8-K
GPGI, Inc. (GPGI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities ExchangeAct of 1934
Date of Report (Date of earliest event reported):March 10, 2022
CompoSecure, Inc.
(Exact Name of Registrant as Specified in itsCharter)
| Delaware | 001-39687 | 85-2749902 |
|---|---|---|
| (State or Other Juris- diction of Incorporation) | (Commission<br> File Number) | (IRS Employer Identification No.) |
| 309 Pierce Street | ||
| --- | --- | |
| Somerset**, NewJersey** **** | 08873 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including
area code: (908) 518-0500
Not Applicable
(Former Name or Former Address, if ChangedSince Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on whichregistered |
|---|---|---|
| Class A Common Stock, $0.0001 par value | CMPO | Nasdaq Global Market |
| Redeemable warrants, each whole warrant exercisable for one share of Class A Common Stock | CMPOW | Nasdaq Global Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
| Item 2.02 | Results of Operation and FinancialCondition |
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On March 10, 2022, CompoSecure, Inc. (the “Company”) issued a press release announcing its financial results for the quarter and twelve-months ended December 31, 2021 and provided an investor presentation to accompany the press release. Copies of the press release and the investor presentation are furnished herewith as Exhibits 99.1 and 99.2, respectively.*
| Item 7.01 | Regulation FD Disclosure |
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The information included under Item 2.02 of this Current Report on Form 8-K is incorporated into this Item 7.01 by reference.*
| Item 9.01 | Exhibits |
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(d) Exhibits
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release of the Company, dated March 10, 2022 |
| 99.2 | Investor Presentation, dated March 2022 |
| 104 | Cover Page Interactive Data File (embedded with the Inline XBRL<br>document) |
* The information in Item 2.02 and Item 7.01 of this Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| COMPOSECURE, INC. | ||
|---|---|---|
| Date: March 10, 2022 | By: | /s/ Timothy Fitzsimmons |
| Timothy Fitzsimmons | ||
| Chief Financial Officer |
Exhibit 99.1
FINAL – For Release March 10, 4:05 PM EST.
CompoSecure, Inc. Announces Fourth Quarter andFull Year 2021 Financial Results
| · | Fourth quarter net sales of $75.3 million, up 40.2% year-over-year |
|---|---|
| · | Full year net sales of $267.9 million, in line with guidance |
| --- | --- |
| · | Full year Adjusted EBITDA of $102.4 million, at high end of guidance range |
| --- | --- |
| · | Launched Arculus—The next generation cold storage wallet for digital<br>assets |
| --- | --- |
Somerset, NJ – March 10, 2022 – CompoSecure, Inc. (NASDAQ:CMPO), a leading provider of premium financial payment cards and cryptocurrency storage and security solutions, today announced financial results for the fourth quarter and full year ended December 31, 2021.
“2021 was an exciting year for CompoSecure in which we became a newly listed public company, achieved record net sales, and launched a best-in-class three-factor authentication cold storage product for securing digital assets called Arculus,” said Jon Wilk, CEO of CompoSecure.
“The Company’s fourth-quarter performance was highlighted by net sales growth of 40.2% versus the prior year, providing substantial momentum for the business as we enter 2022. Our premium card business is being driven by strong sales execution as well as our deep customer relationships. As we move forward, we expect to benefit from the trends of increased solicitation by card issuers and growing consumer demand for premium cards as the economy emerges from the challenges of the pandemic. And with the launch of Arculus, we are in position to support a large and growing need for security and authentication solutions in the digital asset marketplace including Crypto, NFTs, and step-up authentication for log in for critical accounts.”
Fourth Quarter 2021 Financial Highlights
| • | Net sales: Net sales for the fourth quarter of 2021 were $75.3 million, up 40.2% compared to $53.7 million in the fourth quarter<br>of 2020, and grew 13.8% sequentially from the third quarter in 2021. |
|---|---|
| • | Gross Profit/Margin: Gross profit for the fourth quarter of 2021 was $39.3 compared to $25.8 million for the fourth quarter<br>of 2020. Gross margin for the fourth quarter of 2021 was 52.2%, compared to 48.0% for the fourth quarter of 2020. |
| --- | --- |
| • | Adjusted EBITDA: Adjusted EBITDA for the quarter was $21.2 million, compared to $20.1 million for the fourth quarter of 2020<br>and reflects significant investment in Arculus marketing, product development, and sales. |
| --- | --- |
| • | Net Income: Net Income for the fourth quarter of 2021<br>was $20.0 million compared to a net income of $2.9 million in the fourth quarter of 2020. |
| --- | --- |
Full Year 2021 Financial Highlights
| • | Net Sales: Net sales for the full year 2021 were $267.9 million, compared to the full year 2020 at $260.6 million. |
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| • | Gross Profit/Margin: Gross profit for the full year 2021 was $144.8 million, compared to $132.6 million from 2020. Gross margin<br>for the year was 54.1%, compared to 50.9% for 2020. |
| --- | --- |
| • | Adjusted EBITDA: Adjusted EBITDA for 2021 was $102.3 million, compared to $115.4 million for 2020 and reflects significant<br>investment in Arculus marketing, product development, and sales. |
| --- | --- |
| • | Net Income: Net Income for the full year 2021 was $83.4 million, compared to a net income of $77.8 million in 2020. |
| --- | --- |
Fourth Quarter 2021 Highlights
| • | Officially announced the launch of Arculus, the first three-factor authentication cold storage product for securing digital assets. |
|---|---|
| • | Established a business partnership to provide a co-branded Arculus Key^TM^ Card crypto security solution to the first 25,000<br>registered attendees at Bitcoin 2022, one of the largest Bitcoin conferences in the world. |
| --- | --- |
| • | Enhanced organizational strength with key leadership appointments: Amanda Gourbault, Chief Revenue Officer; Esra Alev, Global Head<br>of Marketing; Thomas D’Eletto, Head of Product for Arculus; and Joe Fahy, Head of Development for Arculus. |
| --- | --- |
Financial Outlook
| • | Full Year 2022 Guidance: The Company reaffirmed its guidance for expected full year 2022 operating<br>results with net sales expected to be in the range of $336 million to $376 million. Adjusted EBITDA is expected to be in the range of<br>$100 million to $110 million. |
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Conference Call and Webcast
CompoSecure will hold its quarterly earnings call on March 10, 2022 at 5:00 p.m. ET. Conference call details for participation on the call are listed below. Promptly following the call, a transcript will be posted to the Investor Relations section of our website at https://ir.composecure.com/.
