Compass Diversified (CODI) on Q1 2021 Results - Earnings Call Transcript

Operator: Good afternoon and welcome to Compass Diversified's First Quarter 2021 Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Matt Berkowitz of The IGB Group for instructions and the reading of the Safe Harbor statement. Please go ahead, sir. Matt Berkowitz: Thank you and welcome to Compass Diversified's first quarter 2021 conference call. Representing the company today are Elias Sabo, CODI's CEO; Ryan Faulkingham, CODI's CFO; and Pat Maciariello, COO of Compass Group Management. Before we begin, I would like to point out that the Q1, 2021 press release including the financial tables and non-GAAP financial measure reconciliations are available at the Investor Relations section on the company's website at www.compassdiversified.com. Elias Sabo: Good afternoon. Thank you all for your time, and welcome to our first quarter earnings conference call. Before disusing our results, I would like to take a brief moment to acknowledge our employees. Our performance over the last year since the onset of COVID-19 is a testament to their extraordinary efforts. Despite the ongoing challenges brought on by the pandemic, I am pleased to report that our first quarter results dramatically exceeded our expectations, including BOA and Marucci as if we own them from January 1, 2020, pro forma consolidated revenue grew over 20% and adjusted EBITDA grew more than 45% over prior year's quarter. Pat Maciariello: Thanks Elias. Before I begin on our subsidiary results, I want to touch generally on the quarter, our branded consumer businesses were well positioned to benefit from changes in consumer demand as lockdown restrictions began to ease in North America. And as a result, experienced impressive growth across the board. Our niche industrial businesses are exceeding our expectations, as a group and are showing agility and resiliency even as we experienced labor shortages and commodity increases at several of our businesses. Ryan Faulkingham: Thank you, Pat. Moving to our consolidated financial results for the quarter ended March 31, 2021, I will limit my comments largely to the overall results for our company since the individual subsidiary results are detailed in our Form 10-Q that was filed with the SEC earlier today. On a consolidated basis, revenue for the quarter ended March 31, 2021 was $461.6 million, up 38.4% compared to $333.4 million for the prior year period. This year-over-year increase primarily reflects our acquisitions of Marucci and BOA during 2020. Excluding these recent acquisitions, our revenue increased by more than 14%, driven by strong sales growth at our branded consumer subsidiaries, Velocity Outdoor, 5.11 and Liberty, which offset the decline in sales at Sterno. Consolidated net income for the quarter ended March 31, 2021 was $22 million compared to $4.9 million in the prior year. The increase in net income was primarily attributable to the acquisitions of Marucci and BOA during 2020. CAD for the quarter ended March 31, 2021 was $46.2 million, up over 160% from $17.7 million in the prior year period. Our CAD that we generated during the quarter was significantly above our expectations, almost doubled our distribution and was a highest quarterly CAD we've ever generated. The increase was above our expectations primarily due to the outstanding performance of our most recent acquisitions Marucci and BOA, as well as continued strong performance at our Liberty and Velocity businesses. Other factors impacting our CAD in Q1 compared to the prior year include slightly higher CapEx spend an increase in cash taxes and higher preferred share distributions as a result of our Series C issuance in November 2019. Turning to our balance sheet. As a reminder, we refinanced our debt during the first quarter by placing $1 billion of eight year senior unsecured notes at 5.25%. Of note on our balance sheet at March 31, we had a deposit with our trustee recorded as an asset and a current liability related to our old 8% bonds of $600 million. These items were due to the redemption of our old bonds occurring after quarter end on April 1 this year. As of March 31, 2021, we had over $60 million in cash approximately $594 million available on our revolver and our leverage was below three times. We have substantial liquidity and as previously communicated we have the ability to upsize our revolver capacity by an additional $250 million. We stand ready enable to provide our subsidiaries, with the financial support they need, invest in subsidiary growth opportunities and act on compelling investment opportunities as they present themselves. Turning now to capital expenditures. During the first quarter of 2021, we incurred $4.9 million of maintenance CapEx of our existing businesses, compared to $3.3 million in the prior year period. The increase was primarily result of the acquisitions in 2020. During the first quarter of 2021, we continue to invest in growth capital, spending $2.8 million in the quarter, primarily related to 5.11 long-term growth objectives. Growth CapEx in the quarter and the prior year quarter was $3.3 million. As Elias mentioned earlier, we continue to analyze the potential change in our tax structure, such that we would no longer be classified as a partnership for tax purposes and instead would be tax as the C-corp. I would like to highlight certain key aspects of the process and discuss our expected timing. It's important to mention that we are continuing to analyze certain elements of this potential reclassification and therefore what I discuss here is not definitive and a subject to change. The first concept I'd like to discuss is the tax impact to shareholders as a result of a change in classification. This involves a very complex tax analysis which has been and is continuing to be performed by management and our outside advisors. If undertaken, this change would likely result in taxable capital gain income that would be passed through to shareholders. This would create current tax liability for the 2021 tax year that shareholders would see on a final K1 sent out in 2022. However, this taxable capital gain would also provide shareholders the benefit of increasing their basis in CODI stock, effectively reducing their future taxable gain by a similar amount should they sell CODI. Now our goal in this process is to not have shareholders sell our shares. Therefore, as a result of this additional current tax burden in 2021 to shareholders, we would expect to pay a special distribution at the time of this tax structure change of $0.88 per share. We expect that this special distribution along with our other regular quarterly distributions would more than offset shareholder 2021 current tax liability, absent any significant capital gain tax if we were to divest subsidiaries. Further, we expect that this taxable gain to shareholders should provide a substantial tax benefit to CODI under C-corp taxation, as it would allow us to step up the basis in our interests in our subsidiaries by the same amount, which would reduce future capital gain tax at the C-corp should be opportunistically divest our subsidiaries in the future. The next discussion point is our distribution policy. As a reminder, our Board of Directors sets our distribution amount quarterly and we'll continue to do so after this potential tax structure change. As we've indicated in our previous comments, we expect to adjust our distribution policy if we undertake this tax structure change. Currently as a partnership we pass through CODI's income to shareholders on a K1 who then pay the tax to the IRS. Going forward in the event we elected to be treated as a C-corporation for tax purposes, we will no longer pass through income to shareholders, thus CODI would pay the tax to the IRS. As a result of CODI's assumption of the tax liability, we estimate that we would reduce our annual distribution from $1.44 per share per year to approximately $1 per share per year. Our desired outcome on any distribution reduction would be for the average after-tax return in the past to approximate the average after-tax return in the future. The next obvious question is timing. Management currently expects that its recommendation to our Board of Directors would be that CODI's payment remain at $0.36 per share for the expected July and October 2021 quarterly payments