UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from         to

Commission File Number 001-39687

CompoSecure, Inc.

(Exact name of registrant as specified in its charter)

Delaware	85-2749902
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

309 Pierce St.

Somerset, NJ 08873

(908) 518-0500

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per share	CMPO	The Nasdaq Global Market
Redeemable Warrants, each whole warrant exercisable for one share of Class A Common Stock	CMPOW	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of August 07, 2024, there were 30,000,843 shares of the registrant's Class A common stock outstanding and 51,908,422 shares of the registrant's Class B common stock outstanding.

COMPOSECURE, INC.

Table of Contents

		Page
Part I.	Financial Information	2
Item 1.	Financial Statements	2
	Consolidated Balance Sheets (Unaudited)	3
	Consolidated Statements of Operations (Unaudited)	4
	Consolidated Statements of Comprehensive Income (Unaudited)	5
	Consolidated Statements of Stockholders’ Deficit (Unaudited)	6
	Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
Part II.	Other Information	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63
Signatures		65

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report, and the documents incorporated by reference herein, may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management. Although CompoSecure, Inc. (the "Company") believes that its plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions, or expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Generally, statements that are not historical facts, including statements concerning the Company’s possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. In some instances, these statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negatives of these terms or variations of them or similar terminology.

Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors, among others, could affect the Company’s future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company’s forward-looking statements:

•the ability of the Company to grow and manage growth profitably, maintain relationships with customers, compete within its industry and retain its key employees;

•the possibility that the Company may be adversely impacted by other global economic, business, and/or competitive factors;

•the outcome of any legal proceedings that may be instituted against the Company or others;

•future exchange and interest rates; and

•other risks and uncertainties indicated in this report, including those under “Risk Factors” herein, and other filings that have been made or will be made with the SEC.

These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this report are more fully described in the “Risk Factors” section. The risks described in “Risk Factors” are not exhaustive. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Part I - Financial Statements

Item 1. Financial Statements

2

COMPOSECURE, INC.

Consolidated Balance Sheets

($ in thousands, except par value and share amounts)

	June 30, 2024		December 31, 2023
	Unaudited
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	35,391	$	41,216
Accounts receivable, net	39,648		40,488
Inventories	57,514		52,540
Prepaid expenses and other current assets	3,928		5,133
Total current assets	136,481		139,377
Property and equipment, net	23,739		25,212
Right of use assets, net	6,449		7,473
Deferred tax asset	41,082		23,697
Derivative asset - interest rate swap	5,182		5,258
Deposits and other assets	422		24
Total assets	$	213,355	$	201,041
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable	9,431		5,193
Accrued expenses	12,183		11,986
Commission payable	5,010		4,429
Bonus payable	5,473		5,616
Current portion of long-term debt	13,437		10,313
Current portion of lease liabilities	2,029		1,948
Current portion of tax receivable agreement liability	1,425		1,425
Total current liabilities	48,988		40,910
Long-term debt, net of deferred finance costs	186,244		198,331
Convertible notes	128,088		127,832
Derivative liability - convertible notes redemption make-whole provision	544		425
Warrant liability	10,087		8,294
Lease liabilities, operating	5,077		6,220
Tax receivable agreement liability	43,060		23,949
Earnout consideration liability	383		853
Total liabilities	422,471		406,814
Commitments and contingencies (Note 13)
Redeemable non-controlling interest	516,489		596,587
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding	—		—
Class A common stock, $0.0001 par value; 250,000,000 shares authorized, 29,847,338 and 19,415,123 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively.	3		2
Class B common stock, $0.0001 par value; 75,000,000 shares authorized, 51,908,422 and 59,958,422 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively.	5		6
Additional paid-in capital	36,258		39,466
Accumulated other comprehensive income	4,848		4,991
Accumulated deficit	(766,719)		(846,825)
Total stockholders' deficit	(725,605)		(802,360)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	213,355	$	201,041

    

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

COMPOSECURE, INC.

Consolidated Statements of Operations (Unaudited)

($ in thousands, except per share amounts)

	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Net sales	$	108,567	$	98,527	$	212,577	$	193,843
Cost of sales	52,495		44,590		101,292		86,552
Gross profit	56,072		53,937		111,285		107,291
Operating expenses:
Selling, general and administrative expenses	24,279		23,588		48,357		47,532
Income from operations	31,793		30,349		62,928		59,759
Other income (expense):
Revaluation of earnout consideration liability	1,928		6,194		470		4,221
Revaluation of warrant liability	5,604		2,791		(1,793)		(7,968)
Change in fair value of derivative liability - convertible notes redemption make-whole provision	178		195		(119)		(513)
Interest expense, net	(5,316)		(5,442)		(10,735)		(11,371)
Amortization of deferred financing costs	(332)		(407)		(659)		(974)
Total other income (expense), net	2,062		3,331		(12,836)		(16,605)
Income before income taxes	33,855		33,680		50,092		43,154
Income tax (expense) benefit	(258)		(970)		578		293
Net income	$	33,597	$	32,710	$	50,670	$	43,447
Net income attributable to redeemable non-controlling interests	$	22,498	$	26,973	$	33,629	$	35,347
Net income attributable to CompoSecure, Inc.	$	11,099	$	5,737	$	17,041	$	8,100
Net income per share attributable to Class A common stockholders - basic	$	0.44	$	0.31	$	0.74	$	0.45
Net income per share attributable to Class A common stockholders - diluted	$	0.32	$	0.29	$	0.49	$	0.41
Weighted average shares used to compute net income per share attributable to Class A common stockholders - basic (in thousands)	25,438		18,537		23,003		18,087
Weighted average shares used to compute net income per share attributable to Class A common stockholders - diluted (in thousands)	96,641		35,528		96,438		35,155

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

COMPOSECURE, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

($ in thousands)

	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Net income	$	33,597	$	32,710	$	50,670	$	43,447
Other comprehensive (loss) income, net:
Unrealized gain (loss) on derivative - interest rate swap, (net of tax)	(595)		1,276		(143)		(373)
Total other comprehensive income (loss), net	(595)		1,276		(143)		(373)
Comprehensive income	$	33,002	$	33,986	$	50,527	$	43,074

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

COMPOSECURE, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

($ in thousands)

	Class A Common Stock			Class B Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'		Redeemable Non-Controlling
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Deficit		Interest
Balance as of December 31, 2023	19,415,123	$	2	59,958,422	$	6	$	39,466	$	4,991	$	(846,825)	$	(802,360)	$	596,587
Distributions to non-controlling interests	—	—		—	—		—		—		(10,151)		(10,151)		—
Stock-based compensation	—	—		—	—		4,397		—		—		4,397		—
Proceeds from employee stock purchase plan and exercises of options	—	—		—	—		107		—		—		107		—
Net income	—	—		—	—		—		—		4,025		4,025		13,048
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and ESPP transactions	1,183,123	—		—	—		—		—		—		—		—
Class A common stock withheld related to net share settlement of equity awards	—	—		—	—		(3,476)						(3,476)		—
Class A common stock issued pursuant to Class B common stock exchanges	—	—		—	—		—		—		—		—		—
Unrealized gain on derivative - interest rate swap	—	—		—	—		—		452		—		452		—
Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		—		—		13,048		13,048		(13,048)
Balance as of March 31, 2024	20,598,246	$	2	59,958,422	$	6	$	40,494	$	5,443	$	(839,903)	$	(793,958)	$	596,587
Dividend to Class A shareholders	—	—		—	—		—		—		(8,922)		(8,922)
Distributions to non-controlling interests	—	—		—	—		—		—		(31,589)		(31,589)		—
Stock-based compensation	—	—		—	—		5,238		—		—		5,238		—
Proceeds from employee stock purchase plan and exercises of options	—	—		—	—		114		—		—		114		—
Net income	—	—		—	—		—		—		11,099		11,099		22,498
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and ESPP transactions	1,199,092	—		—	—		—		—		—		—		—
Class A common stock withheld related to net share settlement of equity awards	—	—		—	—		(5,006)		—		—		(5,006)		—
Class A common stock issued pursuant to Class B common stock exchanges	8,050,000	1		(8,050,000)	(1)		—		—		—		—		—
Unrealized loss on derivative - interest rate swap	—	—		—	—		—		(595)		—		(595)		—
Tax receivable agreement liability	—	—		—	—		(4,582)		—		—		(4,582)		—
Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		—		—		102,596		102,596		(102,596)
Balance as of June 30, 2024	29,847,338	$	3	51,908,422	$	5	$	36,258	$	4,848	$	(766,719)	$	(725,605)	$	516,489

