA with sales momentum building through the year.
John: This guidance includes payment of the Resolute holdings management fee in 2025.
John: And 2024 on a pro forma basis.
John: We continue to operate from a position of strength.
John: Our solid balance sheet strong customer relationships and growing demand across both lateral cards and oculus.
John: We are planting the seeds to drive organic and inorganic growth supported by the accomplished it's your operating system to further improve efficiencies and execution.
John: We are already beginning to see the benefits from implementing Pos, particularly at the factory in production level, which we believe will deliver positive net impact in 2025.
John: At the same time, we remain mindful of macro headwinds, including rising labor costs and broader economic uncertainty.
John: We believe our focused strategy and disciplined execution position us well to navigate these challenges and continue building long term value.
John: Finally on slide 18, I want to conclude by highlighting a few points we covered today.
John: First we are focused on accelerating organic growth supported.
John: Supported by strategic investments as well as new and growing customer relationships.
John: Second the accomplished secure operating system is driving results and remains core to how we scale execution and unlock efficiency.
John: Third we are building on our momentum with Oculus delivering a net positive contribution this quarter and gaining traction across model multiple verticals.
John: And finally, we remain committed to delivering accretive M&A as we evaluate opportunities that enhance our growth profile and create long term value.
John: With that I'd like to open up the call for Q&A.
John: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Our first question comes from Moshe Orenbuch with TD Cowen you May proceed.
Speaker Change: Great. Thanks.
Speaker Change: Congratulations on the progress in these results.
Speaker Change: John you talked about kind of that.
Speaker Change: Right.
Speaker Change: Momentum kind of accelerating through the quarter and obviously, we've seen strong results.
Speaker Change: The premium card issuers.
Speaker Change: Is the fact that you maintained the guidance kind of conservatism because of the macro environment or how many more months of that kind of strengthening do you need to see till you can kind of be more confidence.
Speaker Change: On a higher level or an ongoing level of revenues.
Moshe Orenbuch: Moshe Thanks for the question.
Moshe Orenbuch: So just tying back to our last call in when we described what we expected this year with a mid single digit growth.
Moshe Orenbuch: Q1 being in line with expectations, roughly flat to last year and that sales momentum building into Q2, Q3 and into Q4 and the message today is we are.
Moshe Orenbuch: Seeing the activity levels the orders the backlog to help support that full year forecast, we feel good about where we are.
Moshe Orenbuch: In that cycle and what we're delivering there. So the momentum is clearly building. It was building at the end of Q1 into Q2, and that's what we're feeling now.
Moshe Orenbuch: Gotcha maybe.
Moshe Orenbuch: Maybe as a follow up.
Speaker Change: Is there any way that you guys, either John or Dave can you can talk a little bit about the.
Speaker Change: The areas that are the biggest focus near term for acquisition are there any.
Speaker Change: That's kind of a standout in terms of things that are the most interesting and where there are actual kind of opportunities at this stage. Thanks.
Speaker Change: Thanks, Moshe I'll jump in here.
Speaker Change: Dave wants to follow the.
Speaker Change: Welcome to but.
Moshe that the answer I'd give you is the same as I would've given your prior which is.
Speaker Change: We will look at things in and around the space that combo plays in today, you will look at things up and down the value chain that combo plays in and we will look at things that align well to.
Speaker Change: Things that Dave has done exceptionally well and over time, we recognize that is a very broad revert.
Speaker Change: But it leads to I think a great portfolio of opportunities that the resolute team that we are currently evaluating at.
Speaker Change: At the same time, we will be incredibly disciplined.
Speaker Change: About what we do to ensure that we deliver accretive results for our customers long way of saying, we're not going to narrow that for you at this time, it's just not in our interest to do so.
Speaker Change: Okay, Alright, Thank you well said John.
Speaker Change: Okay Alright.
Speaker Change: Thank you. Our next question comes from Cathy Chan with Bank of America. You May proceed.
