GPGI

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2025, for CompoSecure, Inc. (trading symbol: CMPO). The Company is a manufacturer of complex metal and composite financial transaction cards. A material event occurred on February 28, 2025, with the spin-off of Resolute Holdings Management, Inc. ("Resolute Holdings"). Consequently, the Company no longer consolidates its operating subsidiary, CompoSecure Holdings, L.L.C. ("Holdings"), and instead accounts for it under the equity method. The Company's primary asset is now its equity interest in Holdings, while Resolute Holdings manages the operations of Holdings under a Management Agreement.

Key Financial Metrics

Note: Net sales for the three months ended June 30, 2025, are $0 because the operating subsidiary was deconsolidated on February 28, 2025. The six-month figure includes operations prior to deconsolidation.

Material Changes vs. Prior Period

• Deconsolidation Impact: Net sales decreased 100% for the quarter and 72% for the six months compared to the prior year periods due to the shift from consolidation to equity method accounting for Holdings.
• Operating Results: The Company reported a net loss of $26.1 million for the quarter, compared to net income of $33.6 million in the prior year quarter. This is primarily driven by a $53.4 million non-cash expense from the revaluation of warrant liability and a $10.7 million expense from earnout consideration liability revaluation.
• Equity Method Earnings: The Company recognized $38.9 million in earnings from its equity method investment in Holdings for the quarter, reflecting the profitability of the underlying operating business which is no longer consolidated.
• Liquidity: Cash and cash equivalents decreased from $77.5 million at December 31, 2024, to $4.8 million at June 30, 2025. This decrease is largely due to the deconsolidation of Holdings' cash balances ($50.3 million) and the spin-off of Resolute Holdings ($10.0 million).
• Debt: Long-term debt was removed from the Company's balance sheet upon deconsolidation. Holdings maintains a credit facility with $192.5 million in outstanding principal as of June 30, 2025.

Guidance, Outlook, and Risks

Management Commentary: Management emphasizes that the Company's operations are now limited to non-revenue generating activities (public company compliance, tax receivable agreement obligations) and its investment in Holdings. The Company relies on distributions from Holdings to fund its operations and obligations. Adjusted EBITDA for the six months ended June 30, 2025, was $81.1 million, indicating strong underlying operational performance despite the GAAP loss.

Risks and Contingencies:

• Management Agreement Reliance: The Company relies entirely on Resolute Holdings for management services. Resolute Holdings has substantial influence over strategy and operations.
• Tax Receivable Agreement (TRA): The Company has a significant liability ($248.9 million total expected payments) under the TRA. Payments are substantial and depend on the Company's ability to utilize tax benefits.
• Warrant Liability: The Company has a warrant liability of $137.4 million, subject to fair value adjustments that significantly impact net income.
• Customer Concentration: Four customers accounted for 70% of revenue for the six months ended June 30, 2025.
• Regulatory Risks: Significant risks exist regarding the Arculus digital asset platform, including potential regulatory classification of digital assets as securities and evolving cybersecurity threats.

Investor Verification Checklist

• Verify Holdings' Performance: Since the Company is now a holding company, verify the financial health and cash flow of CompoSecure Holdings, L.L.C., as it is the sole source of value and distributions.
• Assess TRA Obligations: Review the Tax Receivable Agreement liability ($248.9 million) and the Company's ability to fund these payments from Holdings' distributions.
• Monitor Warrant Liability: Track the fair value of the $137.4 million warrant liability, as fluctuations will continue to cause significant volatility in reported net income.
• Check Management Agreement Terms: Review the 2.5% management fee structure and termination clauses in the agreement with Resolute Holdings.
• Review Liquidity Position: Confirm that Holdings' cash balance ($91.7 million) and credit facility availability ($130 million revolver) are sufficient to service debt and fund distributions to the parent company.