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

COMPOSECURE, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

($ in thousands)

	Class A Common Stock			Class B Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated		Total Stockholders'		Redeemable Non-Controlling
	Shares	Amount		Shares	Amount		Capital		Income		Deficit		Deficit		Interest
Balance as of December 31, 2022	16,446,748	$	2	60,325,057	$	6	$	24,107	$	8,283	$	(924,630)	$	(892,232)	$	600,234
Distributions to non-controlling interests	—	—		—	—		—		—		(9,714)		(9,714)		—
Stock-based compensation	—	—		—	—		4,022		—		—		4,022		—
Net income	—	—		—	—		—		—		2,329		2,329		8,408
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and ESPP transactions	1,564,956	—		—	—		—		—		—		—		—
Proceeds from employee stock purchase plan and exercises of options	—	—		—	—		146		—		—		146		—
Class A common stock withheld related to net share settlement of equity awards	—	—		—	—		(2,409)		—		—		(2,409)		—
Class A common stock issued pursuant to Class B common stock exchanges	366,635	—		(366,635)	—				—		—		—		—
Unrealized loss on derivative - interest rate swap	—	—		—	—		—		(1,649)		—		(1,649)		—
Tax receivable agreement liability	—	—		—	—		(290)		—		—		(290)		—
Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		—		—		12,055		12,055		(12,055)
Balance as of March 31, 2023	18,378,339	$	2	59,958,422	$	6	$	25,576	$	6,634	$	(919,960)	$	(887,742)	$	596,587
Distributions to non-controlling interests	—	—		—	—		—		—		(19,294)		(19,294)		—
Stock-based compensation	—	—		—	—		4,393		—		—		4,393		—
Net income	—	—		—	—		—		—		5,737		5,737		26,973
Class A common stock issued pursuant to equity awards, net of shares withheld for taxes, and employee stock purchase plan transactions	313,767	—		—	—		—		—		—		—		—
Proceeds from employee stock purchase plan and exercises of options	—	—		—	—		243		—		—		243		—
Class A common stock withheld related to net share settlement of equity awards	—	—		—	—		(74)		—		—		(74)		—
Unrealized gain on derivative - interest rate swap, net of tax	—	—		—	—		—		1,276		—		1,276		—
Tax receivable agreement liability	—	—		—	—		(1)		—		—		(1)		—
Adjustment of redeemable non-controlling interests to redemption value	—	—		—	—		—		—		26,973		26,973		(26,973)
Balance as of June 30, 2023	18,692,106	$	2	59,958,422	$	6	$	30,137	$	7,910	$	(906,544)	$	(868,489)	$	596,587

The accompanying notes are an integral part of these unaudited consolidated financial statements.

7

COMPOSECURE, INC.

Consolidated Statements of Cash Flows (Unaudited)

($ in thousands)

	Six months ended June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	50,670	$	43,447
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization	4,601		4,171
Stock-based compensation expense	9,635		8,415
Amortization of deferred finance costs	669		700
Change in fair value of earnout consideration liability	(470)		(4,221)
Revaluation of warrant liability	1,793		7,968
Change in fair value of derivative liability	119		513
Deferred tax (benefit)	(2,922)		(1,770)
Changes in assets and liabilities
Accounts receivable	840		738
Inventories	(4,974)		(6,515)
Prepaid expenses and other assets	1,205		(272)
Accounts payable	4,238		(492)
Accrued expenses	197		612
Other liabilities	399		(313)
Net cash provided by operating activities	66,000		52,981
Cash flows from investing activities:
Purchase of property and equipment	(3,129)		(5,697)
Capitalized software expenditures	(398)		—
Net cash used in investing activities	(3,527)		(5,697)
Cash flows from financing activities:
Proceeds from employee stock purchase plan and exercises of equity awards	221		389
Payments for taxes related to net share settlement of equity awards	(8,482)		(2,483)
Payment of tax receivable agreement liability	—		(2,193)
Payment of term loan	(9,375)		(5,017)
Tax distributions to non-controlling members	(26,167)		(29,008)
Special distribution to non-controlling members	(15,573)		—
Dividend to Class A shareholders	(8,922)		—
Net cash used in financing activities	(68,298)		(38,312)
Net (decrease) increase in cash and cash equivalents	(5,825)		8,972
Cash and cash equivalents, beginning of period	41,216		13,642
Cash and cash equivalents, end of period	$	35,391	$	22,614
Supplementary disclosure of cash flow information:
Cash paid for interest expense	$	12,890	$	13,626
Supplemental disclosure of non-cash financing activities:
Derivative asset - interest rate swap	$	(143)	$	(373)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

8

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

CompoSecure, Inc. (“CompoSecure” or the “Company”) is a manufacturer and designer of complex metal, composite and proprietary financial transaction cards. The Company was founded and commenced operations in 2000. It provides products and services primarily to global financial institutions, plastic card manufacturers, system integrators, and security specialists. The Company is located in Somerset, New Jersey. Since its inception, the Company has established itself as a technology partner to market leaders, fintechs and consumers enabling trust for millions of people around the globe. The Company combines elegance, simplicity and security to deliver exceptional experiences and peace of mind in the physical and digital world. The Company’s innovative payment card technology and metal cards with Arculus secure authentication and digital asset storage capabilities deliver unique, premium branded experiences, enable people to access and use their financial and digital assets, and ensure trust at the point of a transaction.

The Company creates newly innovated, highly differentiated and customized quality financial payment products for banks and other payment card issuers to support and increase their customer acquisition, customer retention and organic customer spend. The Company’s customers consist primarily of leading international and domestic banks and other payment card issuers primarily within the United States (“U.S.”), with additional direct and indirect customers in Europe, Asia, Latin America, Canada, and the Middle East. The Company is a platform for next generation payment technology, security, and authentication solutions. The Company maintains trusted, highly-embedded and long-term customer relationships with an expanding set of global issuers. The Company has established a niche position in the financial payment card market with over 20 years of innovation and experience and is focused primarily on this attractive subsector of the financial technology market. The Company serves a diverse set of direct customers and indirect customers, including some of the largest issuers of credit cards in the U.S.

CompoSecure is operated as an umbrella partnership C corporation (“Up-C”) meaning that the sole asset of CompoSecure, Inc. is its interest in CompoSecure Holdings, L.L.C. ("Holdings") and the related deferred tax asset. Holdings is an entity taxed as a partnership for U.S. federal income tax purposes and owned by both the historical owners and CompoSecure, Inc. By virtue of control of the board of managers of Holdings, CompoSecure, Inc. operates and controls the business and affairs of CompoSecure. As a result, the Company consolidates the financial results of Holdings and reports a non-controlling interest related to the Holdings units not owned by CompoSecure, Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements are presented in conformity with U.S. GAAP and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the results of operations of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to conform to the current year presentation. All dollar amounts are in thousands, unless otherwise noted. Share and per share amounts are presented on a post-conversion basis for all periods presented, unless otherwise noted.

Our significant accounting policies are detailed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC.

