CompoSecure's Q3 2025 Earnings Call: Contradictions Emerge on Operating System Efficiency, M&A Strategy, and Margin Expansion

Date of Call: November 3, 2025

Financials Results

• Revenue: $120.9M, up 13% YOY
• Gross Margin: 59% of net sales, compared to 51.7% prior year
• Operating Margin: 39.5% pro forma adjusted EBITDA margin, up 529 basis points YOY

Guidance:

• FY2025 non-GAAP net sales expected to be approximately $463M and pro forma adjusted EBITDA approximately $165M–$170M.
• FY2026 non-GAAP net sales expected to be approximately $510M and pro forma adjusted EBITDA approximately $190M.
• Guidance includes Resolute Holdings management fee and excludes any impact from the Husky transaction.

Business Commentary:

* CompoSecure's Revenue and Earnings Growth: - CompoSecure reported net sales of $120.9 million for Q3, up 13% year-over-year. - Pro forma adjusted EBITDA increased to $47.7 million, up 30% year-over-year, with an EBITDA margin of 39.5%. - The growth was driven by disciplined execution, operational focus, and continued support from Dave Cote and the Board for strategic initiatives, including the implementation of the CompoSecure Operating System.

• Operational Efficiency and Margin Expansion:
• CompoSecure achieved gross margins of 59% for the quarter, a significant improvement from the prior year's 51.7%.

• This improvement was attributed to the implementation of the CompoSecure Operating System, which enhanced execution, efficiency, and record results.

• Impact of Strategic Acquisitions:

• CompoSecure announced a planned business combination with Husky Technologies, with Husky valued at approximately $5 billion or 11.2x 2026 net adjusted EBITDA.

• This acquisition is expected to be accretive to diluted EPS in the first full year post-combination, enhancing CompoSecure's scale, diversifying revenue, and reducing customer concentration.

• Cash and Debt Position:

• At the end of Q3, CompoSecure had $224.6 million in cash and cash equivalents, and $190 million in total debt, compared to $52.7 million in cash and $330 million in total debt in the previous year.
• The increase in cash was primarily driven by proceeds from warrant exercises and free cash flow generation from operating activities.

Sentiment Analysis:

Overall Tone: Positive

• Management raised 2025 guidance and provided 2026 targets, calling Q3 results 'terrific' and saying 'we are operating from a position of strength.' The team described the Husky deal as 'highly accretive' and repeatedly highlighted sustained margin and revenue momentum driven by the operating system.

Q&A:

• Question from Moshe Orenbuch (TD Cowen): How should we think about pro forma share count included in the transaction metrics? And on margins, how much of the improvement from the operating system is already in place versus still coming?
  Response: Pro forma share count is 291 million; operating-system-driven margin gains are ongoing — significant upside remains, with some improvements flowing to margins and some being reinvested to support future growth.

• Question from Jacob Stephan (Lake Street Capital Markets): What synergies do you expect between CompoSecure's metal-card business and Husky's injection-molding equipment? And beyond equipment sales, what drives Husky's recurring revenue?
  Response: They are not counting cross-business synergies; value derives from applying the operating system to improve Husky's operations and culture. Recurring revenue (~65%) comes from aftermarket parts, tooling and services supporting a large installed base.

• Question from Harold Goetsch (B. Riley Securities): What operational changes have driven the recent sharp margin expansion at CompoSecure, and what margin expansion should we expect for the combined company? Follow-up: historically, how did margins evolve at prior companies after applying this operating approach?
  Response: Margin gains are driven by implementing the operating system — routines, culture change and execution — and are sustainable though some benefits will be reinvested; publicly they conservatively target ~500 bps of annual improvement even if upside may be larger.

Contradiction Point 1

Efficiency Improvements and Margin Expansion

It involves differing expectations about the sustainability and potential of margin improvements through operational efficiencies, which are crucial for financial forecasting and investor confidence.

