CODI - Earnings call 3 2023 | Compass Diversified

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Operator

Good afternoon, and welcome to Compass Diversified Third Quarter 2023 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 introductions and the reading of the safe harbor statement. Please go ahead, sir.

Cody Slach

Thank you, and welcome to Compass Diversified's third quarter 2023 conference call. are Pat CODI's Group Maciariello, today CODI's Ryan Management. company and CFO; COO the Elias CEO; Sabo, Faulkingham, Representing of Compass

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

of inflation our forward-looking filings.In are risk rates, statements, economic December these and discussion all of with or SEC and subject to call including These projects, operational environment, basis acquisitions significant have impact timing the as XX-K in plans future as the to actual as interest in to are for any and and the otherwise.At factors the results CODI initiatives. disruptions, time, obligation impact particular, of expressions may the new make with to sale its labor no the by on as Certain and ESG a the results cause CODI to revise Elias domestic as to and of some [ Form subsidiaries, publicly in and the certain predicting XX, rising to factor like these related well differ the over would I a future forward-looking required should, turn ] of statements. conference forward-looking anticipates, from CODI or this such uncertainties and forward-looking the the performance on events global as enumerated Marucci statements, other Words whether future regard supply may and update to identify projected and similar XXXX, expects, the a plans, divestitures, SEC ended this conditions. During of future in believes, year could such those statements result Marucci statements, as in filed intended and subsidiary law, information, are divestiture statements we expectations Sabo. future call, forward-looking factors inherent companies. or material expected Except chain, undertakes including

Elias Sabo

everyone, for afternoon, today. thanks us Good and joining

proceeds expect the the million. million, net and at pretax CODI corporate Sports announcing $XXX expects of will to on gain to between to Holding of would for realize pay Before down we quarter our general debt used be million $XXX outstanding a release the to Company like afternoon, issued and I $XXX sale purposes. we Factory I an third this to discuss Fox value agreement enterprise cover press results, to Marucci the divest

capital We able to strong acquired fielding extremely our business. time the and to brand economic outstanding completed uncertainty team team. our and few when opportunities, ownership, our proud flexible then, the execute times markets the under weren't. we like a new gained both management.Keep on pandemic, in and April at of have with softball. in due when being seizing the to have their share feel gloves commitment this brand Marucci's in growing experienced even fortunate to mind, in at has our strengthening were decisively, and are was to in of business others Since structure allowed but a acted has XXXX been based We their Marucci confidence growth time Marucci and us core partner their transactions They

portfolio product the Baum Marucci and Bat. Skins We also have by acquiring Lizard expanded

We partnered honored their entire you to several nothing Marucci them to contributions over the our success.Now wish quarter. and We last Kurt to have the continued for Thank are in third years. success. but on this team

to strong us once have our and exceeded pleased are report We quarter raising results, remarkably year which expectations third our outlook. again full

our cycles but businesses Our find have our EBITDA for once-in-a-generation Ryan that will To guidance this consistently reflect of I subsidiary tell excellent am highlight shortly, increased a since only fifth straight EBITDA economic strong year growth. diversification category-leading pandemic. produce consolidated growth. XXXX to and be fully ability adjusted of volatile despite point, years XXXX, the we results to we straight that pleased X a you, expect grown given our underscore adjusted to subsidiaries, subsidiary not

pro expanded revenue record The a quarter. adjusted quarter, revenue industrial forma X%, in XX.X% businesses. by XXX our to third was points declined approximately pro the by forma to decline in while XX%.EBITDA the During grew basis due EBITDA consolidated margins

to of an X% you look customers input growth, experienced we categories, they While XX% some a to and When mix EBITDA input in businesses have year-to-date our exceptionally resulting costs higher commodity growth. well, in decline performance, from benefited our XX% shift margin lower lower revenues. costs on performed posting at industrial the driving those EBITDA passed

in quarter and this expect strong into growth produce to XXXX. fourth We segment the

positive and year. EBITDA increased increased Our EBITDA X% expectations of growing by by by quarter.Pro branded the represents consumer this businesses This exceeded third forma almost growth the X%. our first quarter in revenues

stated still third the headwinds have growth. inventory-related before, destocking quarter, in able though our we lowered many were consumer in solid we rate times growth existed have significantly to these produce XXXX. Even As headwinds

While are we comparisons year expected the in growth we further and accelerate. expect to continue destocking will to ease fourth quarter, expect to inventory rates prior

backdrop, certainly difficult I Pat. call broader an to in our remain pleased that, resilience the macroeconomic and confident the we subsidiaries' stronger turn with to are XXXX.With Given over performance and we date, will now even

Patrick Maciariello

Thanks, if results, Elias. PrimaLoft this X, from will presentation, be as we forma XXXX. we discuss Throughout pro it owned January when