Cathy Chan: Hi, Thanks for taking my question I just wanted to ask.
Speaker Change: Just how you guys are thinking about the remainder of the year in terms of the cadence of revenue growth versus the adjusted EBITDA as well as what you're assuming for the macro environment in the back half of the year and talking on them onto that as well are you assuming any increased supply chain challenges or anything that we do.
Cathy Chan: Should we be thinking about.
Cathy Chan: From the macro volatility that we've seen thank you.
Cathy Chan: Thanks, Cassie so.
Cathy Chan: Just for us to deliver that kind of mid single digit growth rate, we need to see that growth certainly pick up into Q2.
Cathy Chan: And building through three and four for US that is what we expected coming in and it is what we expect today, we are seeing it play out I think exactly as we felt it would come.
Cathy Chan: Coming into the year and we feel that on both the revenue and the EBITDA side.
Regarding the macros right, yes, there is a lot of noise out there around tariffs and recession risks and other things.
Cathy Chan: That are out there.
Cathy Chan: We continue to be extremely proactive in how we think about or manage our supply chain. Our kashi, it's been that way for us since before Covid, we put routines in place around supply chain to ensure that we didn't have challenges and those kinds of environments those routines contingent.
Cathy Chan: To serve us well.
Cathy Chan: Well today so.
Cathy Chan: We issue.
Cathy Chan: Our.
Cathy Chan: Our guidance today understanding that the tariff environment and the uncertainty of how quickly that can move.
Cathy Chan: Up or down.
Cathy Chan: And on the broader sort of question of consumer behavior, what's happening there.
Cathy Chan: We're just not seeing signs of.
Cathy Chan: The Empire, where our activity level of client activity design sessions orders.
Cathy Chan: Arent, reflecting.
Cathy Chan: Concerns there at this point to watch item will continue to watch it closely.
Cathy Chan: I feel good about where we are and our ability to deliver what we've talked about today.
Speaker Change: Got it that's helpful and if I could just ask a follow up about argue list. Obviously it was nice to see some of the ones that you highlighted I guess, what specifically do you see is resonating are those lives now and when do those typically ramp into revenue and just a quick housekeeping question is just I think I missed how much revenue.
Speaker Change: And adjusted EBITDA did that build in one <unk> and that's about the increased every quarter for the remainder of the year. Thank you.
Speaker Change: So on the <unk> side KFC, we are seeing.
Speaker Change: Oculus authentication value proposition I think really start to.
Speaker Change: Resonate in the market.
Speaker Change: <unk> talked about this in the past but.
Speaker Change: We are trying to change behavior inside of financial institutions.
Speaker Change: But the move to past keys generally I think has been incredibly helpful.
Speaker Change: You've seen Microsoft Apple, Google and others talk about past keys, where essentially turning a credit or debit card into a past key applications.
Speaker Change: And so as the world moves that way I think we certainly benefit from that and we're seeing more and more customers.
Speaker Change: Understand that value proposition.
Speaker Change: To help them grow revenue and or reduce fraud costs.
Speaker Change: We also continue to see tick up on the <unk>.
Speaker Change: Our digital asset side of things.
Speaker Change: With what's happening in the market, so really pleased across multiple fronts there.
Speaker Change: We did not break out specific numbers for <unk>.
Speaker Change: <unk> in terms of revenue contribution as we have made the accounting shift to the equity method.
Absolute new requirements for.
Speaker Change: And what we must reported breakout we are.
Speaker Change: Meeting those requirements.
Speaker Change: Haven't broken out into additional detail.
Cathy Chan: Tried to add the color Kathy till now it was.
Speaker Change: Our best quarter.
Cathy Chan: Strong net positive contribution there.
Cathy Chan: Understood. Thank you.
Cathy Chan: Thank you.
Cathy Chan: Our next.
Speaker Change: And it goes from how it goes with B Riley Securities You May proceed.
Cathy Chan: Yes.
