GPGI Q3 2026 Earnings Call: Stärke bei CompoSecure, Erholung bei Husky und gesenkte Prognose

GPGI meldete für das dritte Quartal 2026 einen höheren bereinigten Pro-forma-Umsatz, ein höheres bereinigtes Pro-forma-EBITDA sowie einen gestiegenen bereinigten Pro-forma-Free-Cashflow, gestützt durch Rekordergebnisse bei CompoSecure und eine sich erholende Nachfrage bei Husky. Die Unternehmensführung hielt an ihrer Umsatzprognose fest, senkte jedoch den Ausblick für die Rentabilität und den Cashflow für das Gesamtjahr, da die Kostensenkungsmaßnahmen bei Husky länger als erwartet dauerten.

Wichtigste Erkenntnisse

• Der bereinigte Pro-forma-Nettoumsatz stieg im Jahresvergleich um rund 5 % auf 509,6 Millionen US-Dollar, während das bereinigte Pro-forma-EBITDA um rund 7 % auf 146,3 Millionen US-Dollar zulegte.
• Die bereinigte Pro-forma-EBITDA-Marge verbesserte sich um rund 60 Basispunkte auf 28,7 %. Der bereinigte Pro-forma-Free-Cashflow belief sich auf rund 81 Millionen US-Dollar und lag damit über dem Vorjahresniveau.
• CompoSecure erzielte einen bereinigten Rekord-Nettoumsatz von 140,7 Millionen US-Dollar, ein Plus von rund 16 %, sowie ein bereinigtes Rekord-EBITDA von 61,2 Millionen US-Dollar, was einem Zuwachs von rund 23 % entspricht.
• Der bereinigte Nettoumsatz von Husky stieg um 0,5 % auf 368,9 Millionen US-Dollar, das bereinigte Pro-forma-EBITDA ging jedoch um 0,9 % auf 88,8 Millionen US-Dollar zurück. Der Gesamtauftragseingang erhöhte sich im Quartal im Jahresvergleich um 7 % und im Oktober um 21 %.
• GPGI senkte seine Gesamtjahresprognose für das bereinigte EBITDA, die Marge und den Free Cashflow, was vor allem auf verzögerte Kostensenkungen, einen ungünstigen Produktmix und höhere Frachtkosten bei Husky zurückzuführen ist.
• Das Management erwartet, dass GPGI im Jahr 2027 zu seinem langfristigen Wachstumsmodell zurückkehren wird, gestützt durch einen stärkeren Auftragseingang bei Husky, Kostensenkungsmaßnahmen und anhaltendes Wachstum bei CompoSecure.

Wesentliche Finanzergebnisse

Geschäfts- und operative Entwicklung

CompoSecure

Das Wachstum von CompoSecure spiegelte die robuste Nachfrage nach Premium-Metallkarten, eine breitere Emittentenaktivität sowie operative Verbesserungen im Rahmen des Resolute Operating System (ROS) wider. Der Produktionsausschuss verringerte sich im vergangenen Jahr um rund 30 %.

Das Unternehmen strebt Wachstum über Metall-Debitkarten, die internationale Expansion, Arculus-Anwendungen, eine Einstiegsmetallkarte für Emittenten beim Umstieg von Plastik sowie potenzielle vertikale Märkte jenseits von Zahlungskarten an. CompoSecure verfügt über mehr als 200 aktive Programme und hat ein neues Designzentrum in London eröffnet, um internationale Kunden zu unterstützen.

Das Management rechnet für das vierte Quartal bei CompoSecure mit einem Umsatzwachstum im hohen Zehner-Prozentbereich gegenüber dem Vorjahr.

Husky

Husky kehrte zu einem moderaten Umsatzwachstum zurück, da sich die Systemverkäufe erholten und die Serviceumsätze im hohen einstelligen Prozentbereich zulegten. Der Gesamtauftragseingang stieg im dritten Quartal um 7 % im Jahresvergleich und um 4 % gegenüber dem Vorquartal. Die Aufträge für Aftermarket-Werkzeuge erhöhten sich um 19 %, während die Ersatzteilaufträge um 17 % zulegten.

In den ersten neun Monaten des Jahres 2026 stiegen die Systemaufträge um 4 %, die Aufträge für Aftermarket-Werkzeuge um 9 % und die Ersatzteilaufträge um 10 %. Im Oktober legte der Gesamtauftragseingang im Jahresvergleich um 21 % zu, während die Aftermarket-Aufträge um 8 % stiegen.

