GPGI, Inc. (GPGI) Q1 2026 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the GPGI, Inc. First Quarter 2026 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, Dave Marshall, Chief Legal Counsel. Please go ahead.

Thanks, Ann. Good morning and welcome to GPGI's conference call where we'll review GPGI's first quarter 2026 financial results. With me on the call today are the business leaders from GPGI, Resolute Holdings, CompoSecure and Husky. We'll begin with prepared remarks and then open the call for Q&A. During the call, we'll make statements regarding our business that may be considered forward-looking, including statements regarding our growth strategy, customer demand, macroeconomic factors, implementation of the Resolute Operating System and our guidance for 2026 as well as other statements regarding our plans and prospects. For a discussion of material risks and other important factors that could affect our actual results, please refer to the information in our reports filed with the SEC, which are available on the Investor Relations section of our website and on the SEC's website at sec.gov. As a reminder regarding the company's accounting. On February 28, 2025, GPGI completed the spin-off of Resolute Holdings Management, Inc. and our wholly owned subsidiary GPGI Holdings entered into a management agreement with Resolute Holdings. As a result, the results of operations of GPGI Holdings and the operating companies which are subsidiaries, including CompoSecure and Husky, are not consolidated in the financial statements of GPGI and are instead accounted for under the equity method of accounting. For more information about our financial presentation, please see our SEC filings, including our quarterly report on Form 10-Q to be filed later today. In the earnings release we issued earlier today and in the discussion on today's call, we also present non-GAAP financial measures to help investors better understand our operating performance. 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 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. With that, I'll turn the call over to Executive Chairman, Dave Cote.

Well, we have a tale of 2 cities. CompoSecure is performing better than our expectations reflecting just excellent implementation of the Resolute operating system for both growth and operations. Husky unfortunately has encountered unanticipated market headwinds because of oil market volatility and tariffs. This has caused customers to delay accepting orders that normally would have been expected to ship in the quarter while also reducing new orders. Well, you'll likely ask what changed. Since I spoke to you on our March 12 fourth quarter earnings call, we saw a significant and surprising increase in customers taking a wait-and-see approach in response to those changing macro conditions. At the time of the call, February year-to-date orders were up approximately 27% versus prior year and the pipeline was up approximately 6% year-over-year. The amount of book and ship required to make the quarter was not unusual given history. And in the subsequent 2.5 weeks, several customers would not finalize their orders for shipment, we could not ship to a couple of countries and customers delayed placing an official order. This trend continues today. We can't predict when it will end so we have provided a wider revised guidance range. In anticipation of lower sales, we've taken various actions on expenses to mitigate some of the impact of those lower sales. At the same time we're seeing order delays, we saw the pipeline grow approximately 4% over last year in the first quarter and up 7% year-over-year through April. So there are reasons for optimism that this will not be a long-lived problem. Consistent with this, we're seeing the 12-month pipeline up while the 3-month pipeline is down. Husky leadership is aggressively tackling ROS implementation for both growth and operations. The investment thesis is very much intact with their great position in a good industry. Now I'm very unhappy to be sharing a different result today than I expected when I talked to you on March 12. While certainly disappointing in the short term, I can still say with confidence that the prospects for GPGI performance are quite rewarding. CompoSecure is on a roll and the new leadership has significantly energized that team and is improving the culture. The commercial prospects for growth are better than ever and ROS implementation and operations is showing significant gains. The prospects for this business are terrific and they're apparent today. Compo also benefits from being more than a year ahead of Husky in ROS implementation. Husky prospects are also excellent. It doesn't show right now because of the market headwinds, but it is real. We continue to fund R&D expansion because it will greatly benefit the business' future. Consistent with our underwriting thesis, we can already see that ROS will also have a profound impact on our Husky business. With Rob's leadership, they are aggressively implementing ROS and driving the cultural change necessary for success. We will navigate the market headwinds, implement ROS, continue increasing R&D and commercial excellence and become a significantly stronger business as we exit the year. I'm also pleased to say that Kevin Moriarty, a current GPGI Board member and deeply experienced finance leader, has stepped in to be Husky's acting CFO. This is yet another benefit of having a Board of superb operators. I've worked closely with Kevin in the past and he has a tremendous reputation as an operating CFO. We are actively evaluating a long list of candidates for the full-time role. But in Kevin, we have a proven leader who brings a steady hand to Husky and I know we'll benefit from his financial and operating capabilities. I wish we could have seen the Husky market issues sooner than we did of course. I have not looked forward to today. That being said, nothing has changed concerning GPGI and the prospects for both businesses. I'm personally energized by the progress I'm seeing in both businesses. The cultural change is well on its way at Compo and the cultural change needed at Husky is being accelerated in dealing with these unfortunate market headwinds. We can't predict today how long the headwinds will continue so we'll be cautious in our 2026 outlook. That though shouldn't take away from what both businesses can accomplish given they both have a great position in a good industry. I can promise you GPGI has my full attention. You all know my family and I have a lot of our own money involved here so I want to see GPGI perform extraordinarily well as much as all of you do. We will get through this just like we have in the past. This is an unfortunate blip, nothing more. We're excited about the path GPGI is on and what it will become. So with that, I'll now turn it over to Tom Knott, our Chief Investment Officer, to review our financial performance.

