# Resolute Holdings Management, Inc. (RHLD) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Resolute Holdings Management, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/2039497/000141057825000595/rhld-20241231x10k.htm
Accession: 0001410578-25-000595
Filing date: 2025-03-31
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/RHLD/
All MD&A years: /company/RHLD/mda/
Next year: /company/RHLD/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For financial reporting purposes, we are required under U.S. generally accepted accounting principles to consolidate the financial statements of CompoSecure Holdings. As we are a newly formed entity, the Management’s Discussion and Analysis of Financial Condition and Results of Operations presented herein and in our future filings with respect to periods prior to the Spin-Off will be represented by the historical Management’s Discussion and Analysis of Financial Condition and Results of Operations of CompoSecure Holdings. Accordingly, except as otherwise indicated, the discussion and analysis in this section relates to CompoSecure Holdings’ historical financial condition and results of operations prior to the completion of the Spin-Off, and does not reflect the impact that the Spin-Off will have on us. Additionally, the financial statements of Resolute Holdings for periods ending following the completion of the Spin-Off will be prepared on a different basis from those of CompoSecure Holdings, and accordingly, our financial statements, financial condition and results of operations are expected to differ materially from those of CompoSecure Holdings and from the following discussion and analysis and any forward-looking statements contained therein. Accordingly, the following discussion and analysis should be read in conjunction with CompoSecure Holdings’ financial statements and corresponding notes and Resolute Holdings’ financial statements and corresponding notes, each included elsewhere in this Annual Report.

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CompoSecure operates its business through a subsidiary of CompoSecure Holdings and, accordingly, references in this section to the business and operations of CompoSecure refer to the business and operations of CompoSecure Holdings.

This discussion contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Our and CompoSecure Holdings’ actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this Annual Report, particularly in “Item 1A. Risk Factors.” Actual results may differ materially from these expectations. See “Cautionary Statement Concerning Forward-Looking Statements.” Certain columns and rows within tables may not add due to the use of rounded numbers.

OVERVIEW

Resolute Holdings

We were formed on September 27, 2024 to provide operating management services to CompoSecure Holdings and any other companies we may manage in the future. Until the completion of the Spin-Off on February 28, 2025, we were a wholly owned subsidiary of CompoSecure Holdings, had not engaged in any business operations and had no assets or liabilities, other than those incidental to our formation. Following the completion of the Spin-Off, the sole source of our revenues will be management fees we may receive pursuant to our management agreements, which currently consists solely of the CompoSecure Management Agreement. See “Item 1. Business – The CompoSecure Management Agreement.” As a result, for the foreseeable future, our performance, financial condition and results of operations will depend entirely on the performance of CompoSecure Holdings.

CompoSecure Holdings

CompoSecure 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. CompoSecure’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. CompoSecure is a platform for next generation payment technology, security, and authentication solutions. CompoSecure maintains trusted, highly-embedded and long-term customer relationships with an expanding set of global issuers. CompoSecure 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. CompoSecure serves a diverse set of direct customers and indirect customers, including some of the largest issuers of credit cards in the U.S.

KNOWN TRENDS OR FUTURE EVENTS; FACTORS AFFECTING OPERATING RESULTS

Resolute Holdings

Until the completion of the Spin-Off on February 28, 2025, Resolute Holdings had neither engaged in any operations nor generated any revenues. Accordingly, our only activities during the fiscal year ended December 31, 2024 were organizational activities and those necessary to prepare for the Spin-Off. We will not generate any revenues until the receipt of the CompoSecure Management Fee, which we expect will commence in the second quarter of the fiscal year ending December 31, 2025 (pro rata for the first quarter of the 2025 fiscal year). Following the completion of the Spin-Off, we have incurred, and expect to continue to incur, increased expenses as a result of being a public company.

CompoSecure Holdings

U.S. and international markets and particularly the rapidly evolving digital assets industry, are experiencing uncertain and volatile economic conditions, including the war 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 CompoSecure Holdings and its suppliers to accurately forecast and plan future business activities. Additionally, a significant downturn in the domestic or global economy may cause existing customers of CompoSecure Holdings to pause or delay orders and prospective customers to defer new projects. Together, these circumstances create an environment in which it is challenging for CompoSecure Holdings to predict future operating results. If these uncertain business, macroeconomic or political conditions continue or further decline, the business, financial condition and results of operations of CompoSecure Holdings could be materially adversely affected.