and then decrease to approximately $0.25 per share for the January 2022 expected payment, and all expected subsequent payments. Another important point to highlight is that prior to tax structure change all quarterly payments would continue to be distributions as they have been while after the tax structure change, we believe all quarterly payments would be qualified dividends for shareholders that is net the requisite holding period requirements to the extent CODI has earnings and profits. Assuming we complete this tax structure change in the third quarter, the last $0.36 per share quarterly payment in October and all future payments will be qualified dividends. In summary, if we assume the tax structure change is approved and all estimated payments I've discussed are authorized by our Board of Directors, the total payments received by shareholders who will own stock during each quarter in the 2021 calendar year will be $2.32 per share. Let me put the $2.32 per share into context, relative to our expected CAD for 2021. Elias mentioned, we anticipate our payout ratio to be between 70% and 60%, an improvement from our previous guidance. At the high end of this range of a 60% payout ratio, our CAD, we would expect to earn in 2021, assuming we don't divest any subsidiaries would cover this $2.32 distribution. The final point I'll discuss here is procedural, we will need a shareholder vote for a tax reclassification to occur. The shareholder vote in effect would have the goal of altering our organizational documents such that our desired tax structural outcome as possible. This vote is not part of the 2021 annual proxy that was recently mailed. It would be sent as a separate special proxy. Assuming we receive all necessary approvals, we expect to hold a special meeting and should be able to check the box to be taxed as a C-Corp, sometime late in the third quarter of 2021. We will continue to provide updates as appropriate as we move along this process. With that I will now turn the call back over to Elias. Elias Sabo: Thank you, Ryan. I would like to close by briefly discussing M&A activity and our go-forward growth strategy. As I mentioned earlier, we took pursuing steps in 2019 to prepare for the unexpected in 2020. Those decisions in our unique permanent capital structure position us to not only weather the storm, but to also proactively execute on our growth strategy in a volatile year. We believe that as we enter the middle of 2021. We continue to have the balance sheet strength to support our company's operations regardless of macro condition. Our confidence in our subsidiaries in the respective management teams remains strong following their incredible performance as they pivoted their businesses to maintain and even grow their market positions during the pandemic. As we look to the future. We are optimistic that our subsidiaries are well positioned to continue to gain additional market share and look forward to continuing to support their growth in the months and years to come. As for CODI, our permanent capital structure puts us in a strong position to continue to seek both platform and add-on acquisitions. We believe there are compelling opportunities for us to generate long-term shareholder value given continued market dislocations in 2021. In addition, we will continue to invest in and enhance our subsidiary companies competitive positioning, which include supporting them as they build and grow their digital transformation strategy. Our differentiated strategy has set us apart for more than a decade. And it remains consistent. In 2021, we remain intensely focused on executing our proven and disciplined acquisition strategy, improving the operating performance of our companies, opportunistically divesting enhancing our commitment to ESG initiatives across our portfolio and creating long-term shareholder value. With that, operator, please open up the lines for Q&A. Operator: Our first question is from Larry Solow with CJS Securities. Lee Jagoda: Hi, good afternoon. It's actually Lee Jagoda for Larry. Elias Sabo: Good afternoon. Pat Maciariello: Hi Lee. Lee Jagoda: So just starting, obviously, you're seeing a lot of the benefits of the pandemic in a number of the outdoor brands, which are probably somewhat offset by some of the assets that are geared towards a recovery. If I look at the portfolio, if you look at the portfolio in total, in terms of overall benefit versus potential headwinds from the pandemic? Can you kind of speak to where you think the total portfolio is and maybe speak to the runway for future growth once the pandemic kind of eases a little bit here? Elias Sabo: Sure, so it's really a case-by-case basis right, as it's a roll-up of each of the 10 subsidiaries when you get to those. But if I look at it holistically across our consumer businesses, some of them have benefited incredibly strong namely Velocity and Liberty through the increased participation rates and outdoor activities. I would say as we look forward, there is nothing right now for those two businesses that lead us to believe that demand is receding. All the forward indicators like book-to-bill ratios and kind of weekly bookings are pointing up. So that gives good confidence there. Outside of those businesses, I would say the other four consumer businesses don't feel like they have really kind of participated meaningfully in any upside recovery from the pandemic. ERGO probably got hurt from it, to be honest, 5.11 I would say likely got hurt, because the professional side of the business was incredibly weak. And the consumer side of the business has - I would say just longer-term secular growth tailwinds that we don't think we're impacted materially. And BOA and Marucci in the first quarter, I think probably benefited from some seasonal changes in demand patterns, but I'm not sure that if you looked at it on a LTM basis, we would say that these companies are kind of benefiting any kind of large level. So all that being said, if you put it all together, we still have a outlook that our consumer businesses will continue to grow over the balance of 2021. The second quarter likely to be kind of another strong growth quarter as we comp against, what was a really weak period as kind of lockdown hit full force in 2020. On the other side, our industrial business is really took it on the chin in 2020 and are starting to show recovery. In fact, March was a pretty good up month that brought the entire quarter up, we would expect April and May to be even stronger on a year-over-year basis as the full effect of the shutdowns kind of started to materialize in the second quarter last year. So our outlook there is for strengthening results. So if you put it on balance, I would say it feels as though we're in a pretty good position to continue to benefit from the reopening. And any headwinds we may experience at certain of our consumer businesses, we think are more than made up for by strength in our industrial businesses. And remember, our largest subsidiary Sterno on it's shaping fuel side of its business went to zero. And probably even had for some period, some negative earnings on that side of the business and that was historically well north of $20 million EBITDA line of business. We've seen some real encouraging signs in March and thus far in April, where demand through bookings has really picked up materially. And so if you think about your largest business being able to bounce back, that would offset if there are any headwinds in the consumer business that would offset it. But again, I want to reiterate, we are not experiencing right now and seeing any headwinds that have emerged. In fact, we continue to see tailwinds across virtually all of our consumer business. Lee Jagoda: Great, that's very helpful. And then last one from me. Just I know you gave the different components of the liquidity in your prepared remarks, I just missed them, if you could give those again that would be great. And then speak to just the current pipeline of opportunities and areas in the market that look interesting to you all today, either in terms of valuation or growth potential. As you look at these various businesses. Ryan Faulkingham: Sure Lee, this is Ryan. I'll talk to liquidity and let Elias talk to the latter question there. But we, as of March 31, we had $594 million of availability on a revolver. So, virtually