Thank you, Dave. Going to Slide 4. GPGI delivered pro forma adjusted net sales of $421.2 million, up approximately 3% from the prior year; pro forma adjusted EBITDA of $82.1 million, down approximately 16% from the prior year; and pro forma adjusted EBITDA margins of 19.5%, down approximately 430 basis points from the prior year. As Dave mentioned, these results reflect record sales performance at CompoSecure offset by market-related underperformance at Husky. Given Husky's size relative to CompoSecure, this macro-driven delay in demand at Husky is more than offsetting excellent performance at CompoSecure. Starting with CompoSecure. We delivered a record quarter as strategic investments in the sales force and enhanced focus on commercial excellence are driving strong organic growth supported by ROS in the factory. ROS initiatives have led to a step change in manufacturing yields and operational efficiencies throughout the production process, which were the primary drivers of adjusted EBITDA margins expanding approximately 300 basis points in the quarter. Graham and Mary will go into more detail. But I would just highlight that CompoSecure is now 18 months of implementing the Resolute Operating System and we are pleased with the cultural and operational intensity taking hold at the company today. We expect CompoSecure to continue its strong trajectory of organic sales growth and improved profitability through the remainder of 2026. Turning to Husky. Rob and Kevin will discuss our performance in the quarter and our outlook, but I will reiterate Dave's comments in noting that customer demand for Husky's products deteriorated rapidly at the end of March in a way that surprised us. This change more than offset the strong pipeline and order book we saw developing through the first 2 months of the year as customers aggressively shifted to a wait-and-see posture as resin prices spiked. While we expect the business to rebound when uncertainty subsides, this change in near-term demand has led us to revise our outlook for GPGI. Turning to Slide 5. You have heard us in the past discuss the complicated accounting we are required to use. Given the transaction this quarter on top of that existing accounting complexity, Slide 5 shows a simplified walk to pro forma adjusted EBITDA. The full reconciliation appears in the appendix. As previously announced, we refinanced our debt concurrent with the transaction closing, extending maturities and materially reducing our interest burden. This is the first major component. Transaction expenses were in line with expectations and were paid through closing. These transaction expenses taken together represent over $200 million of onetime GAAP expenses, which will not recur going forward. Net interest expense for the quarter reflects stub period interest, deferred financing cost and the interest on the new debt. Other key items include purchase price intangibles amortization, ordinary course income tax provision, noncash TRA liability remeasurement, stock-based compensation and foreign exchange impacts. Moving to Slide 6. We're providing more details this quarter than normal to give a full picture of what we were seeing at Husky when we last spoke to you on March 12 and how things changed through the end of the quarter. Pipeline orders and backlog at Husky were trending favorably through February with positive commercial activity giving us confidence in our full year guidance for both Husky and GPGI. This momentum turned quickly late in the quarter. Orders fell 16% year-over-year to the end of March as resin prices spiked and customers delayed accepting shipments and placing orders. Backlog followed a similar pattern in 1Q. We saw an accelerated recovery through February following a softer January, but the negative trend accelerated in the middle of March with simultaneously decline in order activity. Despite all of this, our pipelines remain strong growing 4% year-over-year for the first quarter and ending April up 7% year-over-year. Even with this healthy pipeline growth, we continue to see slower conversion rates as customers defer some purchase orders in the current environment. Turning to Slide 7. The underlying demand drivers for our products namely nonalcoholic beverage demand remains resilient. This supports the healthy and expanding pipeline we've discussed even though near-term orders are volatile. While macro conditions have introduced significant ambiguity that is influencing near-term customer purchasing behavior, the core fundamentals of the market that Husky serves remain intact. Even though oil market volatility and its impact on resin prices is impacting customer behavior today, the volatility is also reinforcing areas where Husky products are well differentiated. As resin prices rise, the value of our systems become increasingly compelling for customers because our equipment delivers industry-leading throughput, superior cycle times, higher preform consistency, greater uptime and lower energy consumption. All of this enables us to offer customers a 15% to 20% lower total cost of ownership versus competitive offerings. Additionally, as the price differential between virgin and recycled resin gets smaller, customers are increasingly evaluating RPET as a feedstock alternative to virgin resin. Husky is the preeminent manufacturer of recycled PET systems, which will result in additional opportunities for new equipment sales and retrofit upgrades if customers shift to more sustainable feedstocks as an alternative to now expensive virgin resin. So while the current uncertainty is causing some customers to delay near-term purchasing decisions, we remain confident that the underlying demand driver, particularly consumption of bottled water, remains strong and that this period will drive customers to focus more on productivity, sustainability and system efficiency; all areas where Husky excels. I want to also take a moment to explain how we're responding to this challenging market environment at Husky. On the cost side, we are in the process of implementing targeted furloughs across jurisdictions to reduce direct labor cost without impacting our industrial base or impairing our ability to respond to the rebound in demand. We are aggressively managing indirect spend and making necessary changes to be more efficient while also working towards a full return to office to maximize collaboration and increase cross-functional accountability across sales, finance and operations. On the commercial side, we are reinvigorating our sales force under new leadership thus commercial excellence is also a key strategic priority. Husky is a little more than a year behind CompoSecure on the implementation of ROS. And while the market backdrop for our customers has changed meaningfully in a short period of time, we remain focused on doing the right things to position the business to achieve its potential. This includes making the necessary investments to accelerate innovation and long-term organic growth through aggressive expansion of the R&D organization and an unrelenting focus on ROS implementation. These critical initiatives are not stopping despite the market volatility we are facing because they will position the business to benefit from the rebound in demand and for the future more broadly. With that, I will turn the call over to Rob Domodossola, the CEO of Husky.