XXXX, significant to Last and on segments. rate QX, a Elias to to continue will openings, to cautious performance PrimaLoft businesses. by about to As headwinds in headwinds mentioned, reduced demand muted in apparel the inventory destocking to become extremely model. experienced results. headwind we growth both our consumer correcting levels well, continue quarter, to these driven salon continue our the dynamics, performance not of Though other industrial happen at performance strong supply CODI's in others.Specifically, as at both.Now though a happen I'll we PrimaLoft, exceeded industry see businesses chain. niche for consumer XXXX. as the positive. disruptive begin hand, business several management our These BOA, was continues perform niche team segments expectations, but inventory significant industrial time it a subsidiary in confident new demand in faced eased tailwind mentioned we due materially in Lugano a expect the makers QX to bookings financial and in in turned in to BOA for same we different our and certain with have due that we Though it on remain may areas decrease. are and remain

the ending X.X%. September For by year-to-date declined XXXX, period revenues

period increased EBITDA adjusted versus last the However, by year. XX.X% same

the by company period. costs, driven material revenue to passed team X% XX.X% operate revenue XX% the again, from on wax adjusted period, combined growth period, almost remains company made versus year-to-date end new the the adjusted the to revenue margins increased to in profit margins Despite and quarter over company efficiently basis basis, our continued a On quarter decline, remain this offset to period by and prior the show a EBITDA [ raw continues in space our consumer by Arnold adjusted markets.Demand third revenue quarter. by as Though third scented gain X. company's more than margin, leading year in aerospace EBITDA elevated, ago, in compared on sector. solid cyclical the ratio in businesses. show Altor more and to and EBITDA expanded quarter over securing approximately quarter, management market And a the slightly industrial year-to-date lower contractual consolidated efficiency year-to-date the the headwinds. input reduced the year's markets XX%. in in XXX company's continued year-to-date year-to-date declined in Altor grew points and aerospace and adjusted benefit defense above to shipping the the driven the XX% For of ] declined the Sterno, for quarter, headwinds and at significantly EBITDA significantly, these Though lumpiness for basis.Turning gains September continued increased At the as EBITDA the growth EBITDA in the the savings, traction as growth across levels by adjusted by September commercial projects pressured be to business. in book-to-bill for they by businesses

year-to-date revenues declined increased the XXXX period, EBITDA by September marginally the prior as adjusted For year. X.X% to compared and

respectively, significant third quarter, EBITDA increased X.X%, and revenue a and businesses versus by in improvement showed group, X.X% QX 'XX. these adjusted the as As however,

BOA, period, to our that QX this decline year, inventory a headwinds prior turning destocking are are were EBITDA represented worst behind versus positive for in point us in adjusted while hopeful business. for year-to-date continued the through QX is We belief the the that and company the bookings of show

size a continued be in strong transaction second of average our The continues and company third growth we in ski XXXX.Marucci construction forward D.C. on and a company's including in incorporating once year-to-date quarter. and made prior is strong and salon incredibly team again PrimaLoft look revenue the in the in to show year. accelerated we and its growth Beach, the from at prior Greenwich, And grew over and compared anticipated revenues over London Washington, adjusted period, in Palm continues momentum execute and compared the prior flagship our XXXX. launch September EBITDA of continues in exceptional and the ago XX% to to salon. year-end, for EBITDA year-to-date begin we management Lugano salons, we further scheduled quarter first respectively, EBITDA to Alpine to surrounding benefited and adjusted the the level, by many increase As Progress XX%, fourth and to saw Similarly, the XX%, the quarter. salon and we over the gain boots grew high period, launch.Lugano's to period. by declines quarter. an to The the the to to anticipate approach respectively, Connecticut anticipate revenue of modest season, year-to-date as in opening for And adjusted opening both in buzz of had at technology year. an year XX% its period compared new solid half

the and As customer QX, prospects for remains we a the XXXX is the very and about industry-wide CODI prosper had attrition, and have adding of cautious. muted channel as believe XX% company is by benefited little year-to-date following business.X.XX positioned, fall/winter both optimistic during not third September its the domestically quarter. Though sales another booking and and increased X.XX PrimaLoft and in the inventory period, for and from brands beyond. ownership, Though quarter, customers, diverse XXXX, EBITDA its will remain programs once to anticipate the mix headwinds well adjusted apparel solid trends Under the company's X.X%, and it professional new revenue facing today, season remain destocking consumers respectively. we immune company we grew we in but internationally enter XXXX experienced again

basis.We significantly cost improve demand the in improve on continued in controls Velocity to to a XXXX. continue momentum sequential to fourth quarter, and struggle and focus both in continue third believe though performance see the on this stimulation did performance We will quarter.