the entire revolver - balances open and available, plus we had about $60 million of cash on the balance sheet so, just a really strong liquidity position at this point. Elias Sabo: And Lee in terms of M&A, I'll ask Pat to comment on that, as he is much closer to the M&A markets. Pat Maciariello: Yes, I think we're seeing right now lots of on the platform side, we think of it really is going to platforms and add-on. See on the platform side, we are seeing lots of deals, we’re probably seeing as many transactions as we have really in a long time and part of that is just some internal efforts, I mean some hirings, we've made but part of it is just the deal market. The trouble is shifting through quality. And you touched on a lot of you - touched on pandemic-related tailwinds before, you have to make sure that the companies that you're looking at don't have tailwinds that are too strong on the pandemic. And that you can get comfortable with what you're underwriting, if that makes sense. On the add-on side, it's also more plentiful. And we're seeing some good potentially actionable activities on the add-on side in the near or medium term. Elias Sabo: And Lee, the last part of your question on valuations, we're seeing valuations hit all-time highs. I would say they've reverted back to pre-pandemic levels plus some. And there is a plethora of capital that's out there. If you think about the effects of the pandemic last year, M&A was virtually non-existent. We were really proud to put $700 million roughly to work, but those were through effort that were direct - that was because of our catalyst, to get those transactions completed. And we have the balance sheet to do it. By and large, the rest of the private equity market kind of sat on their hands. And if you think about one of the disadvantages, that we believe exist in traditional private equity, especially when compared to our model, there is timelines on which you have to put this money to work. And if you have a five-year window under which you need to invest money and you took one year off, that just increase the pace that you have to invest and from 20% per year to 25% per year over the balance of the four years. That puts an incredible amount of upward demand on the asset and the availability of debt financing at historically attractive rates has come back to the market. So, the window was incredibly short during this pandemic-fueled recession that we experienced in 2021 for valuations to rein in. And now valuations have kind of reverted back to pre-pandemic levels. Lee Jagoda: Great very helpful, I'll hop back in queue. Thank you very much. Operator: Your next question is from Matt Koranda with ROTH Capital. Elias Sabo: Hi Matt. Matt Koranda: Hey guys good afternoon. One kind of fundamental question and one higher level strategic. So on the fundamental question maybe just wanted to see if you could highlight, you did mentioned sort of modest margin pressure across most segments that you're factoring into the guidance for EBITDA after the rest of the year. I was curious if you could just highlight specific segments, where you're factoring in the most commodity pressure for the rest of the year. And maybe also if you could threat in which segments have sort of the most pricing power to offset that versus which are sort of just more price takers that may not be able to offset as much. Elias Sabo: Yes so, Matt, I would just say look across the board. There is a lot of inflationary pressures and some of it's from commodity and so take a business like Liberty Safe for example, Liberty has a large portion of the raw material cost in the form of steel. And steel cost have risen dramatically, now Liberty is really good at locking in steel and so those costs didn't manifest in the first quarter, but they are clearly coming. Now the good news with Liberty is demand is robust and we can even take orders in the second quarter. We're now taking them into the third quarter. So our goal there is to pass through dollar for dollar, the steel price increases that we're getting. Now on obvious margin point here, if you have $1 of cost that you pass through dollar of price, even though you can maintain the same dollar margin per unit, your margin comes down. And so I would just caution everybody that in a rising price environment, where you are pushing through prices equal to your kind of underlying cost increase, that margins will come down, but the dollar profit margin is not. I think beyond that, I think most of the companies where there is large pricing pressure. Is where we have the greatest ability to push through pricing, Velocity is seeing some price pressure, but they also have very strong demand and the ability to push it through. We believe and so I would say, largely we feel where the costs are increasing the most is where demand is passed, and we should have the most in elasticity to push through these prices. Altor is the last one company that I would highlight because we have seen a dramatic rise in costs, now that is contractual as we push through those raw material cost, but it comes with the lag. So if we're getting cost increases today and we can push through a price increase for 90 days, it's going to hit kind of war that 90-day period, margins pretty hard and then they'll catch up as we go forward. Obviously the converse happens when prices decrease, but that's not the environment that we find ourselves in. So right now, I would say, raw material prices are the most queue that were issue that we're dealing with, and the companies I mentioned are the ones that have probably the biggest kind of impact in Liberty, Velocity, and Altor, but across the board, we're seeing labor shortages which pauses numerous challenges for our managers at our subsidiaries we have to work more over time in many cases, or you have more late product and you might have to airship, so that create kind of some challenges for each of our managers to deal with. And then I would say, as we said in our commentary, this is across the board. Every one of our companies are suffering from shipping problems. And there is just the lack of available shipping capacity right now, there is a lack of available capacity. The cost in order to get the containers is much more expensive today than it was. So those are being realized by everyone. So now I want to put it all into context, because that could sound really scary when you hear us. But remember, revenue growth and the operating leverage that you get on revenue growth can absorb a lot of these cost increases that are coming through. So yes, it is something that we're dealing with, our managers are working aggressively to manage through this and to preserve our margins and operating leverage is really helping, I think what we really wanted to highlight for everybody is that as we continue to experience strong revenue growth, it will not materialize with as much operating leverage as you normally would see and as much EBITDA leverage as would be normal, because some of that is going to get into margin compression. Matt Koranda: Okay, super detailed and helpful. It's very great. And then the other higher level strategic question I had was basically just, does the potential flip to a C-Corp change any of your decision making process when it comes to the portfolio, whether that the acquisitions or divestitures in the near term? Elias Sabo: Yes, I mean this is one of the things that Ryan highlighted and I highlighted here, this is really a tax neutral, there were some benefits that historically it pass through entities receive holistically from a tax standpoint that have waned in recent years. To the point now where there is no advantage to executing our model as a pass-through versus the C-Corp. So they're being there is no disadvantage of being a C-Corp, we don't view tax policy, the tax change or reclassification as being something that would dictate a change in strategy. Matt Koranda: Okay. Awesome. And then just one more if I could slip one in here. Just on the dollar per share hypothetical distribution that you highlighted relative to the $1.44 that historically we've had. Is all of the gap there the 40% basically just alluding to what we have to retain for tax liabilities that come about as a result of the C-Corp? Just help me understand sort of how we arrived at the dollar? Ryan Faulkingham: Yes. Sure, Matt. That's