Der Auftragsbestand von Husky lag zum Quartalsende sowohl im Jahres- als auch im Quartalsvergleich um 5 % höher. Das Management erwartet, dass das Wachstum des Auftragsbestands bis zum Jahresende mindestens den niedrigen zweistelligen Prozentbereich erreichen wird. Zudem hat das Unternehmen für die Produktionsplanung des ersten Quartals 2027 deutlich mehr Systeme eingebucht als ein Jahr zuvor.

Die Margenverbesserung gegenüber dem Vorquartal resultierte aus einer besseren Personal- und Fixkostendeckung sowie der teilweisen Umsetzung von Kostensenkungsmaßnahmen. Husky setzt einen strengeren Sales-and-Operations-Planning-Prozess (S&OP) ein, um den Personaleinsatz an die Nachfrage anzupassen, die Auslastung der Werke zu glätten sowie Durchlaufzeiten und Ausschuss zu reduzieren.

Unternehmensprognose

Für Husky erwartet das Management im vierten Quartal ein Umsatzwachstum in einer Spanne von plus/minus im niedrigen einstelligen Prozentbereich sowie eine Margenausweitung gegenüber dem Vorquartal. Die erwartete Verbesserung hängt von einem stärkeren operativen Hebel, Effizienzsteigerungen durch ROS und teilweisen Einsparungen aus laufenden Kostensenkungsmaßnahmen ab.

Das Management rechnet damit, dass der Systemumsatz von Husky im Jahr 2026 um einen hohen einstelligen bis niedrigen zweistelligen Prozentsatz zurückgehen wird, bevor er 2027 wieder auf einen Wachstumspfad zurückkehrt. Der geplante Abbau von Stellen im indirekten Bereich soll bis zum Jahresende abgeschlossen sein, wobei der volle Nutzen im Jahr 2027 zum Tragen kommen dürfte.

Das ausgewiesene langfristige Wachstumsmodell von GPGI zielt auf ein mittleres bis hohes einstelliges organisches Wachstum, eine jährliche Margenausweitung von mehr als 100 Basispunkten sowie ein jährliches EBITDA-Wachstum im zweistelligen Prozentbereich ab. Das Management erwartet eine Rückkehr zu diesem Rahmen im Jahr 2027, hat jedoch keine explizite Prognose für 2027 abgegeben.

Zudem geht das Unternehmen davon aus, die Nettoverschuldung bis zum Jahresende um mehr als 200 Millionen US-Dollar zu senken und das Jahr 2026 mit einem Verschuldungsgrad von rund dem 3,5-Fachen abzuschließen.

Risiken und Beobachtungspunkte

• Die Kostensenkungsmaßnahmen bei Husky nahmen mehr Zeit in Anspruch als erwartet. Die Verzögerungen stellten – abzüglich des EBITDA aus Mehrverkäufen – eine EBITDA-Belastung von rund 20 Millionen US-Dollar dar.
• Erhöhte Harzpreise haben das Kaufverhalten der Kunden beeinträchtigt und zur Verschiebung von Aufträgen für Neuanlagen beigetragen.
• Husky sieht sich weiterhin mit einem ungünstigen Produktmix bei Maschinen und Peripheriegeräten, höheren Frachtkosten und Verzögerungen bei der Umwandlung von Aufträgen in Umsatz konfrontiert.
• Wachstumsinvestitionen und erhöhte Investitionsausgaben (CapEx) werden die kurzfristige Cashflow-Konvertierung belasten.
• Nach Angaben des Managements verbessert sich die Nachfrage bei Husky, man beobachte jedoch weiterhin die Entwicklung von Auftragseingang und Auftragsbestand im November, Dezember und Januar, bevor verbindliche Aussagen zum Wachstum für 2027 getroffen werden.
• GPGI beobachtet weiterhin Anpassungen in der Zollpolitik, auch wenn das Management derzeit nicht mit wesentlichen finanziellen Auswirkungen durch Zölle rechnet.

Höhepunkte der Fragerunde für Analysten

• Wachstum von CompoSecure über Metallkreditkarten hinaus: Das Management hob internationale Märkte, Anwendungsfälle für Arculus, Debitkarten und zusätzliche Kundensegmente als potenzielle Wachstumskanäle hervor.
• Margenerholung bei Husky im Jahr 2027: Das Management erwartet, dass höhere Systemaufträge und eine gleichmäßigere Auslastung der Werke die Personalkostendeckung und die Margen verbessern werden. Der gestärkte S&OP-Prozess soll den Personalbestand enger an die tatsächliche Nachfrage anpassen.
• Langfristiges Margenpotenzial bei Husky: Das Management erklärte, seine langfristige Einschätzung bleibe unverändert, und verwies auf Chancen in den Bereichen Produktivität, Beschaffung, kommerzielle Umsetzung, weltweite Expansion und Aftermarket-Geschäft.
• Potenzial für eine Erholung bei Husky über dem Wachstumsmodell: Das Management stufte dies als möglich ein, wollte sich jedoch nicht festlegen, da man zunächst mehr Klarheit über die Auftragstrends Ende 2026 und Anfang 2027 abwarten wolle.

