Compass Diversified (CODI) on Q2 2021 Results - Earnings Call Transcript

Operator: Good afternoon and welcome to the Compass Diversified's Second 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 introductions and the reading of the Safe Harbor statement. Please go ahead, sir. Matt Berkowitz: Thank you and welcome to Compass Diversified's second 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. Elias Sabo: Good afternoon. Thank you all for your time, and welcome to our second quarter earnings conference call. Before we get started, I'd like to take this opportunity to thank all of our employees for their extraordinary efforts, which continue to impress me as we navigate further through this unprecedented time. Pat Maciariello: Thank Elias. Before I begin in our subsidiary results, I want to talk generally about the quarter. We believe our branded consumer businesses remain very well positioned to benefit from the changing consumer landscape. Each of these businesses exceeded our expectations in the quarter. As a group, our niche industrial businesses also performed above expectations. That said, I also want to reinforce what Elias said about today's dynamic environment. All 10 of our subsidiaries experienced significant increases in costs in the quarter, and many of them face supply chain disruptions. Our management teams showed tremendous skill and adjusting on a real time basis to the fluid conditions and they once again affirmed the strong competence we have in them. Now, on to our subsidiary results, I'll begin with our niche industrial businesses. For the second quarter of 2021, revenue increased by 24.1% and EBITDA increased by 18.4% versus the second quarter of 2020. Ryan Faulkingham: Thank you, Pat. Moving to our consolidated financial results for the quarter ended June 30 2021, I will limit my comments largely to the overall results for CODI 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 June 30 2021 was $487.4 million, up 46.1% compared to $333.6 million for the prior year period. This year-over-year increase primarily reflects our acquisition of BOA during 2020. In addition, we had strong sales growth at our branded consumer subsidiaries and our niche industrial businesses on a combined basis. Consolidated net loss for the quarter ended June 30 2021 was $11.3 million compared to $7.4 million in the prior year. The increase in net loss was due to a $33.3 million loss on debt extinguishment recorded during the second quarter of 2021. As a result of our bond refinancing. Cash flow available for distribution and reinvestment or CAD for the quarter ended June 30 2021 was $46.6 million, almost three and a half times the prior year period of $13.5 million. Our CAD that we generated during the quarter was significantly above our expectations almost doubled our distribution, and was the highest quarterly CAD we've ever generated. The increase was primarily due to the outstanding performance at our most recent acquisitions, Marucci and BOA as well as continued strong performance at virtually all of our consumer industrial businesses. Other factors impacting our CAD in the second quarter compared to the prior year include slightly higher CapEx spend an increase in cash taxes, higher management fees as a result of our waiver in the second quarter of last year, and higher interest expense. Turning to our balance sheet. As of June 30 2021, we had over $100 million in cash, approximately $600 million available on a revolver, and our leverage was approximately 2.6 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 and able 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 of capital expenditures. During the second quarter of 2021, we incurred $6.1 million of maintenance CapEx of our existing businesses, compared to $3.3 million in the prior year period. The increase was primarily results of the need for increased maintenance spend at many of our subsidiaries, to keep up with elevated demand levels. During the second quarter of 2021, we continue to invest in growth capital, spending $4.1 million in the quarter primarily related to 5.11 long-term growth objectives. Growth CapEx in the prior year quarter was $3.1 million. Turning now to an update on our tax reclassification process. As we've mentioned on prior calls and Elias referenced earlier, we are pursuing a potential change in our tax classification. On June 23 2021, we issued a definitive proxy statement requesting shareholder approval to amend our governing documents, to allow the trust to check the box, to elect to be treated as a corporation for U.S. Federal income tax purposes. The shareholder meeting will be held on August 3 2021. If the amendments are approved, we anticipate that our Board of directors will call the trust to elect to be treated as a corporation for U.S. Federal income tax purposes, effective late in the third quarter of 2021 or early in the fourth quarter of 2021. We will provide an update on the results of the shareholder meeting as soon as reasonably practicable, following the conclusion of the August 3 meeting. Please refer to the definitive proxy statement filed with the SEC on June 23 2021 for additional information related to the potential tax reclassification. 