GPGI Q2 2026 Earnings Call: Complete Transcript

GPGI (NYSE: GPGI ) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

9 million, down 13% from the prior year. The company expects robust growth and margin expansion at Compose Secure, driven by record sales and broad customer demand, and anticipates Husky will see demand recovery in the second half, despite current market headwinds. GPGI is maintaining its full-year guidance for revenue, adjusted EBITDA, and free cash flow, with expectations of mid- to high-single-digit annual organic growth and over 100 basis points annual margin expansion through ROS deployment.

Management highlighted the successful implementation of the Resolute Operating System (ROS) at Compose Secure and ongoing deployment at Husky, aiming for sustained financial performance improvements. The company is focused on disciplined capital allocation, prioritizing organic investments and bolt-on acquisitions, and is exploring potential new platform acquisitions that meet strategic criteria. Management remains confident in achieving long-term growth targets and is optimistic about market conditions improving, particularly with Husky's gradual market recovery and strategic initiatives. Full Transcript OPERATOR Good day and thank you for standing by.

Welcome to the GPGI second quarter earnings conference call. At this time all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session you need to press star 11 on your telephone keypad.

You will not hear an automatic message advising your hand is raised. To withdraw a question, please press star 1 and 1 again. Please be advised that today's conference has been recorded. I would now like to hand the conference over to our first speaker today, Dave Marshall.

Please go ahead. Dave Marshall, Investor Relations Good morning and welcome to GPGI's second quarter conference call. gov and on our IR website again. Additionally, definitions and reconciliations of non-GAAP measures used today appear in today's press release and earnings presentation which are available in our SEC filings and on our IR website.

As a reminder, following the Resolute Holdings spinoff, GPGI accounts for GPGI Holdings, including our Compose Secure and Husky businesses, under the equity method of accounting in accordance with GAAP. With that, I will turn over the call to Executive Chairman Dave Cody. Dave Cody, Executive Chairman Morning everyone. GPGI continues to execute with discipline and focus, with our customers at the center of everything we do.

In the second quarter, we continued to see progress across the platform and delivered results that were consistent with both our expectations and the guidance range we introduced last quarter. The results were driven by continued strength at Compose Secure and some indications of relief as we continue to navigate transient market headwinds at Husky. Starting with Compose Secure, we're seeing the continued transformative impact of ROS on growth and operations, delivering record sales, strong operating performance, and both year-over-year and sequential margin expansion.

With robust demand from a broadening base of customers, Compose Secure is well positioned to continue accelerating organic growth and improving profitability in the second half of the year. Compose Secure is one year ahead of Husky in the deployment of ROS, and we are seeing how cultivating a high-performance culture and making strategic investments enable a sustained inflection in financial performance. Turning to Husky, we're navigating through transient market headwinds caused by volatile resin prices and shipping disruptions related to conflict in the Middle East and continued tariff uncertainty.

The macro environment has improved marginally since we last spoke to you as oil and resin prices have come off their previous peak set in late April, and our customers are beginning to have a bit more confidence in making purchase decisions. However, the second quarter was still impacted by macro uncertainty, and we're beginning to see pockets of demand recovery and continue to expect a strong second half that is consistent with historic seasonal trends. In addition to demand gradually returning, we expect improved operating leverage and discrete cost actions to drive margin expansion both sequentially and year-over-year through the second half.

Importantly, we're starting to see initial signs of ROS taking hold at Husky and are aggressively accelerating its implementation to drive durable organic growth and sustainably higher margins. As a reminder, ROS is the cornerstone of how we operate GPGI. It represents an end-to-end commitment to grow sales, control costs, and generate the cash necessary for seed planting, accretive investing, and compounding returns for investors. ROS is how we translate strategy into results, be it operating metrics, financial performance, or strategic breakthroughs.

I'll let Graham and Rob provide specific examples of how ROS is moving the needle at Compose Secure and Husky, but will note how this daily mindset compounds performance over time and builds the next generation of world-class operators. Looking at Compose Secure, we clearly see the inflection, growth, and profitability enabled by our investments in the sales force and R&D over the past 21 months. This demonstrates the multifaceted focus of ROS well beyond just managing costs. The ROS flywheel specifically requires cultural change to catalyze operational change.