Investors and participants can register for the call via live webcast here. The archived webcast will be available shortly after the call on the company website, https://ir.composecure.com/.
About CompoSecure
Founded in 2000, CompoSecure is a pioneer and category leader in premium payment cards and a provider of cryptocurrency and digital asset storage and security solutions. The company focuses on serving the affluent customers of payment card issuers worldwide using proprietary production methods that meet the highest standards of quality and security. The company offers secure, innovative, and durable proprietary products that implement leading-edge engineering capabilities and security. CompoSecure’s mission is to increase clients’ brand equity in the marketplace by offering products and solutions which differentiate the brands they represent, thus elevating cardholder experience. For more information, please visit www.composecure.com.
CompoSecure created Arculus^TM^ with the mission to promote cryptocurrency adoption by making it safe, simple and secure for the average person to buy, swap and store cryptocurrency. With a strong background in security hardware and financial payments, the Arculus^TM^ solution was developed to allow people to use a familiar payment card form factor to manage their cryptocurrency. For more information, please visit www.getarculus.com.
Forward-Looking Statements
This press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management. Although the Company believes that its plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions, or expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Generally, statements that are not historical facts, including statements concerning the Company’s possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. In some instances, these statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negatives of these terms or variations of them or similar terminology. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors, among others, could affect the Company’s future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company’s forward-looking statements: the outcome of any legal proceedings that may be instituted against the Company or others; the impacts of the ongoing COVID-19 pandemic; the ability of the Company to grow and manage growth profitably, maintain relationships with customers, compete within its industry and retain its key employees; the possibility that the Company may be adversely impacted by other economic conditions (including the rapidly evolving conflict between Russian and the Ukraine), business, and/or competitive factors; future exchange and interest rates; and other risks and uncertainties included under “Risk Factors” in other Company filings that have been made or will be made with the Securities and Exchange Commission. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Use of Non-GAAP Financial Measures
This press release includes certain non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and that may be different from non-GAAP financial measures used by other companies. The Company believes EBITDA and Adjusted EBITDA are useful to investors in evaluating the Company’s financial performance. The Company uses these measures internally to establish forecasts, budgets and operational goals to manage and monitor its business, as well as evaluate its underlying historical performance and to measure incentive compensation, as we believe that these non-GAAP financial measures depict the true performance of the business by encompassing only relevant and controllable events, enabling the Company to evaluate and plan more effectively for the future. In addition, the Company’s debt agreements contain covenants that use a variation of these measures for purposes of determining debt covenant compliance. The Company believes that investors should have access to the same set of tools that its management uses in analyzing operating results. EBITDA and Adjusted EBITDA should not be considered as measures of financial performance under U.S. GAAP, and the items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing the Company’s financial performance. Accordingly, these key business metrics have limitations as an analytical tool. They should not be considered as an alternative to net income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash flows from operating activities as a measure of the Company’s liquidity, and may be different from similarly titled non-GAAP measures used by other companies. Please refer to the tables below for the reconciliation of net income to EBITDA and Adjusted EBITDA for the quarters and years ended December 31, 2021 and December 31, 2020.
Contacts:
CompoSecure Investor:
Marc Griffin
ICR for CompoSecure
646-277-1290
CompoSecure-IR@icrinc.com
CompoSecure Media:
Wes Robinson
626-201-2928
wrobinson@olmsteadwilliams.com
Statement of Operations
Three Months Ended Dec 31,
(unaudited)
| ($mm) | Q4 2020 | Q4 2021 | ||||
|---|---|---|---|---|---|---|
| Revenue | ||||||
| Net Sales | $ | 53.7 | $ | 75.3 | ||
| Cost of Sales | 27.9 | 36.0 | ||||
| Gross Profit | $ | 25.8 | $ | 39.3 | ||
| Operating Expenses | ||||||
| Selling, general and administrative | 20.4 | 30.2 | ||||
| Income from operations | $ | 5.4 | $ | 9.1 | ||
| Other expense | ||||||
| Mark to market adjustments | 0.0 | 13.1 | ||||
| Interest expense | (2.0 | ) | (2.6 | ) | ||
| Amortization of deferred financing costs | (0.5 | ) | (0.5 | ) | ||
| Income taxes | 0.0 | 0.9 | ||||
| Net Income | $ | 2.9 | $ | 20.0 |
Source: Company financials
Note: Audits performed to PCAOB standards. Financial position has been derived from CompoSecure’s consolidated financial statements for the years ended December 31, 2020 and 2021 respectively.