Vollständiges Transkript der Telefonkonferenz zu den Geschäftszahlen

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

[Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, GPGI's Corporate Secretary. Please go ahead.

David Marshall

Good morning and welcome to GPGI's third quarter conference call. This morning's remarks will include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially, including those disclosed in our SEC filings available at sec.gov and on our investor relations website. Additionally, definitions and reconciliations for non-GAAP measures appear in today's press release and earnings presentation, which are available in our SEC filings and on our investor relations website. As a reminder, following the Resolute Holdings spin-off, current GAAP interpretation requires GPGI to account for GPGI Holdings, including our CompoSecure and Husky businesses, under the equity method of accounting. With that, I will turn the call over to our Executive Chairman, Dave Cote.

David Cote

Good morning, everyone. In the third quarter, GPGI delivered results in line with our expectations. The results were driven by continued strength at CompoSecure and improving demand at Husky.

Starting with CompoSecure, ROS is taking hold deeper in the organization, and its impact on growth and profitability continues. The company delivered record sales and adjusted EBITDA, margin expansion, and strong operating performance in the quarter. With robust demand from an expanding base of leading issuers, CompoSecure is well positioned to close out 2026, while Graham and his team are also doing the necessary deep planning for 2027 and beyond. We're proud of the cultural change that has occurred at Compo. The results you see are an outcome of a high-performance culture combined with smart strategic investments in a business that has a great position in a good industry.

Turning to Husky, we've owned the business for approximately 10 months, and while the performance to date has not lived up to our high expectations, Husky is a fundamentally great business. We faced severe macro headwinds shortly after closing, when the Iran war created a resin price shock that significantly impacted customer purchasing behavior overnight. With an evolving demand picture, we have also faced margin headwinds due primarily to cost actions that have taken us longer to realize than anticipated. That said, I have full confidence in the trajectory of the business as we see demand improving, our pipeline and orders accelerating, cost actions back on track, and margins stabilizing with clear opportunity for Husky to accelerate performance in 2027.

We're focused on driving cultural change at Husky to execute today while also making the investments necessary for the company to achieve its potential. This work was made more challenging with the market issues in the first half of the year, but our commitment to doing what is necessary in the business is unwavering. Husky does have a great position in a good industry. Market disruptions happen, and we're using this as a culture-change accelerant. Husky performed in line with our expectations this quarter with sales recovering year-over-year and margins improving sequentially led by the return to growth in systems and strength in our service business.

While we still face some delays in orders converting to revenue and customer deferrals on aftermarket tooling excluding service, we still have a lot of work to do. We see a clear uplift in orders, which provides the momentum and backlog coverage for a strong start to 2027. Specifically, our pipeline is up approximately 16% year-over-year. Total orders are up approximately 7% year-over-year. And recurring aftermarket orders are up approximately 13% year-over-year through the third quarter.

Notably, we anticipate further acceleration in the fourth quarter given a strengthening high-confidence near-term pipeline, particularly for new systems. This momentum is not unexpected as Husky serves an underlying market that grows consistently. This means that while demand can be deferred, especially for new system purchases as we saw in the first 2 quarters of the year, it is more consistent over time. It is important to note that pipeline and order growth is occurring despite resin prices moving higher and remaining at elevated levels. We expect demand to continue returning to more normalized levels as customers require our mission-critical equipment to fulfill growing end-market demand.

At the same time, we anticipate improved operating leverage and partial realization of ongoing cost actions to drive a return to more normalized profitability in the fourth quarter. Looking ahead, we're adjusting our full year 2026 guidance while still expecting a sequentially strong fourth quarter, consistent with historical seasonality. For the fourth quarter, we now anticipate low single-digit organic revenue growth and high single-digit EBITDA growth at the midpoint of the range.

For full year 2026, we expect to achieve our prior revenue forecast from May, but are lowering the range for adjusted EBITDA and adjusted free cash flow due primarily to delayed realization of cost actions and mix at Husky, offsetting continued strong performance at CompoSecure. Tom will go deeper into our forward guidance. Rob will provide more information than we would typically share regarding Husky, but I would note that while 2026 has been a foundational year for GPGI, we expect to see a return to our long-term growth algorithm next year and intend to grow GPGI's earnings and cash flow faster than the market to deliver superior durable through-the-cycle returns for our investors.

