Earnings Call Transcript - GPGI Q1 2025

Sean Mansouri, Investor Relations

Good afternoon, and thank you for joining us to review CompoSecure's First Quarter 2025 Financial Results. With me on the call is Dave Cote, Executive Chairman of CompoSecure; Jon Wilk, Chief Executive Officer; and Tim Fitzsimmons, Chief Financial Officer. They will begin with prepared remarks, and then we will open the call for a Q&A. 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. 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 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 and on the SEC's website at sec.gov. Please note that effective as of February 28, 2025, the date of the spin-off of Resolute Holdings Management and as a result of the management agreement between Resolute Holdings Management and the company's wholly owned subsidiary, CompoSecure Holdings, the results of operations of CompoSecure Holdings and the operating companies, which are its subsidiaries are not consolidated in the financial statements included in this report and instead are accounted for under the equity method of accounting. 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 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. 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. 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 IR section of our website. Thank you. And with that, let me turn the call over to Executive Chairman, Dave Cote.

David Cote, Executive Chairman

Good afternoon, everyone. Since we last spoke to you in March, we have continued to spend a considerable amount of time working with Jon and his team to strengthen CompoSecure's operating capabilities with the Compo 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. I'm pleased with the team's engagement. We're beginning to see early results from their efforts. And while implementation of COS and development of that critical institutional intensity will take time, I'm encouraged by the progress we're making. I'm also pleased with the first quarter's results and believe CompoSecure is well positioned to deliver through 2025 and beyond. As I have said since first investing in CompoSecure, we are far and away the leader in metal cards, but still have less than 1% penetration of the current credit card market, 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 is significant. To execute against this big opportunity, we believe our focus on this Compo operating system and the related investments we're making will drive meaningful results over time, enhancing CompoSecure's 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. Before turning the call over to Jon, I want to take a moment to address the accounting change we've had to make this quarter. Tim will discuss this in more detail later in the call, but we are now required to report CompoSecure's results using the equity method of accounting following the spin-off of Resolute Holdings, and Resolute Holdings is required to consolidate the financial results of CompoSecure's wholly owned operating subsidiary in accordance with U.S. GAAP. This consolidation accounting is quite technical in nature and does not reflect the underlying economics of CompoSecure or Resolute Holdings. To help investors better understand each business' financial performance, we have provided non-GAAP financials that do reflect the economics of each business and allow for direct comparisons to past periods at CompoSecure. We have also included a summary chart on Page 4 of the earnings presentation to simply summarize how I think about the financials of both CompoSecure and Resolute Holdings. The non-GAAP CompoSecure 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. For Resolute Holdings, the non-GAAP financials show management fee revenue from CompoSecure, less salaries and ongoing operating expenses. Both are that simple and are how we look at both businesses. 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, why are you doing the accounting this way?' The best answer, I think, comes from paraphrasing Warren Buffett, who once said about Berkshire Hathaway accounting that 'The GAAP earnings are 100% misleading, and they serve to misinform investors. So to restate how best for investors to understand the economics of both companies: one, look at Compo historical reporting and deduct the management fee; and 2, look at RHLD as management fee revenue minus costs of the investment team. So with that, I'll turn the call over to Jon.