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CompoSecure’s Arculus platform offers a broad range of secure authentication and digital asset storage solutions and enables its consumer Arculus Cold Storage Wallet for digital assets. CompoSecure believes that 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 CompoSecure’s anticipated Arculus ramp up, as some of its partners and targets have been impacted. Therefore, CompoSecure has been taking a measured approach to better target the timing of its investments to support near-term and long-term opportunities.

CompoSecure believes that its performance and future success depend on a number of factors that present significant opportunities for the company but also pose risks and challenges.

RESULTS OF OPERATIONS

Resolute Holdings

Resolute Holdings had neither engaged in any operations nor generated any revenues during the fiscal year ended December 31, 2024. Our operating expenses in 2024 consisted of expenses allocated to Resolute Holdings from CompoSecure and CompoSecure Holdings’ financial records related to the direct and ongoing operation of Resolute Holdings. The expenses primarily related to salaries, benefits, bonus accruals, and equity-based compensation for personnel that were employees of CompoSecure Holdings during 2024 and whose employment was subsequently transferred to Resolute Holdings in connection with the Spin-Off. The remaining expenses consisted of audit fees, licenses and subscriptions, miscellaneous office expenses, and other general and administrative expenses.

CompoSecure Holdings

Recent Developments

On June 11, 2024, CompoSecure paid a special cash dividend to the holders of is Class A Common Stock and made a corresponding distribution to Class B unitholders of CompoSecure Holdings. As a result of the special cash dividend and distribution, the conversion price of outstanding 7.00% Exchangeable Senior Notes due 2026 of CompoSecure Holdings (the “CompoSecure Exchangeable Notes”) was adjusted to $10.98 per share, which resulted in an adjustment to the exchange rate to 91.0972 shares of CompoSecure’s Class A Common Stock per $1,000 principal amount of notes exchanged.

On August 7, 2024, all of the holders of CompoSecure’s Class B Common Stock entered into stock purchase agreements with Resolute Holdings I, LP and its affiliated vehicles (“Resolute”), pursuant to which the selling stockholders exchanged their 51,908,422 Class B Units of CompoSecure Holdings (and corresponding shares of CompoSecure’s Class B Common Stock) for shares of CompoSecure’s Class A Common Stock, eliminating CompoSecure’s existing dual-share class structure. On September 17, 2024, the transactions (the “Resolute Transaction”) closed, and Resolute Compo Holdings LLC became the majority owner of CompoSecure by acquiring 49,290,409 shares of CompoSecure’s Class A Common Stock for an aggregate purchase price of approximately $372.1 million, or $7.55 per share, representing approximately a 60% voting interest, and, as of February 28, 2025, Resolute Compo Holdings LLC together with its affiliates owned approximately 51% of the voting interest of CompoSecure’s Class A Common Stock. Neither CompoSecure nor CompoSecure Holdings was party to the stock purchase agreements. Prior to the Resolute Transaction, holders of CompoSecure’s Class B Common Stock held Class B Units of CompoSecure Holdings. Subsequent to the Resolute Transaction, CompoSecure owns 100% of CompoSecure Holdings. Additionally, as a result of the Resolute Transaction, CompoSecure no longer has shares of Class B Common Stock outstanding or a non-controlling interest as of December 31, 2024.

Effective September 19, 2024, the completion of the Resolute Transaction triggered a “Fundamental Change” as defined in the Indenture to the CompoSecure Exchangeable Notes (the “Indenture”). Triggering the Fundamental Change provision provided holders of the CompoSecure Exchangeable Notes a choice to: (1) exchange their CompoSecure Exchangeable Notes for shares of CompoSecure’s A Common Stock at a temporarily increased exchange rate of 104.5199 shares per $1,000 principal amount of CompoSecure Exchangeable Notes until November 27, 2024 (with the exchange rate then reverting to the existing 91.0972 shares per $1,000 principal amount of CompoSecure Exchangeable Notes); (2) have CompoSecure Holdings repurchase for cash of all of such holder’s notes on November 29, 2024 at a repurchase price equal to 100% of the principal amount of the CompoSecure Exchangeable Notes to be repurchased plus accrued and unpaid interest; or (3) continue to hold the CompoSecure Exchangeable Notes. A notice was sent to all holders of CompoSecure Exchangeable Notes on October 9, 2024 providing details of these choices. This temporary

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increase in the exchange rate resulted in an adjustment of the conversion price to $9.57 per share from September 19, 2024 to November 29, 2024. Through December 31, 2024, an aggregate of $130.0 million of the CompoSecure Exchangeable Notes had been surrendered and exchanged for an aggregate of 13,587,565 newly-issued shares of CompoSecure’s Class A Common Stock. As of December 31, 2024 all of the CompoSecure Exchangeable Notes were exchanged into shares of CompoSecure’s Class A Common Stock.

