Good day, and thank you for standing by. Welcome to the CompoSecure Q3 2022 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sean Mansouri. Sir, please go ahead.

Thank you, Justin. On our call today, we have the CEO of CompoSecure, John Wilk as well as the company's CFO, Tim Fitzsimmons. Please note that the discussion on today's call includes certain non-GAAP financial measures as defined by the SEC, including EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS. 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 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 Investor Relations section of our website. Due to the forward-looking nature of the adjusted EBITDA guidance we will provide on this call, specific quantifications of the charges excluded from forward-looking adjusted EBITDA, including with respect to depreciation, amortization, interest and tax rate that would be required to reconcile the non-GAAP financial measures included in such guidance to GAAP measures are not available. So it is not feasible to provide accurate forecasted non-GAAP reconciliations without unreasonable efforts. As a result, no disclosure of estimated comparable GAAP measures is provided and no reconciliation of the forward-looking non-GAAP financial measures is provided. Thank you. And with that, let me turn the call over to Jon to discuss our third quarter results. Jon?

Thanks, Sean. Good evening, everyone, and thank you for joining us for our third quarter 2022 earnings call. We're excited to announce that we have achieved another record quarter and continue to build upon our momentum from the first half of the year. Before we share some of our highlights, I want to recognize our more than 800 team members, who delivered an outstanding quarter for our shareholders. Now on to our results on Slide 2. For the third quarter, we achieved net sales of $103 million, which was up 56% versus last year as we continue to see strong demand for premium metal card products both domestically and internationally, and we capitalized on this through strong sales execution, deep customer relationships and partner channels. We also reported net income of $22 million, up 17% year-over-year, and adjusted EBITDA was higher than expected at $33 million for the quarter up 33% year-over-year due to a combination of our ability to drive significant economies of scale, our focus on operational excellence and efficiency and managing investments based on the Arculus ramp-up expectations and timing. Our growth trajectory is supported by positive card issuer trends including high consumer and business demand for premium cards and spending in such areas as travel, entertainment and services and growth in new customer card acquisitions for card issuers. I'll provide some additional detail on this in a few slides. It's important to note that as of today, we have not seen any major impact from larger economic issues. However, we're closely monitoring our customers, the market and macroeconomic factors. If economic indicators evolve, we believe we are well equipped to respond similar to how we executed throughout the pandemic when we grew both top and bottom line despite a challenged economy overall, and in particular challenges…

Thanks, Jon, and good evening, everyone. I'll provide a more detailed overview of our third quarter 2022 financial performance and turn it back to Jon before we open the call for questions. Unless stated otherwise, all of the various commentary is on a year-over-year basis. Third quarter 2022 net sales grew 56% to $103 million compared to $66 million last year. The increase was driven by strong domestic and international growth of our metal card business for both new and existing customers. Gross margins for the quarter increased to 60% versus 55% in the third quarter of 2021. We are benefiting from higher card issuance volumes as well as operating efficiencies. Despite the challenge of managing global chip and metal supply chain issues. Net income for the quarter of -- third quarter of 2022 was up 17% to $22 million. This includes a $1 million benefit from fair value adjustments associated with the mark-to-market of warrants and earn-out as well as a $10 million charge from a completed arbitration in the quarter. This arbitration contingency has been disclosed in our financial reporting year-to-date. Adjusted EBITDA for the quarter was $33 million, up 33% compared to Q3 2021. This was driven by strong growth on the top line, gross margin expansion and lower than planned spend at Arculus. Similar to last quarter, the Arculus revenue and investment resulted in a net impact of approximately minus $5 million in the third quarter. And as Jon said earlier, we now expect the full year net impact investment in Arculus to be in the negative $20 million to $22 million range. We add back noncash fair value adjustments to arrive at adjusted EBITDA of $33 million. Note that this includes the impact of the onetime arbitration charge of $10 million, I referenced a moment…