right. If you think about the $1.44 per share that we've historically paid a portion of that is paid to the IRS. And we went back five, eight, 10 years ran all the numbers, did the averages and as you know sometimes in a given year, the after-tax return for CODI could be very low, if we have substantial capital gains or other significant income. Some years where we don't have substantial income, the after-tax return can be higher, right. So, if we think about the $1.44 and we went back and ran these numbers. The after-tax $1 per share on average you received was very roughly around $0.70. And when we set this $1 per share distribution going forward. We said well-qualified dividend rate that's roughly 30% if you consider federal and state getting you to about the same after-tax, roughly $0.70 per share. But that's how we thought it through, because the goal here, Matt is on an after-tax basis, the return should be the same. And we've created that using averages over the past number of years. Elias Sabo: And Matt just one follow-up point that I'll make. As Ryan mentioned, we think the after-tax proceeds, the average $0.70 over history and in the future will average $0.70 under qualified dividend rate. We think going forward, it's much more beneficial, even though it's the same, because the volatility in that after-tax return is going to be vastly reduced. It's going to go to zero volatility compared to before. There were some years where the capital gains and dividend income we receive essentially wiped out the full $1.44 and there are some years where virtually none of it was, and I think shareholders will enjoy having a more stable after-tax return that is equal to what they were getting in over history. Given that now there will be no volatility in that after-tax return. Matt Koranda: Excellent point. Okay, awesome. Very helpful. Thank you. I will get back in queue. Operator: And your next question is from Kyle Joseph with Jefferies. Kyle Joseph: Hi, good afternoon, guys. Congratulations on a really strong start to the year. And thanks for having me on. A lot of my questions have been addressed, but just Ryan apologies if I missed it, did you give an outlook for maintenance CapEx for the remainder of the year? Ryan Faulkingham: We did not update that Kyle. So, I would assume it falls in line with the previous guidance. Kyle Joseph: Okay, perfect. And then Elias you references but in appreciate the color you gave on inflationary impact on the companies, but I want to talk about supply chain disruption and any companies that are being impacted there, because looking at the results, it doesn't necessarily feel like that's the case, but just any company did highlight being impacted by supply chain issues? Elias Sabo: Yes. Kyle, I mean, again I want to start the question the answer off with giving praise to our subsidiary company managers who are all dealing with supply chain issues of varying degrees. And what they executed? How they executed? And the results they posted honestly is nothing short of remarkable and I think it's a testament to the strength of our subsidiary managers that we have in place and kind of what they're doing with their teams. And we've been for the last few years making some adjustments to our subsidiary management teams and really doing a lot of upgrading and I think the result of those efforts is really showing through in what are very challenging times today. I would point each company is having some issue. I would say Liberty Safe is dealing with getting some materials that we get or some components like locks that we get from Asia are difficult to get in. And there is component that we've continue to highlight at Velocity that causing supply shortages. Probably the two businesses that suffer the most right now from our supply shortages are 5.11 where we have an inordinately high amount of in-transit inventory, sort of double to triple the normal levels on a historical basis that is in transit. That's creating tremendous challenges for them to be able to ship inventory that should have been sitting in our warehouse. Now, the company is still growing. So, I think that is a testament to how strong demand is and how well they're executing and Velocity would be the second company that really is finding significant shortages. But again, kudos to the management team at Velocity for being able to manage through this and post such remarkable results. Kyle Joseph: Got it. Very helpful. Thanks again for having have me on and answering my questions. Ryan Faulkingham: Thank you, Kyle. Elias Sabo: Thank you Kyle. Operator: Your next question is from Cris Kennedy with William Blair. Cris Kennedy: Hi guys, thanks for taking the question and I appreciate all the detail. And the tax structure change potential. Just wanted to dive a little bit more into the M&A pipeline, is it primarily within kind of the consumer and niche industrial verticals are you kind of getting closer to potentially entering healthcare intact or technology. Some of the higher growth markets? Pat Maciariello: So I think we're looking now outside of just outside a little bit further afield we’re sort of just traditional and niche industrial and consumer businesses, we're not excluding them obviously, we're still focused on them, but we're looking at a little. We’ve done work sort of buildings out that second or that next vertical, but we haven't made any key hires to date and there is still a lot of stuff sort of going on in there. Right. So on the sort of healthcare on the dedicated healthcare team, we haven't any actions are definitive actions are definitive steps that is a long-term sort of strategic process that we continue to move down the path of but don't have anything to announce yet. Cris Kennedy: Okay, understood. And then Elias you mentioned increasing spending at some of your businesses. Can you just talk about some of the key priorities I guess which businesses you're referring to? Thanks guys. Elias Sabo: Sure, so yes. So in general, I would say we really kind of clamp down on non-revenue generating spend as I think kind of our shareholders would have wanted us to do as the pandemic started and most of our managers just given the uncertainty as revenue started to rebound late in 2020. And for us remember we started posting comps year-over-year in Q3 with acceleration in Q4 and now massive acceleration in Q1 of this year. I would say the general uncertainty brought on by the pandemic had our managers, continuing to be I would say conservative in terms of allowing cost to come back. So there are some costs that need to come back, because we need to support the kind of revenue growth that we had, and that is across the board. Now, a company like Sterno, which have seen their revenue pop back here, likely does have cost increases, until we see significant increases in the their demand activity, but a company like Velocity or companies like 5.11 which were really kind of pushing down on our cost structure 5.11 I'm thinking in particular, there are some costs that need to come back there. Just to be able to support the operations and provide the logistics capabilities and customer support and all and the financial kind of back-office type things that need to occur. So, there is some, I would say, make-up that needs to occur in terms of spend to support higher levels of demand that exists in our businesses right now. That's a small portion to be honest. I would say where most of our focus is right now on adding cost. If I said we're going to add SG&A maybe 10% to 20% across the portfolio is in non-revenue generating activities. Our goal is when we create savings in those activities to try to make them as permanent as possible, and be more efficient, and have higher margin profiles of our company. So, I think everybody gets that. And we will do a really good job of being able to control those going forward. We believe that we have an opportunity though with the strength of our balance sheet and with our companies performing so well to invest in revenue-generating activities. And so, I think of a company like BOA which put up unbelievably extraordinary results or Marucci right. I mean if you look at these two companies combined they put up over a 100% year-over-year growth. I mean it just remarkable what they were able to do. These companies have opportunities and revenue-generating