Jonathan Wilk, Chief Executive Officer

Thank you, Dave. Good afternoon, everyone, and thank you for joining us for our first-quarter conference call. We started the year in line with our expectations across our payment card and Arculus business, with consolidated net sales essentially flat compared to prior year. 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, decreased slightly due to higher G&A expenses tied to growth investments and the implementation of the CompoSecure Operating System or COS. We also had strong program activity during the quarter with several high-profile customers, while Arculus delivered a net positive contribution and record results for the quarter with new vertical industry wins. Our focus on operational excellence through the CompoSecure Operating System remains a critical enabler, positioning us to drive more efficiencies and long-term value creation. Importantly, we are already beginning to see the benefits from implementing COS, particularly at the factory and production level, which we believe will deliver a positive net impact in 2025. As expected and highlighted in our March conference call, we are seeing momentum building in the second quarter for both payment cards and Arculus, and we anticipate this sustained growth trajectory will carry through the remainder of the year. 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. As Dave mentioned a moment ago, we have provided Slide 4 to help you understand how we think about the financials of both CompoSecure and Resolute Holdings. Our non-GAAP CompoSecure financials remain consistent with our historical practice with the only change being the deduction of the Resolute management fee. For Resolute Holdings, the non-GAAP financials show the management fee revenue from CompoSecure, less salaries and ongoing operating expenses. Tim will go into some additional detail around this later on. Now turning to Slide 5. We had a strong quarter of program activity with several high-profile metal payment cards across the globe. These included Citibank, Robinhood, Carta, Coho, WealthSimple, and Scotiabank, spanning both the traditional issuers and fintechs. Several new vertical industry wins for Arculus include MetaMask and MoneyGram, showcasing our ability to diversify across industries. Moving on to Slide 6. We continue to see a strong metal payment card market, both in terms of issuer adoption and end-user preference. As Dave mentioned, the financial and brand benefits our metal cards offer to an issuer are huge, and we see this clearly reflected in our pipeline as demand has continued to strengthen in the second quarter. We anticipate this sustained growth trajectory will carry through the remainder of the year. Turning to Slide 7 in Arculus. As I mentioned earlier, we delivered record results, generating another net positive contribution in the quarter. I highlighted some recent examples of vertical success earlier with MoneyGram and MetaMask. In addition, we are encouraged to see metal card customers beginning to future-proof their offerings by bundling Arculus Authenticate with payment capabilities. We believe Arculus remains a powerful differentiator that sets CompoSecure apart in the evolving Web3 and digital security landscape. I'll now hand it over to Tim to review our financials before returning for closing remarks.

Timothy Fitzsimmons, Chief Financial Officer

Thank you, Jon, and good afternoon, everyone. I will provide a detailed overview of our Q1 2025 financial performance. Unless stated otherwise, all comparisons and variance commentary are on a year-over-year basis. In Q1, consolidated net sales were essentially flat at $103.9 million compared to our prior year. Consolidated gross margin for the quarter was 52.5% of net sales compared to 53.1% for the same quarter of the prior year. Pro forma adjusted EBITDA in Q1 decreased by 2% to $33.7 million, with the decline driven by higher general and administrative expenses. 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. The actual payment to Resolute Holdings in the first quarter of 2025 was $1.1 million because the contract became effective February 28. Nothing was paid in the first quarter of 2024 as Resolute Holdings did not exist. Pro forma adjusted EBITDA margin was 32.4%, compared to 33.2% in the prior year. 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. Adjusted net income increased 21% to $28.4 million. Adjusted diluted EPS was $0.25 compared to $0.24 per diluted share in the prior year, with a slight increase driven by higher net income, offset by a higher share count. 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, CompoSecure is required to use the equity method of accounting, and Resolute is required to consolidate the financials of CompoSecure's wholly owned operating subsidiary in accordance with U.S. GAAP. As a result of this change, the results of our operating businesses are no longer consolidated in our GAAP financials. Instead, our share of earnings from CompoSecure Holdings is presented as a single line item in our income statement and the carrying value in the assets of holdings is now reflected on our balance sheet. To reiterate what Dave and Jon said, our non-GAAP CompoSecure financials are the same as they have been historically, with the only change being the deduction of the management fee paid to Resolute Holdings. For Resolute Holdings, the non-GAAP financials show management fee revenue from CompoSecure less salaries and ongoing operating expenses. To help you better understand, let's turn to Slide 13. Slide 13 provides further clarity and shows our reconciliation from GAAP results to the consolidated non-GAAP following the February 28 spin-off of Resolute Holdings and the adoption of the equity method of accounting. Let me walk you through this. Column A provides GAAP results, which include 2 months of consolidated holdings financials and 1 month under the equity method of accounting. 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 in Holdings. Column C has the addition of Holdings 1-month results as that they would have historically been presented. Column D shows the statement of operations as the company had reported historically. ROE provides adjustments for one-time spin costs, and ROF shows pro forma adjustment to show CompoSecure results on a go-forward basis, assuming full management fees in both periods. 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. Turning to the balance sheet. As of March 31, 2025, on a non-GAAP basis, we had $71.7 million of cash and cash equivalent and total debt of $195 million. This compares to cash and cash equivalents of $55.1 million and total debt of $335.6 million at March 31, 2024. Our bank senior secured debt leverage ratio was 1.05x at March 31, 2025, with a trailing 12-month adjusted bank EBITDA of $156 million. This compares to 1.34x at March 31, 2024. Turning to our cash flow statement on Slide 15, you could 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. I'll now turn it back to Jon to discuss our guidance and closing remarks.