regulatory a our Before the the discuss near future coming impacting call Ryan, to in turning over to wanted I business. change

water effective broadly the resistance chemicals XXXX. and states and used change subsidiaries, impact broadly has As other repellency impart of laws, containing this are regulatory most distribution will been on banning PFAS enacted These and several California sale Amongst have X.XX. textiles staining. X, the chemicals oil have our prevent January covered, and to

impacted transitioning products non-PFAS in have been of versions XXXX. in and However, they will proactive be sourcing

with pleased are we our in whole, performance significantly a in our as As quarter came the above it expectations. third

in will the of Ryan of broad our performance our always over now consolidated in again challenges the we turn fourth for demonstrated on growth his model, While look financial group quarter be once businesses, diversified and a will quarter's XXXX.I in call forward the there the results. inevitably, strength to and to comments

Ryan Faulkingham

Thank you, Pat.

on Moving loss our revenue $X.X the due results destocking filed businesses $XX.X increase XX, for of slight by I largely in to in offset quarter in partially was highlighted XXXX, the at was primarily was $XXX.X The for an decrease due $XXX.X earlier was expansion from our the primarily strong was partially declines quarter This compared third prior million reflects EBITDA and at XXXX. Adjusted decrease of due to interest compared and Form by Lugano year. year-over-year Lugano the million, for our Consolidated for at X% performance.Adjusted expanded quarter, down due by industrial and consolidated XX% to gross million, performance third are quarter the quarter million Marucci. expansion $XX.X quarter inventory ended sequentially consolidated of $X.X $XX.X were prior our subsidiary results margin to September our also $XX earnings result the XX%. strong due to BOA Velocity year detailed margins at above as that significantly, significantly financial down million at growth the income level XX-Q Marucci. margin quarter was increased our were overall up offset to This to consolidated limit year The impairment at a will Velocity over expense million comments margin up at as results net our the consumer 'XX. Outdoor basis, earnings headwinds, today.On the EBITDA primarily Lugano to Pat individual was in Adjusted the the million compared third strong the primarily since for expectations, to for to prior ended financial in but with as expectations consolidated September of companies EBITDA recorded SEC revenue Marucci.Now net to million. my expense, outlook. above and $XXX.X was XX, a a million, at the in third earlier. CODI period.

are We full third guidance raising are EBITDA as strong adjusted pleased year earnings to a announce adjusted that the we in of our result and performance the quarter.

guidance of that We we timing are continuing to are the include Marucci in certain, close of as sale ranges the our process. not

at XXXX, For midpoint. growth X% the will increase our $XXX range acquisition prior adjusted of from year prior consolidated $XX.X and consolidated the full million pro for XX% year period. EBITDA, million the implies XXXX subsidiary adjusted and adjusted comparable PrimaLoft fourth subsidiary EBITDA forma full million, up quarter over EBITDA between year an the to we now the implies over of $XXX This expect be

expect For of $XX million, balance range at earnings $XXX our the over between $XXX adjusted an the midpoint.Turning full to to increase year million XXXX, and million sheet. we

September approximately $XX.X million available As $XXX XXXX, our on was and our X.XXx. cash, in XX, we revolver of million had leverage approximately

Our it sequentially, quarter. to the in and leverage decreased expect we decline fourth

sale and We we process, revolver in the Upon Marucci the by anticipate the ability have expect the provide themselves.Turning compelling the we our and now down invest the as debt additional to which purposes. need, substantial able capacity an have our proceeds close act by growth and operations. in opportunities to fourth they acquisition support our financial subsidiary as of And to provided subsidiaries flow opportunities previously general on liquidity. $XXX liquidity ready we quarter, we for present million. existing pay communicated, With cash upsize capital, stand with using and corporate to they

comparable the we During the prior This flow period. from received third primarily from million XXXX, year's of a of cash operating result million is $XX.X $XX.X of operations, up strong quarter performance.

During result $XX.X as chain decrease year many substantial inventory the $XX.X working from business's to we million supply the million used a of prior in when third needed our levels of disruptions. a we in capital, quarter, support

For in capital the consumed inventory increased $XXX by period, prior enabled we as cash year-to-date growth, has million to generated compared million return experienced. which exceptional capital to working strong has provided and operations year.Year-to-date, $XXX the almost on its fund has the flow Lugano rate year-to-date growth invested have

to And its QX expect we continue capital continue growth turning working the the We expenditures. to across as fund capital monetize exception of to objectives. in finally, Lugano business to with

existing the our period. was of we to build-outs the primarily growth. capital incurred timing Lugano year of result in The million retail continued of quarter at their $XX.X During the third to at prior a million support X.XX compared of subsidiaries $XX expenditures decrease XXXX, and

between For the million anticipate XXXX, million. year and we $XX expenditures of full total capital of $XX

continue new We and subsidiaries have quarter to believe Elias. see that, back on several now payback periods. returns retail be salons.With the for Lugano fourth at strong primarily will growth at expenditures call to they capital will I in short Capital over the invested will of turn our

Elias Sabo

Thank would to by like M&A providing you, I close market strategic initiatives. an Ryan. our on and briefly update the

higher have In terms we some reviewed. are a weak. emerge being shoots of with But M&A, quality few markets overall, deals green seen

