CompoSecure, Inc. — Q1 2022 Form 10-Q
Filing identity: The supplied filing is for CompoSecure, Inc. (Nasdaq: CMPO), not GPGI, Inc. The quarter ended March 31, 2022; financial statements are unaudited. CompoSecure designs and manufactures payment cards and security products and has launched its Arculus digital-asset security platform. The December 2021 business combination was accounted for as a reverse recapitalization.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $84.2 million | $63.7 million | +32% |
| Gross profit / margin | $48.8 million / 58% | $34.3 million / 54% | Margin +4 percentage points |
| Operating expenses | $18.8 million | $8.1 million | +133% |
| Operating income / margin | $30.0 million / 36% | $26.3 million / 41% | Income +14%; margin down 5 points |
| Net income | $26.9 million | $23.2 million | +16% |
| Net income attributable to CompoSecure, Inc. | $4.7 million | $23.2 million | Down 80% |
| Operating cash flow | $11.9 million | $6.1 million | +$5.8 million |
Revenue growth reflected higher demand: domestic sales rose 12% to $62.4 million and international sales rose 178% to $21.8 million, with international growth attributed partly to FinTech demand and expanded distributor channels. Gross-margin improvement reflected favorable product mix and better manufacturing yields. Operating expenses increased $10.7 million, including higher marketing and professional fees, bonuses and commissions, insurance, and other growth-related costs.
Consolidated net income increased, but $22.2 million was attributable to redeemable non-controlling interests. Accordingly, income attributable to CompoSecure, Inc. was $4.7 million. Basic and diluted Class A earnings per share were $0.32 and $0.16, respectively. Adjusted EBITDA, a non-GAAP measure, was $33.3 million versus $29.3 million; the filing cautions it is not a substitute for GAAP results or operating cash flow.
Financial position and liquidity
- Cash and cash equivalents were $15.5 million at March 31, 2022, down from $21.9 million at year-end. Operating cash flow of $11.9 million was more than offset by $1.4 million of capital spending and $17.0 million of net financing cash outflow, including $23.8 million of business-combination issuance costs.
- Working-capital balances included accounts receivable of $38.6 million and inventory of $27.2 million. The company reported $42.6 million in inventory-related purchase commitments.
- Total debt principal was reported as $402.0 million, compared with $395.0 million at December 31, 2021. The balance sheet carries debt net of financing costs and separately presents exchangeable notes and the revolving line. Of the $60 million revolver, $35 million was available at quarter-end, subject to covenant conditions.
- The term loan and revolver mature December 16, 2025; the $130 million exchangeable notes mature December 27, 2026, bear 7% interest, and are exchangeable at $11.50 per Class A share. The company said it complied with debt covenants and believed cash, operations, and available liquidity would meet needs for at least 12 months from filing.
- A $125 million interest-rate swap, maturing in December 2025, hedges variable-rate debt. Its $4.0 million fair-value gain was recorded in other comprehensive income. The filing estimates a 100-basis-point rate change would affect annual interest expense by $4.0 million.
Outlook, risks, and unusual items
No specific revenue or earnings guidance is provided. Management described demand as stronger as markets emerged from pandemic effects, while noting continued supply-chain importance and uncertainty. It expects public-company expenses to increase. The filing identifies risks from customer and supplier concentration, competition, production disruption, chip availability, COVID-19 and broader economic conditions, and the uncertain commercialization and regulation of Arculus and digital assets.
Two customers represented 64.9% of Q1 revenue; four customers represented approximately 95% of receivables at quarter-end. One supplier represented approximately 11% of Q1 supply purchases. A former sales representative’s commission dispute is in binding arbitration; the potential claim is $4 million to $11 million plus costs and possible future commissions. No amount was accrued for that disputed claim, and the company stated it intended to oppose it. Separately, accrued expenses included $4.4 million related to an existing sales-representation agreement.
Fair-value changes affected reported results: the earnout liability declined by $4.1 million, producing a gain, while warrant remeasurement produced a $1.4 million loss. Management reported disclosure controls were effective as of March 31, 2022 and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the filing’s issuer: the document identifies CompoSecure, Inc., whereas the request metadata names GPGI, Inc.
- Assess whether customer concentration and the sharp increase in international sales are sustainable.
- Reconcile debt principal, balance-sheet carrying amounts, maturities, floating-rate exposure, and the revolver’s borrowing conditions.
- Track cash conversion and working-capital needs, including the $42.6 million of inventory purchase commitments.
- Monitor the arbitration outcome and potential commission exposure, as well as Arculus adoption, security, supply, and regulatory risks.