Earnings call transcript: CompoSecure Q4 2024 misses forecasts, shares fall

CompoSecure Inc. (CMPO) reported its fourth-quarter and full-year 2024 earnings, missing analysts’ expectations for both earnings per share (EPS) and revenue. The company posted an EPS of $0.20, falling short of the $0.22 forecast, while revenue was reported at $100.9 million, below the anticipated $102.58 million. Following the announcement, CompoSecure’s stock fell by 7.57% in aftermarket trading, closing at $11.11. According to InvestingPro data, the company maintains strong fundamentals with a Financial Health Score of "GREAT" and a current ratio of 2.43, indicating solid liquidity position.

Key Takeaways

• CompoSecure missed both EPS and revenue forecasts for Q4 2024.
• The company’s stock declined by 7.57% in aftermarket trading.
• Despite the miss, full-year net sales increased by 8% year-over-year.
• Arculus achieved a positive net contribution in Q4.
• New metal card launches contributed to product innovation.

Company Performance

CompoSecure’s overall performance in 2024 was marked by an 8% increase in net sales, driven by strong domestic and international sales growth. However, the fourth quarter saw a decline in adjusted EBITDA by 10% year-over-year, indicating some operational challenges. The company’s innovative product offerings, including new metal card launches, played a significant role in maintaining its competitive edge.

Financial Highlights

• Full Year 2024 Net Sales: $420.6 million (+8% YoY)
• Q4 Net Sales: $100.9 million (+1% YoY)
• Full Year Adjusted EBITDA: $151.4 million (+4% YoY)
• Q4 Adjusted EBITDA: $33.6 million (-10% YoY)
• Cash and Cash Equivalents: $77.5 million
• Total Debt: $197.5 million (60% reduction in net debt)

Earnings vs. Forecast

CompoSecure reported an EPS of $0.20 for Q4 2024, missing the analyst forecast of $0.22 by $0.02. The revenue of $100.9 million also fell short of the expected $102.58 million. This performance represents a slight deviation from previous quarters where the company generally met or exceeded expectations.

Market Reaction

Following the earnings announcement, CompoSecure’s stock price fell by 7.57% in aftermarket trading, closing at $11.11. This decline reflects investor concerns over the company’s ability to meet forecasts. Despite the recent pullback, InvestingPro analysis shows the stock has delivered an impressive 222.75% return over the past year. The current RSI suggests the stock is in oversold territory, and InvestingPro’s Fair Value analysis indicates the stock may be slightly undervalued at current levels. For detailed valuation metrics and additional insights, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

Looking ahead, CompoSecure expects mid-single-digit growth in net sales and adjusted EBITDA for 2025. The company plans to continue investing in organic growth and exploring merger and acquisition opportunities. Arculus is projected to reach net positive status in 2025, contributing to the company’s long-term growth strategy. InvestingPro data reveals strong free cash flow yield and analyst consensus remains bullish with price targets ranging from $14.50 to $19.09, suggesting potential upside. Subscribers can access eight additional ProTips and detailed financial metrics through the platform’s comprehensive analysis tools.

Executive Commentary

Dave Cody, Executive Chairman, emphasized, "We’ve taken foundational steps in the last six months to position the company for long-term success." CEO John Wilk added, "We’re making investments now. We expect to see those building as we move through the year and into next year."

Risks and Challenges

• Potential supply chain disruptions could impact production and delivery timelines.
• Market saturation in the payment card industry may limit growth potential.
• Macroeconomic pressures, such as inflation and interest rate changes, could affect consumer spending.
• Tariff impacts on international sales could pose additional challenges.
• Dependence on a limited number of large customers for significant revenue.

Q&A

During the earnings call, analysts inquired about the strategy behind the Resolute Holdings spin-off, the implementation of the CompoSecure Operating System, and the company’s approach to mergers and acquisitions. Executives addressed potential tariff impacts and provided insights into the Arculus business model, emphasizing its role in future growth.

Full transcript - CompoSecure Inc (CMPO) Q4 2024:

Conference Operator: Hello. Welcome to Compost Secure Inc. Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session.

To ask a question during the session, you will need to press 11 on your telephone. I would now like to turn the conference over to Steven Feder, General Counsel and Corporate Secretary for Compost Secure. You may begin.