Speaker Change: Hey, guys. Thanks for the question.
Cathy Chan: No.
Speaker Change: John You mentioned the combination of market education payment innocuous could you can you can you give it to him.
Cathy Chan: Okay.
Cathy Chan: And that value proposition.
Cathy Chan: Thanks.
Cathy Chan: Okay.
Cathy Chan: Yes.
Cathy Chan: And sorry.
Cathy Chan: Thank you.
Cathy Chan: Yes.
Cathy Chan: How if you could repeat that.
Cathy Chan: One more time I'm getting some background noise I couldnt hear.
Cathy Chan: Yes.
Cathy Chan: You mentioned a combination of arc.
Cathy Chan: And payment.
Cathy Chan: Go ahead Mike.
Cathy Chan: Hey, good economics and.
Cathy Chan: Charlie any thoughts you could share on how.
Cathy Chan: Now, that's driving adoption and maybe pricing.
Cathy Chan: Sure so.
Yes.
Cathy Chan: How when we think about that.
Cathy Chan: There's sort of two things.
Cathy Chan: The hardware.
Cathy Chan: Higher asps.
Cathy Chan: Sure.
Cathy Chan: Adding additional value of service.
Cathy Chan: Two.
Cathy Chan: The product that we're delivering.
Cathy Chan: For <unk>.
Cathy Chan: Small to medium sized clients.
Cathy Chan: Some bigger we would look to earn software revenue from providing authentication.
Cathy Chan: Service as well over time that will.
Cathy Chan: Hear me over time.
Cathy Chan: We would like to see that build so improved economics that our contribution margin.
Cathy Chan: And over time software revenue that would go along with that.
Speaker Change: If I could ask one follow up on rental cars just can.
Speaker Change: Can you give us some thoughts I know you had some some new program wins.
Speaker Change: How is the market in your opinion.
Speaker Change: High level kind of broadening out from elite.
Speaker Change: For the format definitely from your perspective today, we know what has been happening but wanted to get your.
Speaker Change: Thoughts on.
Speaker Change: The current status of it thank you.
Speaker Change: Thank you for the question I'd say, we continue to see the market brought in right. So while it started with private bank high net worth it expanded too.
Speaker Change: The mass affluent space it expanded in my view.
Speaker Change: The upper end of the mass market space as.
Speaker Change: As well and has continued to do so and.
Speaker Change: I think one of the interesting things that we see how in the research is that it is.
Speaker Change: Some of those up and coming.
Speaker Change: Customers the younger demographic that 25 to 35.
Speaker Change: That love metal cards, almost more than anyone.
Speaker Change: They want to show it as a status symbol I'm going somewhere.
Speaker Change: And it's really important to them and that's counter to.
Speaker Change: What I get told all the time.
Speaker Change: People all they're interested in us are falling it's just not true.
Speaker Change: So we do see it continuing to broaden out.
Speaker Change: Domestically and internationally, so very pleased in that regard.
Speaker Change: That's terrific. Thanks, a lot John Good luck alright talk to you soon thanks.
al: Thanks Al.
Speaker Change: Thank you. Our next question comes from John <unk> with Needham You May proceed.
Speaker Change: Hey, guys congrats on.
Speaker Change: Some of those logo wins for <unk>.
Speaker Change: First question pertains to this.
Speaker Change: Very much got the sense that stable coins, we're gonna be kind of a big part of its Pete.
Speaker Change: We've certainly seen a lot of interesting things recently around traditional payment rails with those.
Speaker Change: Love to get your view on that is that where you ultimately see oculus going is kind of almost a tool for stable point payments.
Speaker Change: Or do you envision it still kind of more as like a multi asset crypto cold storage solution.
John: John Thanks for the question.
John: It clearly has the capability right of the sort of multi asset wallet.
John: And we think that capability is literally the best in the world.
John: Ease of use and security standpoint.
John: We just think it's extremely strong.