Interim Financial Statements

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and Article 10 of Regulation S-X of the SEC for interim financial information. and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The financial statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, the financial statements reflect all

9

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

adjustments, consisting solely of normal, recurring adjustments, necessary for the fair presentation of the financial statements for the periods presented. The results disclosed in the Consolidated Statements of Operations for the three and six months period ended June 30, 2024 are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of the consolidated financial statements requires management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. The Company bases its estimates on historical experience, current business factors and various other assumptions believed to be reasonable under the circumstances, all of which are necessary in order to form a basis for determining the carrying values of assets and liabilities. Actual results may differ from those estimates and assumptions. The Company evaluates the adequacy of its reserves and the estimates used in calculations on an on-going basis. Significant areas requiring management to make estimates include the valuation of equity instruments, measurement of changes in the fair value of earnout consideration liability, estimates of derivative liability associated with the Exchangeable Notes (as defined below), which are marked to market each quarter based on a Lattice model approach, derivative asset for the interest rate swap, changes in the fair value of warrant liabilities, valuation allowances on deferred tax assets which are based on an assessment of recoverability of the deferred tax assets against future taxable income and estimates of the inputs used to calculate the tax receivable agreement liability.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606 when the performance obligations under the terms of the Company’s contracts with its customers have been satisfied. This occurs at the point in time when control of the specific goods or services as specified by each purchase order are transferred to customers. Specific goods refers to the products offered by the Company, including metal cards, high security documents, and pre-laminated materials. Transfer of control passes to customers upon shipment or upon receipt, depending on the agreement with the specific customers. ASC 606 requires entities to record a contract asset when a performance obligation has been satisfied or partially satisfied, but the amount of consideration has not yet been received because the receipt of the consideration is conditioned on something other than the passage of time. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g. receivable), before the entity transfers a good or service to the customer. The Company did not have any contract assets or liabilities as of June 30, 2024 or December 31, 2023.

The Company invoices its customers at the time at which control is transferred, with payment terms ranging between 15 and 60 days depending on each individual contract. As the payment is due within 90 days of the invoice, a significant financing component is not included within the contracts.

The majority of the Company’s contracts with its customers have the same performance obligation of manufacturing and transferring the specified number of cards to the customer. Each individual card included within an order constitutes a separate performance obligation, which is satisfied upon the transfer of goods to the customer. The contract term as defined by ASC 606 is the length of time it takes to deliver the goods or services promised under the purchase order or statement of work. As such, the Company's contracts are generally short term in nature.

Revenue is measured in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is recognized net of variable consideration such as discounts, rebates, and returns.

The Company’s products do not include an unmitigated right of return unless the product is non-conforming or defective. If the goods are non-conforming or defective, the defective goods are replaced or reworked or, in certain instances, a credit is issued for the portion of the order that was non-conforming or defective. A provision for sales returns and allowances is recorded based on experience with goods being returned. Most returned goods are re-worked and subsequently re-shipped to the customer and recognized as revenue. Historically, returns have not been material to the Company.

10

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

Additionally, the Company has a rebate program with certain customers allowing for a rebate based on achieving a certain level of shipped sales during the calendar year. This rebate is estimated and updated throughout the year and recorded against revenues and the related accounts receivable.

Segment Information

The Company is managed and operated as one business, as the entire business is managed by a single management team that reports to the Chief Executive Officer and President. The Company's chief operating decision-maker ("CODM") is its Chief Executive Officer and President, who makes resource allocation decisions and assesses performance based on financial information presented on an aggregate basis. The Company does not operate separate lines of business with respect to any of its products and does not review discrete financial information to allocate resources to separate products or by location. Accordingly, the Company views its business as one reportable operating segment.

Characteristics of the organization which were relied upon in making the determination that the Company operates in one reportable segment include the similar nature of all of the products that the Company sells, the functional alignment of the Company’s organizational structure, and the reports that are regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.

Software Development Costs

The Company applies the principals of FASB ASC 350-40, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use ("ASC 350-40"). ASC 350-40 requires that software development costs incurred before the preliminary project stage be expensed as incurred. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the functions intended. During the six months ended June 30, 2024, the Company capitalized $398 of software development costs. No software development costs were capitalized during the six months ended June 30, 2023.

Net Income Per Share

The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net income per common share is computed by dividing net income attributable to controlling interest by the weighted average number of common shares outstanding for the period. The weighted-average number of common shares outstanding during the period includes Class A common stock but is exclusive of Class B common stock as these shares have no economic or participating rights.

Diluted net income per share is computed by dividing the net income allocated to potential dilutive instruments attributable to controlling interest by the basic weighted-average number of common shares outstanding during the period, adjusted for the potentially dilutive shares of common stock equivalents resulting from the assumed exercise of the warrants, payment of the earnouts, exercise of the equity awards, exchange of the Class B units and Exchangeable Notes ("securities") only if the effect is not anti-dilutive.

Recent Accounting Pronouncements – Adopted in current fiscal year

On December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which applies to all entities subject to income taxes. For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024. For entities other than public business entities (non-PBEs), the requirements will be effective for annual periods beginning after December 15, 2025. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The amendments in this update require that public business entities on an annual basis disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable

11

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

statutory income tax rate. The new guidance focuses on two specific disclosure areas: rate reconciliation and income taxes paid. The rate reconciliation disclosure requirements differ for PBEs as compared to non-PBEs. The income taxes paid disclosures are the same for all entities. The adoption of these ASUs did not have a material impact to the Company's consolidated financial statements.

3. INVENTORIES

The major classes of inventories were as follows:

	June 30, 2024		December 31, 2023
Raw materials	$	55,770	$	50,867
Work in process	4,276		4,110
Finished goods	817		662
Inventory reserve	(3,349)		(3,099)
	$	57,514	$	52,540

We monitor inventory costs relative to selling prices and perform physical cycle count procedures on inventories throughout the year to determine if a lower cost or net realizable value reserve is necessary. The Company reviews inventory for slow-moving or obsolete amounts based on expected product sales volume and provides reserves against the carrying amount of inventory as appropriate. This reserve may fluctuate as our assumptions change due to new information, discrete events, or changes in our business, such as entering new markets or discontinuing a specific product.

4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	Useful Life	June 30, 2024		December 31, 2023
Machinery and equipment	5 - 10 years	$	35,434	$	30,311
Furniture and fixtures	3 - 5 years	33		33
Computer equipment	3 - 5 years	2		2
Leasehold improvements	Shorter of lease term or estimated useful life	11,316		10,609
Software	1 - 3 years	1,718		1,718
Construction in progress		1,487		4,189
Total		49,990		46,862
Less: Accumulated depreciation and amortization		(26,251)		(21,650)
Property and equipment, net		$	23,739	$	25,212

Depreciation and amortization expense on property and equipment was $2,380 and $2,131 for the three months ended June 30, 2024 and 2023, respectively. Depreciation and amortization expense on property and equipment was $4,601 and $4,171 for the six months ended June 30, 2024 and 2023, respectively.

5. DEBT

Exchangeable Senior Notes

On December 27, 2021, the Company merged with Roman DBDR Tech Acquisition Corp ("Roman DBDR") pursuant to a merger agreement dated April 19, 2021 (the "Merger Agreement"), by and among Roman DBDR, Roman Parent Merger Sub, LLC, a wholly-owned subsidiary of Roman DBDR incorporated in the State of Delaware ("Merger Sub"), and Holdings. Pursuant to the terms of the Merger Agreement, a business combination between the Company and Holdings was effected through the merger of Merger Sub with and into Holdings, with Holdings as the surviving company

12

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

and as a wholly-owned subsidiary of Roman DBDR, now named CompoSecure, Inc. (the "Business Combination"). On April 19, 2021, concurrent with the execution of the Merger Agreement, the Company and its subsidiary, Holdings, entered into subscription agreements (the “Note Subscription Agreements”) with certain investors ("Notes Investors") pursuant to which such Notes Investors, severally and not jointly, purchased on December 27, 2021, the closing date of the Business Combination (the "Closing Date"), senior notes (the “Exchangeable Notes”) issued by Holdings and guaranteed by its operating subsidiaries, CompoSecure, L.L.C. and Arculus Holdings, L.L.C., in an aggregate principal amount of up to $130,000 that were exchangeable into shares of Class A common stock at a conversion price of $11.50 per share, subject to the terms and conditions of an indenture (the "Indenture") entered into by the Company and its subsidiary, Holdings, and the trustee under the Indenture. On June 11, 2024, the Company paid a special cash dividend to Class A shareholders of CompoSecure, Inc., and made a corresponding distribution to Class B unitholders of Holdings. See Note 6 for additional information. As a result of the special cash dividend and distribution, the conversion price was adjusted to $10.98 per share. The Exchangeable Notes bear interest at a rate of 7% per year, payable semiannually in arrears on each June 15 and December 15, commencing on June 15, 2022, to holders of record at the close of business on the preceding June 1 and December 1 (whether or not such day is a Business Day), respectively. The Exchangeable Notes mature on December 27, 2026. The Company will settle any exchange of the Exchangeable Notes in shares of Class A common stock, with cash payable in lieu of any fractional shares. In connection with the issuance of the Exchangeable Notes, the Company entered into a Registration Rights Agreement, pursuant to which the Notes Investors received certain registration rights with respect to the Class A common stock.

