CompoSecure, Inc. (CMPO)

Executive Summary / Key Takeaways

• Operational Transformation in Progress: The CompoSecure Operating System (COS) is delivering measurable efficiency gains, driving gross margins to 59% in Q3 2025 (up 730 basis points year-over-year) and pro forma adjusted EBITDA margins to 39.5%, demonstrating that this is not a commodity card manufacturer but a technology-enabled industrial company.

• Arculus Reaches Inflection: After years of investment, Arculus achieved its first positive net contribution in Q4 2024 and has maintained momentum throughout 2025, securing strategic wins with MetaMask, MoneyGram (MGI), and the first crypto card on the American Express (AXP) network—positioning CMPO at the intersection of digital authentication and crypto payments.

• M&A Acceleration via Resolute Spin-off: The February 2025 spin-off of Resolute Holdings Management created a permanent capital vehicle for accretive acquisitions, culminating in the November 2025 agreement to acquire Husky Technologies for $4.98 billion, transforming CMPO into a diversified industrial compounders with 70% recurring revenue exposure.

• Massive Untapped Market Opportunity: Metal cards represent less than 1% of the 4+ billion payment cards shipped annually, yet demand is broadening from high-net-worth to mass affluent and mass market segments, creating a multi-year runway for organic growth that competitors cannot easily replicate.

• Critical Execution Risks to Monitor: The thesis hinges on three factors: successful integration of Husky while maintaining CMPO's operational discipline, scaling Arculus beyond its current niche without diluting margins, and managing extreme customer concentration (JPMorgan Chase (JPM) and American Express (AXP) represented 63-71% of net sales) that could create volatility if either relationship shifts.

Setting the Scene: From Niche Manufacturer to Technology Compounders

CompoSecure, Inc., founded in 2000, spent its first two decades building an unassailable position in premium metal payment cards—a market so specialized that it represents less than 1% of the 4 billion cards shipped globally each year. This was not accidental. The company engineered proprietary manufacturing processes to embed NFC chips in metal, creating products that global financial institutions use to differentiate their premium offerings and drive customer acquisition, retention, and spending. For 25 years, this narrow focus generated consistent cash flows but limited addressable market perceptions.

That narrative changed definitively in 2024-2025. The implementation of the CompoSecure Operating System (COS) across all functions catalyzed an operational renaissance, while the Arculus platform matured into a viable second growth vector. The February 2025 spin-off of Resolute Holdings Management, Inc. created a dedicated M&A vehicle, and the subsequent November 2025 agreement to acquire Husky Technologies for $4.98 billion signals a strategic leap from single-product dominance to diversified industrial compounders. This transformation reclassifies CMPO from a specialty manufacturer trading at cyclical multiples to a technology-enabled platform deserving premium valuation.

The company sits at the confluence of three powerful trends: the premiumization of payment cards (younger demographics view metal cards as status symbols), the mainstream adoption of digital authentication (PassKey technology creates tailwinds for Arculus), and the institutionalization of crypto (stablecoin spending from cold storage at point-of-sale). Unlike competitors stuck in commoditized plastic card production or narrow authentication niches, CMPO has built an ecosystem where physical cards serve as secure hardware tokens for both traditional payments and digital assets.

Technology, Products, and Strategic Differentiation

The CompoSecure Operating System: Margin Expansion Engine

COS is not mere management jargon—it is a measurable source of competitive advantage. In Q3 2025, non-GAAP gross margin reached 59.0%, up from 51.7% in the prior year period, a 730 basis point improvement that management attributes directly to COS-driven efficiencies in manufacturing yield, output, and overall execution. The system is delivering meaningful operational efficiencies that are expected to continue driving both margin expansion and faster organic growth.

A 730 basis point margin improvement on $120.9 million in quarterly revenue translates to approximately $8.8 million in incremental gross profit—pure operational alpha that drops directly to EBITDA. With the metal card market expanding and COS still being rolled out, this efficiency gain represents a structural, not cyclical, enhancement to the business model. Competitors like CPI Card Group (PMTS), with gross margins around 30%, cannot replicate this because they lack the proprietary manufacturing depth and systematic improvement methodology that COS provides.

Arculus: The Digital Authentication Bridge

Arculus represents CMPO's most significant product evolution, transforming a metal payment card into a FIDO2-certified hardware token for multi-factor authentication and cold storage for digital assets. After years of investment, Arculus delivered its first positive net contribution in Q4 2024 and has maintained strong net positive results throughout 2025. This inflection proves the platform can generate standalone value beyond the core card business, creating a second revenue stream with software-like economics.