John: That said I carry a card in my wallet today, John where I am I can tap anywhere visa or Mastercard is accepted and I'm spending stable claim from cold storage and so yes, we absolutely believe.
John: That that is an important component of the payment landscape in the ecosystem for how digital assets and traditional payment rails come together and out of LOE and the <unk> team have built exceptional capabilities to do it down traditional rails.
John: And or to do sort of wallet to wallet.
John: So we are very excited about that opportunity.
John: We will continue to push on that quite hard.
Speaker Change: Great. Thank you for that and then just one more if I could.
Speaker Change: It kind of it's similar to I think the first question was at almost around conservatism to the guide but.
Speaker Change: When we look at it like a company like Robinhood for instance, we keep hearing very positive things about that card offering I think it's only around 200000 customers, but it could grow quite substantially.
Speaker Change: When you guys put together guidance is a lot of that growth factored in or could we almost expect that would be upside if that product in some of the other a lot of growth here.
Speaker Change: Look we.
Speaker Change: Okay.
I'm not going to comment program by program for you.
Speaker Change: But on Robin Hood. They have commented publicly that they are taking a measured approach to kind of how they go after that market, making sure they learn their way into it.
Speaker Change: And manage that business well.
Speaker Change: We are excited about the partnership.
Speaker Change: And then what's the potential.
Speaker Change: What we think it can bring.
Speaker Change: Into the future. So yes generally we are.
Speaker Change: Conservative in how we think about things that is our DNA, it's aligns well to Dave's.
Speaker Change: DNA as well.
Speaker Change: And.
Speaker Change: We're going to execute on exactly what we said and we're going to deliver.
Speaker Change: The things that we've talked about today. So we are also excited about those logo wins. We are also excited about it.
Speaker Change: Sure that some of those programs could be quite big and meaningful.
Speaker Change: Great that's terrific. Thanks, John I appreciate it.
John: Thank you.
John: Thank you.
Speaker Change: Our next question comes from Jacobs definitely at Lake Street Capital Markets. You May proceed.
Jacobs: Hey, guys I appreciate you taking my questions.
Jacobs: So nice wins with Oculus and the legacy issuers as well, but I wanted to ask on Oculus, maybe could you help us understand.
Jacobs: What kind of traction are you seeing with legacy issuers.
Speaker Change: From a private company standpoint or.
Just broader kind of tech.
Speaker Change: Tech companies with regards to <unk>.
Speaker Change: Yes so.
Speaker Change: Look as we think about the authentication technology.
Speaker Change: I would say, we're seeing the impact of three places one.
Speaker Change: Traditional banks too.
Speaker Change: Fin tax and three.
Speaker Change: Trying to see.
Speaker Change: Opportunities in spaces like gaming.
Speaker Change: That we are quite excited about as well so Jacob is a b.
Speaker Change: Three areas, where I think we.
Speaker Change: Are seeing impact today for that product.
Speaker Change:
Speaker Change: Beyond that.
Speaker Change: I would need to give some thought to.
Speaker Change: My comments are broader Tac is.
Speaker Change: <unk> idea that.
Speaker Change: We want the world to move away from things like SMS authentication to pass key technology to Fido technology.
Speaker Change: Underlying that and we continue to see that happening.
Speaker Change: Yes, I do think it opens up avenues.
Speaker Change: Broader opportunities that could include corporate government and in other verticals.
Speaker Change: Got it thanks.
Speaker Change: Maybe just touching on the M&A pipeline, a little bit more.
Speaker Change: With all.
Speaker Change: While the recent tariffs and all the noise surrounding them.
Speaker Change: Has your M&A call opened up a little bit or what are you seeing from kind of a deal flow perspective.
Speaker Change: I'd say.
Speaker Change: The pipeline remains very.
Speaker Change: Very healthy.
Speaker Change: And one of the reasons it remains healthy I think is.
Speaker Change: And I'll speak for him on this point, but.