Steven Feder, General Counsel and Corporate Secretary, Compost Secure: Good afternoon, and thank you for joining us.

John Wilk, Chief Executive Officer, Compost Secure: With me

Steven Feder, General Counsel and Corporate Secretary, Compost Secure: on the call is Dave Cody, Executive Chairman of Campos Secure John Wilk, Chief Executive Officer and Tim Fitzsimmons, Chief Financial Officer. They will begin with prepared remarks, and then we will open the call for Q and A. During the call, we will make statements relating 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 actual results to differ materially from our expectations. For a discussion of risks and uncertainties that could cause actual results to differ materially from our expectations. Please refer to the information in our annual report on Form 10 K and other reports filed with the SEC available on IR section of our website and on the SEC’s website at sec.gov. Please note that today’s discussion will include certain non GAAP financial measures, including adjusted EBITDA, adjusted net income, adjusted EPS, net debt 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 for 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 IR section of our website.

Thank you. And with that said, let me turn the call over to Executive Chairman, Dave Cody.

Dave Cody, Executive Chairman, Compost Secure: Good afternoon, everyone. Over the past several months, I’ve spent considerable time with the team and I’ve developed an even deeper appreciation for the strengths of this business. Its leadership in metal credit cards, strong culture of innovation, and most importantly, the significant long term potential of the business. We’ve taken foundational steps in the last six months to position the company for long term success. We’ve initiated investments to build a high performance culture and strengthen our operating capabilities.

We’ve begun implementing the Compost Secure Operating System or CoS to enhance efficiency and execution across all areas of the business. And importantly, we’re reinvigorating our organic growth potential. Given we have less than 1% penetration of the current card market and the financial and brand benefits to a card issuer are huge, the upside for us is significant. We believe these investments will drive meaningful results over time, enhancing our ability to foster a culture of excellence that delivers for our customers, employees and investors. So with that, I’ll turn it over to John.

John Wilk, Chief Executive Officer, Compost Secure: Thanks, Dave, and thank you all for joining us for our fourth quarter and full year conference call. 2024 was a foundational year for Aconfos Secure. We delivered 8% growth in net sales with robust free cash flow generation, while continuing to drive product innovation and expand our business internationally. We also materially improved our balance sheet last year with a 60% reduction in net debt down to $120,000,000 Our fourth quarter net sales were essentially flat and our fourth quarter adjusted EBITDA was down 10%, reflecting the investments we are making in our business to ignite organic growth and drive improved operating efficiencies throughout the organization. We’re also excited to announce our first quarter of positive net contribution for Arculus in Q4.

Looking ahead, we continue to focus on accelerating payment card organic growth, driving efficiency through the Composecure operating system, gaining additional traction with Arculus and delivering accretive M and A. We took a big step in establishing our foundation for M and A by completing the spin off of Resolute Holdings on February 28, positioning our business for accelerated growth and diversification of revenue. For the upcoming year, we expect mid single digit growth for both net sales and adjusted EBITDA with sales momentum building through the year. Our adjusted EBITDA expectations also include the payment of the new Resolute Holdings management fee for 2025 and 2024 on a pro form a basis. On Slide four, you’ll see that we had several high profile metal payment card launches around the globe for both traditional banks and fintechs.

These launches included the City American Airlines card, which represents our first domestic metal card program with City Barclays, the private bank card in The UK and JetBlue co branding card in The U. S. In addition, other examples included HSBC and Capital on Top among others. On Slide five, you can see Compost Secure’s largest customers continue to report purchase volume growth year after year, year over year, even in the face of economic uncertainty around tariffs. On Slide six, we also see continued strength of the payment card industry supported by healthy consumer spending and demand for premium products and the commentary from these players.

As an example, Capital One continues to see strong new account growth in its domestic card business with increased investment in premium benefits and differentiated experiences. Meanwhile, Visa and Mastercard highlight value added services, fraud prevention solutions and the resilience of consumer spending even amid economic fluctuations. For those of you new to our story on Slide seven, we showcase why metal cards continue to gain traction. Beyond aesthetics, metal cards deliver real business value, enhancing issuer branding, driving higher customer acquisition and increasing top of wallet positioning. Despite the introduction of digital wallets over the past decade, payment cards remain the preferred choice for consumers.