As a reminder, the long-term growth algorithm we previously outlined is to deliver mid-to-high single-digit organic growth, over 100 basis points of annual margin expansion through the deployment of ROS, resulting in double-digit-plus annual EBITDA growth. This performance is driven by our continued strategic investments in the businesses we own, the seed planting today that is necessary for them to achieve their potential tomorrow. Our ROS lies at the core of how we operate GPGI. It is an end-to-end commitment to grow sales, control costs, and generate the cash necessary for accretive investing, which should compound returns for our investors.

Businesses are a collection of connected processes, and we are highly focused on end-to-end improvement that translates operational efficiencies into durable financial performance. So, Graham and Rob will each discuss examples of how ROS is transforming CompoSecure and Husky. I will emphasize how driving this daily mindset compounds performance over time. ROS is fundamentally a system designed to give businesses the necessary tools to become world-class operations that turn superior customer experiences into a catalyst for profitable growth.

To conclude, we are making progress across the platform. Both CompoSecure and Husky are companies with great positions in good industries, and they are businesses we are proud to own. We remain focused on execution to deliver in the fourth quarter, while also taking the necessary steps to position the platform for strong performance next year. With that, I'll turn it over to Tom Knott, our Chief Investment Officer.

Thomas Knott

Thank you, Dave. Going to Slide 4, GPGI delivered results in line with our expectations, with pro forma adjusted net sales of $509.6 million, up approximately 5% from the prior year; pro forma adjusted EBITDA of $146.3 million, up approximately 7% from the prior year; and pro forma adjusted EBITDA margins of 28.7%, up approximately 60 basis points from the prior year. GPGI also generated approximately $81 million in pro forma adjusted free cash flow in the third quarter, higher than the prior year.

Turning to Slide 5, we are issuing guidance for the fourth quarter that reflects continued strength at CompoSecure, offset by the delayed realization of identified cost actions and margin headwinds at Husky. We expect pro forma adjusted net sales to be between $630 million and $660 million, up approximately 1% from the prior year at the midpoint of the range. Pro forma adjusted EBITDA between $178 million and $208 million, up approximately 8% from the prior year at the midpoint of the range. Pro forma adjusted EBITDA margins between 27% and 29%, flat from the prior year at the midpoint of the range. And pro forma adjusted free cash flow between $77 million and $127 million.

At a segment level, we anticipate CompoSecure to continue delivering strong revenue growth and profitability with fourth quarter revenue growth in the high teens year-over-year. For Husky, despite geopolitical uncertainty and elevated resin prices, we now expect a range of plus or minus low single-digit growth consistent with historical seasonality, coupled with sequential margin expansion driven by improving operating leverage, ROS-led efficiency gains, and the partial realization of savings from ongoing cost actions.

We are also adjusting our full year 2026 guidance. With better visibility into Husky's order book and delivery dates for the seasonally largest quarter of the year, we anticipate revenue to be on the higher end of our prior range and for GPGI to deliver low single-digit revenue growth year-over-year. Currently, we are lowering our outlook for adjusted EBITDA margins and free cash flow due to margin headwinds at Husky, primarily due to delayed realization of identified cost actions, product mix, higher freight costs, and continued investments necessary to position the business for growth in 2027 and beyond. These investments partially offset some of the realized cost savings to date, as Rob will explain in more detail.

Taken together, we expect pro forma adjusted net sales to be between $2.034 billion and $2.064 billion, up approximately 1% year-over-year at the midpoint of the range. Pro forma adjusted EBITDA to be between $520 million and $550 million, down approximately 2% year-over-year at the midpoint of the range. Pro forma adjusted EBITDA margins between 25% and 27%, down approximately 80 basis points year-over-year at the midpoint of the range. And pro forma adjusted free cash flow between $250 million and $300 million, reflecting healthy cash generation even with elevated growth CapEx.

Importantly, despite the market-driven headwinds at Husky, we still anticipate full-year growth across the recurring part of our business: aftermarket tooling, spare parts, and service contracts. This resilience is consistent with our original investment thesis and is enabled by the non-discretionary nature of the markets we serve with our large and growing installed base. While we expect systems revenue to decline high-single to low-double digits year-over-year in 2026, we anticipate a return to growth in 2027, evidenced by the growing pipeline and order book we are seeing today, because customers can only delay system orders for so long if they are to have the capacity needed to fulfill the consumption-driven end markets they serve.

As Dave mentioned, with the demand picture improving at Husky, we are focused on executing on the cost actions necessary to position the business well for 2027. We expect the realization of identified cost actions and improving operational efficiencies to drive sustained margin expansion at Husky in line with our long-term growth algorithm throughout 2027. With that, I'd like to thank all of you for your time, and I will turn the call over to Graham Robinson, the CEO of CompoSecure.