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. In 2020, we took advantage of market conditions and acquired two outstanding platform companies with exceptional growth prospects. And early in 2021, we consummated an add on for our Arnold subsidiary. As we stand today, market conditions have changed rapidly. Asset prices have appreciated materially driven by an increase in M&A activity stemming from an abundance of equity capital, coupled with strong availability of that capital. Despite the frothy market, CODI remains well positioned to succeed. Our permanent capital structure allows us to be flexible and take advantage of market conditions. In addition, the dramatic reduction in our cost of capital over the past few years, allows us to be selectively aggressive on acquisition opportunities that we deem have potential to enhance shareholder returns. Going forward, we will continue to invest in and enhance our subsidiary company's competitive positioning, which includes supporting them as they build and grow their digital transformation strategies. Our differentiated strategy has set us apart for more than a decade, and it remains consistent. In 2021, we will continue to be intensely focused on executing our proven and disciplined acquisition strategy, improving the operating performance of our companies and enhancing our commitment to ESG initiatives across our portfolio and creating long-term shareholder value. With that, operator please open the lines for Q&A. Operator: . Our first question comes from Larry Solow of CGS Securities. Your line is open, please go ahead. Larry Solow: Great. Good afternoon guys. Thanks for taking the questions. Elias, perhaps just a general question kind of a lead in you kind of getting a lead in on your closing comments there. Just in terms of the pending reclassification the tax reclassification and what do you see as sort of the advantages or to that switch beyond sort of the obvious that does create the target investor base and lowering the cost of capital, so does that perhaps make you more aggressive in future growth strategy, maybe try to make your site even bigger with access to lower cost of capital. Then you can just discuss that from a high level any potential changes there, any potential changes on the capital structure, and even thought to that will be great? Elias Sabo: Sure, and thanks, Larry, for the question, and I talked to you this afternoon. So when we embarked on this process, and started reviewing the entire tax reclassification, obviously, the first thing that we had to, the look through was holistically as there going to be a bigger tax burden as a result of this or not. Fortunately, based on some tax law changes in 2017, we found that the tax burden was the same holistically, whether we were a C-Corp taxpayer, or a pass through. So the principal benefit of being able to do this, as you've identified it, it really opens up the aperture of the number of investors that can access our company, ETFs are largely unable to given the path through characteristic the K1 of those unrelated business, taxable income that we create, there's a lot of retirement accounts, and frankly more and more institutional potential owners are choosing not to invest in pass through type entity. So, without having a negative from a tax standpoint, but getting the benefit of having additional shareholders, as we've talked to investors about this during the proxy, sort of a no brainer, it's all benefit without kind of any cost associated with it. I think there's some, you know, secondary and tertiary benefits, Larry, that, where you're at right now. I think we would like to move eventually towards a concept of an adjusted EPS in a way from probably CAD, there'll be an overlap period, so that we get compatibility, because we want this to be completely transparent, but I think that helps with a few things, owning public companies like we did with five years ago, as you remember, one of the challenges with CAD is because we were getting the cash flow from a public company, it really put a lot of pressure on us to sell that asset and redeploy it into something that got a cash flow, going forward as we migrate to a more adjusted EPS, which is, I think, also more easily understood and digested by the investor or community. So, hopefully that same - that to your question about kind of our growth initiatives, we've been very transparent and saying, we think this company operates better as a bigger entity, we think that in the next kind of seven to 10 years, this should be a billion dollar EBITDA company, and being able to get there, we were not going to get there only through organic growth, and through use of debt capital, clearly we don't have that kind of leverage ability, nor would we want to take that kind of risk. So we will need access to equity capital, and we think this helps to provide significantly greater depth to the equity capital market that we otherwise wouldn't have had in our partnership structure. Larry Solow: Got it. That's a great answer. Switching gears real fast. I had actually a question on, actually on labor availability and supply chain issues, but I think you touched on that pretty extensively. Just tying that in with sort of your guidance, it appears like you certainly raised your outlook for the year, it looks like most of the wave and we don't dive into the quarter, but looks like most of the raise is from the beat in the quarter, the difference from the expectations? And without getting into