The strategic wins underscore this potential. The Coinbase (COIN) One Card—first crypto card on the American Express (AXP) network—leverages Arculus to enable spending stablecoins from cold storage at point-of-sale over traditional rails. Partnerships with MetaMask and MoneyGram (MGI) demonstrate vertical expansion beyond financial services into identity and remittance. As major tech companies push Passkey adoption, Arculus benefits directly because it essentially turns a credit or debit card into a PassKey or authentication token. This positions CMPO to capture value from the $150 billion cybersecurity market and the growing digital asset ecosystem, neither of which are addressable by traditional card competitors.

Bundling Arculus Authenticate with payment capabilities allows CMPO to command premium pricing while building recurring software revenue over time. The authentication value proposition resonates in a market where identity theft costs billions annually, giving CMPO pricing power that plastic card manufacturers cannot match.

Metal Card Market: Expanding from Niche to Mass Market

CMPO's dominance in metal cards—serving 8 of the top 10 U.S. issuers and holding the #1 global market share position—creates a defensible moat built on manufacturing expertise and customer relationships. The market is broadening from high-net-worth to mass affluent and mass market segments, with younger demographics (25-35 years old) showing strong preference for metal cards as status symbols. This demographic shift expands CMPO's addressable market from millions to hundreds of millions of cards annually.

With over 4 billion payment cards shipped each year and metal representing less than 1% penetration, the runway for share capture is substantial. Management notes a long runway because issuers increasingly view premium cards as differentiation tools in a competitive market for customer acquisition and retention. This trend supports sustained organic growth at rates well above the overall card market, which grows mid-single-digits.

Financial Performance & Segment Dynamics

Underlying Business Momentum Obscured by Accounting Changes

The February 2025 spin-off of Resolute Holdings created a complex accounting structure that obscures CMPO's true performance. Under GAAP, CompoSecure, Inc. no longer consolidates Holdings' results, instead recognizing only its equity method investment earnings. This caused reported net sales to drop to $0 in Q3 2025, while Holdings generated $120.9 million in net sales. Executive Chairman Dave Cote correctly states that GAAP earnings are 100% misleading due to this technical accounting treatment.

This creates a disconnect between reported results and economic reality, potentially depressing valuation multiples as casual investors misinterpret the financial statements. However, it also provides strategic flexibility. The management fee structure aligns Resolute's incentives directly with CMPO shareholders—Resolute's team has substantial equity capital invested in CMPO stock and only earns fees as CMPO's EBITDA grows. This alignment is critical for a company pursuing an M&A-driven compounders strategy.

The non-GAAP figures reveal the true story: Q3 2025 net sales of $120.9 million (+13% YoY), gross profit of $71.3 million (59.0% margin), and pro forma adjusted EBITDA of $47.7 million (+30% YoY, 39.5% margin). These metrics demonstrate accelerating profitability that outpaces revenue growth, the hallmark of a scalable business model.

Capital Structure and Cash Generation

As of September 30, 2025, CompoSecure, Inc. held $127.4 million in cash and cash equivalents, while Holdings held an additional $97.2 million plus $40.7 million in Treasury bills. Total debt principal outstanding stands at $190 million, down from $330.9 million a year prior, resulting in a net debt leverage ratio of 0.66x versus 2.15x in the prior year. This deleveraging provides firepower for the Husky acquisition while maintaining balance sheet flexibility for future M&A.

Cash flow generation remains robust despite accounting complexity. Net cash provided by financing activities was $119.5 million for the nine months ended September 30, 2025, primarily from warrant exercises of $154.4 million. The company repurchased 647,782 shares for $12.2 million in Q3, with $87.8 million remaining under its $100 million authorization. This capital return signals management's confidence that the stock trades below intrinsic value, even as they pursue transformative acquisitions.

Segment Performance and Mix Shift

The Metal Payment Cards segment generated $105.1 million in domestic net sales in Q3 2025 (+31% YoY), while international sales declined 42% to $15.8 million due to order timing and smaller scale. This domestic strength shows CMPO is winning share in the world's largest and most profitable card market. The international variability is manageable given its smaller contribution and the company's ability to time shipments to optimize production efficiency.

Arculus delivered another strong net positive quarter in Q3 2025, building on its Q4 2024 inflection. Management's commentary indicates the segment is now self-funding its growth, reducing the drag on consolidated EBITDA that R&D investment previously created. This validates the multi-year investment thesis and suggests Arculus can become a material profit contributor as digital authentication and crypto adoption accelerate.