Speaker Change: Yes.
Speaker Change: Dave Coty factor take up that we think about.
Speaker Change: If you look at what he was able to accomplish at Honeywell if you've looked at what he was able to accomplish it forgive if you look at what we.
Speaker Change: We've been able to do with comparable with the stock. So far are recognizing we've got to deliver what's in front of us here.
Speaker Change: We think we're an attractive acquirer out there in the market and that's one of the reasons, we will show the patience and discipline to ensure that we get a great deal for our investors.
Speaker Change: And yes, I'd say people are knocking on the door recognizing some of those key facts.
Speaker Change: Got it very helpful. I appreciate it guys.
Speaker Change: Thank you.
Joe Flynn: Our next question comes from Joe Flynn with Compass point Research and trading you May proceed.
Joe Flynn: Most of my questions were asked on the Arcos front, but I guess.
Joe Flynn: I was just wondering if there was any.
Joe Flynn: Those are design wins in particular that you think.
Joe Flynn: Helps get you over the edge to positive contribution or would you say, it's more of a broad base and continued execution on pads.
Joe Flynn: Yeah.
Joe Flynn: Past success and.
Joe Flynn: And then one on just capital allocation as well.
Joe Flynn: Given the uncertain macro environment.
Joe Flynn: Maybe just unpredictable markets here.
Joe Flynn: <unk> maintained.
Joe Flynn: Optionality.
Flexibility in regard to.
Joe Flynn: Potential buybacks or.
Joe Flynn: Petrol dividends as we've seen in <unk>.
Joe Flynn: Prior years, how do you how should we think about that relative to.
Joe Flynn: Dave.
Joe Flynn: M&A pipeline and other growth avenues, you've talked about thanks.
Joe Flynn: Thanks, So on the first Joe.
Joe Flynn: It really is kind of the three things I talked about and I'll try and just restate it is.
Joe Flynn: <unk> authenticate and its ability to penetrate traditional banks syntax additional sectors like gaming government other.
Joe Flynn: Other corporate.
Joe Flynn: To the hardware wallet itself, which we think is an exceptional competitor out there in that space and third the intersection of digital assets and payments.
Jon: So the question Jon had asked about.
Joe Flynn: Table coins.
Jon: And that impacted so.
Jon: The first two are where we have been focused and help lead us to the positive contribution we are seeing.
Jon: We think those to continue and we begin to see some of the upside from.
Jon: The additional capabilities that we've built out.
Jon: Around that third leg of the stool.
Jon: With respect to capital allocation.
Jon: I think we announced I think it was last quarter the increase in.
Jon: The buyback.
Jon: Yeah.
Jon: Relative to the market cap of where our original buyback was it was $40 million at a time when.
Jon: Our market cap was six or $700 million and we increased that to $100 million our market cap today is roughly $1 2 billion. So keep that in line.
Jon: But at the end of the day.
Jon: It is one tool.
One arrow in the quiver of things that we can use depending on how the macro.
Jon: Environments play.
Jon: Play out but.
Jon: So all of those things remain on the table in terms of.
Jon: Organic growth accretive M&A paying down debt looking at other uses.
Jon: What the board.
Jon: And we will decide.
Jon: And we will update the market as our priorities change there.
Jon: Then maybe just one more since it was already asked about in regard to that.
Jon: Yeah.
Jon: Program and then also.
Jon: But at that stage.
Jon: I mean, just given the maybe increased regulatory clarity within digital assets, you see continued opportunities to for.
Jon: For design wins of hot wallets or.
Jon: Naval programs.
Jon: Crypto exchanges.
Anything along those lines.
Jon: Two.
Jon: Yeah.
Jon: The answer is yes, we do see increased opportunity with our medicine.
Jon: Back in that sector.
Jon: And thats been.
Jon: Some of the.
Jon: <unk>.
Jon: Important things that have gotten us to the performance from last quarter and our performance this quarter as well so yes, we are.
