GPGI, Inc. (GPGI Q2 FY2024 earnings call

• A strategic transaction was announced where the David Cote family will acquire a majority interest, making Dave Cote Executive Chairman. • Net sales reached a record $108.6 million with a 10% growth, and adjusted EBITDA grew by 8% to $40 million. • Expanded the partnership with Fiserv to market and resell Arculus Authenticate. • Maintained momentum with Arculus, with net investment in 2024 lower than in 2023 and expecting positive investment in 2025. • Highlighted new card programs launched by customers such as Turkish Airlines and the Wells Fargo co-branded metal card.

Net sales for CompoSecure in Q2 2024 increased by 10% to a record $108.6 million. Domestic net sales were $85.2 million, up 9% year-over-year, while international net sales reached $23.4 million, a 14% year-over-year increase. The domestic segment contributed a significant portion to the total net sales, and the international segment showed robust growth driven by demand for innovative products like the Echo Mirror card.

CompoSecure narrowed its fiscal 2024 full-year guidance. The company now anticipates net sales to be between $418 million and $428 million, and adjusted EBITDA to range from $150 million to $157 million.

• Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. • Financial risks, including fluctuations in cash flow, debt leverage, and potential impacts from macroeconomic conditions.

Q: Great. Thanks, guys. And congrats on a great deal here. Just a quick one on the Robinhood side. What's the sales sensitivity around that Robinhood card? It sounds like there's been a lot of signups from the wait list. What's the embedded assumption, I guess, for this piece within the guidance, is that a possible source of upside? Just wanted to better understand there. And it's obviously topical with Robinhood also presenting right now.

A: We are very excited about the partnership with Robinhood. There are two parts to the partnership: the core metal veneer gold card and unique solid gold cards. The high excitement from Robinhood customers presents a growth opportunity, though specific volumes of the program are not commented on.

Q: I just wanted to ask, I mean, it seems like you guys raised the full year guide by a bit more than the 2Q beat at least relative to our estimates. Just wanted to know what's driving that underlying shift, is it a change around expectations for domestic versus international growth, number of cards issued or maybe growth from top two clients or the posture of the macro? Just wanted to know relative to three months ago, has there been any underlying shift that you've seen in demand that's driving the full year outlook rate?

A: In Q2, both domestic and international growth were strong. International business, which had a slower start in Q1, bounced back with new programs launching internationally, contributing to the full-year outlook. Domestic growth remained solid, and international business is expected to steady out to historical norms.

Q: I know you guys mentioned removing the dual class shares and an incremental $20 million in annual free cash flow, which was nice to hear. I guess, do you guys have a longer term free cash flow conversion or target out there? And how are you guys prioritizing capital return?

A: The elimination of the dual class structure unlocks additional free cash flow. While a long-term free cash flow guide hasn't been set, the company is excited about the increased free cash flow for investing in the business and rewarding shareholders.

Q: Maybe, if I could just touch on the Fiserv Arculus partnership. Certainly, seems like a nice announcement, but maybe if you could kind of give us some color there. What do you think this distribution kind of reseller partnership does for the card?

A: The partnership helps validate the idea that a card can function as an authentication token beyond traditional use. Opening up the distribution channel via Fiserv, a major partner, is a great opportunity to build momentum with banks.

Q: Maybe if you could help us understand the kind of seasonal new card program launches. It seems like for this quarter, obviously, we had Robinhood last quarter, but maybe help us understand. Do you kind of expect more kind of in the second half of the year here, or is the first half typically the seasonally strong point for new card launches?

A: The examples provided are select new programs. There are multiple new card programs in each quarter, and seasonality isn't a strict factor; rather, it depends on when customers launch their programs.