Statement of Operations
Years Ended Dec 31,
(unaudited)
| ($mm) | 2020A | 2021A | ||||
|---|---|---|---|---|---|---|
| Revenue | ||||||
| Net Sales | $ | 260.6 | $ | 267.9 | ||
| Cost of Sales | 127.9 | $ | 123.1 | |||
| Gross Profit | $ | 132.7 | $ | 144.8 | ||
| Operating Expenses | ||||||
| Selling, general and administrative | 48.7 | $ | 63.4 | |||
| Income from operations | $ | 84.0 | $ | 81.4 | ||
| Other expense | ||||||
| Mark to market adjustments | 0.0 | $ | 13.0 | |||
| Interest expense net of interest income | (5.3 | ) | (10.2 | ) | ||
| Amortization of deferred financing costs | (0.9 | ) | (1.7 | ) | ||
| Income taxes | 0.0 | $ | 0.9 | |||
| Net Income | $ | 77.8 | $ | 83.4 |
Source: Company financials
Note: Audits performed to PCAOB standards. Financial position has been derived from CompoSecure’s consolidated financial statements for the years ended December 31, 2020 and 2021 respectively.
Balance Sheets
Years Ended Dec 31,
(unaudited)
| ($mm) | 2020A | 2021A | ||||
|---|---|---|---|---|---|---|
| Assets | ||||||
| Current Assets | ||||||
| Cash & cash equivalents | $ | 13.4 | $ | 21.9 | ||
| Accounts receivable, net | 8.8 | 28.0 | ||||
| Inventories | 30.2 | 25.8 | ||||
| Prepaid expenses and other Current assets | 1.0 | 2.6 | ||||
| Total Current Assets | 53.4 | 78.3 | ||||
| Property and equipment, net | 27.9 | 22.2 | ||||
| Deferred tax assets | 0.0 | 25.6 | ||||
| Other assets | 0.1 | 5.3 | ||||
| Total assets | $ | 81.4 | $ | 131.4 | ||
| Liabilities and Members' Equity | ||||||
| Current Liabilities | ||||||
| Accounts payable | 2.4 | 7.1 | ||||
| Accrued expenses | 15.2 | 39.9 | ||||
| Other current liabilities | 0.00 | 1.0 | ||||
| Current portion of long-term debt | 24.0 | 12.5 | ||||
| Total current liabilities | 41.6 | 60.5 | ||||
| Long-term debt, net of deferred finance costs | 211.9 | 233.1 | ||||
| Line of credit | 20.0 | 15.0 | ||||
| Convertible Debt, net of debt discount | 0.0 | 127.0 | ||||
| Other liabilities | 0.4 | 103.5 | ||||
| Total liabilities | $ | 273.9 | $ | 539.1 | ||
| Members' Equity | (192.5 | ) | (407.7 | ) | ||
| Total liabilities and members' equity | $ | 81.4 | $ | 131.4 |
Source: Company financials
Note: Audits performed to PCAOB standards. Financial position has been derived from CompoSecure’s consolidated financial statements for the years ended December 31, 2020 and 2021 respectively.
Statement of Cash Flows
Years Ended Dec 31,
(unaudited)
| ($mm) | 2020A | 2021A | ||||
|---|---|---|---|---|---|---|
| Cash flows from operating activities | ||||||
| Net income | $ | 77.8 | $ | 83.4 | ||
| Depreciation | 9.9 | 10.4 | ||||
| Equity compensation expense | 1.8 | 6.1 | ||||
| Inventory reserve | 1.0 | 0.0 | ||||
| Amortization of deferred finance costs | 1.0 | 1.7 | ||||
| Mark to market adjustments | 0.0 | (13.1 | ) | |||
| Change in assets and liabilities | ||||||
| Accounts receivable | 10.2 | (19.1 | ) | |||
| Inventories | (12.9 | ) | 3.7 | |||
| Prepaid expenses and other assets | (0.0 | ) | (1.5 | ) | ||
| Other liabilities | (1.7 | ) | 4.2 | |||
| Accrued expenses | 0.0 | 2.0 | ||||
| Net cash provided by operating activities | $ | 87.1 | $ | 77.8 | ||
| Cash flows rom investing activities | ||||||
| Acquisition of property and equipment | (7.5 | ) | (4.8 | ) | ||
| Net cash used in investing activities | $ | (7.5 | ) | $ | (4.8 | ) |
| Cash flows from financing activities | ||||||
| Business combination and PIPE financing | 0.0 | 188.0 | ||||
| Proceeds from line of credit | 20.0 | 0.0 | ||||
| Payment of line of credit | 0.0 | (5.0 | ) | |||
| Proceeds from term loan and line of credit | 117.5 | 265.0 | ||||
| Payment of term loan and line of credit | (10.5 | ) | (255.0 | ) | ||
| Distributions | 0.0 | (218.0 | ) | |||
| Deferred finance costs related to debt origination | (3.2 | ) | (1.9 | ) | ||
| Issuance cost related to business combination | 0.0 | (15.3 | ) | |||
| Tax Distribution to members | (216.7 | ) | (22.3 | ) | ||
| Net cash used in financing activities | $ | (92.9 | ) | $ | (64.5 | ) |
| Net increase (decrease) cash, cash equivalents and restricted cash | (13.3 | ) | 8.5 | |||
| Cash, cash equivalents and restricted cash, beginning of year | $ | 26.7 | $ | 13.4 | ||
| Cash, cash equivalents and restricted cash, end of year | $ | 13.4 | $ | 21.9 | ||
| Supplementary disclosure of cash flow information | ||||||
| Cash paid during the year for interest | 5.0 | 10.0 |
Source: Company financials
Note: Audits performed to PCAOB standards. Financial position has been derived from CompoSecure’s consolidated financial statements for the years ended December 31, 2020 and 2021 respectively.