Thanks, Tom. Going to Slide 8, I want to begin at the most fundamental level of what we do. Husky produces systems that make a precursor to nondiscretionary items, primarily water bottles. Demand for these products is durable with long established history of through-the-cycle growth in periods of macroeconomic volatility. The current period of volatility is no different. The demand for nonalcoholic beverages continues to expand around the world. Our customers are continuing to operate these high essential systems every day to meet this demand and that will continue. While the current demand shock driven by steep increases in oil and resin prices has made customers delay normal purchasing behavior, the fundamental drivers of demand for our products remain solidly intact. Specifically, we currently have an installed base of 13,500 systems that are primarily used to produce nondiscretionary products. This installed base is embedded in our customers' operations and drives a large and growing aftermarket revenue stream across parts, tooling and services. The installed base is globally diverse across developed and emerging markets and new systems have a higher content than legacy ones. Roughly 35% of our revenue is tied to new system sales, which is currently being impacted most significantly by the demand shock as customers pause large capital investments while 65% of our revenue is tied to recurring revenue. Although current market dynamics are causing near-term demand deferrals, the mission-critical nature of our products and consistent underlying demand drivers in the markets we serve gives us the confidence in a return to normalized order patterns. Adding to our confidence, Husky is well positioned because our system delivers the lowest total cost of ownership for customers through faster cycle times, higher quality, lower energy use and maximum uptime. As higher oil and resin costs persist; our lightweight solutions, resin efficiency and system productivity enhanced by our connected Advantage+Elite remote monitoring further differentiates the value proposition of Husky's equipment relative to competitors. Taken together, we remain very focused on delivering on what matters most to our customers; uptime, output and durability at the lowest total cost. Turning to our results. We delivered pro forma adjusted net sales of $29.8 million and pro forma adjusted EBITDA of $38.2 million, down 5% and 40% year-over-year, respectively. As Dave and Tom mentioned, the Middle East conflict altered customers' purchasing behavior nearly overnight in mid-March as supply disruptions drove sharp increases in virgin PET prices, up approximately 46% in March and April. These higher input costs combined with tighter supply and increased financing costs have weighed on near-term demand as Dave and Tom described. We view these dynamics as cyclical rather than structural. In fact elevated material and operating costs tend to reinforce demand for efficiency, lightweighting and system level performance; all areas where Husky is highly differentiated and we've seen this pattern before. When geopolitical tensions ease and input costs stabilize, deferred investments tend to rebound and they rebound sharply. Importantly, the end markets we serve are tied to essential customer needs, which has historically proven resilient across cycles. Operationally, as Dave and Tom mentioned, we are in the early stages of implementing the Resolute Operating System and our focus is now entirely on disciplined execution. ROS is fundamentally changing the way we operate and these changes matter even more in times like these. A key initiative we are implementing includes the integrated sales, inventory and operations or SIOP planning to improve job sequencing, manufacturing output and to reduce waste. We are also managing indirect spend and enhanced enterprise cost discipline across our procurement team. And of course AI will be an accelerator to ROS as we identify bottlenecks and improve lead times. ROS is critical to our long-term success and we are using it every day to drive measurable inputs; improvements to growth, operations and financial performance. While the first quarter was disappointing, we know that fundamental SIOP planning efforts underway to establish a high performance culture and invest for the future are the right steps and are improving the business. Husky operates in essential categories. As macro pressures ease, we expect to see a rebound in deferred investment consistent with past cycles. Now turning to Slide 9. Given the breadth of our business, I want to cover what we're seeing in individual product lines and key geographies starting with our product lines. Specifically in systems, orders are being deferred to the resin price volatility, tariff-related uncertainty and elevated financing costs. We expect the weakness we saw in the first quarter to continue through the year if the market headwinds persist. For aftermarket tooling, orders at the end of last year were lower due to customer uncertainty related to tariffs, which weighed on Q1 2026 sales. However, we expect this segment to return to growth in the second half as customers invest in tooling for the existing installed base while deferring the purchases of new equipment. With respect to hot runners and controllers, we saw strong revenue growth across most regions in the first quarter, but continued market ambiguity is weighing on the order outlook in the near term. Lastly, for aftermarket parts and services, market ambiguity and tariff noise impacted demand at the end of Q1, which is expected to persist in Q2, but we expect to return to growth in the second half as customers increasingly prioritize productivity. In our key geographies, starting in North America, we see a pause in demand for PET systems, partly offset by growth in tooling, spare parts and services. We believe North American market is close to trough levels and represents a market within our oldest installed base. Shifting to Europe, we're seeing growth in aftermarket tooling driven by lightweighting and sustainability mandates that support further shifts to rPET adoption. For the Middle East and Africa, we see strong consumption-driven growth in PET systems and growth in hot runners for medical applications, offset by near-term geopolitical disruptions. Turning to LatAm. Inflationary pressures and the steep tax on sugar-sweetened bottled beverages in Mexico are driving near-term softness in PT systems. While aftermarket tooling continues to grow, given shift towards lightweighting and package optimization. Lastly, in Asia Pacific, we continue to see consumption-driven growth in PET systems and demand for hot runners tied to food and packaging and medical applications. I will now turn it over to our acting CFO, Kevin Moriarty, to review our financial performance in more detail.