On Slide eight, we highlight the Arculus security and authentication solutions. Arculus Authenticate provides seamless multi factor authentication for secure logins and fraud prevention, while Arculus cold storage enables users to safeguard their digital asset keys with advanced encryption. As I mentioned earlier, we’re pleased to report that Q4 marked our first quarter of positive net contribution from Arculus and we remain well positioned to achieve a net positive target for Arculus for the full year of 2025. On a full year basis for 2024, Arculus generated $10,500,000 of revenue and a net investment of $3,500,000 of adjusted EBITDA when adding back depreciation and stock based compensation. With that, I’ll hand it over to Tim for a deeper discussion on our financials.

Tim Fitzsimmons, Chief Financial Officer, Compost Secure: Thank you, John, and good afternoon, everyone. I’ll provide a more detailed overview of our Q4 and full year 2024 financial performance and then turn it back to John before we open the call for questions. Unless stated otherwise, all comparison and variance commentary are on a year over year basis. In Q4, net sales increased by 1% to $100,900,000 Domestic sales were flat year over year. International net sales were up 7% to $15,400,000 Gross profit for the quarter was $52,500,000 or 52.1% of net sales compared to $52,900,000 or 52.9 percent for the same quarter of the prior year.

Net loss was $48,400,000 in Q4 compared to net income of $31,000,000 last year. The decrease was driven by an improvement to the company’s stock price during the quarter, which led to a change in the fair value of the warrant liabilities, earn out consideration liability and derivative liability. Net loss per share was $0.53 per basic and $0.53 per diluted share compared to $0.17 per basic and diluted share for the same quarter of the prior year. Adjusted EBITDA in Q4 decreased by 10% to $33,600,000 with the decline being driven by strategic investments in the business that we expect will reinvigorate organic growth and improve operating efficiencies. Adjusted net income was up 8% in Q4 to $24,800,000 with the improvements driven by interest rate savings from the conversion into equity of $130,000,000 of exchangeable notes.

Adjusted EPS was $0.27 per basic and $0.2 per diluted share compared to $0.29 per basic and $0.24 per diluted share in the prior year. Quickly reviewing our full year results, net sales grew 8% to $420,600,000 Domestic sales increased 7%, reflecting continued demand for premium metal cards. International sales grew 11%, highlighting our successful expansion in key global markets. Gross profits for the full year was $219,200,000 with a gross margin of 52.1% compared to 53.5 in 2023. This decline was primarily due to production of new product constructions and inflationary pressures on wages and materials.

Adjusted EBITDA increased 4% to $151,400,000 Adjusted net income increased 11% to 98,200,000 Net loss was $83,200,000 compared to net income of $112,500,000 in 2023. The decrease was due to changes to the fair value of the warrant liabilities, earn out consideration liability and the derivative liability, partially offset by a decrease in operating expenses. Adjusted EPS was $1.17 per basic and $0.95 per diluted share compared to $1.12 per basic and $0.92 per diluted share in 2023. Moving on to the balance sheet. As of 12/31/2024, we had $77,500,000 of cash and cash equivalents and total debt of $197,500,000

John Wilk, Chief Executive Officer, Compost Secure: This compares

Tim Fitzsimmons, Chief Financial Officer, Compost Secure: to $41,200,000 of cash and cash equivalents and $340,300,000 of debt at 12/31/2023. Our bank agreement senior secured debt leverage ratio was 1.25 times at 12/31/2024, based on total secured debt of $197,500,000 and trailing twelve month bank adjusted EBITDA of $157,800,000 This compares to a leverage ratio of 1.39 times at 12/31/2023. Turning to our cash flow statement on Slide 15, you could see that net cash provided by operating activities for 2024 was $129,600,000 dollars up 24% compared to last year with free cash flow up 62% to 84,900,000 I will now hand it back over to John for closing remarks before we take questions.

John Wilk, Chief Executive Officer, Compost Secure: Thanks, Tim. As I mentioned earlier, for 2025, we expect mid single digit growth in both net sales and adjusted EBITDA. Our sales momentum is expected to build throughout the year, supported by our deep customer relationships and innovative product offerings. We are also planting seeds to accelerate growth, while leveraging the Composecure operating system to drive operational excellence. We remain mindful of global economic tensions, including tariffs and further pressure on the consumer and are committed to being thoughtful about running and investing our business to ensure we deliver both short and long term value for our shareholders.