That is why I'm so pleased we announced the appointments of Mohamed Khanan as Chief Financial Officer and Karen Stone as Chief Human Resources Officer of Husky. Mohamed and Karen are proven leaders with significant global experience. It will accelerate the cultural transformation Rob is leading across the business, and both will be integral to our next phase of growth. Change agents make a difference.

I also want to highlight how we think about GPGI's long-term growth algorithm. Specifically, we're focused on delivering mid- to high-single-digit annual organic growth, over 100 basis points annual margin expansion through the deployment of ROS, double-digit-plus annual EBITDAR growth, and 90 to 100% free cash flow conversion over time. This is happening while we are strategically investing in the businesses, doing the seed planting today that is necessary for them to achieve their potential tomorrow. The plan is simple.

We intend to grow GPGI's earnings and cash flow faster than the market to deliver superior, durable, through-the-cycle returns for our investors. To conclude, we're extremely focused on execution, remain well positioned to deliver in the second half, and are reiterating our full-year guidance. We're also continuing to pursue critical seed planting initiatives to deliver in 2026 and accelerate into 2027. This includes strategic investments and operational improvements that position GPGI to capture incremental sales and margin as Husky's markets rebound.

Overall, our thesis remains firmly intact and we're excited about the path GPGI is on. So with that I'll turn it over to Tom Knott, our CIO. Tom Knott (Chief Investment Officer) Thank you, Dave, and good morning, everyone. 1%, down approximately 230 basis points from the prior year.

Despite the market headwinds at Husky, GPGI also generated approximately $63 million in pro forma adjusted free cash flow in the second quarter, significantly higher than the prior year. As Dave mentioned, these results were in line with our expectations. Turning to slide 5, we are reiterating our full-year revenue, adjusted EBITDA, and free cash flow guidance. 1 billion, pro forma adjusted EBITDA between $550 and $610 million, and pro forma adjusted free cash flow between $275 and $325 million, which we define as cash from operations less capital expenditures and adding back one-time Husky transaction expenses on a full-year pro forma basis.

While these guidance ranges remain the same, we are adjusting our pro forma adjusted EBITDA margin guidance to between 27% and 29% to reflect tariff pass-through revenues and the potential mix impact at Husky from stronger system performance through the remainder of the year than we anticipated last quarter. Our full-year 2026 guidance translates into roughly flat year-over-year revenue and approximately 7% pro forma adjusted EBITDA growth at the midpoint, even with the market-driven weakness at Husky, highlighting the resilience of the combined GPGI platform. Relatedly, I want to address the key components for the second half's performance.

Starting with Composecure, we expect strong revenue growth and margin expansion to continue through the rest of the year. For Husky, we expect a second half consistent with historical seasonality, coupled with improved labor and fixed cost absorption, and ROS-led efficiency gains and full realization of savings from discrete cost actions to support anticipated sequential and year-over-year margin improvement. With respect to our capital structure, we remain focused on debt paydown and are still targeting 3 times leverage by the end of 2026.

Our long-term leverage target at GPGI is between 2 and 2 and a half times, excluding potential one-time step-ups for strategic acquisitions. We continue to view 2026 as a critical year of cultural change, ROS implementation, and strategic seed planting at both businesses to position us for best-in-class top-line growth, margin expansion, and free cash flow generation across GPGI. This remains our focus, and we are confident in the work that is underway. Moving to slide 6, I want to take a moment to discuss our philosophy regarding capital allocation at GPGI.

First and foremost, we are focused on acquiring and operating companies with great positions in good industries. As the company's name suggests, these businesses, like Composecure and Husky, should all generate high returns on invested capital because that is what results from having a great position in a good industry. We then aggressively deploy the Resolute Operating System into each owned business, taking a systematic approach to operational improvements that both accelerate growth and drive margin expansion. This results in even higher returns on capital and accelerating growth in earnings and cash flow.

With this cash flow, we first prioritize organic investments and bolt-on acquisitions, as these investments usually have the highest returns on capital and serve to further bolster the competitive moats of each owned business. This is how we are building Composecure and Husky. Today we are aggressively deploying ROS, actively making significant organic investments, and consistently evaluating bolt-on acquisitions for both companies. While early days, this is the organic flywheel we expect will create compounding returns at GPGI.

