cmpo-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-39687

CompoSecure, Inc.

(Exact name of registrant as specified in its charter)


Delaware						85-2749902
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

309 Pierce St.

Somerset, NJ 08873

(908) 518-0500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share	CMPO	The Nasdaq Global Market
Redeemable Warrants, each whole warrant exercisable for one share of Class A Common Stock	CMPOW	The Nasdaq Global Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of May 01, 2024, there were 20,632,837 shares of the registrant's Class A common stock outstanding and 59,958,422 shares of the registrant's Class B common stock outstanding.

COMPOSECURE, INC.

Table of Contents


		Page
Part I.	Financial Information	2
Item 1.	Financial Statements	2
	Consolidated Balance Sheets (Unaudited)	3
	Consolidated Statements of Operations (Unaudited)	4
	Consolidated Statements of Comprehensive Income (Unaudited)	5
	Consolidated Statements of Stockholders’ Deficit (Unaudited)	6
	Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
Part II.	Other Information	34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities a n d Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	56
Signatures		57

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report, and the documents incorporated by reference herein, may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management. Although the Company believes that its plans, intentions, and expectations reflected in or suggested by these forward- looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions, or expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Generally, statements that are not historical facts, including statements concerning the Company’s possible or assumed future actions, business strategies, events, or results of operations, are forward- looking statements. In some instances, these statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negatives of these terms or variations of them or similar terminology.

Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors, among others, could affect the Company’s future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company’s forward-looking statements:

•the ability of the Company to grow and manage growth profitably, maintain relationships with customers, compete within its industry and retain its key employees;

•the possibility that the Company may be adversely impacted by other global economic, business, and/or competitive factors;

•the outcome of any legal proceedings that may be instituted against the Company or others;

•future exchange and interest rates; and

•other risks and uncertainties indicated in this report, including those under “Risk Factors” herein, and other filings that have been made or will be made with the SEC.

These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the “Risk Factors” section. The risks described in “Risk Factors” are not exhaustive. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Part I - Financial Statements

Item 1. Financial Statements


COMPOSECURE, INC.
Consolidated Balance Sheets
($ in thousands, except par value and share amounts)


	March 31, 2024		December 31, 2023
	Unaudited
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	55,146	$	41,216
Accounts receivable, net	35,110		40,488
Inventories	55,197		52,540
Prepaid expenses and other current assets	5,252		5,133
Total current assets	150,705		139,377

Property and equipment, net	24,604		25,212
Right of use assets, net	6,964		7,473
Deferred tax asset	25,529		23,697
Derivative asset - interest rate swap	5,745		5,258
Deposits and other assets	24		24
Total assets	$	213,571	$	201,041

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable	4,747		5,193
Accrued expenses	13,473		11,986
Commission payable	5,442		4,429
Bonus payable	3,405		5,616
Current portion of long-term debt	11,875		10,313
Current portion of lease liabilities	1,988		1,948
Current portion of tax receivable agreement liability	1,425		1,425
Total current liabilities	42,355		40,910

Long-term debt, net of deferred finance costs	192,299		198,331
Convertible notes	127,959		127,832
Derivative liability - convertible notes redemption make-whole provision	722		425
Warrant liability	15,691		8,294

Lease liabilities, operating	5,655		6,220

Tax receivable agreement liability	23,949		23,949
Earnout consideration liability	2,312		853
Total liabilities	410,942		406,814

Commitments and contingencies (Note 13)

Redeemable non-controlling interest	596,587		596,587

Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding	—		—
Class A common stock, $0.0001 par value; 250,000,000 shares authorized, 20,598,246 and 19,415,123 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.	2		2
Class B common stock, $0.0001 par value; 75,000,000 shares authorized, 59,958,422 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.	6		6
Additional paid-in capital	40,494		39,466
Accumulated other comprehensive income	5,443		4,991
Accumulated deficit	(839,903)		(846,825)
Total stockholders' deficit	(793,958)		(802,360)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	213,571	$	201,041

The accompanying notes are an integral part of these unaudited consolidated financial statements.