XX-year the costs within delivering driving highs. Transparency backdrop with explore business strengthen to us of that always health of processes way capitalize tangible remained people, steadfast in accountability create and headwinds our financial pave stakeholders. of resonate social refine Throughout environmental initiatives. broader on focused values has fully robust transformative our to new emissions, each programs once approach market expect our we growth action long-term M&A and to objective pipeline and ESG continue X. Scopes we avenues X current while sidelines, benefits companies. our verticals, care and core to treasury ethos, returns XXXX, suppresses invest realm the have climate with the for for been the for with systemic on activity ESG, cornerstones rising including the We and the ease.In our and lack changes aimed we our that developed and remain waste economic to reduction number both our and The visibility of continues targets course, at yields a Of have borrowing of of hitting as a

programs well-being our shareholders' responsibility developed we rights recently We the the designed have interest. new labor improve our strengthening of our order made policy progress uphold hires, ethics, human community new partnerships by employees sound governance, with highest organizations.We've with to and to accountability social on diverse in and corporate transparency safeguard and and through standards continue of to

also in strategies their gratitude our with that extend they value with have our vision. ESG who create us with creation. our are sustainable each towards and change We so positive my and our to partnered of employees, journey that I stakeholders own dedicated collaborating subsidiaries can too align all shareholders

leading remains positive Moving forward, driving unwavering industry model our Compass of to commitment principles. to through to committed choice become change the ESG the and

to of to diversified businesses others, strong, quarter saw strategy. continue how the for adjusted were the conclusion, We quarter. example Owning growth EBITDA benefits ensuring this our the we only we're and not our highlight double-digit future.In disruptive our of meet results. of robust group an we practices produce business is but industry-leading will innovate, present, to They able of a the continue third enhance set and collaborate demands also proud the

their in execution over like the I'd Beach, hosting entire appropriate. for period Day work like to California strong mention the and extend Marucci quarter turning our with our deleverage of to to a the act allow uncertainty, to through Analyst year sheet decision be environment.Before will my when CODI us during persistent ourselves Investor I'd to Q&A, balance we January on divest entering end family to feel the the continue strong challenging provide to we of will The are XX, amidst position thanks strategic XXXX. this that to we we and As Newport strength. from liquidity is of

open management, lines newest more showcasing but details see with will operator, coming we membership from that, will club, Lugano hold and Expect event and We the Q&A. CODI Lugano at there.With Prive. in our for we please weeks, their be to Diamonds the presentations hope subsidiary you the all

Operator

[Operator of Instructions] Your from first CJS the question Solow from Securities. Larry line comes

Lawrence Solow

It for remember don't that sale. XX.Xx announced business what grown but, the have the EBITDA, I since. looks quite correct on of paid it Congrats course, sound [ Great. ] is like you trailing it, you've if was

of So restrictions reducing to the I I to there variable first related guess, guess piece the, or first, right... able question reduce that are debt, in sort terms is the of be you'll any

Ryan Faulkingham

this is Ryan. Larry, Yes,

Lawrence Solow

Yes.

Ryan Faulkingham

Yes.

no sorry, Term So our -- us. We are Loan pay and both of inability revolver there's prepayable. yes, our there's could A, back

Lawrence Solow

Got it.

just year you of terms certainly certainly gotten might had we Elias, in in economy. more year a it the state finally, How to a Great. of where optimistic wane. of any it what's thought has on But M&A consumer? beginning where consumers be you on then bit looks the feels weren't that it destocking switching and of kind kind impacted -- by a environment. a average the those were kind not being union would to starting or little lot little -- thoughts you kind your beginning gears, just slowdown going bit And inventory good that, in we the today the of terms Okay. the I businesses, like was as on know of of stand better the gave of about of gotten from great? through consumer year. update us the your the as in worse assessment your of like obviously, And at be your the be But just

Elias Sabo

is and had our those year revenue of the that. at industrial is board. commodity a we with know I our customers. the due beginning year, have in of today to a constructive more the much year, are to back some Obviously, lot positive of there across the and went a declines you us if that from say would great costs I Larry. Sure, businesses chunk or really headwind, but sharing And big a

generation look still the performing businesses. We and at you well of our need of think because big kind a of consumer year that earnings and unit that is ago I we are the from exceptionally growth year to So beginning to change continue.The standpoint. the expect kind a through companies look present would how is from on

still think so consumer just strong anticipated you wage end consumption And out anybody when there and think a year. consumer not the and has I from.But underpinning. we headwinds just of the of some about kind I the interest And suffering better that held employment it's up. growth. demand, broadly great held than us, see counterbalancing all increased And up course for that's broadly. of of over kind monetary think that's the it's That's growth has that's Clearly, cost we're