After the three-year anniversary of the Closing Date, which will occur on December 27, 2024, the Exchangeable Notes will be redeemable at any time and from time to time by the Company, in whole or in part, (i) if the Last Reported Sale Price of the Class A common stock exceeds 130% of the exchange price as defined in Indenture then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption and (ii) so long as a registration statement registering the resale of all Exchange Shares is effective and available for use by holders of Exchangeable Notes during the entirety of the period from and including the date notice of redemption is given to and including the date of redemption. The notice period for any redemption will be no less than 30 scheduled trading days. The redemption price in any such redemption shall be equal to (a) 100% of the principal amount of the Exchangeable Notes to be redeemed, plus (b) accrued and unpaid interest to, but excluding, the redemption date. The redemption price is payable in cash.

Per the terms of the Indenture, holders of Exchangeable Notes in connection with any such redemption will receive a make-whole payment equal to the aggregate dollar value of all interest payable from the date the Company delivers notice of such redemption through the maturity of the Exchangeable Notes. The redemption Make-Whole Amount is payable, at the Company’s option, in cash or through an increase in the exchange rate then applicable to the Exchangeable Notes by an amount equal to (i) the redemption Make-Whole Amount divided by (ii) the five day Volume Weighed Average Price ("VWAP") with regard to the Class A common stock during the five trading period beginning on the trading day immediately following the notice of redemption.

Holders of Exchangeable Notes may exchange their notes in whole or in part, at any time or from time to time, for shares of the Company’s Class A common stock, par value $0.0001 per share up, to a maximum exchange rate of 99.9999 shares per $1,000 principal amount after adjustments as defined in the Indenture.

The Exchangeable Notes contain customary anti-dilution adjustments, taking into account the agreed terms in the Indenture. To avoid doubt, among other customary adjustments, this includes anti-dilution protections for dividends and distributions of the Company's capital stock, assets and indebtedness. Per the terms of the Indenture, the following are the anti-dilution adjustments of the exchange rate:

a.If the Company exclusively issues shares of common stock as a dividend or distribution on shares of the common stock, or if the Company effects a share split or share combination;

13

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

b.If the Company issues to all or substantially all holders of the common stock any rights, options or warrants (other than pursuant to a stockholders' rights plan) entitling them, for a period of not more than 45 calendar days after the announcement date of such issuance, to subscribe for or purchase shares of the common stock at a price per share that is less than the average of the last reported sale prices of the common stock for the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the date of announcement of such issuance;

c.If the Company distributes shares of its capital stock, evidences of its indebtedness, other assets or property of the Company or rights, options or warrants to acquire its capital stock or other securities of the Company, to all or substantially all holders of the common stock;

d.If any cash dividend or distribution is made to all or substantially all holders of the common stock;

e.If the Company or any of its Subsidiaries make a payment in respect of a tender or exchange offer for the common stock, to the extent that the cash and value of any other consideration included in the payment per share of the common stock exceeds the average of the last reported sale prices of the common stock over the 10 consecutive trading day period commencing on, and including, the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer.

The exchange rate will in no event be adjusted down pursuant to the provisions described above, except to the extent a tender or exchange offer is announced but not consummated.

If the Company undergoes a “fundamental change” (as defined in the Indenture), subject to certain conditions, the exchange rate will be adjusted per the adjustment table included in the Indenture. If a fundamental change occurs at any time prior to the maturity date, each holder shall have the right, at such holder’s option, to require the Company to repurchase for cash all of such holder’s Exchangeable Notes at a repurchase price equal to 100% of the principal amount of the Exchangeable Notes to be repurchased, plus accrued and unpaid interest thereon. There is no make-whole payment associated with a fundamental change redemption.

Holders of Exchangeable Notes will be entitled to the resale registration rights under the resale Registration Rights Agreement. If a Registration default occurs, additional interest will accrue, equal to 0.25% in the first 90 days and 0.50% after the 91st day after the Registration Default (which includes that the Registration Statement has not been filed, or deemed effective or ceases to be effective).

The Indenture contains customary terms and covenants and events of default. Upon an event of default as defined in the Indenture, the trustee or the holders of at least 25% in aggregate principal amount of the Exchangeable Notes may declare 100% of the principal of, and accrued and unpaid interest on, all the Exchangeable Notes to be due and payable immediately, and upon any such declaration, the same shall become and shall automatically be immediately due and payable. Upon an event of default in the payment of interest, the Company may elect the sole remedy to be the payment of additional interest of 0.25% for the first 90 days after the occurrence of such an event of default and 0.50% for days 91-180 after the occurrence of such an event of default.

The Company assessed all of the terms and features of the Exchangeable Notes in order to identify any potential embedded features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks of the Exchangeable Notes, including the conversion, put and call features. In consideration of these provisions, the Company determined that the optional redemption with a make-whole provision feature required bifurcation as it is a derivative. The fair value of this derivative was determined based on the difference between the fair value of the Exchangeable Notes with the redemption with a make-whole provision feature and the fair value of the Exchangeable Notes without the redemption with a make-whole provision feature. The Company employed a Lattice model to determine the fair value of the derivative upon issuance of the Exchangeable Notes was $552 and recorded this amount as derivative liability with an offsetting amount as a debt discount as a reduction to the carrying value of the Exchangeable Notes on the Closing Date, or December 27, 2021. The optional redemption with a make-whole provision

14

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

feature is measured at fair value on a quarterly basis and the change in the fair value for the period is recorded on the consolidated statements of operations. The Company determined that the change in fair value from December 27, 2021 to December 31, 2021 was not material. The Company performed a valuation of the derivative liability and determined that the fair value of the derivative liability was $544 at June 30, 2024 and $425 at December 31, 2023. The Company recorded a favorable change in fair value of $178 and $195 for the three months ended June 30, 2024 and June 30, 2023, respectively. The Company recorded an unfavorable change in fair value of $119 and $513 for the six months ended June 30, 2024 and June 30, 2023, respectively.

The expected term of the Exchangeable Notes was equal for the period through December 27, 2026 as this represents the point at which the Exchangeable Notes will mature unless earlier exchanged in accordance with their terms prior to such date. For the quarter ended June 30, 2024 and June 30, 2023, the Company recognized $2,398 and $2,389 of interest expense related to the Exchangeable Notes at the effective interest rate of 7.4%. For the six months ended June 30, 2024 and June 30, 2023, the Company recognized $4,794 and $4,751 of interest expense related to the Exchangeable Notes at the effective interest rate of 7.4%. The fair value of the Company’s Exchangeable Notes without the make-whole feature, was approximately $124,000 and $118,000, as of June 30, 2024 and December 31, 2023 respectively.

In connection with the issuance of the Exchangeable Notes, the Company incurred approximately $2,600 of debt issuance costs, which primarily consisted of underwriting fees, and allocated these costs to the liability component and recorded as a reduction in the carrying amount of the debt liability on the balance sheet. The portion allocated to the Exchangeable Notes is amortized to interest expense over the expected term of the Exchangeable Notes using the effective interest method.