Can you clarify how much of CompoSecure's margin improvements are already realized from the operating system implementation and how much remains unrealized? - Moshe Orenbuch(TD Cowen)

2025Q3: There is still enormous potential ahead in the operating system work to continue to improve our efficiency. - Jonathan Wilk(CEO)

How much efficiency remains over the next 12 to 18 months? - Reginald Lawrence Smith(JPMorgan)

2025Q2: We believe we can maintain this strong margin profile and continue to drive additional improvements, which will allow us to reinvest in the business for future growth. - Jonathan Wilk(CEO)

Contradiction Point 2

Synergies and Operating System Implementation

It highlights a shift in expectations regarding the role of synergies and operational systems in driving growth and efficiency, which are key aspects of strategic planning and execution.

Could you outline the synergies between your core metal card business and Husky's injection molding equipment? - Jacob Stephan(Lake Street Capital Markets)

2025Q3: We're not pointing to nor counting on any kind of synergies between the 2 businesses. It's the consistent application of a management operating system that works quite well and being able to implement the operating system, it will be the Husky operating system, the CompoSecure Operating System, getting functional transformation implemented, making sure you have a very good people process in place, agreement on strategic priorities with the monthly growth days, which sounds like a simple meeting, but it's actually a lot more than that. - David Cote(Executive Chairman)

What is the current M&A pipeline status? How many deals are in active diligence? - Reginald Lawrence Smith(JPMorgan)

2025Q2: The M&A pipeline is robust, with many opportunities we are evaluating. We are being very selective, looking for a market leader that aligns with our core criteria. - Jonathan Wilk(CEO)

Contradiction Point 3

Operating System Impact and Margin Expansion

It pertains to the expected impact of the operating system on margin expansion, which is crucial for understanding the company's financial performance and growth trajectory.

Can you clarify how much of the margin improvement from the operating system implementation is already realized and how much remains? - Moshe Orenbuch(TD Cowen)

2025Q3: There is still enormous potential ahead in the operating system work to continue to improve our efficiency. - Jonathan Wilk(CEO)

How do you expect revenue growth and EBITDA for the rest of the year, and what macroeconomic assumptions are driving your outlook? - Cassie Chan(Bank of America)

2025Q1: We expect mid-single-digit growth in both revenue and EBITDA, with a gradual increase in growth into Q2 through Q4. - Jon Wilk(CEO)

Contradiction Point 4

Synergies and Strategic Focus in Acquisitions

It reflects differing views on the strategic focus and potential synergies from acquisitions, which are critical for investors to understand the company's growth strategy and the potential integration challenges.

Could you clarify the synergies in your core metal card business and related to Husky's injection molding equipment? - Jacob Stephan(Lake Street Capital Markets)

2025Q3: We're not pointing to nor counting on any kind of synergies between the 2 businesses. - David Cote(COO)

Can you explain the difference between spinning off Resolute and retaining an internal team to evaluate and pursue M&A opportunities? - John Todaro(Needham)

2024Q4: The mission doesn't change, right, in terms of driving accretive M&A. We strongly believe that this structure delivers more value to shareholders over time. - John Wilk(CEO)

Contradiction Point 5

Revenue Growth and Client Mix

It involves differing expectations regarding revenue growth and the mix of clients, which are critical for investors to understand the company's growth trajectory and market positioning.

Is the presentation missing the share count? Can you clarify the effective share count included in the presentation? - Moshe Orenbuch(TD Cowen)

2025Q3: The backlog is up by roughly 30% year-over-year. We saw strong demand from existing clients as well as new orders, particularly in international. - Jonathan Wilk(CEO)

How do you assess stabilized card programs, emerging growth programs, and new card launches in your 2025 revenue growth outlook? - Jacob Stephan(Lake Street Capital Markets)

2024Q4: Every year for us is a mix of each of those variables, right? It's the existing programs, existing clients, new programs, existing clients and what we call new, new. Last year, really strong growth with kind of new clients and new programs from existing clients and would expect all three to be important contributors to the growth in 2025. - John Wilk(CEO)