On Slide 17, I’ll close by sharing a reminder of our key objectives for 2025 accelerating payment card organic growth, driving efficiency through the Composecure operating system, continuing to deliver Arculus traction and delivering accretive M and A. With that, I’d like to open up the call for Q and A.

Conference Operator: Thank you. Our first question comes from the line of Moshe Orenbuch with TD Cowen. Your line is open.

Moshe Orenbuch, Analyst, TD Cowen: Great. Can you guys hear me?

Dave Cody, Executive Chairman, Compost Secure: We can.

Moshe Orenbuch, Analyst, TD Cowen: Great. So I guess you did say that the your revenue growth will accelerate during the course of the year. Can you talk a little bit about what might end what rate might it end 2025? And what are the factors that are kind of causing that acceleration? Like are those things those contracts you already have in hand?

Like how does that work?

John Wilk, Chief Executive Officer, Compost Secure: Thanks Moshe. Look, we’re not giving quarter by quarter guidance Moshe. We’re just trying to give you some insight into what we see in a combination of the backlog and pipeline that we use to manage the business with pretty good visibility.

Moshe Orenbuch, Analyst, TD Cowen: Got you. Okay.

John Todaro, Analyst, Needham: And maybe

Speaker 7: if you could kind

Moshe Orenbuch, Analyst, TD Cowen: of just expand and flesh out a little bit the things and the steps that the Compost Secure Operating System, what will what do you expect to be realized during 2025? What kind of things are going on that will be realized after 2025?

John Wilk, Chief Executive Officer, Compost Secure: So for us, the operating system looks at really the entirety of the company. Think about from the time we get an order in till we get cash in the door. So it’s not just manufacturing or lean manufacturing sort of concepts that we’re diving deep within that function. So we’re literally looking at every function across the place HR, finance, sales, how we process orders and then Moshe, again a deep dive into the manufacturing and a lot of the lean manufacturing concepts to drive out those efficiencies. It’s a combination of a somewhat relentless and maniacal focus that we bring to that discipline and we always think we’ve been good at this.

Dave and what he brings to the table is just next level around how to think about this. So that’s where he’s pushing us and that’s where we are driving as a team to deliver those efficiencies and we expect to see those. We’re making investments now. We expect to see those building as well as we move through the year and into next year where we should really start to see the benefit of both the organic growth side and the efficiency side.

Moshe Orenbuch, Analyst, TD Cowen: Great. Thanks. I’ll get back in the queue.

John Wilk, Chief Executive Officer, Compost Secure: Thanks Moshe.

Conference Operator: Will you stand by for our next question? Our next question comes from the line of Hal Ghosh with B. Riley Securities. Your line is open.

Hal Ghosh, Analyst, B. Riley Securities: Hey, thank you. First question

Speaker 7: is on Arculus. Thanks for the commentary on the detail there. Kind of what was kind of the exit rate revenue for Arculus on annualized run rate? And what can we expect

Hal Ghosh, Analyst, B. Riley Securities: this business maybe to contribute

Speaker 7: versus 2024? Thanks.

John Wilk, Chief Executive Officer, Compost Secure: Hal, we’re not going to break down the guidance sort of within payment card versus Arculus, but the run rate exit was quite strong. So the fourth quarter was very strong in terms of how we finished and it does sort of roll us into a good run rate to ensure that we’re going to deliver that net positive result in 2025 and really start to see we think what this business can deliver. We feel really good about where we ended and where we’re entering this year around ArQulus, both on the authentication side and momentum we’re seeing on the cold storage side.

Hal Ghosh, Analyst, B. Riley Securities: Okay. And on the metal car business, can you just give

Speaker 7: us maybe a feel for what the funnel and pipeline is for domestic and then international? Because both they basically grow at different rates. They’re very difficult to predict quarter to quarter. One contributes one quarter one and the other. Give us your thoughts on that financial.

John Wilk, Chief Executive Officer, Compost Secure: Yes. So if you remember last year how we talked we had a kind of lower first quarter internationally and I talked very specifically about think of it over kind of the year where we expect international to be about 20 of revenue as we move through the year. It just because of the size, because of the nature of those orders, we do see more variability in when some of those come through, but we said it would come out about 20%. I think for the full year, we came out about 18%, which was right in line with what we expected. And I’d say as we look into 2025, we’re pretty balanced about what we see on both the domestic and the international growth side.

