Compass Diversified Holdings

Good afternoon and welcome to Compass Diversified's fourth quarter 2020 conference call. Today's call is being recorded. All lines have been placed on mute. If you would like to ask a question at the end of the prepared remarks, please press the star key, then the number one on your touchtone phone. 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.

Thank you, and welcome to Compass Diversified's fourth quarter 2020 conference call. Representing the company today are Elias Sabo, Cody's CEO, Ryan Fockingham, Cody's CFO, and Pat Massarello, COO of Compass Group Management. Before we begin, I would like to point out that the Q4 2020 press release, including the financial tables and non-GAAP financial measure reconciliation, are available at the investor relations section on the company's website at www.compassdiversified.com. The company also filed its Form 10-K with the SEC today after the market closed, which includes reconciliations of non-GAAP financial measures discussed on this call and is also available at the investor relations section of our website. Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income and the company's financial filings. The company does not provide a reconciliation of its full year expected 2021 adjusted EBITDA or 2021 payout ratio because certain significant reconciling information is not available without unreasonable effort. Throughout this call, we will refer to Compass Diversified as CODI or the company. Now allow me to read the following Safe Harbor statement. During this conference call, we may make certain forward-looking statements, including statements with regard to the future performance of CODI and its subsidiaries. Words such as believes, expects, plans, projects, and future or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements. and some of these factors are enumerated in the risk factor discussion in the Form 10-K as filed with the SEC for the year ended December 31, 2020, as well as in other SEC filings. In particular, the domestic and global economic environment, as currently impacted by the COVID-19 pandemic, has a significant impact on our subsidiary companies. Except as required by law, COTI undertakes no obligations to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. At this time, I would like to turn the call over to Elias Sabo.

Good afternoon. Thank you all for your time, and welcome to our fourth quarter earnings conference call. Before discussing our results, I would like to take a brief moment to acknowledge the extraordinary efforts of our employees as we navigated through the unprecedented challenges of COVID-19. Despite working remotely for most of the past year, our employees executed at an extremely high level and delivered results far in excess of our expectations. During the year, we successfully completed two transformational acquisitions, raised debt and equity capital at attractive rates to solidify our balance sheet, appointed two CEOs at our subsidiary companies, and produced financial results that not only exceeded our expectations, but also produced organic growth on a pro forma basis over 2019. Most importantly, we were able to achieve these accomplishments without faltering on our unwavering commitment to our team, prioritizing employee health and safety. Despite the challenges brought on by the pandemic, I am pleased to report that our fourth quarter results dramatically exceeded our expectations. including BOA and Marucci, as if we owned them from January 1st, 2019, pro forma consolidated revenue grew by 11% and adjusted EBITDA grew by 9% over prior year's quarter. For the full year ended December 31st, 2020, pro forma consolidated revenue grew by 2.5% and adjusted EBITDA grew by 2% over 2019. With respect to our previous guidance range of $270 million to $280 million, which at our investor day we communicated that we expected to be at the high end of the range, we are pleased to report that we significantly exceeded the high end of the range with consolidated pro forma adjusted subsidiary EBITDA of over $290 million. These results are a testament to our strategy of acquiring industry-leading niche companies and then actively managing them by working closely and supporting our subsidiary management teams to enhance value for our stakeholders. Our subsidiary management teams moved swiftly upon the onset of COVID-19, creating a safe and healthy workplace for our associates while taking the necessary action to reduce discretionary costs. As the impact of the pandemic started to become more apparent, our management teams were nimble and reacted quickly to pivot and take advantage of opportunities in their respective markets. As you know, each Cody subsidiary faced unique challenges, with some experiencing large declines in end market demand, while others experienced rapid and unanticipated increases. An environment this volatile required skillful navigation by our teams, and I am extremely pleased to report that our subsidiary management team and their employees delivered above and beyond. Their tremendous efforts and continued focus during 2020 helped enable us to navigate the pandemic in a position of strength. Although last year was difficult for everyone to endure, the crisis highlighted the advantages of our permanent capital model as we execute our private equity-like strategy. While most private equity firms were largely sitting on the sidelines with limited access to capital, we enjoyed open access to the capital markets, as evidenced by our capital raise in May 2020. With our balance sheet strong, we were able to acquire two world-class niche consumer businesses at attractive valuations. Very few others were able to make that same kind of impact. Our permanent capital business model is fundamentally advantaged against our peer set as we have the freedom to divest opportunistically, like we did in 2019, with almost $1 billion in enterprise value in these divestitures, and then aggressively deploy in times of market dislocation, like we did in 2020, acquiring almost $700 million in new businesses. As we've mentioned throughout the year, the acquisitions of Marucci and Boa have transformed our portfolio and raised our core growth rate substantially. The performance of these businesses since our acquisition vividly demonstrates this growth leveraging. Marucci, in the six months from July 1, 2020, to December 31, 2020, as compared to the same period last year, has experienced approximately 20% revenue growth and 70% EBITDA growth, despite youth sports and various levels of restrictions around the country. Similarly, BOLA experienced revenue growth of 2.5% and EBITDA growth of 29%, substantially above expectations for the fourth quarter and compared to the same period last year. These two stellar companies possess all the attributes we look for in branded consumer acquisition candidates, highly aspirational brands, premium product positioning, and proven and extraordinarily talented leadership. As I mentioned, our subsidiary management teams performed to their best this year, and CEO Kurt Ainsworth at Marucci and Sean Neville at BOA were no different. We have a strategy that has long proven that companies with characteristics like these will be positioned for accelerated growth for years to come. We enter 2021 with significant momentum at our back. Our consumer businesses on a pro forma basis grew at a remarkable level of greater than 40% over the back half of 2020. And early in 2021, we continue to see well above trend growth in this segment. While our industrial businesses suffered in 2020 due to reduced end market demand, we believe our growth rate will turn back positive in this segment as soon as the second quarter, with comparable quarters becoming much easier. For us to achieve this type of performance in a dislocated market highlights the substantial benefits of our diversification strategy in lowering our financial volatility. Based on these trends, for 2021, we expect to produce consolidated subsidiary adjusted EBITDA of between $305 million and $325 million, representing growth of 5% to 12%, and a payout ratio of between 80% and 70%. Before turning the call over to Pat to review our subsidiary results, I want to take a minute to discuss our strategy for 2021 and beyond. we believe we have created a fundamentally better way to execute a private equity like strategy. Core to that is our permanent capital structure, which allows us the freedom to acquire and opportunistically divest businesses without deference to timeline. As management has proven over the past few years, we have the financial flexibility to act based on opportunities that arise relative to current market conditions. And as you know, Our management is committed to staying in alignment with our stakeholders at all levels of our organization and its subsidiaries, as evidenced by waiving millions of dollars in management fees over the past few years. Of the utmost strategic importance is the relentless pursuit of a lower cost of capital. Over the past few years, we have made major strides in reducing our weighted average cost of capital by including preferred equity and unsecured bonds in our capital structure. We believe there are numerous opportunities to continue to lower our cost of capital and further enhance our competitive advantage in the marketplace. As Ryan will mention later in his section, we will continue to evaluate the merits and risks of a potential change in our tax structure from a pass-through entity to a C corporation. We are still too early in our evaluation process to provide insight. However, any decision will be predicated on our desire to achieve the lowest cost of capital possible for our shareholders because we believe that is what will deliver the greatest level of long-term shareholder value. With that, I will now turn the call over to Pat.