specifics, is that sort of, - I am not in the right ballpark here, and you're kind of holding the line in the back half of the year, just because of these uncertainties with labor and supply chain issues? And who knows what actual demand, what trajectory demand is COVID it's still kind of waxing and waning. Is that a fair assessment? Elias Sabo: Yeah, Larry, I think that spot on. I would say we were frankly, pleasantly surprised by the strength of our second quarter results. And there's just a lot of uncertainty, I heard from other companies, none of us have ever gone through a pandemic and a reopening of the economy. And what that portends for our businesses is very much uncertain, and as you know, we strive to get reasonable guidance that we can beat. And so we tend to be somewhat conservative when we look at kind of where our guidance is. We wanted to and I think we said in our scripted comments, demand is not the issue. Now, there are certain companies like Sterno or Arnold in the aerospace division, where frankly we would like more demand, and we have the capacity to supply more demand. But broadly across the portfolio, we have demand that remains in excess of what we can supply. And so, what we are seeing are some of the inflationary elements come through, we've talked about and we said in our script, like other companies were passing on price. But it's too early right now, for us to understand with any clarity, what the elasticity of demand is, whether some of those price increases that are meant to protect margin are going to hurt future demand. And so when we're in these inflection points that we feel like right now, I mean if you went back over time, I would say over the last pretty much 15 years that we've been a public company, for the vast majority of that we've sat in a disinflationary environment. And so we're at an inflection now, where we're seeing inflation come in, we're seeing a lot of supply constraints come in, this is something unusual to the past 15 year operating environment we are in. And so we're choosing to be way more conservative in the outlook that we have, and sort of hold where our guidance is, just because we don't know how that is all play out. Now, that being said, I'll continue to reiterate, where we stand through the month of July, so one-third through the quarter, demand is holding up remarkably well, in fact, probably in excess of what our expectations are thus far in July, and if that continues, I think we feel pretty good about the remainder of the year. Larry Solow: Great. Just last question. Like subsidiary question. I was going to be on 5.11, that's looks like a great number, but we've kind of been stifled there. So just a hands on Sterno, just to clarify. Did you say that was a $5 million hit to EBITDA to sales, I think you said EBITDA and that and that product from Sterno Home. Elias Sabo: There is a piece of our Canadian operations that we're restructuring and total it's, I think the accounting rules can't be a one-time charge anymore, but if there will be a sort of extraordinary expense in the back half of the year, that EBITDA of $4 million to $5 million. Larry Solow: Got it. Okay, great, I appreciate that. Okay guys, thanks again. Elias Sabo: Thank you, Larry. Ryan Faulkingham: Thanks Larry. Operator: Our next question comes from Matt Koranda of ROTH Capital. Your line is open, please go ahead. Matt Koranda: Hey, guys, good afternoon. Thanks. I don't want to get too far down the road here. But if we think about sort of the situation post-tax reclassification, just wanted to get your preliminary thoughts on sort of, how should we be thinking about tax expense post, checking the box if and when we get to that point? And then also, you mentioned, probably the ability to present more of an adjusted EPS figure on a go forward basis. So just wanted to give you an opportunity to maybe talk a little bit about how you envisioned sort of presenting that, what are some of the elements that will go into it? How's it going to compare to CAD? Pat Maciariello: Okay, hi Matt. I'll touch on the tax question. With respect to the second question, I think we're still developing that. And I think internally we're working through that, but the plan is to provide more color on the next earnings call. And then potentially come out with comparable periods, and provide some depth so that people can see trends and things. But that'll be a little bit TBD for now. But with respect to your question on income tax expense, just to take a step back to the structure, all of our companies down below our C-Corp, federal tax payers. So the only income that is coming up to CODI is primarily interest income, because we're their lender, and they're paying us interest as their lender. And that is offset though with interest expense at CODI and that if you look at the subsidiaries, we have an interest income and expense we have that's going to be going forward, at least initially, to be in a negative position, okay. So we'll have more interest expense at CODI's level, then we have interest income, okay. And then the other income streams would be dividend income, if we have some sort of recapitalization of a subsidiary or capital gain tax if we were to sell a business for a gain. So in a year that we don't have a recap or a sizable capital gain, we're going to be in an NOL position, okay. So it's really, we'll