On August 7, 2024, CompoSecure Holdings entered into a Fourth Amended and Restated Credit Agreement with J.P. Morgan Change and the lenders party thereto to refinance its senior secured indebtedness, which increased the maximum borrowing capacity of the credit facility to $330.0 million comprising of a term loan of $200.0 million and a revolving credit facility of $130.0 million. The senior credit facility is set to mature on August 7, 2029. See “Liquidity and Capital Resources—CompoSecure Holdings” below.

On February 28, 2025, the Parent completed the Spin-Off, in connection with which CompoSecure Holdings and Resolute Management entered into the CompoSecure Management Agreement. See “Item 1. Business” above.

Key Components of Results of Operations

Net Sales

Net sales reflect CompoSecure Holdings’ 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. CompoSecure Holdings 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.

Cost of Sales

CompoSecure Holdings’ 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

CompoSecure Holdings’ 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

CompoSecure Holdings’ operating expenses are comprised of selling, general, and administrative expenses, which generally consist of personnel-related expenses for its corporate, executive, finance, information technology, and other administrative functions, 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 CompoSecure Holdings’ gross profit less its operating expenses. Operating margin is income from CompoSecure Holdings’ operations as a percentage of its net sales.

Other Expense, net

Other expense primarily consists of changes in fair value of derivative liability and interest expense, net of any interest income and amortization of deferred financing costs.

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Net Income

Net income consists of CompoSecure Holdings’ income from operations, less other expenses.

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

The following table presents the results of operations of CompoSecure Holdings for the periods indicated:

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[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

Net Sales

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

CompoSecure Holdings’ net sales for the year ended December 31, 2024 increased by $29.9 million, or 8%, to $420.6 million compared to $390.6 million for the year ended December 31, 2023. The increase was driven by continued domestic growth in the company’s premium payment card business, which was up 7%, and international sales, which were up 11%.

Domestic: CompoSecure Holdings’ domestic net sales for the year ended December 31, 2024 increased $22.0 million, or 7%, to $343.5 million compared to $321.5 million for the year ended December 31, 2023. The increase was primarily due to higher customer acquisition by the company’s clients as they continued to experience higher demand.

International: CompoSecure Holdings’ international net sales for the year ended December 31, 2024 increased $7.9 million, or 11%, to $77.1 million compared to $69.2 million for the year ended December 31, 2023. The international customer base is comprised of a larger population of smaller customers relative to the domestic customer base. There were increased sales across the customer base driving growth in net sales during 2024.

In addition, the following table presents the company’s net sales for the three months ended December 31, 2024 compared to December 31, 2023:

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[[/GREPCENT_TABLE]]

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​

CompoSecure Holdings’ net sales for the three months ended December 31, 2024 increased $1.0 million, or 1%, to $100.9 million compared to $99.9 million for the three months ended December 31, 2023.

Gross Profit and Gross Margin

CompoSecure Holdings’ gross profit for the year ended December 31, 2024 increased $10.1 million, or 5%, to $219.2 million compared to $209.1 million for the year ended December 31, 2023, while the gross profit margin decreased from 54% to 52%. The decrease in gross margin was partially driven by initial production of new and innovative card constructions, which resulted in lower production efficiencies and the impact of inflationary pressure on wages and materials for the year ended December 31, 2024.

Operating Expenses

CompoSecure Holdings’ operating expenses for the year ended December 31, 2024 increased $9.0 million, or 11%, to $92.5 million compared to $83.5 million for the year ended December 31, 2023. The increase was driven primarily by an increase in stock based compensation of $3.2 million, increases in salaries and commission expense of $1.4 million, increase in bonus expenses of $3.3 million, increase in computer software supplies of $0.8 million, increase in depreciation of $0.8 million and increase in various other costs of $0.6 million. The increases were partially offset by reduction in marketing expenses of $0.6 million and decrease in professional fees of $0.5 million.

