CODI - Earnings call transcript Q2 2022

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Operator

Good afternoon, and welcome to Compass Diversified second quarter our 2022 conference call. Today’s call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Cody Slach of Gateway Group for instructions and the reading of the Safe Harbor Statement. Please go ahead, sir.

Cody Slach

Thank you, and welcome to the Compass Diversified Second Quarter 2022 Conference Call. are Patrick CODI’s Group Maciariello, today CODI’s Ryan Management. Company and CFO; COO the Elias CEO; Sabo, Faulkingham, Representing of Compass

because on the XX-Q market on non-GAAP financial measure Before point at in are to discussions as provide the does company reconciliation available its the including would CODI Form I Investor of is reconciliations, with adjusted website call, discussed close, financial financial includes reconciling QX Relations at filed EBITDA the a income that refer today Company. expected earnings The section to the and non-GAAP net Company’s the Company not XXXX following continuing Compass of Please information we we the release, financial the to EBITDA also Company’s adjusted website. XXXX Company’s after its adjusted the full-year operations adjusted and reconciled of like which the refer not loss without as note reconciliations measures efforts. or tables at earnings from that Diversified The call, section Throughout press the begin, out certain to in and is will to filings. this EBITDA this including significant references or SEC Investor adjusted Relations available also available unreasonable EBITDA compassdiversified.com. or

Harbor me allow Now Statement. read Safe following the to

to risk in dispositions. and tax some Statements, plans, projected as of as make the are certain filings. basis in or results the and as performance for I XXXX, chain such and global disruptions a to may are structure expects, in any future significant Statements, statements XX-Q discussion of we filed call or These identify other no could Except predicting well to XX, on the the these future subsidiaries subsidiary enumerated and intended Sabo. updated our impact of in on results currently with uncertainties to inherent or update Forward-Looking believes, particular, Elias information, projects Forward-Looking acquisitions At new SEC timing a this and otherwise. regard pandemic time, as undertakes ended economic of supply Statements quarter impact in result of future Form the call, factors domestic cause from labor this its whether events the CODI’s and required companies. to June forward-looking by related revise impacted impact CODI Statements. turn SEC publicly conditions. the as the actual and the is and future those statements, a expected In over are differ factors statements the law, and Words During material as Forward-Looking environment by like including and had with subject and obligation would COVID-XX factor CODI to to Certain expressions Forward-Looking the these similar to related

Elias Sabo

conference XXXX for to Good momentum subsidiary today continued strong I’m call. on report XXXX outlook. consecutive as forma our straight raise once quarter pro of sixth to sixth adjusted quarter us increases we our at enabling in record recorded our again, consolidated double-digit year EBITDA, quarter the our second quarter everyone, the our and thanks we us second that of afternoon, joining pleased in

supply teams We Each and to facing are all macroeconomic need adjust. headwinds forth day, last are effort face wake particularly disruption, extraordinary again and day, environment it seems employees. up we in calls, Though strong improvement there they and today. and agility earnings discussed some chain, reverse In chain new slight as of likely stemming each supply companies the of may they was new given from guarded in elevated been points chain just issues macro our our that certainly pain a we inflation improvements pleased certain remain the inflation and quickly. levels the to a management several supply the against inflation some has to starting no our or for put different. and crest with the this could will We remain time skill tough results, extremely and be quarter at acknowledge these execution

consumer quarter, again our both niche sales branded During double-digit we businesses. and growth in the industrial delivered

will in of the show that of second each its stellar in Technologies to over will our markets and a record growth exceptional markets. Our performance and excellent growth quarter, customers quarterly quarter EBITDA, was value we BOA’s second than the produced proposition better mentioned is company supply half the It forward levels. nearly the these planned the pull from million figure. into to that Lugano in this Though ultra-high-end We led from this expectation, penetration be expansion BOA’s component and the year reaching offer X not QX quarters. could due chain low some which We BOA and demand that last existing jewelers. that result Company’s torrid its its quarters. slow had Lugano somewhat of other did future of BOA growth revenues continue new by growth do however, quarter to be believe dynamic Diamonds, the due the impact $XX elongation record technology, of could continues believe rates to

grown continued EBITDA investments XX% Due benefited company geographic expansion of the an did Lugano while preserving In once Overall, these and job year-to-date by the in year. last period. we late again margins. investments to addition, our extraordinary over work inventory growing has acquisition of and hard the CODI’s team, following has from the

continue our quarter, this will to margin management our pro slightly we headwinds environment. quarter in consolidated could anticipate strong expanded impact we In continued to EBITDA us adjusted challenging our the the allow subsidiary forward, Though outperform and our in second actually XXXX. of fact, margin forma position going second believe versus competitive exceptional economic competitors

over facility. occurred which Pat, address turn acquisition $X subsequent want the to of to I refinancing QX. PrimaLoft the of call billion our and Both to of our Before the I closing bank

sustainability We are CODI growth a the Equally their and strong the enabler as an how excited We want company our position though, and of to commitment their property, much management operate sustainable family what as of example to possesses of responsible PrimaLoft important, believe very a CODI’s companies. and business. growth team. commitment adds prospects significant world-class we to of with aligned intellectual about is growth apparel to good

is management $X our first enabled a increased expanded further PrimaLoft of shareholder our this and to our part of we we Group simultaneously blended that, in of to As financial fees million a With flexibility. Pat. value. year I with which long-term over which the both the Management now capital creating will base capital completed waive key ownership. reduction turn approximately Separately, will CODI’s transaction, in transaction, call This refinancing, cost the Compass of believe

