CompoSecure, Inc.

Good day, and thank you for standing by. Welcome to the Composecure Q1 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 1-1 on your phone. You will then hear an automated message advising that your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Sean Mansouri, Compose Secure's External Director of Investor Relations. Please go ahead.

Good evening, and thank you for joining us to review Compose Secure's first quarter 2023 financial results. With me on the call tonight is John Wilk, Compose Secure's Chief Executive Officer, and Tim Fitzsimmons, Chief Financial Officer. They will begin with prepared remarks, and then we will open the call for Q&A. 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 the actual results to differ materially from our expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to the information in our annual report on Form 10-K and other reports filed with the SEC, which are available on the investor relations section of our website at composecure.com and on the SEC's website at sec.gov. Please note that the discussion on today's call includes certain non-GAAP financial measures including adjusted EBITDA, adjusted net income, and adjusted EPS. 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 US GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the investor relations section of our website. Thank you, and with that said, let me turn the call over to John to discuss our first quarter results.

Thanks, Sean. Good evening, everyone, and thank you for joining us for our first quarter conference call. 2023 is off to a solid start following a record 2022. Demand for our premium metal cards remains strong and we continue to execute on our sales goals and objectives for both new and existing programs. Sentiment from our largest clients also remains positive as consumer and business spending has proven to be resilient despite the challenged macro environment. More to come on this later in the call. Now onto our key highlights from the first quarter on slide three. We achieved net sales of 95.3 million, which was up 13% versus last year, driven by strong sales execution and demand from traditional card issuers and fintechs for our premium payment cards. I'll expand on this in a few slides. We also reported net income of 10.7 million, compared to $26.9 million in Q1 of 22. Net income in the first quarter was primarily impacted by non-cash expenses, including $13.4 million related to the fair value of our warrants, earn-out consideration, and derivative liabilities, and $4 million of stock-based compensation. As a reminder, the fair value adjustments fluctuate quarter to quarter relative to our share price performance. When our stock price increases, our net income is inversely impacted by fair value adjustments. Year to date, our stock price was up more than 50% as of market close on May 1st, 2023. Adjusted EBITDA came in at 35.5 million, up 6% year over year, and we generated 25 million of operating cash flow in the quarter. In March, we were thrilled to announce the extension of our American Express contract to continue manufacturing their premium metal payment cards through July 2026. Looking at card issuer trends, our largest customers continue to report strong card acquisition growth and have indicated positive outlooks for 2023 while increasing investment in programs that drive customer acquisition, retention, and spending. Regarding Arculus, we continue to invest in our platform as well as marketing to address the growing need for better multi-factor authentication as consumers, businesses, and card issuers look to reduce fraud and protect identity and assets. As mentioned in our press release earlier today, we are reaffirming our guidance for 2023, which calls for net sales in the range of 400 to 425 million, with adjusted EBITDA ranging between 145 and 155 million. Turning to slide four, on the left-hand side, you'll see that our largest customers reported another solid quarter of 14% purchase volume growth, Although this growth has tempered over the past several quarters, it remains in the double digits. It's worth noting that these are year-over-year comps, so hitting double-digit growth against the 30% comp in Q1 of 22 remains very impressive from our standpoint. Moving to the right side of the slide, American Express recently reported strong card acquisitions with a record 3.4 million new customers added, which translates to 13% year-over-year growth. Amex also increased marketing and business development spend by more than 20% year-over-year, which we believe speaks to their confidence for future card issuance volumes. This is all publicly available information, and we update this chart every quarter to provide insight into our customers' guidance. Moving on to slide five, which is data that informs our metal payment card business, issuers continue to offer elevated levels of incentives and rewards to acquire and retain customers. Some card issuer programs can amount to thousands of dollars of value in rewards and incentives. Metal payment card costs only reflect the de minimis portion associated with customer acquisition and retention costs. positioning our offering as a compelling and cost-effective part of these continued investments in marketing programs. On slide six, you can see the U.S. consumer remains healthy and resilient. As mentioned, our partners continue to remain positive, with many outlining continued marketing spend to drive resilient growth and highlighting the lack of any notable consumer and small business pullback in the first quarter, despite slower macroeconomic growth. Moving on to our security and authentication solutions on slide seven. I want to spend some more time discussing the clear demand being signaled for more secure payment and authentication solutions. The amount of global debit and credit card fraud continues to set new records and is nearly four times the cost for each dollar of fraud loss. These dynamics are spurring meaningful demand for passwordless multi-factor authentication, including some combination of biometrics, PINs, and secure tokens. Industry experts anticipate this market will grow at a 17% CAGR through the end of the decade. If you flip to slide eight, you get a sense of the market opportunity for authentication and the expected market growth over the next seven years. As you can see, the market opportunity for authentication solutions is tremendous, and we believe Arculus is the right solution at the right time to help address this growing need. Let me discuss that further. On slide nine, you can see how Arculus can deliver secure login or step-up verification, incorporating seamless multi-factor authentication to address the passwordless market I just outlined. Simply tapping your metal card to the back of your phone adds another layer of security and authentication on top of providing a PIN and or biometric. We believe this added step should lead to both better customer security and a lower cost burden for issuers. On slide 10, we outlined some of the use cases for tapping your metal card to the back of your phone, including strong customer authentication for customer service, authorizing high-dollar transactions like WIRES or Zelle transactions, authenticating a new device, or turning internet payments into card-present transactions. On slide 11, you can see the broader solution set for Arculus that we have shared with you historically. Now, turning to some company highlights on slide 12, we continue to execute on our sales goals with multiple new program launches for both metal premium payment cards and Arculus. On the metal payment card side, Rocket Mortgage launched a new card created to make home buying easier and more accessible through everyday spending. HEB, a privately held supermarket chain in the Southwest, launched a metal card with cashback rewards. And UMB is delivering a metal card for their private bank with cash rewards and incentives toward travel, just to highlight a few examples on this page. On the Arculus front, we continue to build market awareness for our B2B secure authentication and cold storage offerings through industry trade shows and marketing campaigns. All said, these efforts have driven a solid pipeline of opportunities to name a few that are progressing well. Let me start with NBC Bank to deliver a payment card with digital asset cold storage. Change Finance, which I've mentioned on previous calls, launched their self-custody hardware cold storage wallet powered by Arculus. And we've also seen Invesco offer their cold storage wallet powered by Arculus for customers in Latin America. We've also made progress on the pilot with a major crypto exchange that I discussed on the prior call. From a B2C perspective, We commenced Arculus cold storage wallet sales in Canada, and we anticipate additional international availability, including Australia and the UK, in the coming months. We continue to technically enhance the Arculus platform for both B2B and B2C. This now includes being able to cryptographically support more than 10,000 coins. With that, I'll hand it over to Tim to review our financials. before returning for closing remarks.