Non-GAAP Adjusted EBITDA Reconciliation
Three Months Ended Dec 31,
(unaudited)
| $mm | Q4 2020 | Q4 2021 | |||
|---|---|---|---|---|---|
| Net Income | $ | 2.9 | $ | 20.0 | |
| Interest Expense | 2.4 | 3.1 | |||
| Depreciation and Amortization | 2.6 | 2.6 | |||
| Taxes | 0.0 | (0.9 | ) | ||
| Unadjusted EBITDA | 7.9 | 24.8 | |||
| Non-Cash Stock Option Expense | 1.0 | 5.1 | |||
| Special Distribution | 11.1 | 4.4 | |||
| Non-Cash Warrant and Earnouts Adjustments | 0.0 | (13.1 | ) | ||
| Total EBITDA Adjustments | $ | 12.1 | $ | (3.6 | ) |
| Adjusted EBITDA | $ | 20.0 | $ | 21.2 |
Non-Cash Stock Option Expense: Non-cash stock option expenses related to the executive incentive plan
Special Distribution: Adjustment to add back special distributions to Class C unit holders that was expensed. The distributions are akin to equity distributions
**Non-Cash Warrants and Earnouts Adjustments:**Related to changes in fair value of liabilities at December 31, 2021 for warrants and earnouts.
Source: Company financials
Non-GAAP Adjusted EBITDA Reconciliation
Years Ended Dec 31,
(unaudited)
| $mm | 2020A | 2021A | |||
|---|---|---|---|---|---|
| Net Income | $ | 77.8 | $ | 83.4 | |
| Interest Expense | 6.1 | 11.9 | |||
| Depreciation and Amortization | 10.0 | 10.4 | |||
| Taxes | 0.0 | (0.9 | ) | ||
| Unadjusted EBITDA | $ | 93.9 | $ | 104.8 | |
| Non-Cash Stock Option Expense | 1.9 | 6.1 | |||
| Non-Recurring Transaction Costs | 4.0 | 0.0 | |||
| Special Distribution | 15.7 | 4.4 | |||
| Non-Cash Warrant and Earnouts Adjustments | 0.0 | (13.1 | ) | ||
| Miscellaneous Adjustments | 0.0 | 0.2 | |||
| Total EBITDA Adjustments | $ | 21.6 | $ | (2.4 | ) |
| Adjusted EBITDA | $ | 115.5 | $ | 102.4 |
Non-Cash Stock Option Expense: Non-cash stock option expenses related to the executive incentive plan
Nonrecurring Transaction Costs: Transaction related costs associated with prior transaction processes and paid to Merrill Communications, BDO USA, Edgar Dunn and Battelle
Special Distribution: Adjustment to add back special distributions to Class C unit holders that was expensed. The distributions are akin to equity distributions
**Non-Cash Warrants and Earnouts Adjustments:**Related to changes in fair value of liabilities at December 31, 2021 for warrants and earnouts.
Miscellaneous Adjustments: Related to Board of Directors fees and related expenses, exclusion of deferred compensation expense as Management does not expect the plan to continue in its current form and miscellaneous other expense accrual adjustments.
Source: Company financials
| Exhibit 99.2 | 0 0<br>Q4 2021 and Year-End<br>EARNINGS PRESENTATION<br>March 10, 2022 |
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| 1 1<br>Disclaimers<br>Forward Looking Statements: This presentation contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions<br>of management. Although the Company believes that its plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it<br>will achieve or realize these plans, intentions, or expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Generally, statements that are not historical facts,<br>including statements concerning the Company’s possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. In some instances, these statements may<br>be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negatives of<br>these terms or variations of them or similar terminology. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date<br>hereof. You should understand that the following important factors, among others, could affect the Company’s future results and could cause those results or other outcomes to differ materially from those<br>expressed or implied in the Company’s forward-looking statements: the outcome of any legal proceedings that may be instituted against the Company or others; the impacts of the ongoing COVID-19 pandemic;<br>the ability of the Company to grow and manage growth profitably, maintain relationships with customers, compete within its industry and retain its key employees; the possibility that the Company may be<br>adversely impacted by other economic conditions \(including the rapidly evolving conflict between Russian and the Ukraine\), business, and/or competitive factors; future exchange and interest rates; and other<br>risks and uncertainties included under “Risk Factors” in other Company filings that have been made or will be made with the Securities and Exchange Commission. The Company undertakes no obligations to<br>update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.