Patrick Maciariello

Thanks, Elias. On adjusted our grew our a pro combined meaningfully industrial in consumer expectations. subsidiary and and niche basis, and businesses forma EBITDA branded continued revenue both to exceed

the to slightly. were EBITDA For able growth revenue we growth as exceeded Elias increase margins mentioned, quarter, as

admirably throughout Our this period. businesses to unprecedented continue perform

to face are for able their as companies sell to and in growth to by mass Nevertheless, acutely management pressure and drive who we be continue our inflation. a several difficult retailers that customers employees, impacted did our execute segment to However, as channels most on teams environment. considerable consumers in whole of focused continue this

industrial to subsidiary on Now niche will I with begin our results. our business.

solid demand. Altor large several the For will from pressured against the fourth that levels and these period back strength see in half partially in defense-related Plymouth once are in the XXXX. to execution again had investments and adjusted costs the XX.X% order expectations solid performance revenue we year, in Though the Though of improve EBITDA continue have versus Arnold company of year. by acquisition XXXX. meaningful margin years at back this quarter its continuing technology year-to-date by our by should Arnold are of half in year-to-date higher stronger-than-expected to the and believe revenues adjusted very and period, made increased XX.X%, company the solid over Foam and by EBITDA of continues driven raw the benefit of increased material growth Altor the and remainder in growth, Altor, the margins a year. bookings be infrastructure. driven be comping to of will by last the posted

Turning to our businesses. consumer

first Systems the For EBITDA XX% in by year-to-date just in $XX continue XX.X% half expectations. the same Fit revenues by exceed to XX% million for by period revenue EBITDA adjusted the year-to-date increased period, and and forma in increased increased under have year. delivered our the of Company’s pro over The as of Performance the XXXX. BOA’s Demand to adjusted period compared

continued but XX% the adjusted moderate in will these Elias believe pro of Lugano growth. mentioned, year forma grew levels, in period. back we growth anticipate from over by elevated the BOA’s As the half we year-to-date EBITDA

We strong look and continue new to anticipated this year salons to and and correlation to see between inventory Houston of we in Newport a will forward opening revenue two Lugano, support continue the and purchases Beach.

did Marucci quarter have XXXX. a significant the like quarter, launch second the last corresponding in in quarter XXXX, not mentioned As of did it product of

are and an Though significant anticipated both the about the excited Marucci however, is partners, product. expected launching seeing launch decline it the to-date. In X bats. and is early, As performance it experienced retail line is its on EBITDA. from highly Touching we such, year, of of X.XX’s in this customers the CAT and company QX briefly demand

mix difficult and feel it X.X% in period, challenges the believe performance revenues channel experienced XXXX. We retail same base the its and a team competitors. adjusted flat that its continue We loyal period face outperform to wholesale of For approximately allowing was management as and by is this is supply in diverse strong the well consumer chain very versus strong to increased brand, and Company’s environments. the year-to-date as EBITDA

Turning to Velocity.

in the prior in mentioned difficult replenish our period levels QX company to retailers a represented as QX continue comparable XXXX. inventory very for As earnings of call,

the reduced strategic We future are materially, team challenging. sometimes steps the in regardless confident year so the success, have will we levels ensure we they to mass are taking opposite the product in being seen be half inventory far and as channel in are somewhat of in Though XXXX performance. back the place of the anticipate just

the whole, the pleased As performance quarter. of second in a are our very we businesses with

year. of about the We the optimistic remainder are

will comments very now remain aware results. potential on the over to will needed. Ryan macroeconomic for of our turn the and headwinds call as we adjust However, I financial his

Ryan Faulkingham

Pat. you, Thank

wanted Before get I performance, make as EBITDA well as adjusted our calculation. into on a I few comments financial to Circuits, our Advanced

ACI. First,

As ACI sale announced the we aware, you of week. last are termination the

to held quarter we a continuing expect reporting. operations in to ACI As result, from for reclassify our third sale

earnings adjusted will earnings XXXX. metric from operating the continuing ACI’s contribution. CODI ACI’s reclassified full-year be will its has I to later contribution results our since of to been operations. get which updated benefit guidance, addition, adjusted discuss non-GAAP of X, earnings our January in remarks, In Therefore, to reflect will my

