Composecure (CMPO) Q3 2025: Gross Margin Jumps 730bps as Husky Deal Sets Up 70% Recurring Revenue Platform

November 3, 2025 | By EarningsIQ Research

Composecure’s third quarter delivered a step-function in profitability, with gross margins surging and operating discipline translating to record EBITDA margins, all as the company announced the transformative $5B Husky acquisition. The combination will create a diversified platform with approximately 70% recurring revenue, underpinned by a management operating system proven across multiple industrials. Guidance for both 2025 and 2026 was raised, reflecting confidence in sustained organic growth and margin expansion before any synergies from the Husky deal are realized.

Summary

• Margin Expansion Surges: Gross and EBITDA margins hit new highs as operating system discipline takes hold.
• Husky Acquisition Reshapes Platform: $5B deal diversifies end markets and drives recurring revenue to 70%.
• Guidance Reset Signals Confidence: Raised outlook for 2025 and 2026 reflects lasting organic growth momentum.

Performance Analysis

Composecure’s Q3 showcased a sharp improvement in operational efficiency, with non-GAAP gross margin climbing to 59% from 51.7% a year ago—one of the largest year-on-year jumps in the company’s history. Net sales grew 13% to $120.9 million, but the real story was the 30% EBITDA increase, with margin expanding to 39.5%. These gains were attributed directly to the implementation of the Compo Secure Operating System (COS), a management methodology focused on disciplined process, efficiency, and cultural transformation—a playbook previously proven at Honeywell and Vertiv.

Domestic net sales were the growth engine, up 31% year-on-year to $105.1 million, while international revenue declined 42% due to order timing, highlighting the company’s exposure to U.S. demand. Arculus, Composecure’s authentication and security business, delivered another profitable quarter, validating the company’s push into fintech and digital asset security. Cash generation was robust, with free cash flow and warrant proceeds enabling a dramatic reduction in net debt, setting up a strong balance sheet ahead of the Husky transaction.

• Domestic Outperformance: U.S. sales growth offset international volatility, underscoring market concentration risk and opportunity.
• Operating System Impact: COS drove both top- and bottom-line gains, with margin improvements outpacing revenue growth.
• Balance Sheet Fortification: Cash and equivalents soared, positioning Composecure for M&A and continued investment.

Management’s decision to raise 2025 and introduce 2026 guidance—excluding any Husky impact—signals conviction in the durability of these operational gains.

Executive Commentary

Strategic Positioning

1. Operating System as Core Differentiator

Composecure’s COS, management’s proprietary operating system, is the central lever behind the company’s margin expansion and execution discipline. The system’s routines, performance culture, and functional transformation are credited with driving sustainable improvements—an approach that leadership plans to replicate at Husky post-acquisition.

2. Husky Acquisition: Building a Diversified Compounder

The $5 billion Husky acquisition marks a pivot from a single-product leader to a diversified industrial platform with 70% recurring revenue, primarily from aftermarket services. Husky’s installed base of 13,500 injection molding systems underpins a razor-razor blade business model, with aftermarket parts and services providing predictable cash flows and margin resilience. The deal also reduces customer concentration and broadens end-market exposure.

3. Margin Expansion and Capital Allocation

Margin expansion remains a multi-year opportunity, with management targeting at least 100 basis points of improvement per year for the combined company. Leadership emphasized that while some gains will flow to the bottom line, a portion will be reinvested in sales, engineering, and R&D to sustain organic growth and innovation. The strengthened balance sheet and cash flow profile also increase flexibility for future M&A.

4. Recurring Revenue and Business Model Evolution

The combined platform’s 70% recurring revenue mix—driven by both Husky’s aftermarket and Composecure’s card programs—shifts the business toward a more stable, less cyclical model. This foundation improves visibility and supports premium valuation multiples, especially as the company executes on cross-cycle growth and margin initiatives.

Key Considerations

This quarter’s results and the Husky transaction reflect a deliberate evolution from a niche manufacturing leader to a diversified, process-driven industrial compounder. Investors should weigh the following:

• Execution Track Record: Margin gains and operational discipline provide tangible evidence of management’s process-driven approach working in practice.
• Integration Playbook: The application of COS to Husky is untested but builds on a proven template from Honeywell and Vertiv, signaling material upside if replicated successfully.
• Recurring Revenue Mix: The shift to 70% recurring revenue enhances predictability and should reduce quarterly volatility, especially as the international card business remains lumpy.
• Capital Structure and Flexibility: The post-deal balance sheet and cash flow profile position Composecure for further M&A, with leverage expected at 3.5x net LTM EBITDA at close.
• Organic vs. Inorganic Growth: Guidance and commentary emphasize that near-term growth is organic, with Husky synergies and further acquisitions as future levers, not baked into current outlooks.

Risks

The primary risks center on integration execution, as the Husky acquisition brings scale and complexity that could strain management bandwidth and dilute focus. International revenue remains volatile, and any slowdown in U.S. card demand could weigh on near-term results. Additionally, achieving targeted margin expansion across two distinct industrial businesses will require sustained cultural and operational alignment—no small feat even with a proven playbook.

Forward Outlook

For Q4 and full-year 2025, Composecure guided to:

• Non-GAAP net sales of approximately $463 million
• Pro forma adjusted EBITDA of $165 to $170 million

For full-year 2026, management introduced guidance:

• Non-GAAP net sales of approximately $510 million
• Pro forma adjusted EBITDA of approximately $190 million

Management emphasized that guidance excludes any impact from Husky and is based solely on organic performance, with ongoing investments in sales, R&D, and operational efficiency expected to drive continued gains.

• Margin expansion and recurring revenue mix are central to the multi-year roadmap
• Further M&A remains a possibility once the Husky integration is underway

Takeaways

Composecure’s third quarter confirms that the operating system approach is driving real financial results, with gross margin expansion and cash flow improvement outpacing revenue growth.

• Margin Expansion Validated: The company’s ability to deliver 730bps of gross margin improvement in a single year is rare in industrials and affirms the repeatability of the COS playbook.
• Platform Transformation Underway: The Husky acquisition is not about synergies, but about building a diversified, recurring revenue platform with scale and resilience.
• Watch Integration and Execution: Investors should monitor how quickly COS can be embedded at Husky and whether margin and growth targets remain on track as the two businesses are combined.

Conclusion

Composecure’s Q3 marks a turning point, with operational excellence driving record profitability and the Husky acquisition laying the foundation for a diversified, recurring-revenue industrial platform. Sustained discipline, coupled with a proven integration methodology, positions the company for durable growth and margin expansion, but execution risk will be front and center as the platform scales.

Industry Read-Through

Composecure’s results and acquisition strategy highlight a broader appetite in industrials for process-driven margin expansion and recurring revenue business models. The pivot toward aftermarket and service-driven revenue at scale echoes moves by other industrial leaders seeking stability and premium multiples. The success of COS across multiple companies signals that disciplined management systems remain a powerful lever—especially for companies seeking to diversify beyond legacy product lines. For the payment card and industrial equipment sectors, the emphasis on recurring revenue, operational excellence, and bolt-on M&A is likely to remain a dominant theme in the quarters ahead.

CMPO Industrials Specialty Manufacturing Recurring Revenue Operating System Acquisition Margin Expansion