Income from Operations and Operating Margin

During the year ended December 31, 2024, CompoSecure Holdings had income from operations of $126.7 million compared to income from operations of $125.5 million for the year ended December 31, 2023. CompoSecure Holdings’ operating margin for the year ended December 31, 2024 decreased to 30% compared to 32% for the year ended December 31, 2023. The decrease in operating margin was primarily due to the decrease in gross margin as a percentage of revenue and increase in operating expenses offset by revenue growth.

Other Expenses, Net

Other expenses for the year ended December 31, 2024 decreased $7.9 million, or 33%, to $16.4 million compared to $24.3 million for the year ended December 31, 2023. The overall decrease in other expenses was primarily due to decreases in interest expense of $7.3 million and changes in fair value of derivative liability of $0.6 million.

Net Income

CompoSecure Holdings’ net income for the year ended December 31, 2024 was $110.3 million, compared to net income of $101.2 million for the year ended December 31, 2023.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Resolute Holdings

General

The discussion and analysis of Resolute Holdings’ financial condition and results of operations is based upon our audited financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements involve the management of Resolute Holdings making estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosures with respect to contingent liabilities and assets at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Certain accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on the Company’s historical experience, terms of its existing contracts, evaluation of trends in the industry, information provided by its customers, and information available from outside sources, as appropriate. Resolute Holdings’ actual results may differ from those estimates under different assumptions or conditions.

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Resolute Holdings evaluates the adequacy of its expected reserves and the estimates used in calculations on an on-going basis. See Note 2 in Resolute Holdings’ consolidated financial statements for a complete description of the significant accounting policies that have been followed in preparing Resolute Holdings’ audited consolidated financial statements.

The accounting policies described below are those that Resolute Holdings considers to be the most critical for an understanding of its financial condition and results of operations and that require the most complex and subjective management judgment.

Expense Allocation

Expenses incurred for the benefit of Resolute Holdings have been allocated to our financial statements from CompoSecure and CompoSecure Holdings’ financial records based on whether the expense related to the direct and ongoing operation of Resolute Holdings.

CompoSecure Holdings

General

The discussion and analysis of CompoSecure Holdings’ financial condition and results of operations is based upon its audited financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements involve the management of CompoSecure Holdings making estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosures with respect to contingent liabilities and assets at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Certain accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on the company’s historical experience, terms of its existing contracts, evaluation of trends in the industry, information provided by its customers, and information available from outside sources, as appropriate. CompoSecure Holdings’ actual results may differ from those estimates under different assumptions or conditions. CompoSecure Holdings evaluates the adequacy of its expected reserves and the estimates used in calculations on an on-going basis. Significant areas requiring management to make estimates include the valuation of share based compensation, estimates of derivative liability associated with the CompoSecure Exchangeable Notes which were marked to market each quarter based on a Lattice model approach, derivative asset for the interest rate swap. See Note 6, 9 and 11 in the Notes to CompoSecure Holdings’ consolidated financial statements for further discussion of the nature of these assumptions and conditions. See Note 2 in CompoSecure Holdings’ consolidated financial statements for a complete description of the significant accounting policies that have been followed in preparing CompoSecure Holdings’ audited consolidated financial statements.

The accounting policies described below are those that CompoSecure Holdings considers to be the most critical for an understanding of its financial condition and results of operations and that require the most complex and subjective management judgment.

Revenue Recognition

CompoSecure Holdings recognizes revenue in accordance with the accounting standard ASC 606 when the performance obligations under the terms of CompoSecure Holdings’ 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 refer to the products offered by CompoSecure Holdings, 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 a customer 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 primary judgments relating to CompoSecure Holdings’ revenue recognition include determining whether (i) the contract with a customer exists; (ii) performance obligations are identified; (iii) the transaction price is determined; (iv) the transaction price is

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allocated to performance obligations; and (v) the distinct performance obligations are satisfied by transferring control of the product or service to the client. Transfer of control is typically evaluated from the customer’s perspective.

CompoSecure Holdings 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 60 days of the invoice, a significant financing component is not included within the contracts.

The majority of CompoSecure Holdings’ 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, CompoSecure Holdings’ contracts are generally short term in nature.