Outlook, Management Guidance, and Execution Risk

Raised Guidance Reflects Operational Confidence

Management raised full-year 2025 guidance to approximately $463 million in non-GAAP net sales and $165-170 million in pro forma adjusted EBITDA, up from prior guidance of $455 million and $158 million respectively. For 2026, they introduced guidance of $510 million in sales and $190 million in EBITDA. This guidance implies sustained double-digit revenue growth and margin expansion, with EBITDA growing faster than sales—exactly the trajectory expected from a COS-enabled business.

The guidance explicitly excludes any impact from Husky, meaning the baseline business is expected to generate these results organically. This conservatism is prudent but also suggests potential upside if the Husky integration delivers synergies faster than anticipated. The 2026 EBITDA guidance of $190 million on $510 million sales implies a 37.3% margin, modestly below the 39.5% achieved in Q3 2025, likely reflecting continued investment in growth and the full-year impact of Resolute management fees.

Husky Acquisition: Diversification or Diversion?

The $4.98 billion acquisition of Husky Technologies, valuing the combined entity at $7.4 billion or 11.6x 2026 EBITDA, represents a bold strategic pivot. Husky is the global leader in highly engineered injection molding equipment and aftermarket services, with approximately 70% recurring revenue and exposure to structurally growing PET beverage demand. This transforms CMPO from a pure-play payment card company into a diversified industrial technology platform, reducing dependence on financial services and customer concentration risk.

The transaction is expected to be accretive to diluted EPS in the first full year and funded through a $2 billion private placement, $1 billion in rolled equity, and $2 billion in debt, resulting in 3.5x net leverage. This capital structure is aggressive but manageable given the combined company's projected 7.5% free cash flow yield and 100 basis points of annual margin expansion opportunity. The key question is whether CMPO's COS can be applied to Husky's operations to extract similar efficiency gains, or if management is overreaching beyond their core competency.

Competitive Context and Positioning

Direct Competitors: Outperforming on Margins and Growth

Against CPI Card Group (PMTS), CMPO demonstrates clear superiority: Q3 2025 sales growth of 13% versus PMTS's 11%, and gross margins of 59% versus PMTS's approximately 30%. PMTS's focus on plastic cards and instant issuance leaves it vulnerable to the premiumization trend that CMPO dominates. While PMTS has broader scale in total card volume, CMPO's specialized metal card moat protects it from direct price competition, allowing superior pricing power and customer retention among top issuers.

Thales Group (THLLY) presents a different competitive dynamic. As a diversified aerospace and security conglomerate, Thales's payment card segment benefits from global scale and R&D resources that CMPO cannot match. However, this diversification also means payments are not strategic priority, allowing CMPO to outmaneuver Thales in the U.S. market with faster product development cycles and deeper issuer relationships. CMPO's 13% growth and 59% margins compare favorably to Thales's overall 11% organic growth and lower segment margins, suggesting CMPO's focused strategy delivers superior returns in its niche.

Diebold Nixdorf (DBD) competes primarily in ATM and point-of-sale hardware, with cards as an ancillary offering. CMPO's pure-play focus on premium cards and authentication creates a cleaner investment thesis with higher margins (59% vs DBD's ~25%) and faster growth (13% vs DBD's 2%). DBD's legacy debt burden and hardware commoditization pressures make it a weaker comparator, highlighting CMPO's advantaged position.

Indirect Threats: Digital Wallets and Crypto Disruption

Apple (AAPL) Pay and Google (GOOGL) Pay represent existential threats to physical card demand, potentially reducing the addressable market over time. However, this risk is mitigated by two factors: first, metal cards serve as status symbols that digital wallets cannot replicate, and second, Arculus transforms the physical card into a hardware security token that enables crypto spending and authentication—making it more relevant, not less, in a digital-first world. This hybrid positioning is unique and defensible.

In crypto hardware wallets, Ledger and Trezor compete directly with Arculus Cold Storage. However, Arculus's integration with payment networks (Visa (V), Mastercard (MA), American Express (AXP)) and its ability to spend stablecoins at point-of-sale create a differentiated use case that pure crypto wallets cannot match. The partnership with MetaMask validates Arculus's security model for mainstream crypto users, while the MoneyGram (MGI) integration bridges traditional remittance and digital assets.