Thanks, Rob. Let's turn to our financial performance on Slide 10. Given the number of moving parts, let me level set where we landed for the quarter and our path forward. As a reminder, the first quarter is seasonally the smallest for Husky with the second half of the year typically much stronger than the first. Against this backdrop, Husky faced significant macroeconomic headwinds that weighed on both growth and profitability. We reported pro forma adjusted net sales of $290.8 million, down 5% compared to the prior year as declines in new system sales and tooling offset strong growth in spare parts, hot runners and controllers. Pro forma adjusted EBITDA decreased 40% to $38.2 million, driven primarily by lower revenue and resulting under-absorbed labor and continued investments in R&D and front-end sales capabilities to support future growth. In aggregate, these factors translated to an approximately 770 basis point erosion in pro forma adjusted EBITDA margin to 13.2%. As Dave, Tom and Rob all mentioned, we had over $20 million in revenue that got pushed out at the very end of the quarter. This included approximately $6 million tied to customer delays in taking deliveries, approximately $5 million tied to shipment and logistical delays tied to the Middle East conflict and approximately $4 million tied to delays in customer payments. Combined with the growth investments being made, this quantum of deferred revenue exacerbated margin degradation in the seasonally smallest quarter of the year as we carried excess labor costs relative to demand. Consistent with historical first half and second half seasonality, we expect margins to expand in the second quarter and continue improving sequentially throughout the year, driven by improved fixed cost absorption in the seasonally stronger second half, the impact of ongoing cost actions and acceleration operational efficiencies from ROS-led initiatives. These initiatives are central to our thesis of driving sustained margin expansion and bolstering long-term profitability at Husky. On the tariff front, after the Supreme Court invalidated IEEPA tariffs in February, the U.S. implemented modified Section 232 tariffs on April 6, 2026. While continued tariff policy pivot add uncertainty to when customers place their orders, we do not expect them to have a material impact on our results. The U.S. market represents less than 27% of our total sales, which helps moderate our overall exposure. Of this, roughly 40% of the revenue relates to systems and tooling shipped into the U.S. that is subject to a 15% tariff, 1/3 from imported aftermarket parts that have tariffs declining from 50% to 25%, and the balance is primarily hot runners, parts and services that are locally produced or delivered and therefore, not impacted. In addition, consistent with our standard terms and conditions, we have been successfully passing through tariff-related costs to customers since the third quarter of last year and will continue to do so. Finally, our Husky equipment qualifies under USMCA and remains exempt from the 3.1% U.S. import duty, further limiting our exposure. And we are not alone when it comes to tariffs. Industry demand in the U.S. has been negatively impacted for the last 2 years. The U.S. is an importer of PET systems and Husky's primary peers do not have domestic production capability. We believe our North American presence positions us favorably relative to international peers importing into the U.S., while this tariff regime remains in place, while also allowing us to capture the inevitable cyclical upturn. With that, I will turn the call over to Graham Robinson, the CEO of CompoSecure.