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

CompoSecure Holdings’ 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 CompoSecure Holdings.

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

On occasion, CompoSecure Holdings receives requests from customers to hold purchased products. CompoSecure Holdings evaluates these requests as bill and hold arrangements. CompoSecure Holdings recognizes revenue from such bill and hold arrangements in accordance with the guidance provided in ASC 606 which indicates that, for a customer to have obtained control of a product in a bill and hold arrangement, all of the following criteria must be met: (a) the reason for the bill and hold is substantive, (b) the product has separately been identified as belonging to the customer, (c) the product is currently ready for physical transfer to the customer, and (d) CompoSecure Holdings does not have the ability to use the product or direct it to another customer. During the years ended December 31, 2024 and 2023 CompoSecure Holdings recognized $8.1 million and $0 of revenue under bill and hold arrangements.

Equity-Based Compensation

CompoSecure Holdings estimates the fair value of option awards using a Black-Scholes option valuation model. Option valuation model requires CompoSecure Holdings to estimate a number of key valuation inputs including expected volatility, expected dividend yield, expected term, and risk-free interest rate. The expected term assumption reflects the period for which CompoSecure Holdings believes the option will remain outstanding. This assumption is based upon the historical and expected behavior of the option holders and may vary based upon the behavior of different groups of option holders. The most subjective estimate is the expected volatility of the underlying unit when determining the fair market value of an option granted. As there was no trading history for CompoSecure’s equity prior to 2021, CompoSecure Holdings utilized a blend of an appropriate index and volatility in CompoSecure’s stock price to estimate the volatility assumption when calculating the fair value of options granted during 2024. An entity that is unable to estimate the expected volatility of the price of its underlying share may measure awards based on a “calculated value,” which substitutes the volatility of an appropriate index for the volatility of the entity’s own share price. CompoSecure Holdings used the historical closing values of comparable publicly held entities to estimate volatility. The risk-free rate reflects the U.S. Treasury yield curve for a similar expected life instrument in effect at the time of the grant. During the year ended December 31, 2024, CompoSecure granted 1,674,074 non qualified stock options to employees of the Company. CompoSecure also granted restricted stock units and performance based stock units under its 2021 incentive plan during the years ended December 31, 2024 and 2023. See Note 9 to CompoSecure Holdings’ consolidated financial statements.

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Market and Credit Risk

Financial instruments that potentially subject CompoSecure Holdings to credit risk consist principally of investments in cash, cash equivalents, short-term investments and accounts receivable. CompoSecure Holdings’ primary exposure is credit risk on receivables as CompoSecure Holdings does not require any collateral for its accounts receivable. Credit risk is the loss that may result from a trade customer’s or counterparty’s nonperformance. CompoSecure Holdings uses credit policies to control credit risk, including utilizing an established credit approval process, monitoring customer and counterparty limits, employing credit mitigation measures such as analyzing customers’ financial statements, and accepting personal guarantees and various forms of collateral. CompoSecure Holdings believes that its customers and counterparties will be able to satisfy their obligations under their contracts.

CompoSecure Holdings maintains cash and cash equivalents with approved federally insured financial institutions. Such deposit accounts at times may exceed federally insured limits. CompoSecure Holdings is exposed to credit risks and liquidity in the event of default by the financial institutions or issuers of investments in excess of FDIC insured limits. CompoSecure Holdings performs periodic evaluations of the relative credit standing of these financial institutions and limits the amount of credit exposure with any institution if required. CompoSecure Holdings has not experienced any losses on such accounts.

Recently Adopted Accounting Policies

On November 27, 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which applies to all public entities that are required to report segment information in accordance with Topic 280, Segment Reporting, The guidance will be applied retrospectively and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance improves financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analysis. CompoSecure Holdings adopted this standard and has reflected updates to its segment reporting in CompoSecure Holdings’ consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Resolute Holdings

As indicated in the accompanying financial statements of Resolute Holdings, at December 31, 2024, we had only immaterial amounts of cash. Since the completion of the Spin-Off, we have incurred, and we expect to continue incurring, significant costs as we make the initial resource investments required to build the capabilities required for us to perform our duties required by the CompoSecure Management Agreement.