spend to create faster longer-term growth. And for Marucci its things like as we enter into new categories with greater opportunity like in fielding gloves and in softball or maybe going into new markets like Japan, which is a market that we've been sitting , being able to step on the accelerator there and invest more to be able to harvest longer-term faster growth rate. In BOA, if we have brand partners that would love for us to be working on more platforms that they want to come out with, but we have limitations based on the engineering talent that we currently have and being able to kind of engineer through that. And so those are some examples where we absolutely want to invest for future growth. And then across the board in our consumer businesses, we look at putting more money into our sales and marketing effort. And thinking that this is a really good time for us to do that to foster longer-term faster growth, so, I think most of the spend that you're going to see accelerate is in really good high return on investment activities that are point of - attack revenue-generating activities. Cris Kennedy: Very helpful. Thanks a lot guys. Elias Sabo: Thank you. Operator: And we have time for one last question. Your next question is from Robert Dodd with Raymond James. Robert Dodd: Hi, guys, and congratulations on the quarter a couple about tax first and then fundamental if I can. On the tax and I really appreciate all the detail. You said - you expect the average after-tax return to approximately average - historically versus the future. In the analysis, you've done. Is there any particular characteristic, if the average is going to be the same, somebody is going to do worse somebody is going to do better? Are there any characteristics within your analysis of which shareholders would actually see a higher return versus a lower return post this decision, if it goes there ? Elias Sabo: No Robert. The average is meant - the mean across many years, so the rough numbers I had provided which was the $0.70. In some years, the years where we have substantial capital gains, like we did in 2019. The tax liability on a per share basis that a shareholder would have paid the IRS might have been $1.10 or $1.20 of the $1.44 right. So, the after-tax return was a couple penny of a dime right. Robert Dodd: Understood, understood yes. Elias Sabo: Whereas some years right yes, 2020 should be or 2018 was a reasonably high one. So it's really about averaging over the years shareholders in general, their tax situation will differ slightly based on some of their inside basis from time-to-time. But in general, the average we were referring to is over a time period. Robert Dodd: Got it, I appreciate that. On just one more on that - the issue is still being discussed. I mean what's the process less - and I realize it's a Board recommendation if they decide to go this way or that way. What's left to do is this really I mean are we done . Is it just the paper work left to do in this proposal is going to go through or is the board still actually evaluating it on a fundamental basis? Elias Sabo: So, the Board is certainly supportive of the analysis, but what's left is time and that time has to do with the special shareholder vote we need. So that special proxy that will have to file is subject to SEC review and that can take days or it can take months. So we've tried to be conservative with the time here. So I think, I think late Q3 is a reasonable estimate, I certainly hope we could beat that, but it's a little bit out of our control because it's based on the SEC review. And then so it’s a really - shareholder vote and then official formal Board resolutions. Robert Dodd: Got it, I appreciate that yes. Ryan Faulkingham: But to be clear, Robert, we expect to move, this will be moved forward our Board is fully supportive, management is supportive. It's now just about getting the special vote in place. And we think this is a very good transaction for our shareholders and the company. And we would anticipate that our shareholders will support it. But obviously, a lot of kind of language which was softer around that as we said believe or anticipate those things are - less representative of what we're going to do internally. It was only representative of whether we get approval by our shareholders, which we would ask our shareholders to come out and vote their shares in special proxy that's coming up. So, that we get to a quorum and that they vote in favor of this, because we think it is a true game-changer in creating total shareholder return over the long-term for everybody. Robert Dodd: Got it, I appreciate the clarity on that one. Thank you. One more if I can, on the supply chain and I say issues because - your performance doesn't as confidence doesn't really look like that's how many issues to be honest? Very, very strong performance and compliments on - that manages subsidiaries this performance produces? What, could you give us - with 5.11, it sounds like frankly there is just - there is inventory stuck on container ships of the core Long Beach probably, but is there - any of the supply chain issues actually related to say overseas production capacity problems? Or is it primarily just transport and we all know the backlogs of moving products backwards and forward side? Elias Sabo: So, the vast majority is due to shipping issues and port issues. I think as you know I live on the West Coast and many times I can look out and see a sea full of containerships that are sitting waiting to be unloaded at the Port of Long Beach. And I always think while I wonder how much of our goods are sitting in there that unfortunately isn't being shipped to our customers. But I would say the vast majority is that. There are in some instances some component production issues, that we're dealing with Velocity because of the sudden increase in participation in - their sports had a massive demand increase and we didn't have and our frankly our suppliers didn't have the available capacity to ramp up is quickly is our demand ramp. And we've been chasing supply for boy the better part of kind of eight, nine months now. And so we continue to build kind of a supply there, but I would say it's a little bit different in terms of what is creating it, right. In some industries, what you're hearing about is there was capacity that was really shut-in. And it's hard to bring that capacity back as quickly as demand has come back. We hadn't experienced any of that. So, there are some demand chasing some supply chasing because of rapid demand. In terms of one company, that we do have a watch out for would be ERGO Baby. They have a reasonable amount of production in India. I think as everyone is aware, India is suffering probably more acutely than any other country right now with the pandemic. And so although right now, we are continuing to get supply uninterrupted out of India. I would just say that there is a heightened level of worry that we're managing through right now around whether or not. India starts to enact more stringent lockdowns that would cause supply issue there. But we're really not seeing out of our supply partners and inability on the, from the most part to be able to meet our demand, it's much more getting the product on a boat and getting it off loaded into the United States. Pat Maciariello: Can I just, one exception to that Robert would be around the storms in Texas. We did have some shutdowns briefly that our teams did a really great job of managing around. So there are some acute instances. Robert Dodd: Got it, got it. I really appreciate that color. And again, congrats on the quarter record quarter for Pat, I mean in a still tough environment out there. Pat Maciariello: Thanks Robert. Ryan Faulkingham: Thank you, Robert. Operator: And I'll now hand the call back over to the Elias Sabo for closing remarks. Elias Sabo: Thank you, operator. As always, I'd like to thank everyone again for joining us on today's call and for your continued interest in CODI. We look forward to sharing our progress with you in the future. That concludes our call operator. Operator: Thank you for joining us today. This does conclude today's presentation. You may now disconnect.
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Compass Group Diversified Holdings, LLC (NYSE: CODI) Faces Legal Challenges Amid Financial Disclosure Issues