Thank you, Kevin, and good morning, everyone. Going to Slide 11. We delivered an outstanding quarter at CompoSecure, continuing to build upon our commercial and operational momentum. We achieved record pro forma net sales of $130.4 million, up 26% year-over-year, underscoring both the effectiveness of our commercial execution and the robust demand for premium metal cards. We are seeing this strength translate into new program wins and accelerating issuer activity across leading fintechs and traditional financial institutions. We're also seeing growth in metal cards that have Arculus capabilities. At the same time, the Resolute Operating System continues to have a deep and profound impact across the business. We are realizing meaningful improvements across all functional areas from sales performance to improved operations, which helped us deliver strong pro forma adjusted EBITDA of $47.6 million, up 37% compared to a year ago. While we are encouraged by our progress, we remain highly focused on investing in our future, in line with our strategic and execution framework that includes 3 pillars of growth: one, accelerating organic growth; two, driving international expansion; and thirdly, increasing Arculus momentum. In the first quarter, we saw several exciting customer programs go live, including the American Express Graphite business card, X Money from Elon Musk, the Robinhood Platinum card and Revolut Audi F1 card as well as Fold, [ Cast ], Kraken and MetaMask US, which provide crypto rewards and the optionality to pay with crypto. These signature program wins reflect the breadth of demand for premium card solutions and our differentiated value proposition, combined with advanced design, engineering and manufacturing capabilities to reinforce our position as the partner of choice for issuers launching high-impact card programs. Most recently, we strengthened our leadership team by appointing general managers to lead our Arculus and international businesses. With that, I will turn it over to our CFO, Mary Holt, to review our financials in more detail.