Now in this consolidated EBITDA on impact longer in management our the which $XX.X calculation. fees we $XX.X were fees million, Effective a quarter, of subsidiaries. quarter, this XX. the was $X.X is million ACI this expense reduction are adjusted adding Please excludes adjusted this change management to total Of back June the it EBITDA current EBITDA discontinued operations amount our quarter. The million the calculation. was to adjusted in by in at note by as that no incurred

hear subsidiary have we calculation shortly, updated adjusted to reflect this will it you our in EBITDA consolidated change. guidance As

fees periods reporting periods adjusted earnings are this have management And impact on year our and added prior adjusted no current has our been calculation back EBITDA. reporting to adjusted are longer that since fees calculation to year clarification, for change addition, no deducted. management reflect all In

$XX.X detailed from million as Form Altor the net period. financial consolidated the acquisition basis, $XX and Lugano year a ago to results in Solutions. September reflects primarily double-digit with my will a results the XXXX the our growth compared June XX-Q loss was Marucci, earlier consolidated are prior XXXX, as revenue was year largely increase compared $XXX.X $XXX.X Consolidated million subsidiary for an Arnold Magnetics significant the for overall million, for our quarter BOA, XX, strong the individual This prior CODI well filed in Company’s that to the to to income Moving comments in QX to quarter the I SEC million results quarter. increase was XX% the On ended limit of today. since in up

year included last with in due debt As a on QX in our reminder, X% loss XXXX $XX.X connection April redemption million the senior a of XXXX. extinguishment notes

a investors year for allow was metric As $XX.X a the million, million ago quarter. performance we introduced more adjusted Adjusted XX% our earlier or earnings in this operating will year, meaningful from and earnings, the to way. up non-GAAP $XX.X quarter believe assess financial transparent

during highlighted generated adjusted above Pat. our expectations, Our Elias were previously earnings reasons and the by the quarter

our to balance sheet. Turning

our XX, balances the manager fees million revolver, we on on of portion and we CODI a of X down our As as below Subsequent funded of three We million our in XXXX, just of June Of note, was held had leverage XX. the $XXX approximately $XXX $XXX.X value. to cash, purchase quarter, once transaction, we to approximately $XXX million revolver cash at new again which waived is a proceeds the and times. our June XXXX. a for provide leverage purchased be price our same million PrimaLoft would term the revolver. liquidity with drawn Pro this enterprise secured flexibility $XXX extend the the approximately A A our credit four million. with for draw additional and this would over from July our of to of At the facility coincide forma times, new be time, and loan on maturity term amended senior our loan maturity

can communicated, opportunities act have provide the previously invest upsize as our we to we liquidity you see, million. $XXX by well With compelling liquidity. be financial positioned and our capital, themselves. an additional as support acquisition this have to capacity ability revolver they need, and growth to on they with opportunities subsidiaries And present continue in subsidiary As substantial we the

Turning now to cash flow.

operations. of quarter of second cash from the we $X.X flow used million During XXXX,

are and capital our the during fund primarily meet which to inventory ensure companies to focus levels we at strategic demand environment, a without levels management are impact. investment were towards at all working to significant able turning expenditures. of financial we this quarter Lugano. finally, teams And economic earnings in our difficult our negative monitoring were needs cash capital consumer Inventory a Our directed our

our million quarter, store second the expansion retail businesses was prior of existing million our to The period. of $XX compared During incurred we $X.X and continued the increase CapEx result a year on at primarily in subsidiary. X.XX the

full-year between of of million. total anticipate we $XX and the For $XX spend XXXX, million CapEx

$XX.X half primarily salons in retail of for to continue We as be count we second increase spend year million the year-to-date have current we XX headquarters expect new Lugano and retail the the its from its store and at X.XX and incurred expanded will at its stores.

in adjusted EBITDA guidance. recently remain was Now quarters shortages Despite and that our second in on adjusted market market the driven behavior to performance quarter, pressures uncertain of we our others. reported GDP earnings two impacting excellent by and amongst consumer times contraction inflationary volatility, labor the

result XXXX the second expectations our economy, again our a our are outlook. that Company’s in we the subsidiary as of consolidated performance our and However, raising exceeded strong quarter full-year current view adjusted once EBITDA of

clearly this Now there discuss of like to revised would are a each. impacting number so factors guidance, I

$XXX $XXX million. adjusted As to million guidance you’re full-year was consolidated of aware, subsidiary our XXXX previous range EBITDA

now by of range to the end $XX range. at million. We of the top range million at including range $XX our $XXX the bottom are guidance move guidance would end the million adding $XXX million PrimaLoft adjusted EBITDA and This into to of our

move and mentioned $X As are the bottom million. top consolidated no we EBITDA, $XXX EBITDA in down roughly the the management million our adding $XXX would down I of come fees back our would calculation and range million This longer by range therefore, at to of range. subsidiary earlier, adjusted adjusted to end guidance

to million performance to At a XX% our is million. revised strong raise Finally, $XX due year-over-year and midpoint, performance, the million range implies are QX we $XXX because strong growth. increasing between $XXX QX to of this this

adjusted earnings. to discuss like would I Next,

As we earnings results I because sale of XXXX are full-year ACI earlier, adding termination, into our their revised the adjusted mentioned guidance.