Jonathan Wilk, Chief Executive Officer

Thanks, Tim. As mentioned earlier, we are reiterating our previously issued full-year 2025 guidance, which calls for mid-single-digit growth in both consolidated net sales and pro forma adjusted EBITDA with sales momentum building through the year. This guidance includes payment of the Resolute Holdings management fee in 2025 and 2024 on a pro forma basis. We continue to operate from a position of strength with a solid balance sheet, strong customer relationships, and growing demand across both Metal cards and Arculus. We are planting the seeds to drive organic and inorganic growth, supported by the CompoSecure Operating System to further improve efficiencies and execution. We are already beginning to see the benefits from implementing COS, particularly at the factory and production level, which we believe will deliver a positive net impact in 2025. At the same time, we remain mindful of macro headwinds, including rising labor costs and broader economic uncertainty. We believe our focused strategy and disciplined execution position us well to navigate these challenges and continue building long-term value. Finally, on Slide 18, I want to conclude by highlighting a few points we covered today. First, we are focused on accelerating organic growth, supported by strategic investments, as well as new and growing customer relationships. Second, the CompoSecure Operating System is driving results and remains core to how we scale execution and unlock efficiency. Third, we are building on our momentum with Arculus, delivering a net positive contribution this quarter and gaining traction across multiple verticals. And finally, we remain committed to delivering accretive M&A as we evaluate opportunities that enhance our growth profile and create long-term value. With that, I'd like to open up the call for Q&A.

Operator, Operator

Our first question comes from Moshe Orenbuch with TD Cowen.

Moshe Orenbuch, Analyst

Congratulations on the progress and these results. Jon, you talked about the momentum kind of accelerating through the quarter. And obviously, we've seen strong results from the premium card issuers. Is the fact that you maintain 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 until you can kind of be more confident in a higher level or an ongoing level of revenues?

Jonathan Wilk, Chief Executive Officer

Moshe, thanks for the question. So just tying back to our last call and when we described what we expected this year with a mid-single-digit growth, 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 seeing the activity levels, the orders, the backlog to help support that full-year forecast. We feel good about where we are 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, Analyst

Got you. As a follow-up, could either Jon or Dave discuss the areas that are currently the biggest focus for acquisition? Are there any specific opportunities that stand out as particularly interesting at this stage?

Jonathan Wilk, Chief Executive Officer

Thanks, Moshe. I'll jump in here and then if Dave wants to follow, he's welcome to. But Moshe, the answer I'll give you is the same as I would have given you prior, which is, we will look at things in and around the space that Compo plays in today. We will look at things up and down the value chain that Compo plays in. And we will look at things that align well to things that Dave has done exceptionally well in over time. We recognize that is a very broad remit, but it leads to, I think, a great portfolio of opportunities that the Resolute team and we are currently evaluating. At the same time, we will be incredibly disciplined about what we do to ensure that we deliver accretive results for our customers. Long way of saying, Moshe, we're not going to narrow that for you at this time. It's just not in our interest to do so.

Operator, Operator

Our next question comes from Cassie Chan with Bank of America.

Jinli Chan, Analyst

I just wanted to ask, I guess, how you guys are thinking about the remainder of the year in terms of the cadence of revenue growth versus adjusted EBITDA, as well as what you're assuming for the macro environment into the back half of the year? And just tacking on to that as well, are you assuming any increased supply chain challenges or anything that we should be thinking about from the macro volatility that we've seen?