Prior to the completion of the Spin-Off, we received approximately $11.1 million from CompoSecure Holdings pursuant to the Separation and Distribution Agreement, which, together with the management fees we expect to receive pursuant to the CompoSecure Management Agreement, we expect will be sufficient for our liquidity needs during the fiscal year ending December 31, 2025. We intend to use these funds to hire and compensate personnel and establish the legal, financial reporting, accounting and auditing compliance infrastructure necessary following the completion of the Spin-Off to perform our duties required by the CompoSecure Management Agreement. We expect to begin receiving management fees pursuant to the CompoSecure Management Agreement commencing in the second quarter of the fiscal year ending December 31, 2025 (pro rata for the first quarter of the 2025 fiscal year), subject to our ability under the CompoSecure Management Agreement to waive the payment of management fees. See “Item 1. Business – The CompoSecure Management Agreement”.

We expect our primary liquidity requirements during the period prior to our initial receipt of management fees pursuant to the CompoSecure Management Agreement to include personnel and related costs, insurance, legal, accounting and other expenses in connection with regulatory reporting requirements, rent for office space, utilities and secretarial and administrative support, Nasdaq listing fees and other miscellaneous expenses.

On February 28, 2025, we entered into the Credit Agreement with JPMorgan Chase Bank, N.A., as lender (“JPMC”) (the “Credit Agreement”). The Credit Agreement provides for a $5 million loan through a senior secured revolving credit facility available to be used by the Company. The revolving credit facility matures on May 31, 2026. Borrowings of the revolving loans shall bear interest at a fluctuating rate per annum equal to, at the Company’s option, (i) a rate equal to the higher of (a) the rate of interest last

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quoted by the Wall Street Journal as the prime rate in the U.S. or (b) 2.5% or (ii) a Term SOFR based benchmark rate for the applicable interest period (provided that in no event shall such Term SOFR rate be less than 0.00% per annum) plus an applicable margin of 2.25%. The terms of the revolving credit facility impose financial covenants including a minimum liquidity ratio, a minimum revenue requirement and, beginning with the fiscal quarter ending March 31, 2026, a minimum leverage ratio which shall not be greater than 1.50 to 1.00 on the last day of any fiscal quarter. The foregoing summary of the Credit Agreement is not complete and is qualified in its entirety by reference to the full text of the Credit Agreement attached as an exhibit to this Annual Report and which is incorporated herein by reference.

We believe that our cash and available credit facility are sufficient to meet our liquidity needs for at least the next 12 months. We do not believe we will need to raise additional funds to meet the expenditures required for operating our business. However, if our estimates of the costs of personnel compensation and establishing the infrastructure necessary to build the capabilities required for us to perform our duties required by the CompoSecure Management Agreement are lower than the actual amount necessary to do so, we may have insufficient funds available to operate our business. Moreover, we may need to obtain additional financing, in which case, we may issue additional securities or incur debt. See “Risk Factors.”

CompoSecure Holdings

CompoSecure Holdings’ primary sources of liquidity are its existing cash and cash equivalents balances, cash flows from operations and borrowings on its term loan and revolving credit facility. CompoSecure Holdings’ primary cash requirements include operating expenses, debt service payments (principal and interest) and capital expenditures (including property and equipment).

As of December 31, 2024, CompoSecure Holdings had cash and cash equivalents of $71.6 million and total debt principal outstanding of $197.5 million. As of December 31, 2023, CompoSecure Holdings had cash and cash equivalents of $38.2 million and total debt principal outstanding of $340.3 million.

CompoSecure Holdings believes that cash flows from its operations and available cash and cash equivalents as well as the availability of a revolving credit facility of $130 million (as described below), are sufficient to meet its liquidity needs, including the repayment of its outstanding debt, for at least the next 12 months. CompoSecure Holdings anticipates that to the extent that it requires additional liquidity, it will be funded through borrowings on its revolving credit facility, the incurrence of other indebtedness, or a combination thereof and offering of its shares in capital markets. CompoSecure Holdings cannot be assured that it will be able to obtain this additional liquidity on reasonable terms, or at all. Additionally, CompoSecure Holdings’ liquidity and its ability to meet its obligations and fund its capital requirements are also dependent on its future financial performance, which is subject to general economic, financial and other factors that are beyond its control. Accordingly, CompoSecure Holdings cannot assure that its business will generate sufficient cash flows from operations or that future borrowings will be available from additional indebtedness or otherwise to meet its liquidity needs. Although CompoSecure Holdings has no specific current plans to do so, if CompoSecure Holdings decides to pursue one or more significant acquisitions, it may incur additional debt to finance such acquisitions.