earnings Offsetting In adjusted ordering QX generates we the guidance slight and in for outerwear of of strongest earnings it performance. range addition, these earnings reduction are our because a our the as in increases raising of QX acquisition range our adjusted industry. PrimaLoft strong given is QX seasonality guidance for

range result million back million. will earnings will now $XXX $XXX I X% Elias. from our to adjusted full-year guidance our to that, range of our $XXX year. the prior With of call million previous over a million, increase The move a to adjusted of range from midpoint turn As these revised $XXX items, implies to earnings upwards

Elias Sabo

second up I close historic would picked on it has you, remain to Potential half levels, economic year to moderate. somewhat like start hesitant in if quarter. the on activities slightly quarter. back Ryan. Thank modestly headwinds of activity in increase macro an in briefly by remains and update sellers the We backdrop. and continuing to providing begin M&A the below these market though our headwinds activity the the ESG-related the given to anticipate M&A the somewhat processes

developing to On vision governing productive implementing our necessary to our purpose. quarter we our have the build strengthen trust, to front, goal in a of corporate culture values transparency accountability deliver and had and mission, strengthen continue ESG to effort and an results. and It long-term is our

has Our for ESG pathway by of enabled has strategically of been a areas MVV governance. good our underpinned which process an social and focus the clear environmental the growth developed to framework, creation deliver

approved be the the meeting, it have the ESG to and Directors Board Board Board by next expect publicly quarterly will framework upon shared of in CODI approval. We formally Compass

us a continual enable developing each by In of minimum to improvement. reporting CODI accurate develop for addition, core and we set subsidiary measuring standards enable and to company to are metrics consistent metrics tracked be to

public into able longer-term is to reporting be to Our goal integrate disclosures. impact our

programs continuing best. create policies inclusive environment do people working inspires healthy and are develop that we an to and Lastly, that their to

an diverse approaches added and that Teri Directors a In high-performing, building recently Board thought capabilities. operating of that this once pleased great is our quarter, to to X skills conclusion, purpose-driven new of we female Board CODI. of and a to We enhances commitment Shaffer solving our indicator our the hires X. announce people outstanding. our Relative for and our this as have Management Compass has to In of performance and new new was Our July workforce expectations, at and problem inclusive are culture. Group believe of again we introduced was XX% last focus towards strategic appointment to on come focus diversity backgrounds, from a quarter member it perspectives,

we shrank quarter, by product for adjusted once double grew and second consecutive domestic gross EBITDA As the revenue digits. again

put and thanks incredible to to and effort, recognition like teams up employees to them. I for continue of management please forth lines that, would all open Our the Q&A. give and operator, With

Operator

Thank you. [Operator Your ahead. go William comes Please Kennedy, from Instructions] Cris first question Blair.

Cristopher Kennedy

and taking profile Elias, acquiring you businesses talk afternoon you the you three-years-ago? about question. Compass thank of couple Good of Can the have just for over two today maybe long-term last been guys or the versus faster-growing growth years.

Elias Sabo

you Sure, for Cris. afternoon to question. And the thank and good you,

growing And you a GDP. also relatively XXXX, kind but was have, to the back We which then if slow in if of couple a business, business. Liberty of the relatively pandemic go sold and over grew which Safe, look few sold of businesses, if and good back remember, I business was cleaner, you very were pre we last slower XXXX, another years, which one growth in we

GDP growth a through have the really portfolio rate. I dramatic to of seen and we stronger those And has are what we our growth before, And with we so now BOA, through PrimaLoft, composition sale say is Lugano then the in context would businesses, respect core and the slightly to acquisition of than company. changed talk the used of Marucci, that

line. believe company, type kind company adjusted of a deduction growth at pre And high of fees. subsidiary a we EBITDA low double-digit the adjusted a that we management is are single-digit growth EBITDA Now potentially

clear have new of leverage as we be adjusted do to here, we Just Cris, quite defined growth. earnings metrics, get and on bit a

Our do management as you fees, know, we unless don’t principally grow acquisitions.

the our deducts high leveraging increase as kind we know, of at stays there and flat. for at beginning is subsidiary debt So respectively. are locked which that market is of at up is low single-digits, a billion all but of year. because And X% happened amount management the further adjusted EBITDA kind expense think prior a just in is on this rate, that that. in loan if And to you corporate spreads $XXX floating the of PrimaLoft, in we X.X of X.X%, a we locked And small of the relatively that have million then debt bond have rates growing now our level we EBITDA, the debt fees term the in

works. that management core the that growth one our underneath, the shedding are leverage into And right about of you this businesses kind businesses. just think apparent how largely faster expenses have and and of so this rate portfolio that growth is transition subsidiary accelerated I earnings of now EBITDA by high and if single-digit adjusted have things not fees, some amount rates rate we absolutely But should strong engineered adjusted interest of think growth including been fixed may come based we market slower the just as and think of to growth the on growth of the we we has demonstrating as that Company buying math

Cristopher Kennedy

then of there CODI pressures uncertainty about is out higher your health inflationary consumer just health consumers, just one pass your your on the through consumer? ability but consumer, just a and Great of your I talk And know end to lot there. generally one on of has last the But explanation.