Thank you, Graham. Let's turn to our financial performance on Slide 12. In the first quarter, CompoSecure delivered strong results across all key financial metrics, driven by continued demand strength and increasing impact of the Resolute operating system across the organization. As Graham mentioned, adjusted net sales were $130.4 million, up 25.6% year-over-year, driven by robust demand from traditional banks and leading fintech customers. Adjusted EBITDA increased 36.8% to $47.6 million, reflecting both volume growth and meaningful operational efficiencies, which led to a 300 basis point improvement in adjusted EBITDA margin to 36.5%. Some of these productivity gains will continue to flow through to profitability, while some will be strategically reinvested to support sustained growth. Overall, this performance highlights the operating leverage and tangible benefits we are realizing from the systematic deployment of the Resolute Operating System, including enhanced throughput and process innovation, which has led to higher and more consistent yields at the factory level. I will now hand it back to Tom to review GPGI's revised guidance.

Thanks, Mary. Turning to Slide 13. We are introducing new guidance for 2Q '26 and revising our full year 2026 outlook to reflect the macro-driven headwinds facing Husky. For 2Q ' 26, we expect net sales between $425 million and $475 million, pro forma adjusted EBITDA between $105 million and $120 million and pro forma adjusted EBITDA margins between 24.7% and 25.3%. For FY '26, we now expect pro forma net sales between $1.95 billion and $2.1 billion, pro forma adjusted EBITDA between $550 million and $610 million and pro forma adjusted EBITDA margins between 28.2% and 29%. Consistent with the historical trends in the seasonally lowest quarter for free cash flow and despite the market-related challenges we faced at Husky, we generated approximately $29 million of adjusted free cash flow similar to last year's level, which gives us further confidence in our revised full year estimate of between $275 million and $325 million in pro forma adjusted free cash flow. Finally, we anticipate ending the year with approximately 3x total leverage. Our revised guidance reflects the impact of the market shock facing Husky, but we continue to view 2026 as a critical and foundational year of cultural change, ROS implementation and strategic seed planting at both businesses that will position us to deliver best-in-class top line growth, margin expansion and free cash flow generation across the GPGI platform. This remains our focus, and we are confident in the work underway at both businesses. With that, I'll hand it back to Dave for some closing remarks.

Thanks, Tom. We've got 2 businesses in CompoSecure and Husky that hold great positions in good industries, both of which are becoming even stronger through the cultural transformations their teams are driving and the consistent deployment of the Resolute Operating System. You can see the results clearly now at CompoSecure. The market dislocation we're experiencing in Husky is making those improvements harder to see, but they are there. The culture and the business processes are getting better. We're committed to continuing the course, investing smartly for the future and the results of our efforts will become evident. So with that, I'd like to open up the call for Q&A.