COMPOSECURE, INC.
Consolidated Statements of Operations (Unaudited)
($ in thousands, except per share amounts)


	Three Months Ended March 31,
	2024		2023
Net sales	$	104,010	$	95,316
Cost of sales	48,797		41,962
Gross profit	55,213		53,354
Operating expenses:
Selling, general and administrative expenses	24,077		23,944

Income from operations	31,136		29,410

Other (expense):
Revaluation of earnout consideration liability	(1,459)		(1,973)
Revaluation of warrant liability	(7,397)		(10,759)
Change in fair value of derivative liability - convertible notes redemption make-whole provision	(297)		(708)
Interest expense, net	(5,419)		(5,929)
Amortization of deferred financing costs	(327)		(567)

Total other (expense), net	(14,899)		(19,936)
Income before income taxes	16,237		9,474
Income tax benefit	836		1,263
Net income	$	17,073	$	10,737

Net income attributable to redeemable non-controlling interests	$	13,048	$	8,408
Net income attributable to CompoSecure, Inc.	$	4,025	$	2,329

Net income per share attributable to Class A common stockholders - basic	$	0.20	$	0.13
Net income per share attributable to Class A common stockholders - diluted	$	0.17	$	0.11

Weighted average shares used to compute net income per share attributable to Class A common stockholders - basic (in thousands)	20,567		17,632
Weighted average shares used to compute net income per share attributable to Class A common stockholders - diluted (in thousands)	96,235		94,736

The accompanying notes are an integral part of these unaudited consolidated financial statements.


COMPOSECURE, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
($ in thousands)


	Three Months Ended March 31,
	2024		2023
Net income	$	17,073	$	10,737
Other comprehensive (loss) income, net:
Unrealized gain (loss) on derivative - interest rate swap, (net of tax)	452		(1,649)
Total other comprehensive income (loss), net	452		(1,649)
Comprehensive income	$	17,525	$	9,088

The accompanying notes are an integral part of these unaudited consolidated financial statements.


COMPOSECURE, INC.
Consolidated Statements of Stockholders' Deficit (Unaudited)
($ in thousands, except share data)


	Class A Common Stock			Class B Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'		Redeemable Non-Controlling
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Deficit		Interest
Balance as of December 31, 2023	19,415,123	2		59,958,422	6		39,466		4,991		(846,825)		(802,360)		596,587
Distributions to non-controlling interests	—	—		—	—		—		—		(10,151)		(10,151)		—
Stock-based compensation	—	—		—	—		4,397		—		—		4,397		—
Proceeds from employee stock purchase plan and exercises of options	—	—		—	—		107		—		—		107		—
Net income	—	—		—	—		—		—		4,025		4,025		13,048
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and ESPP transactions	1,183,123	—		—	—		—		—		—		—		—
Class A common stock withheld related to net share settlement of equity awards	—	—		—	—		(3,476)						(3,476)		—
Class A common stock issued pursuant to Class B common stock exchanges	—	—		—	—		—		—		—		—		—
Unrealized loss on derivative - interest rate swap	—	—		—	—		—		452		—		452		—

Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		—		—		13,048		13,048		(13,048)
Balance as of March 31, 2024	20,598,246	2		59,958,422	6		40,494		5,443		(839,903)		(793,958)		596,587
	Class A Common Stock			Class B Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'		Redeemable Non-Controlling
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Deficit		Interest
Balance as of December 31, 2022	16,446,748	$	2	60,325,057	$	6	$	24,107	$	8,283	$	(924,630)	$	(892,232)	$	600,234
Distributions to non-controlling interests	—	—		—	—		—		—		(9,714)		(9,714)		—

Stock-based compensation	—	—		—	—		4,022		—		—		4,022		—
Net income	—	—		—	—		—		—		2,329		2,329		8,408
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and ESPP transactions	1,564,956	—		—	—		—		—		—		—		—
Proceeds from employee stock purchase plan and exercises of options

SEC Form 10-Q filed by CompoSecure Inc.