Elias Sabo

Sure.

macro projecting is view some be haven’t Fed much forward. of long what we aggressive our in is posture, going we will of of So really the has to very kind I headlines And very this been a Reserve seeing. further time it is tempered Federal seen aggressive of on would in that as as kind change give and just, of overall an are say and frankly, I and guidance based

to that the And the just in us right really marketplace overall has caused temper expectations. so exists now Cris, uncertainty,

a more staying strong. torrid see Now a all that I as would being really we demand at level. said see said, demand quarter generally ago, we have

kind part is little what of down there And happening But is shifted of inventories chain so throughout of is is now. we I a normalization supply right think bit. the it a more think

of the So can coming that. of in reflective some initial be orders are that

And we companies as elongation start chain. their and high shrink end all coming inventory there And we we starting of position. of so inventory seeing the and are that their the bit on was whether are expanded will the have broadly, would broadly. the heard, there otherwise little be say our what we low to down be so that our a it like normalization. would really slightly really generally marketplace, customers, you’re the bring companies without some seeing is to doesn’t end, supply middle end And adjustments have positions, that an think just flow that now revenue looks matter at the or new in, weighs inventory what I order growth do

companies on see that little Now a will in chains other Supply are our inflation issues are with. we loosen say bit. side, other dealing starting the some I the of some also are in starting to to moderation

We flow goods get of are seeing better.

We are of inflation availability in are kind going the topping either I in much later certain get even and year. regions And think a those of all better. in of seeing a job and to inflation classifications proceed certain lowering employee

second we will protect due as sell. inelasticity were able actually our push we to to of the seeing impact And and in able demand well. are margins the continue for very we we price year-over-year the through although start goods also on demand start increases to slightly, as quarter, the you that to And to seeing saw to we have moderate of been kind of products margins. So with push moderate good customers, our cost generally through we are - what as expand view that

Now us middle when take kind towards market good if here, today’s seeing a real rapidly. have our think distribution in is channel And demand And the environment, mass than we you is the for business end driven adjusted portfolio, I of rest portfolio. by say about would the obviously earnings our to that less we declining just unlike of mass very that are that because XX% skew buyer had you the is kind guesstimate we of really higher channel and in of end the have.

customer, and discretionary I hit think that aren’t energy from purchased items is and hardest much. therefore, food particular, as getting in inflation, being

the outside staying component our So think of that end continues put continues channel even our and demand have too. strong portfolio two quarters incredible into guidance, evidence comes that, pretty it growth we record really But third X.XX quite are up we about see extraordinary companies. the if of of demand strong. that the are experiencing; which end And of greatest growth of our beginning there, to to quarter and kind Lugano, direct-to-consumer weakening significantly. we you really through seeing includes from growth,

some rates inventory us given the say we is operating There but good pretty we end be somewhat, are cause just growth would to general adjustments feel are I So environment for weakening that demand generally that at today. all. it doesn’t feel could like market cautious demand but consumer decline macroeconomic and in

Cristopher Kennedy

questions. the taking for Thanks Great.

Elias Sabo

Thank you, Cris.

Operator

ahead. from Thank Solow you. The next Please Securities. of CJS go Larry question comes

Lawrence Solow

Great. Good guys. afternoon

to follow-ups couple a that. of Just

you’ve a price. building have maybe price more or to much know other for increasingly you outside as are also be power the other businesses in prices difficult or hold there your know On some continue you places a lot raise some instances I of pushback - been able where to to increase from feel Lugano, have as inventory suppliers inventory. trying get in you elasticity I’m or found it certainly that. leaders. as which you I workarounds but have And normally you have don’t pricing you to to customers just of raise continue seen increases, some Have

on just to the of some So trying some idea get workarounds.

Patrick Maciariello

are Larry, do is is would what this provide to I value our say, holistically, customers. Hey trying Pat. we to

line underpriced product a raise prices kind products you bit they to little sort relative A, - sort as B. will at looking further what may call line that than the the raises of more of maybe are you A, - more are raise product what customers. to now able scalpel to will, value product had so And the be I convey We and hatchet the of really

items moderate year that business looking the are a that mean was We costs is then from big have ago mentioned, suppliers best are down. a for of group I COGS diverse have costs Gas they freight driver. constantly seeing we freight up sort energy levels, at down. as we are certain of we down. That significantly related each Elias still are but on. prices are And

maybe, are why starting the seeing starting we I cresting that to because Elias of see term that, is So that think some is said cresting. of to is which used it also kind

sort of play. sense? state that where a make now are of is that in Does we kind So of

Lawrence Solow

Yes, absolutely.