be building a benefit in a given year, that can then be applied on a future period, should we have taxable income. Okay, so I think it's always hard to know when we'll have a sale or a recap. But I think from a modeling standpoint, you shouldn't think about us having actual cash tax expense at the CODI level, going out the door until we have one of those two income events. Does that make sense? Matt Koranda: Okay, yeah, totally, very helpful. And then maybe one for Elias on M&A. I know at the end you sort of talked a little bit about your views. And maybe my interpretation, as you sounded a little bit more cautious on deployment of cash requisitions, kind of given the environment we're in, multiples expanding and whatnot. So am I hearing that right? And then, are you seeing any pockets that are still interesting, maybe just a little bit more color on where those interesting opportunities may lie if there are any deployment? Elias Sabo: Yeah, Matt so, the M&A market came back with bigger and I would say it was probably the shortest period where you could deploy at attractive prices in a recession that I've experienced. And I think there's just the function of if you think of all the capital that sloshing around in the market, I think we all are aware, there's this back that had been raised at a kind of a massive level. And they have timelines, they need to deploy capital, private equity is washed with capital, and debt availability has come back and come back more aggressive than it was at the end of the back cycle. So all of that is just creating an enormous amount of demand for the assets. Now, we are seeing a lot more assets come to market, I mean, it's kind of the natural workings of the marketplace. If you have demand for something eventually prices would go up and supply comes in, but we're just being elevated kind of pricing based on these dynamics, and we expect that to continue. So as we did with the Liberty Safe divestiture, we're always looking for ways to take advantage for our shareholders, even if it means we may have a short term under optimization of our balance sheet. If you're looking at it over a longer period of time, I think being able to capitalize on market condition is always kind of what we strive to do. And right now asset pricing is high. So what it boils down to is, are we looking to deploy capital, you heard in the comments to Larry, our growth goals are to get to a billion dollars of EBITDA, we guided 350 to 374 this year, and that includes Liberty Safe, which is going to be running out. So to get from here to there, we're going to have to deploy, and we're going to have to buy new companies. I would say we continue to focus on add on opportunities, there's some good opportunities for some of the more subscale companies that are there, where we have a platform where we can create some cost saving opportunities, through consolidation, or some revenue synergies. And then on top of that, we're always open for a new platform. And I think, importantly, where we stand today versus years ago, and we've continued to beat on this over and over and over again, we have the best cost of capital, we believe, of any of our peers in the middle market private equity. And as a result of that, we can reach and we can get in and be the winning buyer, on the really premium assets. I think for us, it's about finding those really great opportunities, and being able to run hard against those, and now having the cost of capital that allows those to be accretive right away, versus before trying to reach for some of the more premium assets would have created a dilutive near term outlook. And that was something that would be difficult for us to absorb. So we feel we're just fundamentally positioned so much better. But just to be more succinct in your answer. Yeah, it is a market that favors divestitures, now more so that it favors deployment of capital. But our business and our teams are to go out and find great opportunities to get capital deployed. So I don't want to make it sound like, we will be seeing new assets that we're acquiring both on platform and add on, we absolutely will be it's just our teams are working harder to be able to find those opportunities. Matt Koranda: Makes total sense, thanks for all the detail. And as maybe just in keeping what the theme of asking a second question. Pat, you mentioned that BOA was on a pretty strong run rate since you guys bought it. And that we shouldn't necessarily count on that growth rate to kind of sustain through the back half of this year. So just wanted to get a little bit more granularity on that, what drove the stronger than expected growth rate, as well in the first half, and then what sort of the was the headwinds are contending with the back half of the year? Pat Maciariello: Sure. I mean, as I mentioned, we're - we've had an explosive first half, I mean, I think we grew by 100%, or sort of doubled. For us to forecast that in the second half, I don't think would be appropriate. Honestly, we had a stronger back half last year than we had this year. I do think we'll grow in the second half of the year, I think we'll have nice growth, we see continued demand. We have some worry that there's a whole restocking aspect or covers were buried in certain number categories, that some of our OEM partners are doing that. We have some worries that there