  • Compass Group Diversified Holdings, LLC (NYSE:CODI) is set to release its quarterly earnings with an estimated EPS of $0.45 and projected revenue of $567.42 million.
  • The company is currently embroiled in legal challenges, including a class action lawsuit alleging securities fraud related to its acquisition of Lugano Holdings, Inc.
  • Financial indicators show a P/E ratio of 65.41, a debt-to-equity ratio of 1.37, and a current ratio of 4.07, highlighting potential cash flow concerns and strong liquidity.

Compass Group Diversified Holdings, LLC (NYSE:CODI), a private equity firm based in Westport, Connecticut, is known for acquiring and managing a diverse portfolio of businesses. One of its significant acquisitions was Lugano Holdings, Inc. in 2021, valued at $256 million. CODI is set to release its quarterly earnings on July 2, 2025, with Wall Street estimating an EPS of $0.45 and projected revenue of $567.42 million.

Despite these projections, CODI faces legal challenges. Levi & Korsinsky, LLP has filed a class action lawsuit against the company, alleging securities fraud between February 24, 2022, and May 7, 2025. The lawsuit claims that CODI failed to disclose critical issues, including ineffective internal controls and undisclosed information about Lugano Holding, Inc. This has led to significant investor losses.

Further complicating matters, Berger Montague PC has also filed a lawsuit against CODI for similar reasons. This lawsuit targets investors who purchased CODI securities between May 1, 2024, and May 7, 2025. The deadline for investors to seek appointment as a lead plaintiff is July 8, 2025. The allegations include violations of accounting rules and industry practices by Lugano in fiscal 2024.

The legal actions follow CODI's disclosure on May 7, 2025, that its financial statements for fiscal 2024 should not be relied upon. This announcement came after an internal investigation into Lugano Holding, Inc., which identified irregularities in its financing, accounting, and inventory practices. These issues have raised concerns about CODI's financial health and transparency.

Financially, CODI has a price-to-earnings (P/E) ratio of 65.41, indicating high market expectations relative to its earnings. Its price-to-sales ratio is 0.21, and the enterprise value to sales ratio is 0.99. However, the enterprise value to operating cash flow ratio is negative at -32.34, suggesting potential cash flow concerns. CODI's debt-to-equity ratio is 1.37, showing its financial leverage, while its current ratio of 4.07 indicates strong liquidity.

Compass Diversified Holdings (NYSE: CODI) Faces Legal Challenges Amid Financial Underperformance

  • Compass Diversified Holdings (NYSE:CODI) reported earnings per share (EPS) of $0.30, missing estimates.
  • The company is involved in multiple class action lawsuits due to alleged failures in maintaining effective internal controls over financial reporting.
  • Despite legal and financial challenges, CODI maintains a strong liquidity position with a current ratio of 4.07, but a concerning debt-to-equity ratio of 1.37.

Compass Diversified Holdings (NYSE:CODI) is a company that manages a diverse portfolio of businesses across various industries. On June 25, 2025, CODI reported its earnings, revealing an earnings per share (EPS) of $0.30, which fell short of the estimated $0.45. The company's actual revenue was $487.6 million, also below the anticipated $567.42 million. This underperformance has raised concerns among investors and has led to legal actions.