like seem like performance Obviously, environment. sort more really earn. Just impacted being working specifically almost impacted also or on people it the not of type but them, can think be would to in that of more it these Lugano, inflationary seems sold you is environments the you are I do audience I the they also the to on doesn’t get this know And maybe diamonds? invest to. capital, benefit Does

hurt benefits so So true, or Lugano quite environment to does actually maybe trying them? just not maybe but the actually that is inflationary

Patrick Maciariello

- things. of benefits I a think it if so couple

up, it go prices diamond lot have good of a is diamonds. to as First,

number that is one. So

probably as art, but of pieces And hard Their large is us it to pieces we very mean, of assets sort a hard say, their see sort of component asset are know would is I look value. there I as of also of I stores Second, - beautiful. of it. inflation, all we

strong ultra for I there way, do strong it those. retail. So have in kind seen from demand, of all many and demand of competitors, we believe is for high-end sort that

jewelers. ultra-high-end kind it of So is

of been pieces, both Lugano’s we purchase. business and there don’t we than providing, we competitors about, mind any add if ways would sense. that to disintermediate able model We value So team it. of has that think of just again, that our And because it I because kind more customers that the our of some of talked have is makes are to

Lawrence Solow

was X.XX. Were those supply that supply thought was, hopefully, And flat, doing the of side about side? into these thoughts of more mentioned is Fair think but feels No. is years then of a well. close it, maybe revenue the issues that for mentioned professional and any just on of I ago, sort is the would issues. going lastly than to I I load? other Okay. feel just guys X% year, days And side really I the on enough. revenue think that that lot chain still it front-end waning year-to-date EBITDA more that is X.XX, a How side, in you couple beginning dollars up of and just chain perception, that? but are more of maybe you the direct-to-consumer on like that, some the on like

Patrick Maciariello

and the and up. and we they in we strike there the products in we than seeing we last that like realized QX still saw I strong, stronger time professional of not sort on support seeing professional some get critical getting some has Well, international lot QX of then March, in, any to is that people’s X.XX. weren’t revenue But the our at and the if inventory touched able on of strong Bay And post-pandemic the, in And think in L.A. sense. are heard performance professional abate. issues. need to in mean of that mitigated, So market sort professional that the in you we think demand. cost issues I shipped trucker local had ports. are they business of that very they And a Area need about really of and really I think we as pullback is acute sort we that makes kind side, have to witnessed catch I appetite

some really professional have we And a is Where some are seeing demand. business, wholesale which same sort business, is nonprofessional facing X.XX in of wholesale, smaller seeing weakness consumer are But good our which remember, is if so of does you we component wholesale inventory. business.

Lawrence Solow

Same retailer. Yes. Yes.

Patrick Maciariello

you what about it, is that Yes, hear right.

to ago continues And would say is as in of I and DTC from numbers. say would levels, And that. strong. say e-com is be so I I there up a respectable some would putting little but bit moderating e-com year is still not it strong is

Lawrence Solow

the color. Great. all Thanks I appreciate Pat.

Operator

ahead. The Koranda ROTH Capital. from next go Please comes of question Thank Matt you.

Michael Zabran

for Mike Matt. it Zabran Hey guys is on

from count on are current get store ability of relation in X.XX, experiencing has you or the headwinds quarter your inventory still And terms then the all improved In initial your to comment just with there, comfortability since could some to on at expectations? last rollout we front? that

Patrick Maciariello

So I stores XX have now. think we

We will be opening a number of stores in the back half.

were XX two year, do think I do if a we think to month. will one to we XX, XX said this to we I going

half half. the back the loaded front than think more is I

again, elongation receipts slightly because stores X.XX months But it press and So still has look, factory is XXXth It longer, have you from the sort be that, next looking or in if the before, to is would or the or months to are of that of release sort that. in we three seen, there, has again, have makes elongation it perform say What took of and day to inventory. But stayed of still, has our improve inventory And store. sense. get seen maybe here several continuing budgeting if two a just happened, those our we of in are I forward that right? or that two expanded constant well. yet we improvements to

inventory. sense on need of We order the started being closer we have and sort our back it, not when able that if yet reduce kind time those order to and to to shrink of levels makes pull to

manage makes in - sense. the yet kind longer elongation our are are of inventory we has of but the that not if to better We able that stopped recovery, phase because that the getting

Michael Zabran

margins thank our on you comment here? demand what’s helpful, us environment for That help absolutely. the just Marucci, really you. is And could dragging and understand Yes,

Patrick Maciariello

mean things. I a of Yes. couple

and as on First, you air we everybody and Marucci, shipments like those average had freight, time. and else, air put it, some over out inventory in touched get know,

seen have improve. that We

demand of sort improve QX. line clubs. feel next of And this also expect good is for we to we say and preorders would and is We significantly I demand good, in were good, feel margins accessories bats and

past We are X against we kind before the year smaller didn’t we above was QX. are year, will replicate launch CAT X. roads of and the, continue think this time believe I making CAT in we a comping that inroads, last the it those Really,

expect So than QX much at a better I would QX Marucci.