<br>Non-GAAP Financial Measures<br>This presentation includes certain non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States \(“GAAP”\) and that may be different from<br>non-GAAP financial measures used by other companies. The Company believes EBITDA and Adjusted EBITDA are useful to investors in evaluating the Company’s financial performance. The Company uses these<br>measures internally to establish forecasts, budgets and operational goals to manage and monitor its business, as well as evaluate its underlying historical performance and to measure incentive compensation, as<br>we believe that these non-GAAP financial measures depict the true performance of the business by encompassing only relevant and controllable events, enabling the Company to evaluate and plan more<br>effectively for the future. In addition, the Company’s debt agreements contain covenants that use a variation of these measures for purposes of determining debt covenant compliance. The Company believes<br>that investors should have access to the same set of tools that its management uses in analyzing operating results. EBITDA and Adjusted EBITDA should not be considered as measures of financial performance<br>under U.S. GAAP, and the items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing the Company’s financial performance. Accordingly, these key business<br>metrics have limitations as an analytical tool. They should not be considered as an alternative to net income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to cash<br>flows from operating activities as a measure of the Company’s liquidity, and may be different from similarly titled non-GAAP measures used by other companies. Please refer to the Appendix of this presentation<br>for reconciliation of net income to EBITDA and Adjusted EBITDA for the quarters and years ended December 31, 2021 and December 31, 2020.<br>Industry and Market Information<br>Statements in this presentation concerning our industry and the markets in which we operate, including our general expectations and competitive position, business opportunity and market size, growth and<br>share, are based on information from independent industry organizations and other third-party sources, data from our internal research and management estimates. Management estimates are derived from<br>publicly available information and the information and data referred to above and are based on assumptions and calculations made by us based upon our interpretation of such information and data. The<br>information and data referred to above are imprecise and may prove to be inaccurate because the information cannot always be verified with complete certainty due to the limitations on the availability and<br>reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. As a result, please be aware that the data and statistical information in this presentation may<br>differ from information provided by our competitors or from information found in current or future studies conducted by market research institutes, consultancy firms or independent sources. |
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| 2 2<br>Key Highlights<br>Delivered full year 2021 net sales of $268M and Adjusted EBITDA of $102M, in line with guidance range<br>of $267M to $269M on net sales and $97M to $102M on Adjusted EBITDA<br>Premium card business is driving growth by strong sales execution, deep customer relationships, and<br>benefit from credit card issuer industry showing clear signs of recovery from pandemic downturn<br>Arculus launch \(three factor authentication ecosystem\) – positive reception by early users, adding in<br>new features in first half of the year, and ramping up sales and marketing efforts<br>Continued digital authentication need and cryptocurrency market growth creating multiple consumer<br>and enterprise use cases across gaming, crypto exchange, fintech, and traditional banking verticals<br>Reaffirming 2022 guidance of $336M to $376M of net sales and $100M to $110M of Adjusted EBITDA<br>Q4 2021 net sales of $75M, 40% higher than PY and 14% above Q3 resulting in over $21M of adjusted<br>EBITDA, 5% higher than prior year after significant investment in Arculus launch |
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| 3 3<br>CompoSecure 2021 Performance Highlights<br>1 Revenue-weighted average client tenure<br>2 Adjusted EBITDA is a non-GAAP financial metric. For a reconciliation of Adjusted EBITDA to the most-comparable GAAP metric, please see the Appendix to this presentation<br>22mm<br>Metal Card Sales<br>Volume<br>100+<br>Card Programs<br>Served Globally<br>12<br>Yrs. Average Client<br>Tenure 1<br>7<br>Of the Top 10<br>US Issuers Served<br>38%<br>Consolidated FY<br>Adjusted EBITDA Margin2 \(including<br>~$20M Arculus Investment\)<br>40%<br>Q4 ‘21 vs. Q4 ‘20<br>Net Sales Growth<br>54%<br>Consolidated FY<br>Gross Margin<br>%<br>$268mm<br>Consolidated FY<br>Net Sales<br>$102mm<br>Consolidated FY<br>Adjusted EBITDA2 \(including<br>~$20M Arculus Investment\)<br>14%<br>Q4 ‘21 vs. Q3 ‘21<br>Net Sales Growth |
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| 4 4<br>CompoSecure Competitive Strengths<br> • First metal credit card \(2003\)<br> • First metal “tap-to-pay” credit card \(2016\)<br> • Arculus launch in 2021<br> • Pipeline of new tech including biometric<br>security, dynamic CVV, keychain cards, LED<br>100+ Card Programs<br>We Enable Clients to Grow Customer Acquisition, Spending, and Improve Retention<br> • Deep engineering expertise<br> • Proprietary material science capabilities<br>716<br>Employees<br>22mm<br>Metal Cards<br>Annually1<br>20<br>Direct &<br>Support<br>Salespeople<br>7<br>Global<br>Distributor<br>Partners<br>Patents<br>Issued 45 Patents<br>Pending 30<br>1 2021 |