In the end, international growth was stronger year over year for us last year. Yes.

Hal Ghosh, Analyst, B. Riley Securities: Okay. Thank you. I’ll get back in

Speaker 7: the queue. Thanks. Thanks, John.

John Wilk, Chief Executive Officer, Compost Secure: Thanks, Al.

Conference Operator: Please stand by for our next question. Our next question comes from the line of Cassie Chan with Bank of America.

Cassie Chan, Analyst, Bank of America: I guess first just wanted to ask about Resolute. Obviously, that’s all squared away now, but just wanted to walk through and just make sure we understand what the Resolute impact on your P and L is for 2025. And I guess more broadly, what part they’re going to be playing in terms of overall strategy for your business? You guys have talked about accretive M and A a lot. Can you just give us a little bit more detail in terms of the type or size of the companies that you’re looking at as well?

Thank you.

John Wilk, Chief Executive Officer, Compost Secure: Sure. So, Cassie, I’d say the impact on the business is incredibly meaningful. So and it’s to me across all three dimensions that we talk about. It’s organic growth, it is the operating system work and it is the M and A work. So very active input and participation with the Resolute team and with Dave specifically across all three of those.

So Dave’s literally been on customer calls with us, meeting with me, meeting with the team on the operating system work and there is a very robust pipeline of opportunities. Resolute had a robust pipeline of opportunities when they were looking at Compose Secure. That work remains in terms of things we’ll look at up and down the spectrum of opportunities that will deliver accretive M and A, like that is the sort of number one criteria, it will deliver value for our investors. And Dave, I don’t know if you want to jump in there. Got it.

I hope that was helpful.

Hal Ghosh, Analyst, B. Riley Securities: Our

Conference Operator: next question comes from the line of Jacob Stefan with Lake Street Capital Markets. Your line is open.

Hal Ghosh, Analyst, B. Riley Securities: Hey guys, appreciate you taking the questions. Maybe if you could just kind of piece the guidance out for us a little bit, the mid single digit growth revenue growth. How do you kind of think about it when you look at stabilized kind of card programs versus kind of some of your newer ramping programs and overall kind of new card launches?

John Wilk, Chief Executive Officer, Compost Secure: Jacob, 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. So importantly, we’re planting the seeds, we’re building out the sales team further to help ensure that we can accelerate that organic growth and drive the kind of long term results we have historically. And we don’t want to make sure we’re driving it for investors as we move forward here.

Hal Ghosh, Analyst, B. Riley Securities: Okay, helpful. And then maybe just on Archibus, obviously, tracking well ahead of expectations on kind of the net investment level, but maybe I know you said there’s kind of broad based strength in the programs, but at the end of the day, is it more on the Authenticate side or more on the kind of cold storage side that customers are paying for currently?

John Wilk, Chief Executive Officer, Compost Secure: Yes, I’d say it’s both. If it would lean one way or the other, probably more towards authentication, but we’ve seen strength in both.

Hal Ghosh, Analyst, B. Riley Securities: Okay, got it. I’ll hop back in the queue. Thanks.

Conference Operator: Please stand by for our next question. Our next question comes from the line of Brian Beaton with Needham. Your line is open.

John Todaro, Analyst, Needham: Hey, thanks. It’s John Todaro from Needham on. Hey, guys, I had two here. First, and I know we’ve been through this before, but it is very topical for investors. So can you just kind of give us the refresher on spinning off Resolute versus kind of keeping a team internally to vet and explore M and A opportunities?

And then I have a follow-up on the authentication comments.

John Wilk, Chief Executive Officer, Compost Secure: So John, the mission doesn’t change, right, in terms of driving accretive M and A. We strongly believe that this structure delivers more value to shareholders over time as you look at how asset managers are valued in the market, that sort of steady predictable stream of revenue that they receive is ultimately how we believe the markets will look at Resolute over time as that revenue builds for them. So the missions and outcomes don’t change. The structure we believe delivers better returns for investors and net net sort of after the spin if you looked at kind of the compo stock price and kind of value of resolute net net we were up slightly after the spin. Obviously, stocks moving up and down, but we firmly believe it delivers more value for investors over the long term.

