Compass Diversified Holdings

Good afternoon and welcome to Compass Diversified first quarter 2024 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 prepared remarks, please press star 11 on your touchtone phone. At this time, I would like to turn the conference over to Cody Slaw of Gateway Group for introductions and the reading of the safe harbor statement. Please go ahead, sir.

Thank you and welcome to Compass Diversified's first quarter 2024 conference call. Representing the company today are Elias Sabo, 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 Q1 2024 press release, including the financial tables and non-GAAP financial measure reconciliations for subsidiary adjusted EBITDA, adjusted EBITDA, adjusted earnings, and pro forma net sales 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 certain non-GAAP financial measures discussed on this call and is also available at the investor relations section of the company's website. Please note that references to EBITDA and 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 full year expected 2024 adjusted earnings, adjusted EBITDA or subsidiary adjusted EBITDA because certain significant reconciling information is not available without unreasonable efforts. 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 call, we may make certain forward-looking statements, including statements with regard to the expectations related to the future performance of CODI and its subsidiaries, the impact and expected timing of acquisitions and divestitures, and future operational plans, such as ESG initiatives. Words such as believes, expects, anticipates, plans, projects, should, 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, 2023, as well as in other SEC filings. In particular, the domestic and global economic environment, supply chain, labor disruptions, inflation, and changing interest rates all may have a significant impact on Cody and our subsidiary companies. Except as required by law, Cody undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. At this time, I would like to turn the call over to Elias Sabo.

Good afternoon, everyone, and thanks for joining us today. I am pleased to report yet another strong quarter of results. We once again exceeded our expectations. Our success in this first quarter can be attributed to our deliberate focus on owning and managing a growing number of innovative and disruptive businesses that have industry leading growth potential. This strategy not only reduces financial volatility, but also accelerates our annual core growth rate. As we saw this past quarter, The diversification of our subsidiaries mean that if a few of our companies lag in growth, others may be able to compensate, resulting in a more consistent and reliable growth engine. This quarter, we saw the strongest performance from our branded consumer vertical, which reported 11% growth in pro forma revenue and 22% growth in pro forma adjusted EBITDA. Pat and Ryan will, of course, go into greater detail, but I will tell you Lugano produced another quarter of remarkable results, and the company currently shows no signs of slowing down. With the opening of its new London salon earlier this week, we believe international expansion will be a huge opportunity for this business. You will remember we were expecting both BOA and Primaloft to rebound against the inventory destocking headwinds of the recent past, and we believe they are now through the worst of it. I am pleased to announce BOA had a great first quarter, better than expected. While Primaloft continued to see revenue and adjusted EBITDA declines in Q1, they saw bookings growth in the first quarter, which provides confidence they will return to growth in the second quarter. The Honeypot Company, a business we only acquired in the first quarter of this year, is already integrated with a newly appointed world-class board of directors, and we are seeing significant gains in shelf space across key retail partners. Additionally, point-of-sale data remains robust, reflecting strong consumer demand for the Honeypot Company's Better For You products. Thanks to the strong performances at Lugano, BOA, and the acquisition of the Honeypot Company, adjusted earnings for this quarter were above our expectations, and up significantly over Q1 of last year. I'd also like to briefly discuss the divestiture of Crosman, the airgun division of Velocity Outdoor, to Daisy Outdoor Products. We are grateful for its contributions to Velocity Outdoor and Cody, and I want to thank the entire Crosman team for their dedication over the years. Velocity Outdoor continues to be a subsidiary, specializing in archery and hunting apparel, and we are excited by its planned product launches in the coming years. This opportunistic divestiture of Crossman also aligns with our strategic focus of adding value through the management of innovative and disruptive companies that are poised to outpace industry growth rates. We believe Crossman's sale to Daisy, a recognized industry veteran in the airgun space, positions it well for future success. Despite our outperformance in the quarter, continued elevated inflation, delayed rate cuts, and heightened geopolitical risks all combined to create a weakening macroeconomic backdrop, which has negatively affected our industrial verticals. Across our three industrial businesses, we saw a slight decline in both revenues and adjusted EBITDA in Q1. However, we remain confident in the positioning of these businesses and anticipate our industrial vertical could possibly see modest growth later this year. All in all, I am extremely pleased with our first quarter. This is our strategic repossessioning in action. Despite a mixed economic environment, we delivered a strong first quarter. Both our results for the quarter and our outlook for the rest of the year demonstrate that owning and managing a diversified group of companies with a growing share of disruptive high growth businesses is the right strategy. And we believe positions our business for sustained outperformance. We believe across our branded consumer vertical inventories are now more balanced and we expect the headwind suffered in 2023 to turn into tailwinds for the remainder of the year. We also believe through company led innovation, our industrial vertical could see another year of modest growth in 2024 and is positioned well for 2025. Combining our first quarter performance with our forward momentum, we are feeling bullish about the rest of the year, so we are raising our full year adjusted earnings outlook, which Ryan will detail for you in just a few minutes. With that, I will now turn the call over to Pat. Thanks, Elias.