was an ordering ahead, because some of our partners were worried about the supply chain disruptions. But all that being said, we still see strong demand, we do see supply chain issues, just like we do in every other business, but our management team is working definitely through that. We believe we're taking market share and we believe we have a great product and a great technology that the company has developed. And it's just sort of catching on. And it's a really global business. So a lot of it maybe - may not be as visible to us here in North America. But we're very confident in the back half, what we just don't think we're going to quite see those growth rates that we saw in the first half as they were pretty dependent. Matt Koranda: Fair enough. Thank you, Pat, I'll jump back in queue here. Thanks, guys. Operator: Our next question comes from Kyle Joseph of Jefferies. Your line is open. Please go ahead. Kyle Joseph: Hey, afternoon, guys. Congrats on a really good quarter. And thanks for taking my questions. I'll start, Ryan, I think you said it but I missed it. Where is leverage currently and then kind of can you give us a sense where you expect that to be pro forma of the Liberty tail? Ryan Faulkingham: Yeah, sure. Kyle, thanks for the question and appreciate the nice comments. It was a great quarter. So we ended leverage at the end of March, just below three times, kind of 2.9 level, we've come down to 2.64, I believe is the exact number. And that's all through organic deleveraging. I mean, that was just truly through cash coming to our balance sheet, through working capital optimization, but also extraordinary EBITDA performance, so really good organic leveraging. The Liberty proceeds, once we receive them, as you might have seen in that release, portion of that will be earmarked to our anticipated special distribution when we check the box, but the delta of that will sit on the balance sheet as cash. So we do not have any pre payable debt right now, we got nothing outstanding on the revolver and just the outstanding bond. So it will sit as cash on our balance sheet as we seek to deploy it. But that will bring our leverage down another sort of 10th, I'd call it. So the expectation is to be sort of closer to 2.5, I'd say, by the end of the third quarter. Kyle Joseph: Great, thanks. And then just a follow-up for me, as modeling out the companies for ' 22. Any companies you'd highlight as being insulated from whether it'd be supply chain disruption, or inflationary pressures? And then any companies you expect to kind of be more exposed, if you will? Ryan Faulkingham: I mean, I think we see supply chain pressures everywhere. I mean, those that are - so I guess it's broad, and it's just a matter of degrees. But again, most of our companies are positioned in a way to where they can have a good chunk of that group and they're working hard to do that. So it's just a matter of degrees. They're all facing it, it's something the entire economy. Kyle Joseph: Got it. Yes, totally fair. It's kind of like asking to pick your favorite child. So understood. And thanks for answering my questions. Ryan Faulkingham: Thank you, Kyle. Elias Sabo: Thanks Kyle. Operator: Our next question comes from Chris Kennedy of William Blair. Your line is open, please go ahead. Cris Kennedy: Hey, guys, thanks for taking the question and a lot of exciting things happening. Elias, can you just talk a little bit about going forward. I remember, at your investor day, you talked about potentially looking into new verticals, beyond the niche industrial and consumer side? Any progress or update on that? Elias Sabo: Yeah, Cris, and thanks for the question. It continues to be a priority area for us. I think we believe that healthcare is probably a vertical that we would like to pursue whether it's kind of the next vertical or not a little bit of its fluid, because it's around finding the right individual with the right experience, and the right domain knowledge, and then building out around that. I think the stars all aligned, and that was somebody who had experience in the healthcare space, that is what we're seeking, but it's a little bit of a longer fuse, to be honest, because we have to find the right individual, that person, and make sure that kind of the fit from an investment philosophy from a cultural standpoint is right. So it's something we are working hard on, we would hope over the course of by the end of 22, that we have somebody landed that can start that effort for us. But that's something that we continue to focus on. In the meantime, we continue to add on the HR side, we're in that we're adding on our investment team, almost done a kind of annual basis, we're adding a couple of few people, we continue to staff up because we are building for what we see in the future as a firm that could be substantially larger than we are today. And adding a vertical becomes sort of part and parcel to that. Cris Kennedy: Fantastic. And then just, I guess the follow-up, as you go towards a billion of EBITDA, does your targets - kind of your target size increase a lot and just kind of talk about how that changes going forward, especially with a lower cost of capital? Thanks a lot, guys. Elias Sabo: Sure, and I think that's a great observation, Cris. I mean our goal is to own companies that have going forward have the ability to reach at least $50 