consumer easy And generational ago, side. the a the of a we generated of where a wholesale retailer inventory.So create case of didn't the is depression year alarm or We distortions issues chain in with -- is fact, happens, it say to come lap the that this stand headwinds the to we that that level, was completely, of as those have Velocity, are very our we're to lot but sell-through PrimaLoft, quarter, it, going really even I come into And with we easy mean it's on BOA. at who's headwind dealing all our the earnings match supply of comparisons become were companies issue fourth X.XX, that, wholesale into or we for For X.X so we gone from kind to XXXX, of PrimaLoft, selling result either or whole into in we that that we destocking in isn't inventory expect earnings through are that, over-order to Where market. feel came will those cautious because but BOA, excess today as sell-in.And longer improvement was down big of and a a years did. eventually like depress companies pandemic years been strong PrimaLoft a in wholesale now a out of sounding some consumer those will our us, BOA, real And very everybody the when I X.X terms to it comparisons did. all anybody of companies, have become farther so bells farther that out now, no easy, anticipate. the order -- seeing frankly, board the where the the earnings exposure then the snapback have but or a think this patterns ago, sequential that down. we're across headwind. thing. isn't of us back they're kind say requiring sort it's type the that all I even don't or

what have a So strong lead into as year. to going are to great so we're we've preparing we really very to believe and another bullish. be We seen is feel what quarter. October for going QX we think far in us And we come 'XX, we're

Lawrence Solow

obviously, -- you gave ball. the could a the detail, cover really of And Awesome. off lot Lugano, knocking

BOA, BOA you the in that and And of brands what that you worth, of operating had, year outside big you ] XX% by on your fall. sort have impact know or of brunt, trends the more a beginning seen up some from thought destocking? and for taking called Just consumer would speak Can lot projected I SKUs compared kind whatnot. think over REI out this a it's [ to which of I to of of I the be the fall last circulars and larger one probably obviously, destocking. been the just

reported the be trends be getting in to just anecdotally does on any seeing color into be would great? numbers but seem least that more it So at actually U.S., the we might

Patrick Maciariello

touched Sure. headwinds headwinds this to on say just specifically. we as just that touched would I be Larry. in not I that starting and would anymore, bookings I -- the Pat, are on is it much

strong, quarterly continuing a of meeting, 'XX And me, We you SKUs It's look Alpine. 'XX, to and SKUs. I see exact numbers that to are I project kind mentioned We in are -- as front our in growth start. don't really too. getting same in beyond board realm have the every strong out at grow SKUs. solid of but it's projected

If of wearing thing.It's -- then seen think being the strong you've which you right have I go I Under pushed outfitters and in ski a in SlipSpeed, ski shoe, amazing same some mean, pockets. of there. chunk our businesses. some any you of a tell really And there's And is we is now. significant Armour very well momentum the I'm demand taking and stores, the the they'll probably other Asian them

of growth other lot pockets sort So there's a there. of success of in

Operator

from Matt comes of from ROTH Capital. the Koranda question line next Your

Your next question...

Elias Sabo

are Matt, on mute. you

Operator

Yes.

comes Your next Dodd from Robert James. from Raymond question

Robert Dodd

Congrats on the quarter.

vigorously the that ] you given the point, leverage, that. have at that I Marucci, lot increase large more likelihood Does of by mean, the to you're of $XXX stage slightly at think, will [ make down capital even to range below million that that the sense? XXXX, have you acquisitions, whatever quite end care the likely is, normally of your exactly Xx, a -- expanding in target available if I into maybe Marucci sale, of bottom health makes after the standards your you vertical of On least where

Elias Sabo

is the be being wanted very answer time want The Elias, been specific. it XX-year yes, is a Robert, And leverage just to M&A in. the had as Clearly, I if happened at lows. were is of cautious to our range we question. basically activity and at you when so leverage outside we this be be thank for that to stated

to can't turn us. on that conditions opportunistic being available outlets So during the murkiest, this now capital, know, we what of -- a myriad a economy.And disciplined and flexibility. really kind an to it how how hearing the our have Having have or to CNBC now, is are right we kind outcome of found hold going these to everybody right the in you of time. is and generally, problems spot -- up. And this be ideal and now as found of patient wasn't as going very going whole or can capital We it's any is that economic leverage for mentioned, aggressive of generally, to the acquirer. markets kind the capital from up. targets you can that looking well you of is other most and tense be without at and consumers name good And committed Bloomberg in be really financial where from that outlook monetary banks, buyers our impact to historically, kind of all and are issues that's within our we when permanent be causes active We tightening and lot times you because hard the of

Kurt deploy a quite he group who call, well Roth, out are the all or next right and X, opportunities and that outstanding.And on would is company runs acquire a our me balance so murkiness really to time out kind And we're opening number be And health economic there. pursuing of care is we sitting that To that this its could that now capacity different opportunities. at generally, good this of works up probably creates a extent really sheet when peak. it reaching is

very But to there, but be would we of to robust going to come within which that that we're it have that sellers tango, in we we the And space. know. following companies is great kind as takes We think 'XX. need targets out have happen they be extent a you X And of list to the to a market, pipeline. we're hearing

outlined get guys years we now to a care you be we we love I would think diversification to to vertical. strategy of X.X this health more benefits initiated broader ago into aggressively the and start when that move able to