Jonathan Wilk, Chief Executive Officer

Thanks, Cassie. So just for us to deliver that kind of mid-single-digit growth, right, we need to see that growth certainly tick up into Q2 and building through Q3 and Q4 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 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 risk and other things that are out there. We continue to be extremely proactive in how we think about or manage our supply chain. But Cassie, 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 in those kinds of environments. Those routines continue to serve us well today. So we issue our guidance today, understanding the tariff environment and the uncertainty and how quickly that can move up and down. And on the broader sort of question of consumer behavior, what's happening there, we're just not seeing signs of the impact where our activity level of client activity, design sessions, orders just aren't reflecting concerns there at this point. It's a watch item. We'll continue to watch it closely, but feel good about where we are and our ability to deliver what we've talked about today.

Jinli Chan, Analyst

Got it. That's helpful. And if I could just ask a follow-up about Arculus. Obviously, it was nice to see some of the wins that you highlighted. I guess what specifically do you see as resonating? Are those live now? And when do those typically ramp into revenue? And just a quick housekeeping question is just, I think I missed how much revenue and adjusted EBITDA did that build in Q1? And is that supposed to increase every quarter for the remainder of the year?

Jonathan Wilk, Chief Executive Officer

So on the Arculus side, Cassie, we are seeing the Arculus authentication value proposition, I think, really start to resonate in the market. I talked about this in the past, but we are trying to change behavior inside of financial institutions. But the move to passkeys generally, I think, has been incredibly helpful. You're seeing Microsoft, Apple, Google and others talk about passkeys. We are essentially turning a credit or debit card into a pass key or an authentication token. And so as the world moves that way, I think we certainly benefit from that. And we're seeing more and more customers that understand that value proposition to help them grow revenue and/or reduce fraud costs. We also continue to see a tick up on the crypto and digital asset side of things with what's happening in the market. So really pleased across multiple fronts there. We did not break out specific numbers for Arculus in terms of revenue or contribution as we have made the accounting shift to the equity method. We have sort of new requirements for how and what we must report and break out. We are meeting those requirements, and we haven't broken out into additional detail.

Operator, Operator

Our next question comes from Hal Goetsch with B. Riley Securities.

Harold Goetsch, Analyst

Jon, you mentioned the combination of authentication and payment in Arculus. Can you give us a hint of what that does for you guys that's pretty cool insight.

Jonathan Wilk, Chief Executive Officer

Hal, if you could repeat that one more time. I'm getting some background noise. I couldn't hear it.

Harold Goetsch, Analyst

Yes. You mentioned a combination of Arculus and payment and it shows like what does that do for your unit economics? And just share with us any thoughts you could share on how that's driving adoption, maybe pricing?

Jonathan Wilk, Chief Executive Officer

Sure. When we consider the hardware aspect, there are essentially two points to address. First, we're focused on enhancing the product we deliver to small to medium-sized clients, with some larger clients as well, by providing added value or services. Second, over time, we aim to generate software revenue from offering authentication services. We hope to see improvements in our economics, better contribution margins, and growth in software revenue alongside this.

Harold Goetsch, Analyst

If I could ask one follow-up on metal cards. Just can you give us some thoughts? I know you had some new program wins. How is the market, in your opinion, from a high level kind of broadening out from Italy to the more mass affluent from your perspective today? We know it has been happening, but I wanted to get your thoughts on the current status of it.

Jonathan Wilk, Chief Executive Officer

Hal, thank you for the question. I'd say we continue to see the market broaden, right? So while it started with private bank, high net worth, it expanded to the mass affluent space. It expanded in my view, to the upper end of the mass market space as well and has continued to do so. And I think one of the interesting things that we see how in the research is that it is some of those up-and-coming customers, the younger demographic, 25 to 35 that love metal cards almost more than anyone. They want to show it as a status symbol of I'm going somewhere. And it's really important to them. And that's counter to what I get told all the time that young people, they're interested in their phone, and it's just not true. So we do see it continuing to broaden out both domestically and internationally. So very pleased in that regard.