Jon: Excited and very pleased with that.
Jon: Great. Thanks.
Jon: Yep.
Thank you.
Speaker Change: Our next question comes from Reggie Smith with Jpmorgan you May proceed.
Reggie Smith: Hey, good evening, Thanks, David a question.
Reggie Smith: I think you alluded to maybe some early gains some early insights and improvement.
Reggie Smith: Related to manufacturing I was hoping maybe you could talk a little bit about that and taking that you could maybe quantify or just explain kind of what what improvements enhancements were made and I have one follow up thanks.
Speaker Change: Thanks, Rajiv so.
Speaker Change: As I've talked about the operating system on this call before.
Speaker Change: I've talked about the fact that it literally ranges from.
Speaker Change: The time, an order comes in the door until the time cash flows in at the end.
Speaker Change: Every step in between.
Speaker Change: And so we are going after all of the steps in that process.
Speaker Change: As part of the Pos work.
Speaker Change: My comments on the call is.
Speaker Change: We got out of the gates.
Speaker Change: With.
Speaker Change: More of the production and manufacturing.
Speaker Change: Some of the first things, which we tackle.
Speaker Change: And.
Speaker Change: If you think about.
Honeywell right, where we're operating two factories.
Speaker Change: Dave operated in an environment with more than 100 factories as.
Speaker Change: He was trying to roll this worked out.
The intensity and focus that we have brought to our manufacturing operations to deliver improvements in.
Speaker Change: Our output our yield and things like that.
Speaker Change: We've seen just tremendous work by the team that is starting to bear fruit Reggie.
Speaker Change: My comments were we believe that it will deliver.
Speaker Change: Positive net impact.
Speaker Change: That youll start to see that in our results in 'twenty five as opposed to necessarily having to wait for example until 2026 so.
Speaker Change: I think.
Speaker Change: I will speak for myself I'm very pleased with how the team has responded.
Speaker Change: To this work has jumped on it how we've gone after it.
Dave: And you heard that as Dave's comments as well.
Speaker Change: In my view don't take those comments lightly.
Dave: He doesn't give complement slightly.
Dave: Okay.
Dave: That makes sense that's helpful.
Dave: Last question I guess for David to the extent that you can would love to hear I guess, how you think about <unk>.
Dave: <unk> and <unk>.
Dave: There's something I imagine that the.
Dave: These are long range type projects, but like how do you evaluate or think about and measured progress.
Dave: There.
Thank you.
Dave: Yes.
Dave: Hello.
Dave: Dave I'm not sure. If you were able to hear register question I am sorry, John with that.
Dave: Roger do you want to try and repeat a repeat yeah. Yeah, Yeah, Dave I was I was really curious like how you like your approach to resolute. So I don't know if its.
Speaker Change: You guys look at the number of deals you evaluate but like how do you how do you think about and measure.
Dave: Progress there, but the team there.
Speaker Change: What are the Kpis are like.
Dave: Yes, it would be very <unk>.
Dave: Typical to what we did it.
Dave: Honeywell It just starts with.
Dave: Do you have a big enough pipeline.
Dave: Of <unk>.
Dave: Deal with that have a great position in a good industry.
And differentiate with technology inorganic organic growth margin expansion.
Dave: And the best thing to do is have a lot of things in the pipeline because for every hundred you look at there's probably three that are going to make a make a difference.
Dave: So Tom and his team are.
Speaker Change: Have a very let's say full as John said and robust pipeline.
Dave: And we're looking at all of this.
Dave: Not looking at it in terms of the number of deals done or anything like that for Kpis. It's more a case of how good is the pipeline.
Dave: And.
Dave: Both the number and quality.
Dave: Okay.
Dave: Yeah, Okay cool thank you.
Dave: Yes.
Dave: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
Dave: Okay.
Dave: [music].
Dave: Okay.
Dave: [music].
Dave: Yes.
Dave: [music].