Graham Robinson

Thanks, Tom, and good morning, everyone. Looking at Slides 6 and 7, we delivered another strong quarter in line with our expectations as we continue to accelerate our commercial and operational momentum. ROS-led initiatives continue to translate into improved growth and profitability as we achieved record adjusted net sales of $140.7 million, up approximately 16% compared to the prior year, underscoring both the robust demand for premium metal cards and the effectiveness of our commercial execution across regions. We also delivered record adjusted EBITDA of $61.2 million this quarter, up approximately 23% from the prior year, and saw adjusted EBITDA margins expand approximately 230 basis points year-over-year and approximately 220 basis points sequentially to 43.5%. The margin expansion reflects the net impact of consistent, incremental efficiency gains, partially offset by reinvestment in the business.

In the third quarter, we also marked 2 years since Resolute's initial investment. This milestone presents an opportunity to reflect on the ROS-led cultural transformation. We have firmly established a high-performance culture where we operate with a strong sense of accountability and urgency each day. I have seen our team galvanize around this cultural shift, and the buy-in is contagious. Importantly, it is directly translating into financial results. Over the past year, we reduced manufacturing waste by approximately 30% as a result of our ROS focus. This transformation demonstrates the power of collaborative problem solving to unlock constraints and deliver for our customers.

Our investment in the commercial organization is translating into accelerating issuer activity and program wins across a broadening and diversified customer base. Our signature program wins reflect the breadth of demand for premium card solutions, and our differentiated value proposition combining advanced design, engineering, and technology and manufacturing capabilities to reinforce our position as the partner of choice for issuers launching high-impact card programs.

The third quarter also featured a premium metal debit card for a leading wealth management bank. We have always believed that the metal debit card value proposition to financial institutions was an overlooked opportunity, and the traction we are seeing in debit is starting to prove this thesis out. Metal debit cards for premium clients allow financial institutions to promote a differentiated and distinguished customer experience, which in turn should help retain those clients' deposit base, provide significant value well in excess of the incremental cost of metal, and further cementing the ROS-driven value of metal cards.

While encouraged by our progress, we maintain a relentless focus on investing in our future and executing on our 3 pillars of growth, which include accelerating organic growth, driving international expansion, and 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, a new design center in London to closely collaborate with international customers, and active evaluation of new verticals beyond payment cards. In aggregate, our results highlight the tangible benefits we continue to unlock from a high-performance culture and the systematic deployment of ROS.

Turning to Slide 8, I want to take a moment to walk through why we are so excited about the business going into 2027. CompoSecure is a category creator. We pioneered the premium metal card and continue to push boundaries of innovation with new product launches that translate to new signature programs. We are trusted by leading global issuers to produce their top-of-wallet cards, and we have a growing, diversified base of long-tenured customers. Importantly, our metal cards represent low-cost, high-criticality products for issuers that create a force multiplier to drive high ROI, low break-even, and enhance customer loyalty.

We also see tailwinds that directly support our commercial momentum. Metal cards still have an ultra-low penetration of a large total addressable market. And we see issuers ramping spending on marketing and rewards to support an accelerating adoption of metal cards. And while we have over 200 active programs today, we still see significant runway for international expansion, as well as new product adjacencies to complement our core business. Overall, we are operating from a position of strength and are confident in our ability to capitalize upon the significant opportunity ahead. With that, I'll turn the call over to Rob Domodossola, the CEO of Husky.

Robert Domodossola

Thanks, Graham.

Slide 9. Husky saw a return to top-line growth and stabilizing profitability, delivering adjusted net sales of $368.9 million, up 0.5% from prior year; pro forma adjusted EBITDA of $88.8 million, down 0.9% from prior year; and pro forma adjusted EBITDA margins of 24.1%, down approximately 30 basis points from prior year. Our performance was in line with expectations as we navigated a recovering demand environment and saw a return to growth in system sales as well as high single-digit growth in our service business.

We saw improving order demand as total orders increased by 7% year-over-year and 4% sequentially. Aftermarket tooling orders were up 19% year-over-year and spare parts orders up 17% year-over-year. Year-to-date through the end of the third quarter, systems orders are now up 4%, aftermarket tooling orders are up 9%, and parts orders are up 10%. This momentum in orders continued through October as we saw total orders up 21% year-over-year and aftermarket orders up 8% year-over-year. While these orders take time to translate into revenue, these trends, coupled with our expanding backlog and near-term pipeline, give us confidence in delivering the fourth quarter and accelerating into 2027.