Operator, Operator

Our next question comes from John Todaro with Needham.

John Todaro, Analyst

Congrats on some of those logo wins for Arculus. My first question is about this. I sensed that stablecoins would play a significant role in this area, but we've seen a lot of intriguing developments recently with traditional payment methods involving them. I would love to hear your perspective on this. Do you see Arculus evolving into a tool for stablecoin payments?

Jonathan Wilk, Chief Executive Officer

Thank you for the question, John. The capability of the multi-asset wallet is truly impressive, and we believe it is among the best globally. In terms of ease of use and security, it's exceptionally strong. Personally, I have a card that I can tap anywhere, which is accepted by MasterCard, allowing me to spend stablecoin from cold storage. We definitely see this as a vital part of the payment landscape and how digital assets integrate with traditional payment systems. Adam Lowe and the Arculus team have developed outstanding capabilities for both traditional rails and wallet-to-wallet transactions. We are very enthusiastic about this opportunity and will continue to pursue it vigorously.

John Todaro, Analyst

Great. And then just one more, if I could. It kind of is similar to, I think the first question was asked almost around conservatism to the guide. But when we look at like a company like Robinhood, for instance, we keep hearing very positive things about that card offering. I think it's only around 200,000 customers, but it could grow quite substantially. When you guys put together guidance, is a lot of that growth factored in? Or could we almost expect that to be upside if that product and some of the others see a lot of growth here?

Jonathan Wilk, Chief Executive Officer

I'm not going to comment on each program specifically. However, Robinhood has publicly stated that they are taking a careful approach to entering that market, ensuring they learn and manage the business effectively. We are excited about the partnership and the potential it holds for the future. Generally, we are conservative in our outlook, which aligns with Dave's perspective as well. We plan to execute as promised and deliver on what we've discussed today. We are also enthusiastic about the logo wins and see potential for some of these programs to become significant and impactful.

Operator, Operator

Our next question comes from Jacob Stephan with Lake Street Capital Markets.

Jacob Stephan, Analyst

Some nice wins with Arculus and the legacy issuers as well. But I want to ask on Arculus. Maybe could you help us understand what kind of traction are you seeing with legacy issuers? And anything from a private company standpoint or even just broader kind of tech companies with regards to PassKey?

Jonathan Wilk, Chief Executive Officer

Yes. When we consider the authentication technology, we are noticing its impact in three areas: traditional banks, fintechs, and we are beginning to see opportunities in sectors like gaming, which we find very promising. So, Jacob, those are the three main areas where we are observing impact for that product today. Furthermore, I want to emphasize our desire for a shift away from SMS authentication towards PassKey technology and FIDO technology, and we are seeing that transition take place. I believe this shift opens up broader opportunities that could encompass corporate, government, and other sectors.

Jacob Stephan, Analyst

Got it. And maybe just touching on the M&A pipeline a little bit more. With all the recent tariffs and all the noise surrounding them, has your M&A pool opened up a little bit? Or what are you seeing from kind of a deal flow perspective?

Jonathan Wilk, Chief Executive Officer

The pipeline remains very healthy. One of the reasons it stays robust is the influence of Dave Cote. If you examine his achievements at Honeywell and Vertiv, along with what we’ve managed with Compo and the stock so far, we believe we are an attractive acquirer in the market. This is why we will exercise patience and discipline to secure a great deal for our investors. Additionally, it's clear that people are reaching out, recognizing these important points.

Operator, Operator

Our next question comes from Joe Flynn with Compass Point Research & Trading.

Joseph Flynn, Analyst

Most of my questions were focused on the Arculus aspect. I was curious if there are specific areas or design wins that you believe will push you towards a positive contribution, or if it’s more about maintaining steady execution based on previous successes. Additionally, regarding capital allocation, considering the uncertain macro environment and unpredictable markets, do you still keep options open for potential buybacks or special dividends like in previous years? How should we view that in relation to the M&A pipeline and other growth opportunities you have mentioned?