Credit Facility

In November of 2020, the Company through its subsidiary, Holdings, entered into a new agreement

with JPMC to refinance its then existing July 2019 credit facility, increasing the maximum aggregate amount available under the term loan to $240,000 bringing the total credit facility to $300,000. In addition, the maturity date of both the revolver and term loan was amended to November 5, 2023. This amendment was accounted for as a modification and approximately $3,200 of additional costs incurred in connection with the modification were capitalized as debt issuance costs.

In December 2021, the Company entered into a new agreement with JPMC to refinance its then-existing November 2020 credit facility (the "2021 Credit Facility"), increasing the maximum aggregate amount available under the Term Loan (as defined in the 2021 Credit Facility) to $250,000, bringing the total credit facility, together with the commitment amount available for any Revolving Loan (as defined in the 2021 Credit Facility) (the “Revolver”) to $310,000. In addition, the maturity dates of both the Revolver and Term Loan were amended to December 16, 2025. This amendment was accounted for as a modification and approximately $1,800 of additional costs incurred in connection with the modification were capitalized as debt issuance costs.

In February 2023, the Company amended the 2021 Credit Facility to transition from bearing interest based on LIBOR to SOFR or the Alternate Base Rate (as defined in the 2021 Credit Facility), at the election of the Company, plus an applicable margin, and to reflect the waiver of a technical default under the 2021 Credit Facility, related to the delayed delivery of a pledge of its interests in Holdings by the parent company (i.e., CompoSecure, Inc.). Holdings had already pledged all of its assets in favor of the lenders as per the terms of the debt agreement. After the amendment on February 28, 2023, the interest rate spreads and fees under the 2021 Credit Facility are based on a quoted SOFR plus a SOFR adjustment of 0.10% and an applicable margin ranging from 1.75% to 2.75% as determined by the Company’s prevailing Leverage Ratio for the revolving and term loan Term Benchmark and RFR Spread debt (as each term is defined in the 2021 Credit Facility).

In May 2023, certain lenders under the Company's 2021 Credit Facility transferred their debt to certain other

lenders. Approximately $257 of additional costs incurred by the Company in connection with the transfers were capitalized as debt issuance costs. In addition, approximately $589 in deferred finance fees incurred by the Company at the inception of the 2021 Credit Facility and relating to the transferring lenders were written off by the Company at the time of the transfers.

15

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

In March 2024, the Company and the lenders entered into a further amendment to the 2021 Credit Facility. This amendment allowed the Company (or the applicable subsidiary) to repurchase outstanding shares of common stock, outstanding warrants to purchase shares of common stock and/or outstanding Exchangeable Notes in an aggregate amount not to exceed $40,000 at any time, subject to the terms and conditions contained therein.

Interest on the Revolver and Term Loan are based on the outstanding principal amount during the interest period multiplied by the fluctuating bank prime rate plus the applicable margin of 1.75% or for portions of the debt converted to Term Benchmark Loan, the quoted SOFR rate plus the applicable margin of 2.75%. At June 30, 2024 and 2023, the effective interest rate on the Revolver and Term Loan was 7.80% and 7.99% per year, respectively. Interest is payable monthly in arrears or upon maturity of the Euro loans that can run 30, 90, 120, 180 day time periods. The Company must pay quarterly an annual commitment fee of 0.35% on the unused portion of the $60,000 Revolver.

The credit facility is secured by substantially all of the assets of the Company. The Company recognized $4,361 and $4,712 of interest expense related to the Revolver and the Term Loan for the quarter ended June 30, 2024 and 2023, respectively. The Company recognized $8,820 and $9,873 of interest expense related to the Revolver and the Term Loan for the six months ended June 30, 2024 and 2023, respectively.

The terms of the credit facilities contain certain financial covenants including a minimum interest coverage ratio, a maximum total debt to EBITDA ratio and a minimum fixed charge coverage ratio. At June 30, 2024 and December 31, 2023, the Company was in compliance with all financial covenants. The fair value of the Company's debt approximates the carrying value for all periods presented.

As of June 30, 2024 and December 31, 2023, there were no balances outstanding on the Revolver. At June 30, 2024, there was $60,000 available for borrowing under the Revolver.

The balances payable under all borrowing facilities are as follows:

	June 30, 2024						December 31, 2023
	Term Loan		Exchangeable Notes		Total debt		Term Loan		Exchangeable Notes		Total debt
Loan Balance	$	200,938	$	130,000	$	330,938	$	210,313	$	130,000	$340,313
Less: current portion of term loan (scheduled payments)	(13,437)		—		(13,437)		(10,313)		—		(10,313)
Less: net deferred financing costs	(1,256)		(1,912)		(3,168)		(1,669)		(2,168)		(3,837)
Total Long Term debt	$	186,245	$	128,088	$	314,333	$	198,331	$	127,832	$	326,163
Derivative liability - redemption with make-whole provision			$	544					$	425

The maturity of all the borrowings facilities is as follows:

Remainder of 2024	$	938
2025	200,000
2026	130,000
Total debt	$	330,938

The Company is exposed to interest rate risk on variable interest rate debt obligations. To manage interest rate risk, the Company had entered into an interest rate swap agreement on November 5, 2020 to hedge forecasted interest rate payments on its variable rate debt. In January 2022, the Company cancelled the November 2020 swap agreement and entered into a new interest rate swap agreement. At June 30, 2024, the Company’s interest rate swap contract outstanding had a notional amount of $125,000, maturing in December 2025. The Company has designated the interest rate swap agreement as a cash flow hedge for accounting purposes, that was determined to be effective. The Company determined the

16

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

fair value of the interest rate swap to be zero at the inception of the agreement and $5,182 and $5,258 at June 30, 2024 and December 31, 2023, respectively. The Company reflects the realized gains and losses of the actual monthly settlement activity of the interest rate swap through interest income or expense in its consolidated statements of operations. The Company reflects the unrealized changes in fair value of the interest rate swap at each reporting period in other comprehensive income and a derivative asset or liability will be recognized at each reporting period in the Company’s financial statements. The interest rate swap converted to SOFR from LIBOR at the same time as the amendment of 2021 Credit Facility in February 2023.

6. EQUITY STRUCTURE

Shares Authorized

As of June 30, 2024, the Company had authorized a total of 250,000,000 shares for issuance designated as Class A common stock, 75,000,000 designated as Class B common stock and 10,000,000 shares designated as preferred stock. As of June 30, 2024, there were 29,847,338 shares of Class A common stock issued and outstanding, 51,908,422 shares of Class B common stock issued and outstanding and no shares of Preferred Stock issued and outstanding.

Issuance of Common Stock

In the quarter ended June 30, 2024, the Company issued 1,199,092 new shares of Class A common stock pursuant primarily to the vesting of certain restricted stock units ("RSUs"), and exercises of stock options, as well as employee stock purchase plan transactions ("ESPP") during the quarter. The Class A common stock issued pursuant to the vesting of RSUs were issued net of shares withheld for applicable taxes.

In the six months ended June 30, 2024, the Company issued 2,382,215 new shares of Class A common stock pursuant primarily to the vesting of certain RSUs, and exercises of stock options, as well as ESPP during the quarter. The Class A common stock issued pursuant to the vesting of RSUs were issued net of shares withheld for applicable taxes.

Additionally, during May 2024, certain holders of the shares of Class B common stock exchanged an aggregate of 8,050,000 Class B units in Holdings (together with the corresponding number of shares of the Company's Class B common stock) in exchange for 8,050,000 shares of Class A common stock (the "Exchange"). Upon the Exchange, the exchanged shares of Class B common stock and the corresponding number of shares of Class B units were canceled. Immediately following the Exchange, pursuant to the Underwriting Agreement, dated as of May 8, 2024, (the “Underwriting Agreement”), by and among the Company, Holdings, the Representatives, the Underwriters and the Selling Stockholders named therein, the Selling Stockholders sold 8,050,000 shares of the Company’s Class A common stock to the Underwriters (the "Secondary Offering"). The Company did not receive any proceeds from the sale of the shares of Class A common stock by the selling stockholders. As a result of these transactions, the number of outstanding shares of the Company’s Class B common stock decreased by 8,050,000 and the number of outstanding shares of the Company’s Class A common stock increased by 8,050,000.