Thanks, Tim. As mentioned, we've updated our guidance. We are narrowing the 2022 net sales range to the high end of our previously announced guidance, we now expect sales for the year between $370 million and $380 million, reflecting an approximate 40% increase from 2021 at the midpoint. We're also raising our 2022 adjusted EBITDA guidance and now expect it to be in the range of $130 million to $137 million representing an increase of approximately 31% from the 2021 midpoint, or at the midpoint. As always, I'd like to share our strategic priorities with this audience, as you can see on Slide 15. We achieved another outstanding quarter that has us set up for a strong finish for 2022. And our strong performance validates our strategic business decisions in particular, our approach to the timing of our Arculus investment has enhanced margins for the quarter and the year and ensures that we are managing investment appropriately in order to drive long-term growth and profitability. We continue to see increased demand for our metal payment card offering from both new and existing customers, driven by strong sales execution, deep customer relationships and market momentum. The Arculus portfolio, we believe, is well positioned to support today's growing security payment and cold storage and authentication needs across a variety of industries, and we are focused on executing our sales and B2B marketing efforts. We are working to better time investment to growth by adjusting the investment timing for Arculus due to the current uncertainty in the marketplace. While we have not seen any major impact from macroeconomic issues as of today, we're monitoring our customers, the market and macroeconomic factors and are well equipped to respond. We're proud of what we have achieved in the last 9 months. And we believe we have differentiated ourselves from many other companies that went public in 2020 and 2021 by delivering strong results with revenue growth 40%, adjusted EBITDA growth north of 30% and EBITDA margins north of 30%. With that, I want to thank you all for taking the time to join us today. We very much appreciate your attention, and we'll now open it up to questions.

[Operator Instructions] And our first question comes from John Todaro from Needham.

Congrats on the quarter, everyone. Two questions here. First off, as we think about gross margin and the expansion you guys have been able to do there, kind of -- can you just give a little bit of maybe you're thinking of upper limit on unlocking efficiencies there kind of as we move longer term in the '23 and then '24? And then I have a follow-up question on SG&A.

So John, thanks for the question. As we think about gross margins, we've guided sort of long term, call it, mid-50s and we've been fortunate in that we have been able to offset rising supply chain costs and labor costs with the efficiencies that Tim outlined. As we look forward, we tend to be conservative around market environment, the potential for competition and a whole series of factors. So I'd say we're comfortable with guidance previously given.

Got it. And then just a quick follow-up to that. I believe the margin profile for Arculus on a gross margin basis is even kind of higher than that 60% level. Can you just be reminded on that? And is it fair to say as Arculus does ramp, that gross margin could expand more?

Yes. That is a fair point that we've made before, and I would agree with that we think our unit economics are perhaps even stronger on the Arculus side. And yes, I think we have the ability to deliver gross margins that would be in line to hire.

And our next question comes from Reggie Smith from JPM.

Congrats on the quarter. Just 2 quick questions for me. I know you guys have a pretty good look ahead in terms of, I guess, advanced orders for payment cards and such. My question is, as you stand here today, how does your backlog look or compared to maybe a year ago? Obviously, things can change. The economy is in question right now, but just curious what you're seeing from a advanced booking perspective? And then I have a follow-up.

Thanks, Reggie. When we look at the backlog it's strong and consistent with my comments, we have not seen impacts from some of the macroeconomic things happening around us, and consistent with messaging that others have delivered in earnings that we're continuing to push forward, intending to and wanting to drive growth and believe that we can -- if that changes, we will adapt. But our backlog as well as communications with customers at this point still give us positive indications.

Got it. And then just a follow-up. It sounds like the payment plus authentication card will be ready sometime in early '23. Just remind us kind of how did new product rollouts occur? And my question is, I guess, what I'm curious about is, have you already like received orders for those? Like how should we think about the initial deployment of that technology kind of occurring and rolling out?

Thanks, Reggie. So just a clarification. So the payment plus authentication is available now. So we can deliver that to the market. We got Visa and Mastercard approval for that. And that is working. That's -- we have the ability to deliver that to the market now. What I -- the comment I have made is our ability to deliver payment plus authentication plus cold storage is something that we would deliver early next year. So the conversations I highlighted, for example, with InBestGo or some of the other potential partners cover that payment plus authentication. So we're essentially selling that now and looking to deliver that. Does that make sense?

And I am showing no further questions. I would now like -- this concludes today's conference call. Thank you for participating. You may now disconnect.