As sales grew sequentially, we expanded margins by approximately 500 basis points quarter-over-quarter through improving labor and fixed cost absorption, as well as from partial realization of ongoing cost actions. We expect these trends to continue in the seasonally strongest fourth quarter, consistent with historic performance. As operating leverage from higher revenues drives improved margins, further enhanced by our in-flight cost and productivity initiatives, we are encouraged by these early operational efficiency gains and recognize there remains significant opportunity to improve and sustain higher profitability through the ongoing deployment of ROS.

Our culture and operational transformation is fundamentally changing the way we operate every single day. Even while navigating a turbulent macro environment, ROS provides the structure, the discipline, and the visibility needed to drive continuous improvement across our businesses. We start each morning with an improved cross-functional S&OP process to understand real-time demand trends, improve factory loading, reduce lead time and waste, and increase production outputs. We have redesigned our sales force to strengthen commercial effectiveness, and we're beginning to see the signs of new capabilities translate into accelerating pipeline and orders. We have also enhanced our global coordination across factories and are deploying a blitz of Kaizens to improve unit cost production and shorten lead times. There is a significant runway for ROS deployment, but it has already driven measurable improvements in growth, operations, and financial performance.

We remain firmly committed to making strategic investments in innovation and product development to ensure our solutions remain best-in-class, helping our customers maximize output, improve productivity, and reduce their total cost of ownership. I also want to highlight the recent launches and strong customer reception to our HyCAP PRO beverage closure platform and our HyCAP 4.0 Next Generation Tooling Platform. These products are specifically engineered to help beverage closure manufacturers achieve ultra-lightweight, tethered, and high-performance designs with improved precision, durability, and efficiency. It is yet another example of how Husky is committed to customer-centric innovation that delivers industry-leading efficiencies and a lower total cost of ownership than competitors.

Now going to Slide 10, I want to provide additional context for our financial performance. As Tom mentioned, while demand is improving, we have been slow in executing the cost actions identified earlier in the year. We are refocused on executing on them now to prepare for 2027. These actions focus on optimizing labor utilization, reducing discretionary spending, and driving greater fixed cost discipline across the organization. There is an intentional strategy behind these initiatives. We are focused on enhancing efficiency and profitability while preserving our ability to respond quickly when demand fully recovers. This balance is critical as we want to ensure that Husky remains positioned to capture growth opportunities as market conditions improve.

We expect margins to continue to improve sequentially in the fourth quarter. Margin expansion is expected to be driven directly by improved fixed costs, ongoing cost-saving initiatives, and operating improvements from ROS, partially offset by necessary growth investments and product mix. We continue to closely monitor the evolving tariff policy changes, but do not expect tariffs to have a material impact on our financial performance.

In summary, while market conditions remain dynamic, we believe Husky remains well positioned to deliver in the fourth quarter and accelerate into the first quarter of 2027. We have improved visibility on pipeline and orders, and have already booked significantly more systems into our production queue for the first quarter than last year. In addition, we continue to make disciplined investments in R&D and innovation, with several new products and technology advancements progressing through our pipeline. These investments reinforce our technology leadership and position us to capture additional growth opportunities as customer demand recovers.

Now, turning to Slide 11, let me provide a more granular view on the commercial momentum that gives us confidence and visibility for delivering in 2027. As we have mentioned, the total pipeline is building sequentially, and we also have seen strength in our high-confidence near-term pipeline, particularly in systems for the fourth quarter. With third quarter orders, not only were we up 7% year-over-year, but our ending October was up 21% year-over-year, demonstrating strengthening demand from our customers. Our backlog was up 5% at quarter end and sequentially, and we expect it to be approximately double-digit-plus to end the year.

To reiterate the importance of our aftermarket business, aftermarket orders were up 13% year-over-year through the third quarter and up 8% year-over-year in October, with a growing installed base and bottlers increasingly pursuing lightweighting. This supports recurring aftermarket demand for Husky over time.

Moving to Slide 12, it is worth acknowledging the second-half seasonality inherent to Husky. Across both adjusted net sales and adjusted EBITDA, you can see the consistency in the higher second-half weighing over the past 3 years. While we lower our full year guidance for adjusted EBITDA due to margin headwinds, we expect our second-half performance to fall in line with historical seasonality.

Going to Slide 13, I want to provide some additional context on how Husky's forecast evolved through this period of uncertainty. While our end-market demand is improving and the second-half sales increase is materializing as forecasted, many primary drivers of EBITDA guidance adjustments are delayed in executing identified cost reduction initiatives and unfavorable mix. When we provided our outlook in May, we had planned a combination of furloughs, direct and indirect headcount reductions, and indirect cost reductions. While we were successful in implementing 2 rounds of furloughs and also reducing some indirect spend, we have been slow to deliver fully on planned cost reductions. These delays, net of EBITDA contribution from incremental sales, represent approximately $20 million of EBITDA headwind. We are focused on addressing this to position the company well for 2027.