Warrants

As of June 30, 2024, the Company had 22,415,389 public warrants outstanding. Until the expiration date of December 27, 2026, each public warrant entitles the registered holder to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustment, at any time commencing 30 days after the completion of the Business Combination. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares.

Special Dividend and Distribution

On May 6, 2024, the Company announced a special cash dividend of $0.30 per share to Class A stockholders. A corresponding distribution of $0.30 per share was also announced for Class B unitholders of Holdings. Both the dividend and the distribution were paid on June 11, 2024. Dividends of $8,922 were disbursed to Class A stockholders and distributions of $15,573 were disbursed to Class B unitholders.

17

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

Non-Controlling Interest

Non-controlling interests represent direct interests held in Holdings other than by the Company immediately after the Business Combination. The non-controlling interests in the Company are represented by Class B units, or such other equity securities in the Company as the Board may establish in accordance with the terms hereof. Since the potential cash redemptions of the non-controlling interests are outside the control of the Company, such non-controlling interests are classified as temporary equity on the consolidated balance sheet in accordance with ASC 480. Income tax benefit or expense is applied to the income attributable to the controlling interest as the income attributable to the non-controlling interest is pass-through income. The non-controlling interest has been adjusted to redemption value as of June 30, 2024, in accordance with ASC 480-10. This measurement adjustment results in a corresponding adjustment to shareholders’ deficit through adjustments to additional paid-in capital and retained earnings. The redemption value of the Class B units was 516,489 on June 30, 2024. The redemption value was calculated by multiplying the 51,908,422 Class B units outstanding at June 30, 2024 by the $9.95 trading price of our Class A common stock on December 27, 2021.

7. STOCK-BASED COMPENSATION

The following table summarizes share-based compensation expense included in Selling, general and administrative expenses within the consolidated statements of operations:

	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Stock option expense	$	—	$	146	$	3	$	236
Restricted stock unit expense	4,349		3,524		8,542		7,005
Performance stock unit expense	853		690		1,026		1,098
Employee stock purchase plan	36		33		64		76
Total stock-based compensation expense	$	5,238	$	4,393	$	9,635	$	8,415

18

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

The following table sets forth the options activity under the Holdings' equity plan, which was assumed by the Company, for the six month period ended June 30, 2024:

Stock Option Activity

	Number of Shares	Weighted Average Exercise Price Per Shares		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2024	3,278,463	$	1.88	2.9	$	11,780
Granted	—	—
Exercised	(1,822,553)	$	0.01	0.9	$	12,255
Outstanding at June 30, 2024	1,455,910	$	4.24	4.4	$	3,726
Vested and expected to vest at June 30, 2024	1,455,910	$	4.24	4.4	$	3,726
Exercisable at June 30, 2024	1,455,910	$	4.24	4.4	$	3,726

Restricted Stock Unit Activity

	Number of Shares
Outstanding at January 1, 2024	5,651,895
Granted	2,106,575
Dividend Equivalent Units on Deferred RSU's	6,085
Vested	(1,900,931)
Forfeited	(51,100)
Nonvested at June 30, 2024	5,812,524

Performance and Market based Stock Unit Activity

	Number of Shares
Outstanding at January 1, 2024	1,107,536
Granted	872,685
Vested	—
Nonvested at June 30, 2024	1,980,221

Earnouts

	Number of Shares
Outstanding at January 1, 2024	657,160
Granted	—
Vested	—
Nonvested at June 30, 2024	657,160

19

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

Incentive Units

Upon consummation of the Business Combination on December 27, 2021, all of the incentive units, whether vested or unvested, outstanding immediately prior to the merger that were not settled as part of the transaction, were assumed by the Company and converted into Class B common stock and such shares of converted Class B common stock outstanding were 1,236,027 as of June 30, 2024.

Unrecognized compensation cost for restricted stock awards and performance and market based stock units as of June 30, 2024 totaled $37,877, and is expected to be recognized over a weighted average period of approximately 1.9 years. No unrecognized compensation expense remained for the incentive units as of June 30, 2024.

8. RETIREMENT PLANS

Defined Contribution Plan

The Company has a 401(k) profit sharing plan for all full-time employees who have attained the age of 21 and completed 90 days of service. The Company matches 100% of the first 1% and then 50% of the next 5% of employee contributions. Retirement plan expense for the three months ended June 30, 2024 and 2023 was approximately $461 and $396, respectively. Retirement plan expense for the six months ended June 30, 2024 and 2023 was approximately $1,052 and $921, respectively.

9. FAIR VALUE MEASUREMENTS

In accordance with ASC 820-10, the Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them for each reporting period. This determination requires significant judgments to be made by the Company.

The Company’s financial assets and liabilities measured at fair value on a recurring basis, consisted of the following types of instruments as of the following dates:

	Level 1		Level 2		Level 3		Total
June 30, 2024
Assets Carried at Fair Value:
Derivative asset - interest rate swap	$	—	$	5,182	$	—	$	5,182
Liabilities Carried at Fair Value:
Public warrants	$	10,087	$	—	$	—	$	10,087
Earnout consideration	—		—		383		383
Derivative liability - redemption with make-whole provision	—		—		544		544
December 31, 2023
Assets Carried at Fair Value:
Derivative asset - interest rate swap	$	—	$	5,258	$	—	$	5,258
Liabilities Carried at Fair Value:
Public warrants	$	8,294	$	—	$	—	$	8,294
Earnout consideration	—		—		853		853
Derivative liability - redemption with make-whole provision	—		—		425		425

Additional information is provided below about assets and liabilities remeasured at fair value on a recurring basis and for which the Company utilizes Level 3 inputs to determine fair value.

20

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

Derivative asset - interest rate swap

The Company is exposed to interest rate risk on variable interest rate debt obligations. To manage interest rate risk, the Company entered into an interest rate swap agreement on January 5, 2022. See Note 5.

Warrant liabilities

As a result of the Business Combination, the Company assumed warrant liability related to previously issued warrants in connection with Roman DBDR's initial public offering. The warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on our consolidated balance sheet. The warrant liabilities were remeasured at June 30, 2024, with changes in fair value presented within revaluation of warrant liabilities in the consolidated statement of operations.

The following table provides a reconciliation of the ending balances for the warrant liabilities remeasured at fair value:

	Warrant Liabilities
Estimated fair value at December 31, 2023	$	8,294
Change in estimated fair value	1,793
Estimated fair value at June 30, 2024	$	10,087

The Public warrants were valued using the quoted market price as the fair value at the end of each balance sheet date.

Earnout Consideration

Holdings' equity holders have the right to receive an aggregate of up to 7,500,000 additional (i) shares of the Company's Class A common stock or (ii) Holdings Units (and a corresponding number of shares of the Company's Class B common stock), as applicable, in earnout consideration based on the achievement of certain stock price thresholds. Earnout consideration (not including the holders under ASC 718) was determined to be a derivative instrument in accordance with ASC 815 and were accounted as derivative liabilities, initially valued at fair value in accordance with ASC 815-40-30-1. The liability for earnout consideration is remeasured at each reporting period at fair value, with changes in fair value recorded in earnings in accordance with ASC 815. The Company established the initial fair value for the earnout consideration at the Closing Date on December 27, 2021 using a Monte Carlo simulation model. The following table provides a reconciliation of the ending balances for the earnout consideration liabilities remeasured at fair value:

	Earnout Consideration Liability
Estimated fair value at December 31, 2023	$	853
Change in estimated fair value	(470)
Estimated fair value at June 30, 2024	$	383

21

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

The following assumptions were used to determine the fair value of the Earnout considerations as of June 30, 2024:

	June 30, 2024
Common stock market value	$	6.80
Risk-free interest rate	4.90% - 5.34%
Expected volatility	35.0% - 40.0%
Expected dividends	0		%
Expected term (years)	0.5-1.5 years

The fair value of Earnouts has been classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not currently readily observable in the market. If different assumptions were used for the various inputs to the valuation approach, the estimated fair value could be significantly higher or lower than the fair value determined.