Jonathan Wilk, Chief Executive Officer

So regarding your question, Joe, it really comes down to three main points that I've discussed previously. First, there's Arculus Authenticate and its potential to enter traditional banks, fintech companies, and other sectors such as gaming and government. Second, we have the hardware wallet itself, which we believe is a strong competitor in its market. Third, we are focusing on the overlap between digital assets and payments, which relates to the earlier question John asked about stablecoins and their impact. Our attention has been on the first two areas, which has led to the positive contributions we're experiencing. We believe these areas will continue to thrive, and we are starting to see benefits from the additional capabilities we've developed regarding the third aspect. On the topic of capital allocation, we announced last quarter an increase in our buyback program. Initially, our buyback was set at $40 million when our market cap was around $600 million to $700 million, and we have since raised that to $100 million. Our market cap is now approximately $1.2 billion, so we have maintained alignment there. Ultimately, this is just one option we have, and we will utilize it based on how the macro environment develops. All of these strategies remain viable as we look at options for organic growth, strategic acquisitions, paying down debt, and exploring other uses. The Board and I will make those decisions and keep the market updated as our priorities evolve.

Joseph Flynn, Analyst

Could you elaborate on the Robinhood program and the MetaMask developments? Given the possible increased regulatory clarity in digital assets, do you see ongoing opportunities for designing hot wallets or white label programs with crypto exchanges or similar initiatives?

Jonathan Wilk, Chief Executive Officer

The answer is yes. We do see increased opportunity with momentum back in that sector. And that's been, I think, some of the important things that have gotten us to the performance from last quarter and the performance this quarter as well. So yes, we are excited and very pleased with that.

Operator, Operator

Our next question comes from Reggie Smith with JPMorgan.

Reginald Smith, Analyst

I think you alluded to maybe some early gains or some early insights or improvements related to manufacturing. I was hoping maybe you could talk a little bit about that and to the extent that you could maybe quantify or just explain kind of what improvements or enhancements were made? And I have one follow-up.

Jonathan Wilk, Chief Executive Officer

So as I've talked about the operating system on this call before, I've talked about the fact that it literally ranges from the time an order comes in the door until the time cash flows in at the end and every step in between. And so we are going after all of the steps in that process as part of the COS work. My comments on the call is, we got out of the gates with more of the production and manufacturing, some of the first things which we tackled. And if you think about Honeywell, right, where we're operating 2 factories, Dave operated in an environment with more than 100 factories as he was trying to roll this work out. The intensity and focus that we have brought to our manufacturing operations to deliver improvements in our output, our yield and things like that, we've seen just tremendous work by the team that is starting to bear fruit, Reggie. And my comments were, we believe that it will deliver a positive net impact that you'll start to see that in our results in '25 as opposed to necessarily having to wait, for example, until 2026. So I think I will speak for myself. I'm very pleased with how the team has responded to this work, how we jumped on it, how we've gone after it. And you heard that in Dave's comments as well. And in my view, don't take those comments lightly. He doesn't give compliments lightly.

Reginald Smith, Analyst

Okay, that makes sense. That's helpful. And just one last question for Dave. If you can, I'd love to hear your thoughts on Resolute. I imagine these are long-range projects, but how do you evaluate and measure progress there? Hello?

Jonathan Wilk, Chief Executive Officer

Dave, I'm not sure if you were able to hear Reggie's question.

David Cote, Executive Chairman

Yes, it will be very similar to what we did at Honeywell. It really starts with whether you have a substantial pipeline of deals in a strong industry. You can set yourself apart with technology, and through both inorganic and organic growth, as well as margin expansion. It's best to have numerous opportunities in the pipeline because out of every 100 you assess, only about 3 will truly make an impact. Tom and his team have a very full and strong pipeline, and we're examining all aspects of it. I'm not focused on the number of deals completed or similar metrics; it's more about the quality and quantity of the pipeline.

Operator, Operator

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.