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| 5 5<br>Convergence of Three Massive Market Opportunities<br>1 Edgar, Dunn & Company. 2019 Metal Cards Market Sizing and Consumer Research Report. “Total Addressable Market” is defined here as the estimated subset of payment cards issued globally in 2021 for which there is demand and viability for metal payment cards. The figure assumes a two-year replacement<br>cycle to estimate annual issuance volumes<br>2 Crypto.com<br>3 Finances Online: 55 Important Password Statistics You Should Know: 2021 Breaches & Reuse Data<br>4 SlowMist Hacked<br>Payment Card Market Opportunity1 Explosive Growth in Global Crypto Users2<br>Metal cards are rapidly growing in<br>popularity, but still only represent ~0.5% of<br>the global addressable card market<br>Industry Trends Create Strong Tailwinds:<br>Total Addressable Market<br>~4 billion payment cards<br>issued worldwide annually<br>~22mm<br>CompoSecure Metal Card<br>Sales Volume \(2021\)<br>Crypto / Blockchain Contactless / Tap-to-Pay Security & Fraud<br>Authentication Opportunity3<br>555 million passwords stolen on the dark<br>web since 2017<br>27%<br>17%<br>81%<br>80%<br>Hackers who have Tried to<br>Guess other People's<br>Passwords<br>Hackers who have<br>Successfully Guessed other<br>People's Passwords<br>Company Data Breaches<br>caused by Poor Passwords<br>Hacking Incidents caused by<br>Stolen & Reused Login<br>Information<br>In December 2021, avg daily trading<br>volume of cryptocurrency was nearly<br>$290 billion across 300 exchanges<br>75mm<br>295mm<br>July 2020 Dec 2021<br>Blockchain hacking losses reached nearly<br>$10B in 2021, up 2x vs. 20194 |
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| 6 6<br>The Payment Card business is benefiting as the Credit Card Industry has shown<br>Strong Signs of Recovery from Pandemic Levels<br>1Federal Reserve Bank of New York via https://www.wsj.com/articles/credit-card-applications-hit-pandemic-high-11638354781<br>2 Mintel Comperemedia via https://www.wsj.com/articles/its-not-just-you-banks-really-are-sending-out-more-credit-card-offers-11637231402<br>3 American Express Quarterly Earnings Releases<br>Percent of US Consumers Applying for a Credit Card1<br>26.0% 26.0%<br>30.6%<br>27.0% 28.4% 27.2% 26.3%<br>19.4%<br>15.7%<br>19.4%<br>23.4%<br>26.5%<br>Feb '18 June '18 Oct '18 Feb '19 June '19 Oct '19 Feb '20 June '20 Oct '20 Feb '21 June '21 Oct '21<br>US Credit Card Solicitations2<br>851 877 912 880 930<br>352<br>415<br>698 700<br>867<br>940<br>Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21 Q2 '21 Q3 '21<br>American Express Proprietary Cards Acquired3<br>2.5<br>1.0<br>1.4<br>1.7<br>2.1<br>2.4<br>2.6 2.7<br>Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21 Q2 '21 Q3 '21 Q4 '21<br>In Millions<br>In Billions<br> • US credit card solicitations are up over 150% from<br>their Q2 ‘20 trough and eclipsed pre-COVID levels in<br>Q3 ’21<br> • The percent of US consumers applying for credit cards<br>have ramped back up to 2018/2019 levels<br> • American Express has also publicly reported strong<br>card acquisition numbers exceeding pre-pandemic<br>results the last two quarters |
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| 7 7<br>Arculus Product Portfolio<br>5.2<br>Cards<br>Manufactured in<br>20203<br>8.0<br>Cards<br>Manufactured in<br>20254<br>Variety of Key Capabilities are Available to Meet Customer Demand<br>Payment Card Payment Card +<br>Digital Authentication1<br>Crypto Cold Storage Crypto Cold Storage +<br>Digital Authentication1<br>Payment Card +<br>Crypto Cold Storage +<br>Digital Authentication1<br>1 FIDO2 Certified<br>Available Now<br>Available in 2022<br>Client Pilots in Q2/Q3 |
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| 8 8<br>Arculus First Half 2022 Priorities<br>Customer/Market Need<br>Arculus Solution<br>Non-Fungible<br>Tokens \(NFTs\)<br>Cryptocurrency/<br>Digital Asset Support<br>Access to DeFi<br>Ecosystem<br>1 2 3<br>WalletConnect<br>Integration<br>Leading Wallets \(>100\) Any Dapp \(Hundreds\) Chain Agnostic<br>Wallet Integration w/Send, Receive, Store, & View<br>Functionality<br>Continue Expansion: Added 10 in Jan ’22<br>\(Currently Supports Nearly 75% of<br>Crypto Market Cap\) |
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| 10 10<br>Q4 2021 Results<br>Net Sales<br>Gross Margin<br>Adjusted EBITDA1<br>Adjusted EBITDA Margin1<br>Q4 ‘21 Q4 ‘20 % Change Commentary<br>$75mm<br>52%<br>$21mm<br>28%<br>$54mm<br>48%<br>$20mm<br>37%<br>40%<br>420 bps<br>5%<br>\(935 bps\)<br>Process efficiencies, material<br>cost improvements and product<br>mix<br>Including ~$13M investment to<br>launch Arculus Platform<br>1 Adjusted EBITDA is a non-GAAP financial metric. For a reconciliation of Adjusted EBITDA to the most-comparable GAAP metric, please see the Appendix to this presentation |