Michael Zabran

Right.

one last Got Okay. for And me. it.

to just they tuck-in on private comfortable market and In maybe pursuing terms opportunities just changed additional any the in of how have M&A the we quarter-to-date? how speak environment, are near-term, maybe comment multiples and

Elias Sabo

Yes.

different Ryan core are pro well of times we leverage is So and what four forma increased in PrimaLoft It that sort section, I within in growth to free capital, very pre-making rate working in flow But we cash whether target CapEx the clear, about right tolerable kind the growth portfolio, now. of right which just that our have leverage that to acquisition, is allows for we of us talked leverage. and we be as are investments, target or the a mentioned growth around the his leverage. are generate, given is our position earlier above above the

As turn of we sit the three of above our leverage times, kind is end we have X.X set target our high there, and out to target. X.X

balance for to flexibility reduce our risk our We our have that in us leverage is run the and to it well. sheet our back our gives of goal leverage. So to for target to shareholders. a within responsible us our feel amount business is

capital to denominator portfolio in on we just place of allows ATM growth that, is get ways guys to that will and deleveraging you Now and there increases us of well. a I are the all free get into as in is top and the cash think Clearly, in flow that itself there. few equity the have aware deleverage. But that

ATM time, of leverage components is are from why that operations at we are in right we relatively So us growth that cash a of will window we get and back now. three within flow comfortable where think and those sort our short period

said, being business. smaller. think are that they small generally, we tuck-ins, synergies that better And generally can those multiples. are you still purchase are for and more I price at Now for are open There achieve

So much. needle to it is the all going that push not leverage on

a to In to that terms we see need platform right to a that, and in amount of would deleverage capital order substantial need of something in is order bring now. in we new equity not for that acquisitions, just pursue

Now for right be in would the and think deleveraging the say clearly, are at growth acquisitions, given the us and we position for able to here tuck-in in business. that the ATM platforms from going look near-term. now cash help But flow open put happen that to is operations, the will we to more I

bit balance significant our leverage are to a are little given target. sheet on relative hesitant We where to of we more add amount

debt buyers costs that that, great transact. quality. of seen and are a would I even really have companies of is a get lower is this. buyers like available. are into see are this though just multiples, In XXXX, I is we point question the that is still terms out there here who XXXX. seeing companies, But lots you the willing seeing of And quality are up increased, in of and we market, we lots for right When PrimaLoft your not best for quality like being it now pay as businesses, to business minimum, A and companies will on what to say times typically longer. At you there step is line have What capital business that bifurcated up those the large in multiples maybe even and come a

And pre-pandemic. have they or they are of through sellers find and still going so at the not is reasons where diligence from is just And to quality that are companies willing case. either to transact kind walk maybe And there buyers that get expectations lower away. generally levels or they the would

on have that as My is markets either outside repricing contract now interesting very quality in that in then businesses a the, right think So lower-quality general least market a that. you where the are really debt been as A markets very sense I not prices occurred up somewhat some again, of see public probably is in it of is happening there for being to paid and much have multiples the high we is will sure. businesses open the that markets and for seems at

for to expect the reduction there. I factor wouldn’t will private any but the into that that A is in markets, high-quality material valuation out type see think the I So businesses

Michael Zabran

for all Thanks clear. me. is Very guys. That

Elias Sabo

you. Thank

Operator

[Operator Instructions] comes you. next Barry Haimes Sage. from of Thank ahead. The go question Please

Barry Haimes

the out of again. the team? of X.XX market IPO? where only a wonder I’m talked the questions. wondering, little a about. is guys Great notion acquisitions And circumstances health you care you us Have question, financial a on the once look Thanks little but you Are bit so yet. to quarter second go give set could at built update if had there initiative you back an much. has of One, I gotten recently starting to have you two would I better, just a

little So update just of there. a an

Elias Sabo

for question. you Barry. Thank Sure, the

this So have in regards said to numerous one will companies on great that we first, X.XX continue we we X.XX, business. what say have the, And with occasions, is our and of is to portfolio. a as

longest. are now kind the of kind of have we number businesses, being a one to We of had have fortunate A type X.XX that

whether to of minority going that have component for floated. publicly that, X.XX provide we and have as it a long or tremendous we as is whatever shareholders XXX% creation, a owned interest there necessary growth holding happy is are it We our whether tailwinds because value great is shareholder or

whether is company SOX great that itself team growth systems have of the a with said, elements, public whether lot the order compliant a in has to the an publicly in want. they being it working it and the this environment, in company talent has a public able investors company a make And done underlying place. is viable management that it company. systems the to From on Now creation that the be extraordinary working ESG, and has opportunity to be

markets ourselves So it it the force not before out into as company. naturally public they do needing We accommodative. should view a public to are be

