CompoSecure, Inc.

Thank you for standing by, and welcome to Compose Secure's fourth quarter and full year 2023 earnings conference call. I would now like to hand the call over to Compose Secure's Investor Relations Advisor, Sean Mansouri, with Elevate IR. Please go ahead.

Good afternoon, and thank you for joining us to review Compose Secure's fourth quarter and full year 2023 financial results. 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 compostsecure.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, adjusted EPS, and free cash flow. 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 investor relations section of our website. Thank you. And with that, let me turn the call over to John to discuss our fourth quarter and full year results.

Thank you, Sean. Good afternoon, everyone, and thank you for joining us for our fourth quarter and full year conference call. Our fourth quarter results delivered a strong close to 2023. capping off another year of record revenue and adjusted EBITDA while providing strong free cash flow. I'd like to take a moment to acknowledge the efforts of our team in 2023. While we face challenges in the macroeconomic environment, our deep client relationships, best-in-class products, and a thoughtful approach to managing our business allowed us to deliver adjusted EBITDA in line with our original guidance issued back in March 2023. We accomplished a lot last year. We extended long-term contracts with our top two clients and produced more than 31 million metal cards, which is another record for the business. And we introduced several innovations, such as the Echo Mirror card, that are clear examples of how Composecure delivers unique value for our customers. I'll share more on this shortly. Now, to summarize our financial results on slide three, Net sales in the fourth quarter increased to 100 million due primarily to growth in our domestic business, which exceeded our previous quarterly record set in the third quarter. Looking at our bottom line, Q4 adjusted EBITDA grew more than 20% to 37 million, reflecting our most profitable quarter of the year. As we have often stated, our team is acutely focused on profitability while simultaneously driving investments to capture long-term opportunity and value. I wanted to call out a few additional highlights. In 2023, we supported more than 150 new and ongoing card programs for our customers, up from more than 125 programs in 2022. This past December, ABI Research ranked Compose Secure as the market leader in its assessment of the metal payment card market, We believe momentum is also building for our Arculus products as fintechs are beginning to leverage and market our innovative technology. More to come on this later in the call. Card issuers reported growth in 2023 and have maintained a positive outlook for the year ahead, indicating continued investments in customer acquisition and retention due to sustained customer demand. For 2024, we are issuing net sales guidance of $408 to $428 million. And for adjusted EBITDA, we're targeting a range between $147 and $157 million. These targets reflect our expectation for continued strength in our business. Our adjusted EBITDA target also factors in a net investment for Arculus. If you remember, in 2022, we had a net investment of 21 million, which we reduced to 14 million in 2023. For 2024, we expect that number to improve once again before turning positive for fiscal year 2025. I am also very excited to announce that our board has approved a securities repurchase program for up to $40 million over three years providing us with a mechanism to acquire securities in Composecure. We believe our securities trade at a discounted valuation for a growing business that commands a leading market share with gross margins north of 50%, adjusted EBITDA margins in the high 30s, and meaningful free cash generation. And we are trading at only five times trailing enterprise value to EBITDA.