Kahn Swick & Foti, LLC, along with former Louisiana Attorney General Charles C. Foti, Jr., has issued a reminder to investors about a class action lawsuit against CODI. This lawsuit is aimed at investors who purchased the company's securities between May 1, 2024, and May 7, 2025, and have incurred losses exceeding $100,000. The legal action is currently pending in the United States District Court for the Central District of California.

Levi & Korsinsky, LLP has also notified investors of an amended class action lawsuit against CODI. This lawsuit, titled Nicholas Moreno v. Compass Group Diversified Holdings LLC, is filed in the United States District Court for the District of Connecticut. It alleges that CODI failed to maintain effective internal controls over its financial reporting between February 24, 2022, and May 7, 2025. Investors are encouraged to take note of the lead plaintiff deadline set for July 8, 2025.

Rosen Law Firm, a global investor rights law firm, has issued a reminder to investors who purchased CODI securities between May 1, 2024, and May 7, 2025. These investors have until July 8, 2025, to file as lead plaintiffs in a securities class action lawsuit. Investors who have suffered losses exceeding $100,000 may be eligible for compensation through a contingency fee arrangement, which means they would not need to pay any out-of-pocket fees or costs.

Despite these challenges, CODI maintains a strong liquidity position with a current ratio of 4.07, indicating it has more than enough current assets to cover its current liabilities. However, the company has a debt-to-equity ratio of 1.37, showing it uses a significant amount of debt compared to equity in its capital structure. The enterprise value to operating cash flow ratio is negative at -32.5, which may indicate challenges in generating cash flow relative to its enterprise value.

Compass Diversified (NYSE: CODI) Prepares for Quarterly Earnings Amidst Challenges

  • Compass Diversified anticipates an earnings per share (EPS) of $0.45 and revenue of approximately $567.42 million for the upcoming quarter.
  • The company faces significant challenges, including a high price-to-earnings (P/E) ratio of 66.77 and a class-action lawsuit related to accounting irregularities.
  • Despite these issues, CODI maintains a strong liquidity position with a current ratio of 4.07, though it has a negative enterprise value to operating cash flow ratio of -32.48.

Compass Diversified (NYSE: CODI), a private equity firm based in Connecticut, is preparing to release its quarterly earnings on June 25, 2025. Wall Street anticipates an earnings per share (EPS) of $0.45 and revenue of approximately $567.42 million. CODI operates by acquiring and managing a diverse portfolio of businesses, providing them with strategic guidance and financial support.

The company is currently navigating through significant challenges. A key director, Gordon M. Burns, resigned from the board on June 7, 2025, due to other commitments. This resignation coincides with a sharp decline in CODI's stock price and a class-action lawsuit related to accounting irregularities at one of its portfolio companies, as highlighted by Hagens Berman.

CODI's financial metrics reveal a complex picture. The company has a high price-to-earnings (P/E) ratio of 66.77, indicating that investors are paying a premium for its earnings. However, the price-to-sales ratio is low at 0.22, suggesting that the market values the company modestly relative to its sales. The enterprise value to sales ratio is 1.00, reflecting the company's total value compared to its sales.

Despite these challenges, CODI maintains a strong liquidity position with a current ratio of 4.07, indicating it has ample current assets to cover its current liabilities. However, the enterprise value to operating cash flow ratio is negative at -32.48, which may signal difficulties in generating cash flow relative to its enterprise value. The debt-to-equity ratio stands at 1.37, showing a significant reliance on debt to finance its assets.

The ongoing class-action lawsuit, with a lead plaintiff deadline of July 8, 2025, adds further pressure on CODI. The lawsuit covers a class period from May 1, 2024, to May 7, 2025, and is linked to financial irregularities. Investors who have incurred significant losses are encouraged to report their losses, as the company grapples with these financial and legal challenges.

Compass Diversified Holdings (NYSE:CODI) Faces Financial and Legal Challenges

  • Earnings per share and revenue for Compass Diversified Holdings (NYSE:CODI) fell short of expectations, with figures reported at $0.30 and $487.6 million, respectively.
  • A securities class action lawsuit has been filed against CODI, alleging failure to disclose certain financial arrangements and irregularities.
  • Despite financial underperformance and legal issues, CODI's financial metrics present a mixed picture, including a high P/E ratio of 63.54 and a strong liquidity position with a current ratio of 4.07.

Compass Diversified Holdings (NYSE:CODI) is a company that manages a diverse portfolio of businesses across various industries. On June 18, 2025, CODI reported earnings per share of $0.30, which was below the expected $0.45. The company's revenue also fell short, coming in at $487.6 million compared to the anticipated $567.42 million. This underperformance has raised concerns among investors and analysts.

The financial results have coincided with legal challenges for CODI. Kahn Swick & Foti, LLC, along with former Louisiana Attorney General Charles C. Foti, Jr., has reminded investors of a securities class action lawsuit against CODI. The lawsuit alleges that between May 1, 2024, and May 7, 2025, the company failed to disclose certain unrecorded financing arrangements and irregularities in sales, cost of sales, inventory, and accounts receivable. Investors who have incurred losses exceeding $100,000 have until July 8, 2025, to file lead plaintiff applications.

The legal action is further supported by the Law Offices of Howard G. Smith, which encourages affected investors to participate in the lawsuit. The complaint highlights CODI's alleged failure to maintain effective internal controls over its financial reporting. This has led to significant financial losses for shareholders, who are urged to contact the law firm before the lead plaintiff deadline to discuss their legal rights.

Despite these challenges, CODI's financial metrics provide a mixed picture. The company has a high price-to-earnings (P/E) ratio of 63.54, indicating that investors are willing to pay a premium for its earnings. However, the enterprise value to operating cash flow ratio of -32.14 suggests difficulties in generating cash flow relative to its enterprise value. CODI's debt-to-equity ratio of 1.37 highlights its leverage level, while a current ratio of 4.07 indicates strong liquidity, with sufficient current assets to cover its liabilities.