John Todaro, Analyst, Needham: Okay, understood. Thanks for that, John. And then just on the authentication piece, it’s interesting that that’s growing quite a bit here actually. But just so how are just walk us through a little bit to that sales process. Is it longer term contract?

When do those conversations begin and ultimately end with the deal being signed? Just would love a little bit more color on that piece.

John Wilk, Chief Executive Officer, Compost Secure: Sure. So that sales cycle follows something somewhat akin to mail payment cards in terms of how we’re working through with clients, the different use cases, how that product can reduce fraud, increase security for them, particularly for medium to high risk transactions. It puts a hardware token in their hand, not having to carry a separate dongle. And so some medium length sales cycle where you’ve got sort of the card buyers plus the fraud teams typically engaged. With larger banks, it’s been a longer sales cycle, which is why it’s taken us a little longer, I think, to ramp that.

Fintechs tend to move a little quicker in terms of pace. So we’re pleased with the momentum here, John.

John Todaro, Analyst, Needham: Great. I’ll hop back in the queue. Thank you.

John Wilk, Chief Executive Officer, Compost Secure: Thanks.

Conference Operator: Please standby for our next question. Our next question comes from the line of Reggie Smith, JPM. Your line is open.

Steven Feder, General Counsel and Corporate Secretary, Compost Secure0: Thank you. Good evening, guys. This is a follow-up on the Resolute Holdings question from earlier. Just curious, is the thinking that a resolute will only manage Compositor or is the plan to eventually bring in third party capital and or maybe even manage other companies? And I have a few follow ups.

Thank you.

John Wilk, Chief Executive Officer, Compost Secure: Reggie, the primary intention is to drive the value of the Composequre share price. So Dave and the Resolute team have roughly $600,000,000 7 hundred million dollars of equity capital in CMPO stock and the goal is to drive that up period full stop. That’s the intention. Things that we acquire would be acquired by CMPO, sort of that’s the model. It doesn’t exclude Resolute from ever having another agreement with someone else, but trust me when I say the intention here is to drive the value of CMPO stock.

That’s how the incentives are aligned, stock compensation is aligned that way, and that’s what we’re driving towards.

Steven Feder, General Counsel and Corporate Secretary, Compost Secure0: Okay, perfect. And then I guess Dave, just thinking about the PAMPO operating system and I guess we’ve never really got a great view into like how the expenses breakdown within pods. Is there a way to think about, I guess material costs? Like is that the significant thing? Is it people?

Is it process? And I heard you guys talk about investment. Is there any plans to maybe do CapEx investments improve the process? Like how should we think about the opportunity there? Thank you.

Dave Cody, Executive Chairman, Compost Secure: Sure. From a CapEx standpoint, it’s generally not that expensive. This is more a method of operating and getting everybody in the factory involved in understanding what they’re doing, how can they make it better and ensuring that anything that’s not going to pass muster doesn’t get passed along quite honestly. And it’s a big process and people focus. And that’s where the cultural headset makes a big difference.

So this is not the sort of thing where you tell people, hey, Friday, keep doing what you’re doing, Monday, come in prepared to do COS. There’s an acculturation process, if you will, that you have to go through to get everybody on board and understanding how significant their job is in the scheme of things. So you don’t see the benefit of it immediately in terms of big numbers, takes a few months to really get it rolling. We’re a much smaller operation across than what we had to deal with at Honeywell, so should happen a little faster. But the benefits are huge.

And as you start improving yields in particular, that gets you to just a tremendous place. Costs go down, free capacity, free floor space. It’s really pretty impressive what you can do. And think of it this way, it’s really the Toyota production system that we’re modifying for compo. And man, I feel very good.

The guys are off to a great start. Our manufacturing leaders and engineering leaders working with John are really driving the headset and the cultural change. But this is more of a process, people and cultural headset more than anything else. Does that answer your question?

Steven Feder, General Counsel and Corporate Secretary, Compost Secure0: It does. It’s funny. It reminds me of reading the goal in business school here in those firms, floor space and things like that. So that’s great.

Moshe Orenbuch, Analyst, TD Cowen: That’s good to hear.