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| 11 11<br>Full Year 2021 Results<br>Net Sales<br>Gross Margin<br>2021 2020 % Change Commentary<br>$268mm<br>54%<br>$102mm<br>38%<br>$261mm<br>51%<br>$115mm<br>44%<br>3%<br>316 bps<br>\(11%\)<br>\(610 bps\)<br>Growth from existing<br>customers & new FinTechs<br>Process efficiencies, material<br>cost improvements and product<br>mix<br>1 Adjusted EBITDA is a non-GAAP financial metric. For a reconciliation of Adjusted EBITDA to the most-comparable GAAP metric, please see the Appendix to this presentation<br>Adjusted EBITDA1<br>Adjusted EBITDA Margin1<br>Including ~$21M investment to<br>launch Arculus Platform |
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| 12 12<br>% International<br>Net Sales Trend<br>$54<br>$64 $63 $66<br>$75<br>Q4 '20 Q1 '21 Q2 '21 Q3 '21 Q4 '21<br>In millions<br>$214 $219<br>$47 $49<br>FY '20 FY '21<br>Domestic International<br>$261 $268<br>18% 18% |
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| 13 13<br>2022 Guidance<br>Net Sales<br>Adjusted EBITDA1<br>2022E 2021 % Change<br>$268mm<br>$102mm<br>$336mm - $376mm<br>$100mm - $110mm<br>25% - 40%<br>\(2%\) - 7%<br>1 Adjusted EBITDA is a non-GAAP financial metric. For a reconciliation of Adjusted EBITDA to the most-comparable GAAP metric, please see the Appendix to this presentation |
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| 14 14<br>Strategic Priorities<br>A Category Leader of Next-Gen Payment Technology, Security, and Cryptocurrency Solutions<br>Drive premium payment card sales through continued domestic growth, international expansion, and<br>FinTechs<br>Deliver innovative new card constructs and leverage our scale and existing relationships<br>Continue to enhance Arculus capabilities \(NFTs, WalletConnect, Coin Expansion, etc…\) to drive adoption<br>across key B2B verticals and consumers demanding three factor authentication security solutions<br>Optimize investment in product lines across advertising initiatives, talent, software development, and<br>partnerships to accelerate growth<br>Focus on process efficiencies, materials procurement, and upsell opportunities to maintain strong<br>margins |
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| 15 15<br>Investor Relations Contact<br>ir.composecure.com<br>Marc Griffin \(ICR\)<br>646-277-1290<br>CompoSecure-IR@icrinc.com |
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| 17 17<br>CompoSecure, Inc. \(Nasdaq: CMPO\)<br>Summary Equity Capitalization Table \(with net exercise model\)<br>As of December 31, 2021<br>Holders # of Shares Issued & Outstanding # of Shares Issued & Outstanding<br>Public Shareholders 4.6M 4.6M<br>PIPE Investors 4.5M 4.5M<br>Roman Sponsor 5.8M 5.8M<br>Historic CompoSecure Owners \(Class B\) 61.1M 61.1M<br>Subtotal 76.1M 76.1M<br>Holders # of Shares Reserved for Immediately<br>Exercisable In-The-Money Options<br># of Shares Reserved for Immediately<br>Exercisable In-The-Money Options<br>\(assuming net exercise\)3<br>Merger Rollover Options 4.9M 4.5M<br>Total 81.0M 80.6M<br>Convertible Instruments # of Shares Reserved for Conversion # of Shares Reserved for Conversion<br>\(assuming net exercise\)<br>Public Warrantholders4 11.6M 4.2M<br>Roman Sponsor Warrantholders5 10.8M 3.9M<br>Exchangeable Noteholders 11.3M 11.3M<br>Grand Total 114.7M 100.0M<br>Notes: The table above excludes shares which may be issued in the future for contingent “earnout”, equity incentive plan, employee stock purchase plan, and 401K plan<br>1 Includes Net Debt of $243M + Convertible of $130M. Equity of 80.6M shares @ $10.00 price/share<br>2 Includes Net Debt of $258M + Convertible of $130M. Equity of 80.6M shares @ $7.28 price/share as of market close 3/7/22<br>3 Assumes exercise net of strike price, valuation at assumed FMV of $10.00<br>4 Assumes exercise net of strike price, valuation at assumed FMV of $10.00<br>5 Assumes treasury stock method, valuation at assumed FMV of $18.00<br>Enterprise Value at de-SPAC was $1,179M1 and the current Enterprise Value is $975M2 |
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| 18 18<br>Statements of Operations \(Unaudited\)<br>Source: Company financials<br>Note: Audits completed to PCAOB standards. Financial position has been derived from CompoSecure’s consolidated financial statements for the years ended December 31, 2019, 2020 and 2021 respectively.<br>\($mm\) 2019A 2020A 2021A<br>Revenue<br> Net Sales $243 $261 $268<br> Cost of Sales 115 128 123<br>Gross Profit $128 $133 $145<br>Operating Expenses<br> Selling, general and administrative 41 49 64<br>Income from operations $87 $84 $81<br>Other expense<br> Mark to market adjustments 0 0 13<br> Interest expense net of interest income \(5\) \(5\) \(10\)<br> Amortization of deferred financing costs \(1\) \(1\) \(2\)<br> Income taxes 0 0 1<br>Net Income $81 $78 $83 |
