Compass Diversified Holdings

Good afternoon and welcome to Compass Diversified Second Quarter 2022 Conference Call. Today's call is being recorded. All lines are being 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 Cody Slough of Gateway Group for instructions and the reading of the Safe Harbor Statement. Please go ahead, sir.

Thank you and welcome to Compass Diversified second quarter 2022 conference call. Representing the company today are Elias Szabo, Cody's CEO, Ryan Falkingham, Cody's CFO, and Pat Massarello, COO of Compass Group Management. Before we begin, I'd like to point out that the Q2 2022 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 compassdiversified.com. The company also filed its Form 10-Q with the SEC today after the market closed, which includes reconciliations of non-GAAP financial measures discussed on this call, including adjusted EBITDA and adjusted earnings, and is also available at the investor relations section of the company's website. Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income or loss from continuing operations in the company's financial filings. The company does not provide a reconciliation of its four-year expected 2022 adjusted earnings or adjusted EBITDA because certain significant reconciling information is not available without unreasonable efforts. Throughout this call, we will refer to Compass Diversified as COTI or the company, Now allow me to read the following Safe Harbor statement. During this call, we may make certain forward-looking statements, including statements with regard to the future performance of Cody and its subsidiaries and statements related to the impact of Cody's updated tax structure and the impact and expected timing of acquisitions and dispositions. 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-Q. As filed with the SEC for the quarter ended June 30, 2022, as well as in other SEC filings, In particular, the domestic and global economic environment is currently impacted by the COVID-19 pandemic and related supply chain labor disruptions has a significant impact on our subsidiary companies. Except as required by law, Cody undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. At this time, I'd like to turn the call over to Elias Szabo.

Good afternoon, everyone, and thanks for joining us today on our second quarter 2022 conference call. I am pleased to report that we continued our strong momentum in the second quarter of the year as we recorded our sixth consecutive record quarter and our sixth straight quarter of double-digit increases in pro forma consolidated subsidiary-adjusted EBITDA, once again enabling us to raise our 2022 outlook. We're extremely pleased with these results, particularly given the macroeconomic headwinds that all companies are facing today. We again need to acknowledge the skill and agility of our management teams and employees. Each day it seems they wake up to face a new issue stemming from inflation or a new supply chain disruption, and each day they put forth extraordinary effort and adjust. In our last several earnings calls, We discussed our strong execution against the tough macro environment and this quarter was certainly no different. Though inflation may be just starting to crest and there has been some improvement in certain pain points of the supply chain, we remain guarded as inflation will likely remain at elevated levels for some time and slight improvements in the supply chain could reverse quickly. During the quarter, we again delivered double-digit sales growth in both our branded consumer and niche industrial businesses. Our growth this quarter was led by BOA Technologies and Lugano Diamonds, which each had excellent quarters. BOA produced record quarterly revenues and over $24 million of EBITDA, nearly reaching its record Q1 figure. We mentioned last quarter that one component of BOA's growth could be due to the elongation of the supply chain, and that some demand could be the result of pull forward from future quarters. Though this dynamic did not impact the company's stellar performance in the second quarter, we do believe that BOA's growth rates will slow somewhat in the second half of the year from these torrid levels. It's our expectation, however, that the company will continue to show growth due to its exceptional technology, low penetration in existing markets, and planned expansion into new markets. We believe Lugano continues to offer its customers a better value proposition than other ultra-high-end jewelers. In addition, the company has benefited from geographic expansion and Cody's continued inventory investments following our acquisition late last year. Due to these investments and the hard work of the Lugano team, EBITDA has grown by over 60% in the year-to-date period. Overall, we once again did an extraordinary job of growing while preserving margins. In fact, in the second quarter, our consolidated pro forma adjusted EBITDA margins actually expanded slightly versus the second quarter of 2021. Though we anticipate continued economic headwinds could impact our margins going forward, we believe our subsidiary's strong competitive position and exceptional management will continue to allow us to outperform our competitors in this challenging environment. Before I turn the call over to Pat, I want to address the closing of our Primaloft acquisition and the refinancing of our $1 billion bank facility, both of which occurred subsequent to Q2. We are excited about what Primaloft adds to the Cody family of companies. We believe the company possesses significant intellectual property, strong growth prospects, and a world-class management team. Mike Beaucheneau- equally as important, though, their commitment to sustainability and their position as an enabler of growth of sustainable apparel. Mike Beaucheneau- is very much aligned with cody's commitment to responsible growth and a good example of how we want to operate our business. Mike Beaucheneau- As part of this transaction compass group management will waive approximately $5 million of management fees in the first year of ownership. Separately, our refinancing, which we completed simultaneously with the Primaloft transaction, both expanded Cody's capital base and increased our financial flexibility. This enabled a further reduction in our blended cost of capital, which we believe is a key to creating long-term shareholder value. With that, I will now turn the call over to Pat.