We have instituted a more rigorous S&OP process to better align direct labor with demand, while improving workforce visibility and variability in our factories. Additionally, the planned indirect headcount reductions are expected to be complete by year-end, with the full benefit flowing through in 2027. Separately, unfavorable machine and auxiliary mix is weighing on margins in the near term. However, system sales expand our installed base and create opportunities for higher aftermarket revenue over time.

Overall, while the EBITDA shortfall is disappointing, improvement is now more in our control with demand strengthening, and we have identified the levers to drive that improvement, positioning the business for stronger execution and for better profitability. With that, I will hand it back to Dave.

David Cote

So moving to Slide 14, I want to address the return to our long-term growth algorithm. Across both businesses, we see tailwinds developing that will allow GPGI to deliver accelerating growth and margin expansion in 2027. The total addressable market for CompoSecure is massive and remains untapped, evidenced by good momentum across traditional banks, fintechs, and consumer co-brands, both domestically and internationally.

While resin price volatility caused demand deferrals that impacted the business, particularly in the timing of new system sales, global consumption of PET beverage bottles continues to exhibit healthy growth, underscoring the quality of the market and our growing pipeline and backlog positions as we look to next year. At the same time, our R&D increases will continue and are a central pillar for bolstering our competitive advantage and generating additional demand with customer-centric innovation. We also expect in-flight ROS initiatives to deliver revenue growth and margin expansion through focused commercial execution, improved operating leverage, and incremental productivity gains.

Lastly, we are planning growth CapEx investments to scale capacity for both businesses in anticipation of long-term demand growth. While these growth investments will impact our near-term cash flow conversion, they are intentional strategic investments to position each business for further profitable growth. After prioritizing deleveraging, we anticipate reducing net debt by more than $200 million through the end of this year and ending the year at approximately 3.5x leverage. This will position us well to bring total leverage within our long-term target range next year.

Turning to Slide 15, it's worth taking stock of our current valuation based on our expectations to return to the long-term growth algorithm. We believe we are significantly undervalued relative to both the market and the industrial sector. I would note that we intentionally structured GPGI to provide complete alignment of interest between our management team and our investors. My family personally owns nearly 18% of GPGI today, so there is significant skin in the game to deliver the performance we anticipate next year and beyond. As you've heard me say many times, and I still think it's true, buy now while supplies last.

So despite the headwinds we faced in the first half, we're fully focused on delivering in the fourth quarter, accelerating into 2027, and returning to our growth algorithm. Both businesses are aggressively driving cultural and operational transformation under ROS, and we expect these critical process improvements to drive sustainable compounding returns. The market may not see it today, but CompoSecure and Husky are fundamentally high-quality businesses, each with great positions in good industries and with the ability and expectation to deliver compounding growth. I see even more opportunities for both businesses today than ever before.

To close, GPGI's long-term platform strategy remains fully on track. Our unique combination of decentralized businesses, a proven operating system, and disciplined capital allocation position us to deliver superior returns for our investors. With that, let's open it up to questions.

Operator

[Operator Instructions] Our first question comes from the line of Tomo Sano of J.P. Morgan.

Fragen und Antworten

Tomohiko Sano

Maybe just on CompoSecure, this seems to be performing well as you look to accelerate growth from here into 2027. How are you thinking about commercializing opportunities beyond the core metal credit cards, such as debit cards and new designs or use cases in 2027 and then beyond? Thank you.

Graham Robinson

Thanks for the question, Tomo. We are actively looking at a number of ways to drive growth with metal cards, whether it is international, whether it is leveraging Arculus for additional use cases. And we are working with a number of people to help facilitate that across the board. In addition to that, we work with all the traditional banks, the fintechs, and we look at additional areas of customers for business models that will accelerate growth. So we are very, very confident and ever optimistic about where we're positioned and our opportunity for growth.

Tomohiko Sano

Thank you. And shifting here to the Husky business, as we look into 2027, how much of the growth and incremental revenues do you expect to realize in this business? What gives you confidence that margins will improve with sales growth in 2027? Thank you.

Robert Domodossola

Sure, I can take that. So I think the first part was with regards to the growth aspect of it. So we're seeing, like I said, a significant increase in the pipeline, specifically in the high-probability pipeline. That gives us confidence in the next quarter of orders and specific to our high systems, so our high-cavitation systems, which is a really good indicator of the market coming back. With regards to margins, the best thing for us is to fill the factory with rateable orders, and we're applying the discipline of the S&OP process to level load the factory. So with the increase in system orders that we're seeing flow through now and the more rateable cost of loading labor, we see margins improving. Thank you very much.