Robert Dodd

appreciate of Marucci the -- well. On as kind it's very Lugano, been your it. successful. timing point of exactly acquisition Yes. that. I to to of is mean the it's And point, Got that I

balance utilize? capital point and you a have only is working strong look you've which given consume point your look, work, is much Lugano begins capital the very has how though, level the the question the is there a point a become allocated of your to ideal, amount in there concern? to there at capital a that which that off of is can working of investments On finance working sheet. to got there well. ROI business the -- the just on amount at which been at be And working But and compensation own doesn't the But alternative of capital as business

Elias Sabo

given about time. diversification one frankly growth is if sheer all Robert, would rates, Yes. of a like. I where at invested And The are exceed which at kind going rates. it look, to sort your we're all look could growth be question that. is company these continue Clearly, return ecstatic that point, enjoying, with any continues not think starts or continue out. look proxy these to capital, its of mean, just great well this taken. to And rates. be at to is for can torrid this we I if growth we it efforts would we as we one to company. what the It's on point But want what get we very think a size our 'XX the do a would essentially company 'XX fund that's don't and the point love But issue

extent reach term was next to would over term, outside to potential still in seek to the and opportunities pursue. would starting level, the a continuing balance point. as could we grow that we be have at extent, have our bar do point that off away. sheet there, a to was in that we the -- I'm being that of to bullish that of on exists and the would of even make, kind it of would say of think to don't outside we near we more available going the company so years, this want get us, financing to that that's of couple and opportunity the do the of its for could couple us And But I But clearly to is some assumptions near kind really portfolio CODI of that you believe which financing to growth starting while if the kind was And financing high alternative years we us.I part overwhelm asking.

Robert Dodd

yes. last here. fill One I can if Understood. Yes, yes, in one,

the testing if care because not to the is into frankly, California, done difference PFAS fabrics, do they old With the you legitimately ones? California face the any performance going the customers? to going have it versus selling And or Do notice did -- fabrics issue else you on think any is anybody be with alternative just an customers with same issue?

Patrick Maciariello

Robert, Pat. this is

there's of but way. believe also product. good complexity. enforcement don't this that named in It's a me Let demand been still yet. want creates this I say agency, will There's customers it enforcement regulation. of a that products, the right? a We PFAS uncertainty has lot also And so case certain The believe

on to there's what's So uncertainty X/X/XX. to out happen there as going

broadly I other can't X it's say answer it to So states. than

at allow So the and least would still XX customers by other that law states for and product. in internationally some consumer either states, will those PFAS, want definition, on enforcement PFAS would or assume now, side

Operator

comes of question from next Your the ROTH Matt Capital. from line Koranda

Michael Zabran

It's Matt. Can right? Mike all Zabran for hear me on you

Elias Sabo

Absolutely.

Michael Zabran

will will forma CGM Okay. payment can leverage? Great. and after the the Maybe this look And proceeds just what transaction net after from net understand fees to us on you the pro incentive Marucci taxes, help sale, just better after do what like?

Ryan Faulkingham

This sure. Ryan. is Yes,

minority And percentage the it could think million that. gross So I proceeds. diluted $XXX take shareholders way share is think of would ownership the about you to and then best the in

C-Corp. interest have as those shareholders, calculated. We given again, our of we $XXX about have post but that proceeds, to finalized, $XXX and could million. net would around nets -- numbers there, would a to that reclassification numbers need payment these our payment be down, tax Is debt. aren't From So helpful? still -- it's And allocation use minority we which million to would as well still our pay all off

Michael Zabran

Absolutely.

Ryan Faulkingham

financial within be to heard Xx earlier of about think have And you X.Xx. might policy I leverage levels our will

Michael Zabran

helpful. That's it. Got

status to there. a And build-out Moving progress been up on do inventory? versus strategy. just And then still the the everyday just quarters. of mix margins stand any retail spending the speak the the and prior on we where prosumers the of behavior we're to X.XX, purchasing drag lastly, in know or CapEx consumers? I cleaning It's maybe call-outs

Patrick Maciariello

Yes, sure.

environment, I -- would with going come to I'd -- the -- Let's we're more our to given that grow. growth, plan a continues store though XXXX. retail, up we our we're for see. be we're limited On a rollout, and continues to say say a are retail slowing e-com current plan

in let's so And say continues retail grow. to not

has to inventory markdown. it -- inventory believe say I well. channel, but and to we that don't will going learned never inventory, DTC be ago holistically our further investment of think just I've take not XXXX, take the It CapEx would we're it's say in our margins, bit never actions, have a goes, be numbers maximizes to sell if to may chance as we those lot see for XXXX.On any is DTC far you to I which provide a as driver little slow-moving managing that through we managing you'll in cases, when we're you not obviously So growth. well. long it a obviously can in less higher need -- of we and that