On August 7, 2024, CompoSecure Holdings entered into a Fourth Amended and Restated Credit Agreement with JPMC (the “CompoSecure 2024 Credit Facility” and collectively with the 2021 Credit Facility, the “CompoSecure Credit Facilities”) to refinance its existing $310 million credit facility, which was set to mature on December 16, 2025 (the “CompoSecure 2021 Credit Facility”). In conjunction with the CompoSecure 2024 Credit Facility, the maximum borrowing capacity of the overall credit facility was increased to $330 million comprised of a term loan of $200 million (the “CompoSecure 2024 Term Loan”) and a revolving credit facility of $130 million (the “CompoSecure 2024 Revolver”). At December 31, 2024, there was $197.5 million of total debt outstanding under CompoSecure Holdings’ existing credit facilities. No amounts were drawn on the CompoSecure 2024 Revolver as of December 31, 2024. Additional amounts may be available for borrowing during the term of the CompoSecure 2024 Revolver, up to the full $130 million, as long as CompoSecure Holdings maintains a net leverage ratio as stipulated in the agreement governing the CompoSecure 2024 Credit Facility. As of December 31, 2024, CompoSecure Holdings’ net leverage ratio met the requirement for the available borrowing as defined in the terms of the agreement governing the CompoSecure 2024 Credit Facility. The CompoSecure 2024 Credit Facility will mature on August 7, 2029.

Two lenders who participated in the CompoSecure 2021 Credit Facility did not participate in the CompoSecure 2024 Credit Facility and transferred their debt to other lenders. The CompoSecure 2024 Credit Facility was accounted for as an extinguishment for the two lenders who transferred their debt and as a modification for all other remaining lenders. As a result, CompoSecure Holdings wrote-off approximately $0.1 million in unamortized debt issuance costs related to the lenders who did not participate in the

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CompoSecure 2024 Credit Facility which is included in Loss on Extinguishment of Debt in Other Expense in the accompanying consolidated statements of operations. In conjunction with the CompoSecure 2024 Credit Facility, CompoSecure Holdings incurred approximately $0.7 million in lender fees and $0.1 million in other third-party fees related to the CompoSecure 2024 Revolver and approximately $1.1 million in lender fees and $0.2 million in other third-party fees related to the CompoSecure 2024 Term Loan. The $1.1 million of lender fees related to the CompoSecure 2024 Term Loan have been capitalized and these fees, along with $0.8 million of unamortized debt issuance costs related to the CompoSecure 2021 Credit Facility, will be amortized into interest expense through the maturity date of the CompoSecure 2024 Term Loan using the effective interest method. Similarly, $0.7 million of lender fees and $0.1 million of other third-party fees related to the CompoSecure 2024 Revolver have been capitalized as an other long-term asset and will be amortized into interest expense through the maturity date of the CompoSecure 2024 Revolver using the straight-line method. The $0.2 million other third-party fees related to the CompoSecure 2024 Term Loan were expensed as incurred.

On December 30, 2024, CompoSecure Holdings executed Amendment No. 1 to the CompoSecure 2024 Credit Facility (the “CompoSecure December 2024 Amendment”) to permit the Spin-Off. There were no changes to the lenders as a result of the amendment which is accounted for as a modification. CompoSecure Holdings incurred $0.2 million of lender fees in connection with the CompoSecure December 2024 Amendment which will be amortized through the maturity of the CompoSecure 2024 Credit Facility.

The CompoSecure Credit Facilities, including the CompoSecure 2024 Credit Facility, require CompoSecure Holdings to make quarterly principal payments until maturity, at which point a balloon principal payment is due for the outstanding principal. The CompoSecure Credit Facilities also require CompoSecure Holdings to make monthly interest payments as well as pay a quarterly unused commitment fee of 0.35% for any unused portion of the revolving credit facilities. The CompoSecure 2024 Credit Facility provides for CompoSecure Holdings to prepay the term loans without penalty or premium. The CompoSecure Credit Facilities are secured by substantially all of the assets of CompoSecure Holdings.