Compass Group Diversified Holdings, LLC (NYSE:CODI) Faces Legal Challenges Amid Financial Release

  • Compass Group Diversified Holdings, LLC (NYSE:CODI) is set to release its quarterly earnings with an estimated EPS of $0.45 and projected revenue of $567.42 million.
  • The company is currently involved in a class action securities lawsuit, which could impact investor confidence and CODI's financial standing.
  • CODI's financial metrics show a high P/E ratio of 65.20 but a concerning negative enterprise value to operating cash flow ratio of -32.31.

Compass Group Diversified Holdings, LLC (NYSE:CODI) manages a diverse portfolio of businesses across various industries, operating by acquiring and managing middle-market businesses. It provides them with strategic guidance and financial support, generating revenue from its subsidiaries and marking its unique position in the investment management sector.

On June 18, 2025, CODI is scheduled to release its quarterly earnings, with Wall Street analysts estimating an earnings per share (EPS) of $0.45 and projected revenue of approximately $567.42 million. This release comes at a critical time as the company faces a class action securities lawsuit. Shareholders are urged to protect their rights before July 8, 2025, due to allegations of securities fraud, which could impact investor confidence and the company's financial standing.

CODI's financial metrics reveal a mixed picture. The company has a high price-to-earnings (P/E) ratio of 65.20, indicating that investors are willing to pay a premium for its earnings. However, the negative enterprise value to operating cash flow ratio of -32.31 suggests challenges in generating cash flow from operations, which could be a concern for investors. Despite this, CODI maintains a strong liquidity position with a current ratio of 4.07, indicating it can comfortably cover its short-term liabilities.

The company's price-to-sales ratio of 0.21 and enterprise value to sales ratio of 0.99 suggest that CODI's market value and enterprise value are relatively low compared to its sales. This could imply that the market undervalues the company's sales potential. However, CODI's debt-to-equity ratio of 1.37 indicates a high level of leverage, which could pose risks if the company faces financial difficulties or if interest rates rise.

As highlighted by Levi & Korsinsky, the lawsuit against CODI alleges a lack of effective internal controls over financial reporting and failure to disclose critical information. This legal challenge could have significant implications for the company's reputation and financial performance. Shareholders who have suffered losses are encouraged to seek legal advice to explore potential recovery options under federal securities laws.

Compass Diversified Holdings (NYSE:CODI) Reports Earnings Miss and Legal Woes

Compass Diversified Holdings (NYSE:CODI) Faces Earnings Miss and Legal Challenges

Compass Diversified Holdings (NYSE:CODI) is a company that manages a diverse portfolio of businesses across various industries. On June 11, 2025, CODI reported earnings per share of $0.30, which was below the expected $0.47. The company's revenue also fell short, coming in at $487.6 million compared to the anticipated $567.42 million.

The earnings miss comes amid a securities class action lawsuit against CODI. Kahn Swick & Foti, LLC, along with former Louisiana Attorney General Charles C. Foti, Jr., has reminded investors of the ongoing legal action. Investors who purchased CODI securities between May 1, 2024, and May 7, 2025, have until July 8, 2025, to file lead plaintiff applications.

Rosen Law Firm, a global investor rights law firm, is also urging CODI investors to consider legal counsel. The lawsuit alleges that CODI failed to disclose critical information and lacked effective internal controls over financial reporting. Investors with losses exceeding $100,000 are particularly encouraged to explore their legal options.

CODI's financial metrics reveal a mixed picture. The company has a high price-to-earnings (P/E) ratio of 65.83, indicating that investors are paying a premium for its earnings. However, the price-to-sales ratio is low at 0.22, suggesting undervaluation relative to sales. The enterprise value to operating cash flow ratio is negative at -32.38, highlighting potential cash flow challenges.

Despite these challenges, CODI maintains a strong liquidity position with a current ratio of 4.07, meaning it has over four times more current assets than liabilities. However, the debt-to-equity ratio of 1.37 indicates a higher reliance on debt financing, which could be a concern for investors.

Compass Diversified (NYSE:CODI) Overview and Market Performance

  • Wells Fargo reaffirms an "Overweight" rating for CODI, indicating a positive outlook despite a slight decrease in stock price.
  • Faruqi & Faruqi, LLP investigates potential claims against CODI for investors who suffered significant losses between May 1, 2024, and May 7, 2025.
  • CODI's stock shows significant fluctuations with a 52-week high of $24.59 and a low of $6.05, and a current market capitalization of approximately $487.5 million.

Compass Diversified (NYSE:CODI) is a company that manages a diverse portfolio of businesses across various industries. It provides long-term capital and strategic support to its subsidiaries, aiming to enhance their growth and profitability. CODI competes with other investment firms and holding companies that also focus on acquiring and managing businesses.

On June 10, 2025, Wells Fargo reaffirmed its "Overweight" rating for CODI, with the stock priced at $6.53 at the time. This rating suggests that Wells Fargo believes CODI's stock will perform better than the average market return. Despite this positive outlook, the stock has seen a slight decrease, currently priced at $6.48, down 1.22% from the previous price.

Faruqi & Faruqi, LLP, a national securities law firm, is investigating potential claims against CODI. The firm is focusing on investors who suffered losses exceeding $100,000 between May 1, 2024, and May 7, 2025. Investors are encouraged to contact the firm to discuss their legal options, with a deadline of July 8, 2025, to seek the role of lead plaintiff in a federal securities class action.

CODI's stock has experienced significant fluctuations, with a 52-week high of $24.59 and a low of $6.05. The current trading range for the day is between $6.43 and $6.66. The company's market capitalization is approximately $487.5 million, indicating the total market value of its outstanding shares. The trading volume on the NYSE is 262,978 shares, reflecting investor interest and activity in the stock.