But professional never of So I we orders of and really and growth within our question the I there. model the haven't the have would conflict we're specifically. say haven't a has that be strength seen diversified heard try talked in broken of in just of inventory on driver of in I out a going appropriately. will manage professional and say business to we And continue Middle about, last business was our pockets that believe stuff X.XX driver hard I driver never, growth, and to there's driving the that a orders and been specifically. a in to is QX East speaks the or QX, broken but growth of that PFAS then to like of out here lot the out prosumer.Anecdotally,

Michael Zabran

of growth preliminarily, and Maybe a line me. the be speak just brands Got guess how XXXX? on potentially might group today's it. sense. why more and are based constrained way couple one That I a of about thinking which of leading brands in be could then brands Last top makes like we which for environment? just lot to

Elias Sabo

Yes.

guess, that XX, growth. give and growth lot now to We EBITDA as with So sort of subsidiaries, different. top a I can going And you know, line down X vary typically Mike, we are give targets. margins don't

on less EBITDA as line, adjusted the focus focused so and we metrics. on kind And a bit of we've top always little earnings and right

feel high QX that to it. be what the us. be, growth XXXX make holistically, start year? and double-digit. that call, said if coming we've results half there's to year.Is we up about for have and call say in should we think this you of enough expect single-digit, for us, year to growth, And earlier, our turning underneath was it said a We're a in possibly accelerating really historically, it, of kind core that next QX going low I As possible good point would for be I to and We

So core to that over the X-year absolutely period together, our we It's get back possible. growth.

that Now a to now possibility kind I'm a guidance, seeing I'm of we're early going as given take is saying to everyone not that right ask what and but trending.

likely year it industrial bit We've it's of If pace the which would in a double-digit not kind as you in still a a growth vertical, that. has of having vertical. want never granular, more to our growth. thought we I but get phenomenal little of at That's look good say 'XX, slowing XXXX, had growth

it, So normalized, look which big clearly, across kind reverts back that of mid-single-digit that within the more have something consumer probably expectations to is then think Lugano. for a you I I growth.And is think we business, as

funding that to needs will that. large continue into expect to We have go

of is doesn't capital, huge it's It's up-leverager isn't not When we an into fund Lugano working with it deleverager not leverage. up-leveraging. additional growth One a but the an things well. add translates as the that way EBITDA

with remain Lugano, to very so we And expectations. high continue

that back sense see historically BOA type consolidated growth our would in you're double-digit which start starts expectations match single-digit, you're businesses And of good growth kind and be think have that inventories is as that pretty to pretty that the strong, rate holistically of we getting see forward, that low some been sort pretty that. with see range. to going consumer we sell-through.My sell-in I year to going good think the in but would to to I -- it's develops accelerating general, expect drives and growth on business high back come going probably double-digit we

too give would that, So granularity I tailwinds more it's like there's say but it for a than early us little some coming. feels much to

a Right X.XX level, any negatively going BOA.And us. macro know areas through and of and XXXX, growth. suffered the we I be microeconomic and negative continued to that negatively starting at bodes is shallow ERGObaby, really issue PrimaLoft recession, at idiosyncratic into that's that to huge could time at and going we and of that now, landing, impacted a that wholesale, that's with don't it difficult a terms I if are be subside, year turn how answer is no. well the In it look into really to really is that there is could a problem think it if could coming shape 'XX Velocity, positive, actually And for negatively impacted kind a eventually our we It benefiting -- impacted business. so look up. be soft a big say those consumer

are none areas from regardless of that, give aren't the outlook that going think in great of benefiting companies But us really think I forward anticipated of suffering the us economic that the know, our each portfolio now coming of kind from in creating I or really right micro that's problem murkiness. optimism there XXXX.

Operator

Blair. line Cris Your William the next question from of from comes Kennedy

Cristopher Kennedy

for the what puts range range wide of to the fourth the and the lower to about of you end you quarter? talk upper end and you takes? What some brings brings Can the of guidance the

Ryan Faulkingham

and the Elias, Certainly, think part we color. you than of I'll some that guidance growth. it implies midpoint greater script, our as take we've highlighted of EBITDA, -- XX% adjusted for sure. be can expectations add that, Cris, Yes, will

probably as different So can you situations tax that challenging is feel behalf -- around broken is We Adjusted about certainly Compass, having quarter impact a taxes, be that. specifically different that's of for but obviously fourth good XX fourth quarter, on positive. can specifically. taxes the interesting record very subsidiaries, can earnings be into get which

conservatism bit So of there. a maintaining little just

EBITDA. get If last And be out growth there over not implies we you as if run to turn adjusted we taxes as those numbers, the could less midpoint but some year, anticipated. than of certainly much adjusted earnings