Interest on the revolving credit facilities and the term loans are based on the outstanding principal amount during the interest period multiplied by the quoted SOFR rate plus the Applicable Rate (as defined in the CompoSecure 2024 Credit Facility), which can range from 1.75% to 2.75% based on CompoSecure Holdings’ leverage ratio.

The CompoSecure 2024 Credit Facility contains customary covenants, including among other things, certain restrictions or limitations on indebtedness, issuance of liens, investments, asset sales, certain mergers or consolidations, sales, transfers, leases or dispositions of substantially all of CompoSecure Holdings’ assets, and affiliate transactions. CompoSecure Holdings may also be required to make repayments on the CompoSecure 2024 Credit Facility in advance of the maturity date based on a calculation of excess cash flows, as defined in the agreement, with any required payments to be made after the issuance of CompoSecure Holdings’ annual financial statements. CompoSecure Holdings was in compliance with all covenants as of December 31, 2024. See Note 6 to the CompoSecure Holdings consolidated financial statements in this Annual Report for additional information.

On April 19, 2021, concurrently with the execution of the Merger Agreement, CompoSecure Holdings entered into subscription agreements with certain investors (“Notes Investors”) pursuant to which such Notes Investors, severally and not jointly, purchased on the closing date of CompoSecure’s initial business combination, the CompoSecure Exchangeable Notes, which were issued by CompoSecure 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 $130.0 million that were exchangeable into shares of CompoSecure common stock at an initial conversion price of $10.98 per share (and, from September 19, 2024 to November 27, 2024, at a conversion price of $9.57 per share, which was temporarily decreased pursuant to an automatic adjustment mechanism set forth in the indenture governing the CompoSecure Exchangeable Notes), subject to the terms and conditions of an indenture entered into with the trustee under the indenture. As of November 29, 2024, all $130.0 million aggregate principal amount of the CompoSecure Exchangeable Notes had been exchanged for shares of CompoSecure common stock, and no CompoSecure Exchangeable Notes remained outstanding at December 31, 2024.

Net Cash Provided by Operations

Cash provided by CompoSecure Holdings’ operating activities for the year ended December 31, 2024 was $152.1 million compared to cash provided by its operating activities of $112.1 million during the year ended December 31, 2023. The cash provided by operating activities of $15.8 million was primarily attributable to increases in net income of $9.1 million, equity compensation expense of $3.2 million, and changes in working capital of $26.8 million.

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Net Cash Used in Investing

Cash used in CompoSecure Holdings’ investing activities for the year ended December 31, 2024 was $9.9 million, primarily relating to capital expenditures of $7.4 million, investment in SAFE of $1.5 million and capitalized software expenditures of $1.0 million, compared to cash used in investing activities of $10.9 million for capital expenditures during the year ended December 31, 2023.

Net Cash Used in Financing

Cash used in CompoSecure Holdings’ financing activities for the year ended December 31, 2024 was $108.8 million, compared to cash used in CompoSecure Holdings’ financing activities for the year ended December 31, 2023 of $71.3 million. Cash used in financing activities for the year ended December 31, 2024 primarily related to tax distributions of $50.1 million, special distribution of $15.6 million, repayment of scheduled principal payments of term loan of $12.8 million, and payments for taxes related to net share settlement of equity awards of $8.9 million. CompoSecure Holdings also made payments of $2.1 million for costs related to the 2024 term loan debt modification and transferred 19.2 million to Parent. Cash used for the year ended December 31, 2023 primarily related to payment of distributions to non-controlling interests, repayment of scheduled term loan principal payments, payments for taxes related to net share settlement of equity awards, receipt of transfers from Parent and costs related to the term loan debt modification.

Contractual Obligations

The following table summarizes, as of December 31, 2024, CompoSecure Holdings’ material expected contractual cash obligations by future period (see Notes 6, and 7 to CompoSecure Holdings’ consolidated financial statements):

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Includes principal only. See Note 6 to CompoSecure Holdings\u2019 consolidated financial statements."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","See Note 7 to CompoSecure Holdings\u2019 consolidated financial statements."]]
[[/GREPCENT_TABLE]]

As of December 31, 2024, CompoSecure Holdings has purchase commitments with a supplier of approximately $10.7 million for 2025 and $2.0 million for 2026.

Financing

CompoSecure Holdings is party to the 2024 Credit Facility with various banks. For a more complete description of the Company’s debt obligations, see Note 6 to CompoSecure Holdings’ consolidated financial statements.

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