CompoSecure, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Composecure's third quarter 2023 earnings call. I would now like to hand the call over to Composecure's external investor relations advisor, Sean Mansouri with Elevate IR. Please go ahead.

Good afternoon, and thank you for joining us. With me on the call is John Wilk, Composecure's chief executive officer, and Tim Fitzsimmons, chief financial officer. They will begin with prepared remarks, and then we will open the call for Q&A. 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 delivered in accordance with U.S. GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the investor relations section of our website. Thank you, and with that, let me turn the call over to John to discuss our third quarter results.

Thank you, Sean. Good afternoon, everyone, and thank you for joining us for our third quarter conference call. During the quarter, our domestic business once again achieved record results, exceeding our all-time net sales from the third quarter of last year, demonstrating the resiliency and demand for our premium metal payment cards, However, global economic uncertainty weighed on results across our smaller international business, which we will review later in the call. Despite this, we are on track to achieve the most successful year in our company's history in terms of net sales, adjusted EBITDA, and operating cash flow. Now to summarize the quarter on slide three, net sales in the quarter were 97 million, compared to 103 million in the year prior. As I mentioned a moment ago, the decrease was primarily attributable to lower international sales, which offset the record results we delivered domestically. Year to date, our net sales are up 2% to 291 million compared to the prior year. Adjusted EBITDA increased 9% to 35 million compared to 33 million in our prior year, in part due to our operating expense control. Looking at card issuer trends, customer feedback and broader industry sentiment indicate that the demand for premium metal cards remains strong, and they continue to communicate a positive outlook despite the economic uncertainty. That said, select customers are more tightly managing their inventory levels, which has impacted order volumes in both Q3 and Q4. Given these factors, we are adjusting our full year sales guidance for 2023 to a range of $386 million to $392 million and expect adjusted EBITDA to range between $141 million and $146 million which captures the low end of our original guidance for adjusted EBITDA issued earlier this year. Regarding ARCULUS, we projected the net investment to improve from last year, which was 21 million. Due to the combination of revenue growth and optimizing operating costs, we're pacing ahead of that goal and now anticipate the net investment for 2023 to be approximately 15 million. Turning to slide four, on that note, I want to take a moment and highlight a few key developments in the business. For the quarter, several of our customers launched new premium metal card programs, including Amex with Hilton Aspire, Amex with SAS Elite, and Axis Magnus Bank in India, to name a few. We also continued our B2B marketing initiatives and product enhancements for both Arculus Cold Storage and Arculus Authenticate with a focus on lead generation through industry conferences and digital marketing. Our efforts have recently begun to show promising developments while our sales team worked through a growing pipeline of prospective partnerships. Turning to slide five for some further details on Arculus enhancements. We have two things I want to highlight. Arculus Authenticate hardware pass keys received official designation as a Microsoft FIDO2 security key vendor and is now compatible with the Microsoft ecosystem, offering users a reliable and user-friendly passwordless authentication solution. Arculus Cold Storage now supports 95% of crypto by market cap and has added several key enhancements, including support for custom tokens across three additional chains, Ethereum, Polygon, and Binance Smart Chain. We expanded Arculus integration with MetaMask, improving security by enabling the Arculus card as a signing device for safe offline private key storage. And cross-chain DeFi capabilities were enhanced via Wallet Connect across major chains as well.