We are excited about the prospects for GPGI with just the two businesses we own today. Composecure and Husky each have their own high-return investment opportunities, and we have the luxury of not needing to acquire any new platform businesses. As you know, we have no deployment targets, no fund constraints, or any other artificial requirements to buy new platforms, and we see opportunities to continue making high-return organic investments to drive the earnings power and cash generation capability of GPGI meaningfully higher than it is today.

We are interested in acquiring a new platform only to the extent it meets our six acquisition criteria, a list designed to screen for durable, high-ROIC businesses that can benefit from ROS deployment, and if that platform can be acquired at a fair price that will generate attractive returns on your capital. The organic flywheel will spin faster as we add more platforms to GPGI over time, because with more platforms we will have more organic and bolt-on investment opportunities to drive earnings and cash flow, which in turn translates into higher intrinsic value of GPGI. The key enablers for this compounding flywheel are threefold.

First, our permanent capital base enables GPGI to make sound business decisions and invest with a long-term view. Second, ROS deployment is based on a proven operating playbook that we have refined across multiple companies over multiple decades. And finally, our corporate structure frees operators to exclusively focus on growing their businesses without the distractions of being a public company, but with the oversight that ensures the business is on track to achieve both near-term and long-term results. Finally, to conclude my comments, I want to briefly describe what we are seeing in the marketplace.

While we are interested in companies with great positions in good industries, generally in the current environment we see a large and growing backlog of the most scaled businesses owned by private equity firms that need to access the public markets. This group of assets are too large for most sponsors to acquire, leaving a regular IPO as the primary exit path. But that path is sub-optimal, as it typically results in limited proceeds to the private equity sponsor, an over-levered public company, and an overhang from excessive insider ownership, all of which results in an orphaned security.

This creates a lose-lose situation for the private equity sellers and for public shareholders. It is a topic that is beginning to get some coverage in the news, but it's a phenomenon we have been watching develop for almost 10 years, at this point, starting when Dave and I began the process that ultimately resulted in our acquisition of Vertiv. Private equity firms are increasingly facing pressure to monetize their investments to return capital to their investors, while at the same time facing a traditional IPO market that in our opinion does not work for almost all the highly leveraged sponsor-backed businesses.

GPGI can address this problem in a compelling and unique way, and the list of available assets in need of our solution is growing. Said simply, we believe the market is structurally moving in our direction, which adds to our confidence in the opportunity ahead, while at the same time enabling us to be very disciplined in our assessment of new platform investments. With that, I'll turn the call over to Graham Robinson, the CEO of Composecure. Graham Robinson, CEO of Composecure Thank you, Tom, and good morning, everyone.

Going to slide 7, we delivered another outstanding quarter at Composecure, continuing to expand upon our commercial and operational momentum. 6 million, up approximately 12% compared to the prior year, underscoring both the robust demand for premium metal cards and the effectiveness of our commercial execution across markets. This strength is translating to several new program wins and accelerating issuer activity across a broadening and diversified customer base. We're also seeing continued adoption of Arculus' capabilities in parallel with the rising penetration of premium metal cards.

ROS continues to have a compounded impact across our business. We are realizing meaningful improvements across all functional areas, including manufacturing efficiencies to increase yield and drive record output, reinvigorated go-to-market strategy to effectively penetrate international markets, and non-manufacturing casings to ensure efficiency gains extend beyond the factory to the office. 2 million this quarter, up approximately 14% from the prior year. S.

Bank's Amazon Business, American Express, Delta SkyMiles Reserve, Kleiner Dollar, Apparq, and Cast. These signature program wins reflect the breadth of demand for premium card solutions and our differentiated value proposition combining advanced design, engineering, and manufacturing capabilities to reinforce our position as the partner of choice for issuers launching high-impact card programs.

And in recognition of our market-leading card designs, Composecure has won five prestigious Élan Awards of Excellence at ICMA's 2026 Expo, including Best Personalization Product, Unique Innovation, Unique Innovation Prototype Metal Feature Card, and Best Regional Card in North America. While encouraged by our progress, we maintain a relentless focus on investing in our future and executing on our three pillars of growth, which include: 1) accelerating organic growth, 2) driving international expansion, and 3) increasing Arculus momentum.

Select initiatives to support these strategic priorities include penetration of the debit card market, an introductory metal card for issuers upgrading from plastic, the opening of a new design center in London to better serve international customers, tokenization to provide an integrated activation experience, and active evaluation of new verticals beyond payment cards.