million of EBITDA, that sort of internally where we kind of strive to get to some companies, they're going to be able to do it through organic growth. Some companies, they're going to need consolidation opportunities to do it. And frankly, some companies aren't going to be equipped to be able to get there. And I would say look at the most recent divestiture that we made at Liberty Safe is totally in connection with that strategic vision that we want a company to be bigger. I mean, Liberty is a great business, its run by great people, we've had a wonderful relationship with, Steve Allred, Justin Buck, I mean guys that we've worked with, literally for over a decade, it is a company that has delivered over delivered on the expectations that we had. But the reality is, we weren't going to be able to get it to a materially larger size. And that's one of the strategic rationales that we've put in place in our business here is that we want companies that can get to that 50, a 100, even a $150 million EBITDA size over time, and managing a larger pool of companies, or a larger size of companies, not necessarily just a greater number of companies. So that's sort of where we're focused on. I would say, as we think about new platform opportunities, they generally are going to be larger, or they're going to have better growth prospects, if they're smaller organic, like a Marucci, for example, which has outstanding growth prospects, or they have really good consolidation opportunities. I think there's a lot of strategic benefits as you get larger companies in the portfolio. As you know, some of the public company things that we do with respect to stock and compliance that is a little easier to absorb as a public company. And we don't just give lip service to the ESG, efforts that we're putting in place, these are things that we are going to be forcing down on our subsidiary companies, we're doing that at the holding company right now in a really expanded effort. So as we start to put more and more things in place that are more public company in nature and less kind of smaller private company, it helps if we have larger companies in this table. Cris Kennedy: Great. Thanks a lot, guys. Elias Sabo: Thank you. Operator: Our next question comes from Derek Hewitt, of Bank of America. Your line is open, please go ahead. Derek Hewett: Good evening, everyone, and congrats on the record quarter. Now 5.11 and Liberty, they represent about 25% to 30% of either revenue or EBITDA. So given the comment earlier that the business really needs to scale, how do you balance opportunities to potentially harvest subsidiaries at attractive valuations versus maybe generating more predictable growth and some sort of adjusted earnings calculation, which could also impact valuation assuming that the C-Corp conversion goes forward? Elias Sabo: Yeah, and thanks Derek, this is Elias for the nice comments, it was a record quarter and we're really proud of our team that the subsidiaries are being able to execute and set the high level, and against the backdrop of so much uncertainty. But it's a great question. I mean, our business model is frankly, different than most companies out there, because a portion of what we do is opportunistically diverse. And I think that's really what makes us different and creates more opportunities for shareholder value creation. But sometime, when you are in divestment window and the market gives you the opportunity. And so we have to kind of reap the tea leaves and take what opportunity market is giving us. And as part of that there are going to be times when we will be under earning our balance sheet potential. You saw it in 2019, when we divested in Manitoba harvest cleaner, and we did it at record multiples. There was a period where we were going to have lower EBITDA on its aggregate basis, outright dollar value, we were going to have lower earnings. As you remember, we waive management fee, because it's always been our view, that if we're going to under earn for a potential of time, then the manager should also under its potential. So, we aligned with our shareholders that have done that in the past. But there are times when the best decision that you can make outside of the optics of what you're going to have maybe aggregate lower adjusted EPS or aggregate lower EBITDA, is to have assessment and you're taking advantage of the market conditions. And I think that we've always run the business with a kind of more intermediate and longer view and not next to the short term view and we've said, let the opportunity that the market is giving us dictate what's the strategy right that is. So, yes, it's possible with the Liberty divestment, and other strategic alternatives that we're looking at right now that we could have a smaller portfolio and a smaller balance sheet kind of later in this year or into next year, for a period of time until we can redeploy that. But I would point back to look at how much earnings leverage comes from making the right decision. When we divested these assets in 2019 for hitting obviously now a pandemic hit, what we were looking squarely down, lower earning and lower aggregate EBITDA in 2020. But then we took proceeds from selling at really great multiples, and redeployed, that into two great growth businesses, and now 2021, our earnings have exploded higher. And I think if you went back and