Operator

One moment for our next question. Our next question comes from the line of Kurt Martinson of Locust Wood Capital.

Unknown Speaker

A few from me. The first one for Rob. Could you just help us unpack the $25 million of cost actions that you put into the execution bucket? Did any of this reflect deliberate seed planting, stuff like bringing labor on or keeping labor on for the future recovery or retaining capacity versus actions that took you longer than you expected to realize? And how much did the tougher end-market backdrop slow implementation? Beyond the indirect headcount actions finishing up by year-end, what really remains to be done so you have a clean jumping-off point into 2027?

Robert Domodossola

So there was definitely a mix. Starting with direct labor, we're still not where we need to be with regards to the S&OP process. It took us longer to get there. The factories from the start of the month to the end of the quarter saw some significant variability from a valley to a peak. And so that was a challenge to manage through, but we've significantly improved our S&OP process. We're level-loading the factory, like I said, consistently daily now, and so we should see that benefit flow through for the fourth quarter and beyond. So that was a big part of it for sure with regards to the cost variability that we saw. With regards to indirect costs, like I said, that'll be done by the end of the year and should flow through for the full year 2027.

Unknown Speaker

Okay, great. Thank you. And then maybe this one is for Dave or Tom, but after owning Husky for the better part of a year, has anything changed on your longer-term view of Husky's overall margin expansion opportunity? I believe you talked about 500 basis points over 5 years or something to that order. And as you're thinking of all of that, where do the biggest gains come from, whether that be productivity, procurement, or commercial execution?

David Cote

First of all, no. My view certainly hasn't changed. And I think I'm speaking for Tom when I say that's true for both of us. And the nice thing about it is all the things you mentioned are opportunities for us. Everything could be better. And just focusing on things like cost competitiveness, what we do with purchasing, how well we run our SIOP, how well all our processes work, which is perfect for ROS. How do we make sure that we expand our global position? Man, all these things look just terrific.

And kind of building on Rob's point on direct labor, I would say there was a misfire there that I think Rob would agree with, that there was kind of a hope that sales might turn out to be better than they were, so we carried direct labor a little longer than we should have. And that's been a big part of what he's been doing to inject real reality into the SIOP process, which should make our direct labor on an ongoing basis a lot more consistent with what sales are going to be.

So, no, actually, I feel quite good about all this. And both Tom and I were encouraged by the fact that despite all the concerns that existed about the second-half ramp when it came to sales and all the discussion we had about historical seasonality, it turned out exactly that way. The part where we missed was on the cost side, and that's very fixable, and in fact, pretty much is fixed at this point. So as we go into 2027, we're both feeling pretty good about everything. Tom, anything you want to add?

Thomas Knott

Yeah, I mean, Kurt, I would just add, I think all that Dave said is correct. Opportunity everywhere, and we're getting after it. I think one thing that we continue to look at is the performance in the aftermarket business. There's opportunity for us to do even better there. But I've been around the world recently, I've spent a lot of time with customers, and I think the customer view of Husky products remains incredibly strong. What we serve them is really high-quality equipment that's mission-critical. The aftermarket is proving that even in a very challenging market that's now abating as we talked about and you can see the pipeline building. And so I feel very good about what's in front of us. We've got to go execute, and like Dave said, much of that's already done, and we'll be ready for '27.

Unknown Speaker

Great. And then just on the Husky demand picture, it's great to see the recovery unfolding like you predicted the business would a few quarters ago, even in the darker days of late spring. Orders are obviously accelerating. You're talking about backlog ending the year up double digits. So with the caveat being that it's still early November and you're not ready to give explicit 2027 guidance yet, given the easier comparison and everything that I just went over, is there reason to believe that Husky's growth could be above the longer-term algorithm, or are there other headwinds that we should factor in when thinking about the jumping-off point as we exit 2026?

David Cote

Yes, I'd say too early to commit to anything like that. But what you just described is possible. And it's one of the things that we're evaluating currently as we understand the order profile and backlog, how are things looking going into 2027. So, yes, the whole idea of a market rebound is possible, but we're not committing to anything yet until we have a much better understanding of how November, December, and January come together. Thank you.

Unknown Speaker

Great. Look forward to seeing this all come together for Husky as it mirrors the performance at CompoSecure next year. Very good.

Operator

Thank you. I am showing no further questions at this time. Thank you for participating in today's conference. This concludes today's conference. Thank you for participating. You may now disconnect.

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