Risks and Asymmetries

Customer Concentration: The Single Largest Risk

JPMorgan Chase (JPM) and American Express (AXP) represented approximately 63% and 71% of net sales in 2024 and 2023, respectively. The loss of either customer would create a revenue hole that organic growth could take years to fill. While relationships appear stable—evidenced by continued program launches like the Chase Sapphire Reserve Business Card and Coinbase (COIN) One Card on Amex—the risk is binary. A strategic shift by either issuer toward in-house production or a competing supplier could materially impact CMPO's financial trajectory.

The mitigating factor is switching cost. CMPO's embedded position in these issuers' premium card programs, combined with the technical complexity of metal card production and Arculus integration, creates friction that competitors cannot easily overcome. However, investors must monitor customer concentration metrics quarterly, as any deterioration would challenge the valuation premium.

Accounting Complexity: Obscuring True Performance

The equity method accounting post-Resolute spin-off creates a material disconnect between GAAP results and economic reality. Q3 2025 GAAP net sales of $0 versus Holdings' $120.9 million in actual sales can mislead casual investors and create valuation inefficiencies. This may artificially depress valuation multiples, but also adds diligence burden for investors to track non-GAAP metrics.

The risk is that management uses this complexity to obscure deteriorating performance. However, the transparency around non-GAAP metrics and the consistent margin expansion provide confidence that the accounting structure serves strategic, not obfuscatory, purposes. The key is to focus on Holdings' underlying results and the cash distributions to the corporate entity.

Husky Integration: Execution Risk at Scale

The Husky acquisition represents CMPO's first major diversification beyond payment cards. While the strategic rationale—70% recurring revenue, market leadership, and COS applicability—is compelling, integration risk is real. Husky's injection molding equipment business operates in different end markets (PET packaging, automotive) with distinct customer dynamics and competitive pressures. Failure to extract projected synergies or apply COS effectively could result in a value-destroying conglomerate discount.

The mitigating factor is Resolute Holdings' management structure, which aligns incentives and provides dedicated M&A bandwidth. Dave Cote's track record at Honeywell (HON) suggests capability in operational transformation, but Husky's $4.98 billion price tag leaves little room for error. Investors should monitor integration milestones and margin progression closely in the first 12 months post-close.

Valuation Context

Trading at $20.53 per share, CMPO's market capitalization is $2.60 billion with an enterprise value of $2.47 billion. The underlying business trades at 15.36x TTM revenue and 191.07x TTM EBITDA, though the EBITDA multiple is distorted by accounting changes and earnout-related expenses. On a forward basis, applying the 2026 guidance of $510 million sales and $190 million EBITDA implies multiples of approximately 4.8x EV/sales and 13.0x EV/EBITDA—reasonable for a company growing EBITDA at 12-15% annually with 39%+ margins.

The valuation must be assessed on a sum-of-parts basis. The core metal card business, growing 13% with 59% gross margins, deserves a premium multiple given its market dominance and expansion runway. Arculus, while currently small, provides optionality on crypto adoption and digital authentication that is not captured in current multiples. The Husky acquisition, at 11.2x 2026 EBITDA, brings industrial diversification and 70% recurring revenue that should command a higher multiple than cyclical manufacturing.

Cash generation supports the valuation. With $127 million at corporate and $97 million at Holdings, CMPO has ample liquidity to fund operations and integration costs without diluting shareholders. The $87.8 million remaining share repurchase authorization signals management's belief that the stock trades below intrinsic value, providing downside support.

Peer comparisons validate the valuation. PMTS trades at 1.02x EV/revenue with 11% growth and 30% gross margins—CMPO's 15.36x multiple reflects its superior profitability and growth. THLLY trades at 18.29x EV/EBITDA with lower growth, while DBD trades at 7.70x EV/EBITDA with minimal growth. CMPO's blended multiple appears fair given its unique positioning and transformation potential.

Conclusion

CompoSecure has evolved from a niche metal card manufacturer into a diversified technology compounders at an inflection point of operational and strategic transformation. The CompoSecure Operating System is delivering measurable margin expansion, Arculus has achieved profitability while capturing crypto tailwinds, and the Resolute spin-off has enabled the transformative Husky acquisition. These developments create a compelling investment thesis built on operational excellence, market expansion, and disciplined capital allocation.

The story's durability depends on three variables: maintaining COS-driven efficiency gains as the business scales, successfully integrating Husky while applying the operating system to extract synergies, and managing customer concentration risk without sacrificing growth. If management executes, CMPO's combination of premium market leadership, technology-enabled margins, and diversified compounders potential justifies a valuation premium. For investors, the key is to look beyond accounting complexity and focus on the underlying cash generation, market share gains, and strategic optionality that define this next chapter.