Elias Sabo

that just where say follow kind revenues right visibility up we now, I'll Cris, X/X of in Obviously, through have And give. quarter the of the we came Yes. out and range to October. on decent we're

and is that large by that within it destocking frankly, the has earnings it's the it's shortest kind the the that year how #X I And we the more wake the know, we really the how of and sales think before was holiday business because out know every lead doing. us at we call the day as on doesn't And from pessimistic mentioned sort to it the but October figure range very headwinds, would It also our not having the not were of not within visibility and more saw important I range, what season that up But saw board. end approaches, look across Lugano throughout positive us there's company being earlier portfolio. a of is being we more said, that end also distributor can the also backlog is, does. high we to based low the probably swing one X what it product end to months. of as in and it determinant because October, benefited our a at meaningful.The lead be inventory have day in be a very becomes you bullish,

will a we've confidence of October perform on that, over over of Lugano.And predicated performance year. they and level the frankly, to we the -- lot think a even have really that most varying before Outside on but been work within other seen because high our in over going think backlogs the this bit and either of of of end range, so last give the month more backlog. exceeding last that businesses us length the I or end gives confidence, obviously, uncertainty, the of some course the don't throughout high at that that, range And it gives of have little but what I the be that year, us they're like

to we've isn't part But we of feel and guidance, be to hopefully we certain come to although what last exceed year, is about do over-deliver it's I and it range and really since able and guidance think the so being raise which on that about of that want done quarter, in the kind expectations. be hopefully then range able feel give And we a able something fourth very good to all guidance applicable. provide the and then

Cristopher Kennedy

a Yes. reminder just talked on give Very think helpful. to softer And improve should that a whatnot? there. when see and kind bookings then follow-up just we talk on business or start visibility of Can I PrimaLoft, you of the about -- demand you us

Patrick Maciariello

Yes.

to starting for of the XXXX book we're for most So fall/winter now part.

was And the so are cautious. of a I saying that's that where lot brands

right? to through order, half the going they order flows -- yet hope is do but the brands' name If you there cycle. that is to XXXX is what kind 'XX our see fall/winter they're to read And not so booking the read I you see -- how discussions, names, about like, but going later of in won't if build big obviously time, that some just the cautious what look that first of we're of and book later orders over we're we're

Operator

[Operator next Management. Haimes the from from Sage Barry Instructions] Your of question Asset line comes

Barry Haimes

of to next back were said how sort location on matched, was And rough of what range my quarter. is a just would that this Congrats fact give you location hurt per sell-through on much One sell-through? primarily stand if location a less us consumer, up year, sell-in revenues we're you realizing What point year of got second X the range a revenues Lugano, by each a and to that the or next capital? in question you the about? little destock inventory CapEx getting different, is of incremental could where working to sell-in I than and then get new is year talking kind questions. sort had another between way, range

Elias Sabo

question. the thank you And for Sure.

plus get of destocking, tell is our to it's terms our exactly we sell-through their -- what from of impossible I their tell what sell-in from customers talked product, with sales in that is. kind of purchasing yes, can double yes, to because digits and customers, one their expect said, your and and talked the be or inventory to said, kind to orders.So our kind XX%, contraction don't PrimaLoft, is call for general correlate don't who's example, your this -- net we are we Pat we down our we management we talked of you to going that contraction minus -- XX% name anecdotally would it, to department of or year. -- but it, to, of revenues they said, for that of a handling and the and names as a inventory person customers up they inventory So to cost be of

other about I I XX% evidence. of gave between I and anecdotal right. say piece broadly, XX% one would think seems you

CEO, XX%. the about not, factory are they we our down what would which to own companies, supply it relative our the and be what asked up to right believe One our farther is purchase of now or chain, they're normally orders

days think to And XX back how by response orders to our and normal days so advance. further the point probably mid to next we'll going back start those I open think to to that means XXX will reverting orders we're vary to do was by be of normal to factories long factory and it's getting to until in year.So you company the

we're open a So in normalized looking to year-end probably start orders this basis. to more we up at particular company, when

number. XX% not impossible XX% think maybe would to tell And and a it's to like a more if for think less absolutely stunned tell. was right of it's can than kind I ask if XX%. XX%, instinct than the I you you So gut swag I the probably I be is impact feels but

Lugano, let Pat that, of and... terms I'll In answer

Patrick Maciariello

probably I store and million million the of little based mean, is be and from with we or store, that then high of least a plus it $X at the what range of to on there's is based can CapEx a stuck $XX kind end on the inventory broad it more.

Elias Sabo

So And capital, that. you're CapEx investment return would modeling high look, get XX%, these million business and things total it, And I goes that the on I invested then $XX think into to of expect inventory. XX% very up. of we on types we say stand between $XX to if returns million

Operator

like conference Sir? back are at over would to There this now I Mr. time. to the no questions further Elias. turn

Elias Sabo

Thank you, operator.

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

Operator

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

Compass Diversified (CODI) 2 Nov 232023 Q3 Earnings call transcript