10. GEOGRAPHIC INFORMATION AND CONCENTRATIONS

The Company headquarters and substantially all of its operations, including its long-lived assets, are located in the United States. Geographical sales information based on the location of the customer was as follows:

	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Net sales by region:
Domestic	$	85,184	$	77,989	177,974		151,656
International	23,383		20,538		34,603		42,187
Total	$	108,567	$	98,527	$	212,577	$	193,843

The Company’s principal direct customers as of June 30, 2024 consist primarily of leading international and domestic banks and other payment card issuers primarily within the U.S., with additional direct and indirect customers in Europe, Asia, Latin America, Canada, and the Middle East. The Company periodically assesses the financial strength of these customers and establishes allowances for anticipated losses, if necessary.

Three customers individually accounted for more than 10% of the Company’s revenue or 76.7% combined, of total revenue for the three months ended June 30, 2024. Three customers individually accounted for more than 10% of the Company’s revenue or 76.0%, combined, of total revenue for the three months ended June 30, 2023. Two customers individually accounted for more than 10% of the Company’s revenue or 69.9% combined, of total revenue for the six months ended June 30, 2024. Three customers individually accounted for more than 10% of the Company’s revenue or 76.0%, combined, of total revenue for the six months ended June 30, 2023. Four customers individually accounted for more than 10% of the Company’s accounts receivable or approximately 79% and two customers individually accounted for more than 10% or approximately 73% of total accounts receivable as of June 30, 2024 and December 31, 2023, respectively.

Three individual vendors accounted for more than 10% of purchases of supplies, or approximately 35% of total purchases, for the six months ended June 30, 2024. One individual vendor accounted for more than 10% of purchases of supplies, or approximately 13% of total purchases, for the six months ended June 30, 2023.

22

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

11. INCOME TAXES

The Company recorded income tax provision of $258 and $970 for the three months ended June 30, 2024, and June 30, 2023, respectively. The Company recorded income tax benefit of $578 and $293 for the six months ended June 30, 2024, and June 30, 2023, respectively.

During the quarter ended June 30, 2024, federal tax authorities completed their audit of fiscal 2020. There were no proposed adjustments resulting from the examination.

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon currently known facts and circumstances and applies that rate to its year-to-date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in enacted tax laws or rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes. The Company's interim effective tax rate, inclusive of any discrete items, was 3.94% and 12.65% for the three months ended June 30, 2024 and June 30, 2023, respectively. The Company's interim effective tax rate, inclusive of any discrete items, was (1.15)% and (0.68)% for the six months ended June 30, 2024 and June 30, 2023, respectively. The Company’s effective income tax rate differs from the U.S. statutory rate primarily due to the non-controlling interest adjustment as the income attributable to the non-controlling interest is pass-through income.

12. EARNINGS PER SHARE

The following table sets forth the computation of net income used to compute basic and diluted net earnings per share of Class A common stock for the three and six months ended June 30, 2024 and June 30, 2023, respectively. Shares of Class B common stock do not participate in the Company's income or loss and are, therefore, not participating securities.

23

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Basic and diluted:
Net income	$	33,597	$	32,710	$	50,670	$	43,447
Less: Net income attributable to non-controlling interest	(22,498)		(26,973)		(33,629)		(35,347)
Net income attributable to Class A Common Stockholders - basic	$	11,099	$	5,737	$	17,041	$	8,100
Plus: adjustment to net income due to net effect of equity awards, exchangeable notes and Class B units	19,392		4,410		29,886		6,140
Net income attributable to Class A Common Stockholders after adjustment	$	30,491	$	10,147	$	46,927	$	14,240
Weighted average common shares outstanding used in computing net income per share - basic	25,438,469		18,537,268		23,002,720		18,087,260
Plus: net effect of dilutive equity awards, exchangeable notes and Class B units - diluted	71,202,223		16,991,161		73,435,361		17,068,029
Weighted average common shares outstanding used in computing net income per share - diluted	96,640,692		35,528,429		96,438,081		35,155,289
Net income per share—basic	$	0.44	$	0.31	$	0.74	$	0.45
Net income per share—diluted	$	0.32	$	0.29	$	0.49	$	0.41

Basic earnings per share for the three months ended June 30, 2024 was calculated by dividing net income attributable to Class A Common stockholders of $11,099 divided by 25,438,469 of weighted average Class A common shares outstanding at June 30, 2024. Diluted earnings per share for the three months ended June 30, 2024 was calculated by dividing net income adjusted for the net effect of dilutive equity awards, exchangeable notes and Class B units of $30,491 divided by 96,640,692 of weighted average common shares after adjusting for the net effect of dilutive equity awards, exchangeable notes and Class B units outstanding at June 30, 2024.

Basic earnings per share for the three months ended June 30, 2023 was calculated by dividing net income attributable to Class A Common stockholders of $5,737 divided by 18,537,268 of weighted average Class A common shares outstanding at June 30, 2023. Diluted earnings per share for the three months ended June 30, 2023 was calculated by dividing net income adjusted for the net effect of dilutive equity awards and exchangeable notes of $10,147, divided by 35,528,429 of weighted average common shares after adjusting for the net effect of dilutive equity awards and exchangeable notes outstanding at June 30, 2023.

Basic earnings per share for the six months ended June 30, 2024 was calculated by dividing net income attributable to Class A Common stockholders of $17,041 divided by 23,002,720 of weighted average Class A common shares outstanding at June 30, 2024. Diluted earnings per share for the six months ended June 30, 2024 was calculated by dividing net income adjusted for the net effect of dilutive equity awards exchangeable notes and Class B units of $46,927 divided by 96,438,081 of weighted average common shares after adjusting for the net effect of dilutive equity awards, exchangeable notes and Class B units outstanding at June 30, 2024.

Basic earnings per share for the six months ended June 30, 2023 was calculated by dividing net income attributable to Class A Common stockholders of $8,100 divided by 18,087,260 of weighted average Class A common shares outstanding at June 30, 2023. Diluted earnings per share for the six months ended June 30, 2023 was calculated by dividing net income adjusted for the net effect of dilutive equity awards and exchangeable notes of $14,240, divided by

24

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

35,155,289 of weighted average common shares after adjusting for the net effect of dilutive equity awards and exchangeable notes outstanding at June 30, 2023.

Securities that could potentially be dilutive are excluded from the computation of diluted earnings per share when the exercise price exceeds the average closing price of the Company’s common stock during the period, because their inclusion would result in an antidilutive effect on per share amounts. The Company applied the if-converted method for the Exchangeable Notes to calculate diluted earnings per share in accordance with ASU 2020-06.

The following amounts were not included in the calculation of net earnings per diluted share because their effects were anti-dilutive:

	Three months ended June 30,		Six months ended June 30,
	2024	2023	2024	2023
Potentially dilutive securities:
Warrants	22,415,400	22,415,400	22,415,400	22,415,400
Class B units	—	59,958,422	—	59,958,422
Earnout consideration shares	7,500,000	7,500,000	7,500,000	7,500,000
Equity awards	1,584,706	2,431,925	2,847,382	2,712,064

13. COMMITMENTS AND CONTINGENCIES

Operating Leases

Future minimum commitments under all non-cancelable operating leases are as follows:

2024 (excluding the six months ended June 30, 2024)	$	1,147
2025	2,502
2026	2,240
2027	912
2028	846
Later years	359
Total lease payments	8,006
Less: Imputed interest	(900)
Present value of lease liabilities	$	7,106

Tax Receivable Agreement

The Company is obligated to make certain payments under a tax receivable agreement to certain historical unitholders of Holdings. Although the actual timing and amount of any payments that may be made under the agreement will vary, the Company expects the cash obligation required will be significant. Any payments made under the tax receivable agreement will generally reduce the amount of overall cash flows that might have otherwise been available to the Company. To the extent that the Company is unable to make payments under the tax receivable agreement for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by the Company. The tax receivable agreement liability includes amounts to be paid assuming the Company will have sufficient taxable income over the term of the tax receivable agreement to utilize the related tax benefits. In determining the estimated timing of payments, the current year’s taxable income was used to extrapolate an estimate of future taxable income.

