Good day, and thank you for standing by. Welcome to the CompoSecure Fourth Quarter and Full Year 2022 Earnings Conference 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, Steve Feder, General Counsel and Corporate Secretary. Please go ahead.

Good evening, and thank you for joining us to review CompoSecure's fourth quarter and full year 2022 financial results. With me on the call tonight is Jon Wilk, CompoSecure's Chief Executive Officer; and Tim Fitzsimmons, Chief Financial Officer. They will begin with prepared remarks, and then we will open the call for Q&A. During the call, we will make statements related 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 the actual results to differ materially from our expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to the information in our annual report on Form 10-K and other reports filed with the SEC, which are available on the Investor Relations section of our website at composecure.com and on the SEC's website at sec.gov. Please note that the discussion on today's call includes certain non-GAAP financial measures, including 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. Thank you. And with that said, let me turn the call over to Jon to discuss fourth quarter and full year earnings.

Thank you, Steve. Good evening, everyone, and thank you for joining us for our fourth quarter and full year 2022 conference call. I'm excited to announce that we achieved a record of growth and profitability in 2022 while closing out the year on a high note with strong results for the fourth quarter. This year, we shipped approximately 30 million metal cards, up 36% from 2021, and I want to recognize and thank all of our employees for their ongoing commitment to our success. Before I go into further financial details, I want to spend a few moments contextualizing this remarkable year for CompoSecure with 41% net sales growth and 33% adjusted EBITDA, respectively. We have previously stated that we anticipate our business to grow, on average, at around a 15% CAGR. And I believe last year's outperformance was driven by our ability to capitalize on several fundamentals. First, metal payment cards have become an important tool to help our clients deliver on their goals of increasing customer acquisition and taking greater share of their customer spend, with the cards becoming top of wallet. Over the past 8 years, the audience for metal cards has greatly expanded, beginning with high net worth individuals, moving to the mass affluent and now becoming a highly sought-after product for millennial and Gen Z consumers. Second, we continue to demonstrate the value of our deep client relationships, best-in-class products and strong sales execution. These factors, combined with our capacity to deliver the scale and high quality required by our clients, is simply unmatched. Lastly, following 2 years of COVID, there was pent-up demand for consumer spending, which provided a tailwind for our clients and thus, our own business. It's worth noting that we see consumers around the world demanding branded experiences that support and…

Thanks, Jon, and good evening, everyone. I'll provide a more detailed overview of our 2022 financial performance and then turn it back to Jon before we open up the call for questions. Unless stated otherwise, all of the comparisons and variance commentary is on a year-over-year basis. As Jon mentioned, for the full year 2022, net sales increased 41% to $378.5 million compared to $268 million. The increase was driven by continued strong sales execution and growth of our metal card business domestically and abroad for both new and existing customers. Gross profit for 2022 increased 52% to $220 million or 58% of net sales compared to $145 million or 54% of net sales. Throughout the year, we benefited from higher card issuance volumes as well as operating efficiencies as we scale business, which was partially offset by higher supply chain costs in the back half of the year versus the first half. Net income for 2022 increased 58% to $132 million compared to $83 million, and adjusted EBITDA increased 33% to $136 million compared to $102 million. The increase was driven by continued strong growth on the top line, gross margin expansion and increases from revaluation of the earn-out and the warrants. Adjusted EBITDA margin for the year came in at 36% compared to 38%, with the decrease driven by a combination of factors, including public company costs; a onetime settlement of a dispute through arbitration, which has been consistently disclosed in our quarterly filings; and continued investment in the Arculus platform. As Jon mentioned earlier, the net impact from Arculus revenue and investments was minus $21 million for all of 2022 and in line with our latest guidance issued last year and significantly lower than the $33 million in our original projections. This reflects our continued commitment to…

Thanks, Tim. Now turning to Slide 19, as I mentioned earlier, we're expecting another year of solid growth in 2023 as we anticipate net sales to range between $400 million and $425 million and expect adjusted EBITDA to finish between $145 million and $155 million. As a reminder, these targets reflect the expectation of continued sales execution and driving economies of scale in our metal card business as well as a net investment in Arculus below our net Arculus investment in 2022. In addition, this guidance takes into consideration some of the continuing uncertainty of the macroeconomic environment, as outlined earlier. I want to close by touching on our strategic priorities on Slide 20. It's been great to reflect on our record 2022 results, and I'm incredibly proud of our team for their hard work and commitment to get us to this point. However, our focus is now squarely on 2023. As we look ahead, we plan to continue driving organic growth in our premium metal payment card business, both here in the U.S. and internationally, while also further diversifying our customer mix with fintech clients. We will also continue to innovate our product suite on both metal payment cards as well as Arculus security, authentication and cold storage offerings, while maintaining our prudent approach to capital allocation and driving efficiencies in our business to maximize the bottom line. I want to thank all of you for taking the time to join us today. We very much appreciate your support, and I'll now open it up to questions.

[Operator Instructions] Our first question comes from John Todaro with Needham & Company.