[Operator Instructions] Our first question comes from the line of Jacob Stephan with Lake Street Capital Markets.

I guess, first, I just kind of wanted to understand on the guidance a little bit better and make sure I have clarification on Slide 13, you have kind of 2 arrows pointing to the high end and the low end. So the low end represents Iran conflict being delayed with the Strait disrupted and the high end would be if the conflict is resolved. I guess if you could give a little bit better sense on like timing. Does the low end of the range, I guess, assume the conflict last for the remainder of the year? Or does the high end assume that this is over to borrow? Any kind of comments you can give there?

Yes. The way I would look at it is what we're trying to reflect is the impact of delays. So if the delays continue because the Iran conflict just keeps going, then those delays are going to cause us to come into the lower end of the range. To the extent that our customers let go of those delays and maybe even if the conflict is continuing, but they stop delaying because they need the aftermarket or they need the machines, then we'll end up towards the higher end of the range. So it's more a reflection of what do we think could happen on customer delays today driven by the Iran conflict and tariffs.

Okay. Got it. And then I guess just kind of continuing on the guidance factor. When you look at kind of the second half for adjusted EBITDA, I think it implies relatively higher adjusted EBITDA in the second half. I know Q4 is a strong quarter for Husky, but we're looking at kind of $450 million to $550 million of EBITDA in the back half versus the first half. So I guess any color there, especially when you kind of talk about the margins compressing on Husky a little bit?

Sure. This is Kevin. If you look at our first half, second half; seasonally, second half represents roughly 60% of our revenue base. And again, with the cost -- better cost absorption, vertical contribution margins improving as well as the cost actions, we feel that the second half will be stronger.

Okay. And then just lastly on CompoSecure the core business there. Wondering if you could touch on the, I guess, new card launch pipeline. Is that strong looking at the kind of the last 3 quarters of the year?

Yes. The pipeline continues to be quite strong. And we speak in a number of different dimensions. The programs that we have with our existing customers, those customers are also continuing to create and generate new programs also. And then lastly, we continue to penetrate a new customer base, both internationally and domestically and also with fintechs and with our traditional banks. So we are -- we continue to be quite optimistic about the strength of the pipeline that we have and what we're seeing going forward.

Our next question comes from the line of Tomo Sano with JPMorgan.

I'd like to ask about the Husky s margin declined by 770 basis Y-o-Y in the past quarters. So looking ahead to second quarter and remainder of the year, what specific factors or initiatives do you expect will drive the margin improvement towards your full year guidance? Could you qualify the key assumptions for margin recovery in the back half, please?

Sure. So as I alluded to, the first quarter is historically are some lower revenue number. So as we sequentially go through the year, revenue will grow, which has been our historical pattern, heavier weighted to the third and fourth quarters. So the variable part contribution margin we're expecting on that is going to sequentially improve the margin rate. We're driving the ROS initiatives internally, which we expect to provide some lift as well as we've commented on cost actions that we're taking. We institute some furloughs as well as some indirect cost actions that we're also expecting to provide some lift.

And a follow-up regarding leveraging the ROS to drive the margin improvement for Husky. Could you share some examples of the cultural changes and operational opportunities being executed to enhance resilience and profitability, please?

Sure. Maybe I'll start. It's Robert. One of the biggest things is what I mentioned, the SIOP process is really intended to level out the factories. It's hard to keep your costs under control if you have peaks and valleys. But with level loading of the factories, it's much easier to get the labor and material costs aligned with the volume that's coming out of the factories. So that's one of the biggest initiatives that we have right now. With reduced lead times, that also helps to level load the factories, not just making us more competitive, but more profitable as well. We have a significant focus on supply chain procurement excellence that's helping with material cost reduction. And finally, on the commercial excellence side, our whole go-to-market approach, we are taking steps to have some very effective value propositions globally rolled out, especially with regards to our new product launches.

Thank you. And I'm currently showing no further questions at this time. This does conclude today's call. Thank you all for your participation. You may now disconnect.