Steven Feder, General Counsel and Corporate Secretary, Compost Secure0: I guess last question for me. I guess in terms of tariffs, I’m not sure if you guys get your metal cards in the country. Is there anything to think about there as it relates to tariffs and how that may impact your raw material costs?

John Wilk, Chief Executive Officer, Compost Secure: Yes. Thanks for the question, Reggie. Certainly, it is something we are keeping a keen eye on. We definitely have materials that come from Europe, some from Asia, very little from China, but it is something we’re watching closely. Yes, it could have an impact.

I would say as you think about industrial companies, we’re much less at risk to those fluctuations than what you would typically see in an industrial or industrial tech company. That said, it’s a very important watch item for us.

Steven Feder, General Counsel and Corporate Secretary, Compost Secure0: Okay. I’ll jump back in the queue. Appreciate it.

John Wilk, Chief Executive Officer, Compost Secure: Thanks, Reggie.

Conference Operator: Please standby for our next question. We have a follow-up question from the line of Moshe Omburch with TD We have another follow-up question from the line of Reggie Smith. Your line is open.

John Wilk, Chief Executive Officer, Compost Secure: Reggie, good to hear from you again.

Steven Feder, General Counsel and Corporate Secretary, Compost Secure0: Back again. Listen, I was curious, it may be hard to answer, but is there a way to frame kind of an up to limit as far as like the size of a deal you may be interested in? Obviously, it’s not a commitment, but just trying to understand the scale of the things you may be exploring, if possible. Thank you.

John Wilk, Chief Executive Officer, Compost Secure: So I’m happy to take it and then Dave wants to follow-up, Ken. But Reggie, I think we said before, but I’m pretty sure we will look at things small, medium and large. And I know that’s not answering your question, but it’s we’re not limited to sort of small or small to medium. We will look at a pretty broad spectrum of things. There are a set of criteria that Dave looks at for every acquisition, ours included.

It’s got to hit those and it’s got to be a value and a price that we think can deliver exceptional return for our investors. That’s the critical criteria for us right now.

Dave Cody, Executive Chairman, Compost Secure: Yes. And if I could just add to John’s point, this is all going to come down to where can we add value with the operating tools that we bring. So you’re not going to see us do something that you look at and go, well, I don’t understand how they can add value here. It’ll make sense. But just to reinforce something John said earlier, Tom, me, the rest of the acquisition team, our equity is in compo, not in Resolute.

So we are heavily incentivized to make sure that compo performs really well and that the stock performs well for our share owners. So that’s where our focus is.

Conference Operator: Thank you. Please stand by for our next question. We have a follow-up from the line of Moshe Orenvirt with TD Cowen. Your line is open.

Moshe Orenbuch, Analyst, TD Cowen: Great. Sorry about that before. I couldn’t figure out on this new phone. I had to unmute. And Dave, thanks for that last comment.

That actually is very helpful. Question is just kind of a technical one. Could you just I got a couple of people kind of emailing in and asking what exactly does that pro form a guidance mean with respect to the Resolute payments? Does it mean as if it were in effect for the entire year or in effect from some other date? Like just to could you just say what that means?

John Wilk, Chief Executive Officer, Compost Secure: So Moshe, the guide is that the business, right, if you want to look at it with the Resolute Management fee last year and this last year on a pro form a basis and this year, if you want to look at it without the business is expected to grow mid single digits.

Moshe Orenbuch, Analyst, TD Cowen: Right. And I think just as a follow-up to that, you had said that the adjusted EBITDA was positive in the fourth quarter related to Arculus by $3,500,000 right?

John Wilk, Chief Executive Officer, Compost Secure: Yes.

Moshe Orenbuch, Analyst, TD Cowen: So if that had been zero or negative for the rest of the year, I guess shouldn’t that alone, if that continues, be a big driver of adjusted EBITDA growth into 2025?

John Wilk, Chief Executive Officer, Compost Secure: We are also making investments, Moshe, and I talked about this in terms of the investments we’re making in engineering talent, sales talent, somebody asked about CapEx to essentially get to where we want to get to around the operations and the efficiency. And it’s sort of taking those things into account.

Moshe Orenbuch, Analyst, TD Cowen: Okay. All right. Thanks very much.

Conference Operator: Thank you. Ladies and gentlemen, I’m showing no further questions in the queue. And that concludes today’s conference call. Thank you for your participation. You may now disconnect.

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