This is Dan Lehmann, actually, filling in for John. So I have 2 questions. The first one, so at the midpoint of your sales outlook guide for '23, there's 10% growth year-over-year. Can you just give us some additional color on the level of conservatism you're baking into the outlook assumption and whether you're a little bit more confident on the macro picture now relative to the third quarter?

Yes. So I appreciate the question. Look, we think we gave an appropriate range on the guidance. We're coming off a year of 40% growth. We've said, on average, we think we've got about a 15% growth business, the top end right about 14% on the top end. There, in our view, still remains a lot of macro uncertainty, mixed data that keeps coming out with inflation higher, raising rates, people with some concern about the back half. But I'd reiterate comments I've made on other calls, which are we've operated in tough environments before. And if the back half were to get tough, we still believe we can deliver growth. And I don't know, we feel like we've laid out an appropriate range there for the top line that recognizes the context of the environment.

Got it. Yes, definitely makes sense. And then in terms of gross margins, it looks like the outlook is baking in the uptick in gross margins. So can you just sort of remind us of some of the levers that you could pull to achieve your target for full year '23?

Sure. So the full year '23 guidance, if you use the low end and the low end and the high end and the high end are around 36% EBITDA margin, which is actually in line with where we came in this year. So that's actually fairly steady from our perspective and recognizes we will continue to invest in growing the core metal payment card business as well as Arculus. Although we've tried to be clear that, that net impact, we believe, should be at or lower than what it was this year. So that's how we're thinking about sort of the revenue and margin story for next year.

We have a question from Reggie Smith with JPMorgan.

I guess my first question, I believe one of your key customer contracts expires this year. I guess, what can you tell us about the renegotiations? When does the contract expire exactly? And I guess, historically, as contracts have come up, how early did you renew them in the past? And I have a few follow-ups.

Thanks, Reggie. So the JPMorgan contract expires at the end of this year, and we would be negotiating in normal course with any client in that year when things are expiring. There are times when we might renew a contract earlier than that, if there are specific reasons to, but the normal course would suggest in that final year is the time when we would be renewing. And Reg, I'd add one comment, we've been through multiple renewal cycles on that contract. It's not the first. I think there have been at least 3 renewal cycles at this point. The Amex contract, there have been at least 4, if not more, renewals there.

Got it. That makes sense. Okay. So I appreciate the color on the guidance. What can you tell us about, I guess, your order backlog today versus maybe this time last year? Just trying to give some context around what you're seeing right now on the ground versus maybe a year ago.

I'd say it's actually fairly consistent, Reggie, in terms of strong visibility in what we refer to as the pipeline and the backlog. So that backlog is hard orders that cover kind of the next 3 or 4 months and the pipeline that goes out further than that. And I think as you look into kind of the back half of the year, I think, there's more uncertainty out there. I think JPMorgan CEO did an interview recently commenting on the back half and uncertainty still remaining in the back half, just in general. But if you look and we put some of the commentary in our deck, generally speaking, our issuer clients believe that we are going to drive growth this year. They're planning for it. That's how we're planning. And what we've said is, we're prepared if things turn, but we actually believe it could be quite a nice year.

Understood. Thinking about your EBITDA guidance, which is fairly strong, how should we think about debt repayment or use of cash as that EBITDA number continues to kind of grow?

So we've stated 2 priorities, I'll reiterate for folks on the phone. Driving organic growth in the business, and by that, I mean the metal payment card business continuing to expand capacity, drive innovation around not just the form factor but new security technology, things like dynamic CVV, biometrics, the authentication in the integration of Arculus into credit and debit cards as kind of our first priority. And second, paying down debt. We did a very nice job paying down debt this year, and I think Tim highlighted that in his comments. We're talking about leverage ratios that went from, I think, it was 3.6, down well below 3 in total debt; and secured debt at mid-2s, down to 1.6. So we are delevering through a combination of paying down debt and growing EBITDA. And Reggie, I like the fact that we're doing it with both. For me, that's the right way to approach it, but we will continue to pay down debt.

Got it. And if I could sneak one more in. You had some really cool product announcements in your release and that you talked about earlier in the call. Like how quickly can those go from kind of launch to like really seeing them out in the wild, if you will?

Yes. I think for us, the types of products we talked about would be second half of this year into the first half of next year when we start to see those things start to appear but strong interest from our perspective in a number of those.

And there are no other questions in the queue. I'd like to turn it back to Mr. Jon Wilk for any further remarks.

I just want to take a moment and thank all of the people who joined the webcast, who are listening to the story. We are excited about the year that we just completed. We think as our first year as a public company, raising guidance twice, finishing at the top end of that range, I'm extremely proud of our team has accomplished. I'm even more excited for what's ahead of us in terms of continued growth of our metal payment card business domestically, internationally and with fintech clients as well as continuing to push on the Arculus expansion on security, authentication as well as cold storage for digital assets. So thank you all for attending. We appreciate it, and have a good night.

This concludes today's conference call. Thank you for participating. You may now disconnect.