of to IPOs have And that constructive, occurred go lot get more company shareholders with are kind for is this markets it be a of late as multiple ilk, markets really look public. type of to which this say still try consumer the become out they still so especially XXXX, as mid- feel if businesses, the consumer we poorly, incredibly don’t our just at are to of to the need relatively XXXX, and I backdrop a a reward company accommodative negative we the deserves. see going consumer companies creating would a performed late very there And unless That in and trading poorly. you

the is we they and are conditions, can point, next evaluating of kind financial make inflation the we becoming Do and whether run start public financial change a a is even down, this ready. you is at back two? as and month markets though then because come have now do really to ready of go we last that tone eventually Federal time? can company view change. stance rapidly. decision so public financial become Do change And The If we now And up creates this always policy moderately company. will think company? in a ticked or we Reserve markets the will Absolutely. see Not its we know, to think right be X.XX conditions market, yet. the headline in But that bull the

second asked. you question I’m - your that so And had sorry,

Barry Haimes

Health care.

Elias Sabo

I important On care are initiative along we candidates some an advance would health Yes, in on the with. there is continue health is care. say that It we initiative. to talks

news have As and by some that you know, And year-end will who this to is be predicated there. that on us. announce confident getting in effort we leader are for can a direct will feeling we more positive

Barry Haimes

Great. Thank so much.

Operator

Howlett Thank from The go ahead. comes Matthew Riley. next of you. B. Please question

Matthew Howlett

taking Thanks Did or my any the guidance FX on Hey you items questions. the for note here? earnings guys.

Patrick Maciariello

FX no Matt. FX? say you Do No,

Matthew Howlett

the or to strength I dollar at is mean to dollar note Nothing not nothing is impact the with there have any going Okay. there with all? strong

Patrick Maciariello

You don’t adjust out. that

not No, out. modest we of don’t out. is are is It that pretty impact. companies. the adjusting adjust There that some group across You

in as way so yes, it guidance a part is, it factored is So is about to technically think our it. of

Matthew Howlett

Good. you. Got Okay.

good. Okay,

reason the the there schedule a of for a return sort you Sterno, other just sort was with was there. on conference pickup two on some, division had it there? was it the pickup question, or any that of I know the the lamp was any catalyst, -- Second divisions, nice heating to there with the

Patrick Maciariello

was the last by driven making years say outdoors as the happen buffet Sterno would that are strength kind years. over over that in party for people of didn’t QX getting core business, Sterno and parties the side the think the happen set the the of weddings the couple I and last couple up I the definitely of and didn’t of

Matthew Howlett

know some, update there Any some the was the business, on side of Anything of Yes. there? of with inventory other the sort issues. Okay. Walmart, I

Patrick Maciariello

bit side right said would the kind some this now actions necessary cost-conscious pinched things performing all goes say, by I of mean and taking little as a at I strong inflation. more of it business, about kind being the we of of other into moment before fine, consumer performing the the as not

Matthew Howlett

Got you.

Okay. I And -- of two Lugano. any salons how mean, sense mean these quickly real with you said on the salons, more we sales then modeling coming think I about additional on?

Patrick Maciariello

they good salons we Let the vary. Salon that for short -- sales us mean I now. answer think through is, can that. have. don’t I think vary the right have level and the materially answer a in

So put level I hesitant of guidance. think salon are sort out to we

Matthew Howlett

you. Got

have certainly they a big following. Well, Okay. great

impact successful. are it would obviously interesting be -- to a these really that So meaningful really have could

is could or how it a once like once introduce look You often - it will then two-years? bat go that. over is new or again, We remind for us bats the - year interesting, do Marucci And the new they that? a every just

Patrick Maciariello

Yes.

big that sort of level in say launches every sort I like tend So there of we two-years. CATX, or launches Marucci the would X, big are CAT slightly incremental the launches between. have smaller be once to the launches

it last of glove our the big is two-years. sort So lines globe launched which the launching, line. the think for big, Victus, then every also provide is those, lumpiness. Marucci right it bat But Last sort out year. there markets usually we of year, launches a version was came sister bat the NOX, with company, that different that have in And the was the design And it a is, the a are the with launched we is softball it. it I is launched CATX Pastime, echo. whole we of last it But summer now, launches year, big

Matthew Howlett

Okay. Got you.

Okay.

So okay.

So -. this going is sort third to to be right, event, of quarter a

Patrick Maciariello

Yes.

quarter. We in quarter. the well. good have is We third have a going launch a It should

Matthew Howlett

really Great. appreciate I Wonderful. Great it.

Elias Sabo

Matt. you Thank

Patrick Maciariello

Matt. Thanks

Operator

further at you. questions to this There Thank Sabo. now like no conference turn back would to time. are the I Mr.

Elias Sabo

Thank you, operator.

would call for again for on in continued everyone and your your support. I joining always, As for interest us continued to today’s like CODI. Thank you thank

Operator

Diversified’s conference a call. you, This concludes Compass great Thank and have day.

Compass Diversified (CODI) 4 Aug 222022 Q2 Earnings call transcript