25

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

As of June 30, 2024, the Company had the following obligations expected to be paid pursuant to the tax receivable agreement:

2024 (excluding the six months ended June 30, 2024))	$	1,425
2025	2,388
2026	2,581
2027	2,617
2028	2,656
Later years	32,818
Total payments	$	44,485

In addition to the above, the Company's tax receivable agreement liability and future payments thereunder are expected to increase as we realize (or are deemed to realize) an increase in tax basis of Holdings’ assets resulting from any future purchases, redemptions or exchanges of Holdings' equity by unitholders. The Company currently expects to fund these future tax receivable agreement liability payments from some of the realized cash tax savings as a result of this increase in tax basis.

Litigation

The Company may be, from time to time, party to various disputes and claims arising from normal business activities. The Company accrues for amounts related to legal matters if it is probable that a liability has been incurred and the amount is reasonably estimable. Litigation costs are expensed as incurred.

14. RELATED PARTY TRANSACTIONS

As a result of the Business Combination, the Company entered into a tax receivable agreement with Holdings and unitholders of Holdings. See Note 13. The Company is obligated to make certain payments under the tax receivable agreement to certain historical unitholders of Holdings. The Company made no payment related to the tax receivable agreement liability in the six months ended June 30, 2024.

Pursuant to the Holdings Second Amended and Restated LLC Agreement, the Company makes pro rata tax distributions to the unitholders of Holdings (i.e., non-controlling interest) in an amount sufficient to fund all or part of their tax obligations with respect to the taxable income of Holdings that is allocated to them. For the three months ended June 30, 2024, Holdings distributed a total of $22,961 of tax distributions to its members, of which $6,945 was paid to CompoSecure, Inc. (the parent company), resulting in a net tax distribution to all other members of $16,016. For the six months ended June 30, 2024, Holdings distributed a total of $36,383 of tax distributions to its members, of which $10,216 was paid to CompoSecure, Inc. (the parent company), resulting in a net tax distribution to all other members of $26,167.

In connection with the special distribution discussed in Note 6, $15,573 was disbursed to Class B unitholders of Holdings on June 11, 2024.

15. SUBSEQUENT EVENT

On August 7, 2024, the Company entered into a Fourth Amended and Restated Credit Agreement with JPMC to refinance its existing credit facility to $330,000 which is comprised of a term loan of $200,000 and revolving credit facility of $130,000. The amended facility will mature in August 2029.

On August 7, 2024, certain shareholders of the Company and Tungsten 2024, LLC ("Tungsten") entered into Stock Purchase Agreements ("SPAs"), pursuant to which Tungsten will acquire a majority interest in the Company. This transaction is pending regulatory approval. Under the terms of the SPAs, the selling shareholders will exchange their Class

26

COMPOSECURE, INC.

Notes to Consolidated Financial Statements - Unaudited

("$ in thousands" - except share data)

B units and associated Class B shares for Class A shares, eliminating the current dual-share class structure. Tungsten will subsequently purchase 49.3 million of the corresponding Class A shares to acquire majority control of the Company. The Company is conducting its assessment of the accounting implications of this transaction.

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the Company's audited consolidated financial statements and related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC. The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere particularly in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q.

Overview

The Company creates innovative, highly differentiated and customized financial payment card products for banks and other payment card issuers to support and increase their customer acquisition, customer retention and organic customer spend. The Company’s customers consist primarily of leading international and domestic banks and other payment card issuers primarily within the United States (“U.S.”), with additional direct and indirect customers in Europe, Asia, Latin America, Canada, and the Middle East. The Company is a platform for next generation payment technology, security, and authentication solutions. The Company maintains trusted, highly-embedded and long-term customer relationships with an expanding set of global issuers. The Company has established a niche position in the financial payment card market through over 20 years of innovation and experience and is focused primarily on this attractive subsector of the financial technology market. The Company serves a diverse set of direct customers and indirect customers, including some of the largest issuers of credit cards in the U.S.

Economic Conditions - Globally and in the Digital Asset Marketplace

U.S. and international markets and, in particular, the rapidly evolving digital assets industry, are experiencing uncertain and volatile economic conditions, including Russian aggression in Ukraine, the ongoing conflict in Israel, Gaza and the surrounding areas, sustained inflation, threats or concerns of recession, and supply chain disruptions. These conditions make it extremely difficult for us and our suppliers to accurately forecast and plan future business activities. Additionally, a significant downturn in the domestic or global economy may cause our existing customers to pause or delay orders and prospective customers to defer new projects. Together, these circumstances create an environment in which it is challenging for us to predict future operating results. If these uncertain business, macroeconomic or political conditions continue or further decline, our business, financial condition and results of operations could be materially adversely affected.

The Company’s Arculus platform offers a broad range of secure authentication and digital asset storage solutions and enables our consumer Arculus Cold Storage Wallet for digital assets. We believe consumers can achieve enhanced protection by controlling their private keys with a cold storage wallet, such as the Arculus Cold Storage Wallet. At the same time, this market cycle has created uncertainty in timing for our anticipated Arculus ramp up, as some of our partners and targets have been impacted. Therefore, we are taking a measured approach to better target the timing of our investments to support near-term and long-term opportunities.

Key Components of Results of Operations

Net Sales

Net sales reflect the Company’s revenue generated primarily from the sale of its products. Product sales primarily include the design and manufacturing of metal cards, including contact and dual interface cards. The Company also generates revenue from the sale of Prelams (which refers to pre-laminated, sub-assemblies consisting of a composite of material layers which are partially laminated to be used as a component in the multiple layers of a final payment card or other card construction). Net sales include the effect of discounts and allowances which consist primarily of volume-based rebates.

28

Cost of Sales

The Company’s cost of sales includes the direct and indirect costs related to manufacturing products and providing related services. Product costs include the cost of raw materials and supplies, including various metals, EMV® chips, holograms, adhesives, magnetic stripes, and NFC assemblies; the cost of labor; equipment and facilities; operational overhead; depreciation and amortization; leases and rental charges; shipping and handling; and freight and insurance costs. Cost of sales can be impacted by many factors, including volume, operational efficiencies, procurement costs, and promotional activity.

Gross Profit and Gross Margin

The Company’s gross profit represents its net sales less cost of sales, and its gross margin represents gross profit as a percentage of its net sales.

Operating Expenses

The Company’s operating expenses primarily comprised selling, general, and administrative expenses, which generally consist of personnel-related expenses for its corporate, executive, finance, information technology, and other administrative functions, and expenses for outside professional services, including legal, audit and accounting services, as well as expenses for facilities, depreciation, amortization, travel, sales and marketing.

Income from Operations and Operating Margin

Income from operations consists of the Company’s gross profit less its operating expenses. Operating margin is income from the Company’s operations as a percentage of its net sales.

Other Expense, net

Other expense primarily consists of changes in fair value of warrant liability, earnout consideration liability and interest expense net of any interest income.

Net Income

Net income consists of the Company’s income from operations, less other expenses and income tax provision or benefit.

Factors Affecting the Company’s Operating Results

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges. Please see the factors discussed in this Quarterly Report on Form 10-Q, including those discussed in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for additional information.

29

Results of Operations

Three months ended June 30, 2024 vs three months ended June 30, 2023

The following table presents the Company’s results of operations for the periods indicated:

Three months ended June 30,

2024