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| 19 19<br>Balance Sheets \(Unaudited\)<br>Source: Company financials<br>Note: Audits completed to PCAOB standards. Financial position has been derived from CompoSecure’s consolidated financial statements for the years ended December 31, 2019, 2020 and 2021 respectively.<br>\($mm\) 2019A 2020A 2021A<br>Assets<br>Current Assets<br> Cash & cash equivalents $27 $13 $22<br> Accounts receivable, net 19 9 28<br> Inventories 18 30 26<br> Prepaid expenses and other Current assets 1 1 3<br> Total Current Assets 65 53 78<br>Property and equipment, net 30 28 22<br>Deferred tax assets 0 0 26<br>Other assets 0 0 4<br>Total assets $96 $81 $131<br>Liabilities and Members' Equity<br>Current Liabilities<br>Accounts payable 3 2 7<br>Accrued expenses 15 15 40<br>Other current liabilities 0 0 1<br>Current portion of long-term debt 14 24 13<br>Total current liabilities 32 42 60<br>Long-term debt, net of deferred finance costs 117 212 233<br>Line of credit 0 0 15<br>Convertible Debt, net of debt discount 0 20 127<br>Other liabilities 2 0 104<br>Total liabilities $151 $274 $539<br>Members' Equity \(56\) \(193\) \(408\)<br>Total liabilities and members' equity $96 $81 $131 |
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| 20 20<br>Statements of Cash Flows \(Unaudited\)<br>Source: Company financials<br>Note: Audits completed to PCAOB standards. Financial position has been derived from CompoSecure’s consolidated financial statements for the years ended December 31, 2019, 2020 and 2021 respectively.<br>\($mm\) 2019A 2020A 2021A<br>Cash flows from operating activities<br>Net income $81 $78 $83<br>Adjustments to reconcile net income to net cash provided by operating activities<br>Depreciation 9 10 10<br>Equity compensation expense 2 2 6<br>Inventory reserve \(0\) 1 0<br>Amortization of deferred finance costs 1 1 2<br>Mark to market adjustments 0 0 \(14\)<br>Change in assets and liabilities 0<br>Accounts receivable 6 10 \(20\)<br>Inventories \(6\) \(13\) 4<br>Prepaid expenses and other assets 1 \(0\) \(2\)<br>Other liabilities 0 \(2\) 6<br>Accrued expenses \(13\) 0 2<br>Net cash provided by operating activities $81 $87 $78<br>Cash flows rom investing activities<br>Acquisition of property and equipment \(10\) \(8\) \(5\)<br>Net cash used in investing activities \($10\) \($8\) \($5\)<br>Cash flows from financing activities<br>Business combination and PIPE financing 0 0 188<br>Proceeds from line of credit 0 20 0<br>Payment of line of credit \(18\) 0 \(5\)<br>Proceeds from term loan 76 118 265<br>Payment of term loan \(11\) \(11\) \(255\)<br>Distributions 0 0 \(218\)<br>Deferred finance costs related to debt origination \(1\) \(3\) \(2\)<br>Issuance cost related to business combination 0 0 \(15\)<br>Tax Distribution to members \(104\) \(217\) \(22\)<br>Net cash used in financing activities \($58\) \($93\) \($64\)<br>Net increase \(decrease\) cash, cash equivalents and restricted cash 14 \(13\) 9<br>Cash, cash equivalents and restricted cash, beginning of year $13 $27 $13<br>Cash, cash equivalents and restricted cash, end of year $27 $13 $22<br>Supplementary disclosure of cash flow information<br>Cash paid during the year for interest 5 5 10 |
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| 21 21<br>Source: Company financials<br>Non-GAAP Adjusted EBITDA Reconciliation<br>1 ISO Litigation Costs: Adds back nonrecurring expenses associated with the ISO<br>litigation<br>2 Non-Cash Stock Option Expense: Non-cash stock option expenses related to the<br>executive incentive plan<br>3 Nonrecurring Transaction Costs: Transaction related costs associated with prior<br>transaction processes and paid to Merrill Communications, BDO USA, Edgar<br>Dunn and Battelle<br>4<br>Non-Cash Warrants and Earnouts Adjustments: Related to changes in fair value<br>of liabilities at December 31, 2021 for warrants and earnouts.<br>5<br>6 Miscellaneous Adjustments: Related to Board of Directors fees and related<br>expenses, exclusion of deferred compensation expense as Management does not<br>expect the plan to continue in its current form and miscellaneous other expense<br>accrual adjustments.<br>Special Distribution: Adjustment to add back special distributions to Class C<br>unit holders that was expensed. The distributions are akin to equity<br>distributions 1<br>2<br>3<br>4<br>6<br>5<br>$mm 2019A 2020A 2021A<br>Net Income $81 $78 $83<br>Interest Expense 5 6 12<br>Depreciation and Amortization 9 10 10<br>Taxes - - 1<br>Unadjusted EBITDA $96 $94 $106<br>ISO Litigation Costs 3 - -<br>Non-Cash Stock Option Expense 1 2 6<br>Non-Recurring Transaction Costs 0 4 0<br>Special Distribution 7 16 4<br>Non-Cash Warrant and Earnouts Adjustments - - \(13\)<br>Miscellaneous Adjustments \(1\) - \(1\)<br>Total EBITDA Adjustments $12 $22 \($4\)<br>Adjusted EBITDA $107 $116 $102 |
| --- | | 22 22<br>Source: Company financials<br>Non-GAAP Adjusted EBITDA Reconciliation<br>1 Non-Cash Stock Option Expense: Non-cash stock option expenses related to the<br>executive incentive plan<br>2<br>Non-Cash Warrants and Earnouts Adjustments: Related to changes in fair value<br>of liabilities at December 31, 2021 for warrants and earnouts.<br>3<br>Special Distribution: Adjustment to add back special distributions to Class C<br>unit holders that was expensed. The distributions are akin to equity<br>distributions<br>1<br>2<br>3<br>$mm Q4 2020 Q4 2021<br>Net Income $3 $20<br>Interest Expense 2 3<br>Depreciation and Amortization 3 3<br>Taxes 0 (1)<br>Unadjusted EBITDA 8 25<br>Non-Cash Stock Option Expense 1 5<br>Special Distribution 11 4<br>Non-Cash Warrant and Earnouts Adjustments 0 (13)<br>Total EBITDA Adjustments $12 ($4)<br>Adjusted EBITDA $20 $21 | | --- |