looked at 2019, compared to where we've guided right now, we're talking about 2020 being like 50 for 2021, being like, 50% up in CAD over where we were in 2019. And so if you take a slightly longer kind of viewpoint to do and what we think, we're kind of asked to do, then taking advantage of market opportunities even that shrink the balance sheet in a near term capacity always worked out in build, I think, greater value, as evidence of the kind of results that we're putting up this year. Derek Hewett: Okay, thank you. And then in terms of your longer-term adjusted EBITDA goal, is that possible with many verticals, do you think you would need to be able to kind of meet that, that longer term goal? Elias Sabo: Yeah, I mean, to be honest, we think we probably could build with the verticals that we have, I think that it becomes more probable if we can add another vertical. Over time, I think we would like to probably have one or two more, I think there is a limit to how much we would like. And given that we've had two verticals now for a decade or so once we started to verticalize our business, I don't think we're looking to kind of stamp these out, like at an accelerated pace. But I think if we could do one more, it makes getting to a billion dollars of EBITDA more probable and very achievable. That being said, I want to let everyone know, we still believe that the verticals we're in, there's a broad enough set of target it clear position extremely well, both on capital availability, cost of capital and human capital, to be able to achieve that billion dollar goal, even if we don't add another vertical. Derek Hewett: Okay, thank you very much. Elias Sabo: Thank you, Derek. Operator: Our next question comes from Matt Tjaden of Raymond James. Your line is open, please go ahead. Matt Tjaden: Good afternoon everybody and I appreciate you taking my questions. First one for me continuing on the tax reclassification, kind of on a longer term perspective, how does checking the box change, how you think about acquisition candidates, whether that be in terms of a deal pricing or target structure? Any thoughts there would be of interest? Elias Sabo: Yeah, Matt, so the checking of the box won't have any impact on the way that we look at acquisition, in terms of how we structure the acquisition, as Ryan has said, kind of, it's, we have a little bit different flavor of income that flows up to the holding company. And so I think on the acquisition side, it really is going to have no impact whatsoever, we're really could have impact is on the divestment side, where the company then will have an incremental tax. But frankly, that was the incremental tax that our shareholders were going to be able to ask to pay in the prior structure. So if I think about it, from a holistic standpoint, there's no incremental tax and there's no kind of view towards a change of strategy and our acquisition or divestment. And if I circle back to Larry's initial question, on benefits of the potential tax structure. We do view having our equity being more accessible by a much broader group of investors, who frankly have shown interest in the past, but for the fact that investing in a partnership was something that was very difficult for a lot of people, we think additional demand on the shares naturally should and were to all of our shareholders benefit through higher share prices, and then to a company with a lower cost of equity capital. So I guess, that could sort of shape a little bit of our acquisition decision making. What I would say in terms of kind of how we run the business, we don't look at this structure changes impacting it at all. Matt Tjaden: Okay, fair enough. I guess just another quick one for me on Sterno. So I know last quarter, we talked about, venues opening again, having some sort of benefit to Sterno, with cases back on the rise in the delta variant, is there any risk of a near term kind of softening at Sterno? Elias Sabo: Yes, it did quite the answer. I'd say, we haven't gotten quite back even before if you think about, June I think was probably our best month since before the pandemic, as far as bookings goes on the sort of food service side. And again, those levels were still materially off of sort of pre pandemic levels. But it's - the food service side is a real time indicator, and as sort of events shrink, and the number of venues that are open to shrink, it will have an impact on the food service segment. So that being said, our consumer side and some of our waxes and our essential oils are a little bit of a natural hedge for that. And that when people spend more time at home, they tend to spend it purchase more of those. It doesn't quite make up for the whole impact that you're talking about, if we were to go back into a lockdown or something like that again, but it is a little bit of a hedge. Does that make sense? Matt Tjaden: That's it for me. Appreciate the time and congrats on a good quarter. Elias Sabo: Thanks, Matt. Operator: There are no further questions on the telephone line. So I'll hand the call back over to Elias Sabo. 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 ends our remarks, thank you operator. Operator: This concludes today's call. Thank you for joining you may now disconnect your lines.
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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.