Compass Diversified Holdings

Good afternoon, and welcome to Compass Diversified's second 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 the prepared remarks, please press star 1-1 on your touchtone telephone. 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 second quarter 2024 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 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 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 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 COTI 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 expectations related to the future performance of COTI 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 31st, 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. Continuing to execute our strategy of owning a growing number of innovative, disruptive, and high-growth businesses meant we performed exceptionally well in the second quarter, even against the backdrop of a slowing economy. While the current business environment has had a negative impact on our industrial businesses, our branded consumer vertical performed extremely well this quarter. led by BOA, Primaloft, and Lugano, the strong performance of our consumer vertical more than offset any weakness we saw in our industrial businesses. As we predicted in Q1, inventory destocking headwinds subsided this past quarter, and because of this, BOA had another great quarter, and Primaloft returned to double-digit growth. We believe both businesses are positioned for a strong back half of the year. In addition, Lugano continued its trend of remarkable growth. Last quarter, we opened our first international salon in London, and in just a few short months, like many of our Lugano salons, it has vastly exceeded our expectations. Combined, Lugano, BOA, and Primaloft represent approximately half of our EBITDA. With all three of these businesses performing so well this past quarter, and with them positioned so strongly for the rest of the year, we are feeling bullish about the second half of 2024 and beyond. As I mentioned earlier, despite our overall outperformance this quarter, a weakening global macro economy made for a challenging quarter for our industrial businesses. Our industrial vertical saw a decline in both revenues and adjusted EBITDA in Q2. We believe this somewhat muted performance will continue through the rest of the year. However, we remain confident in the overall positioning of this vertical, and we believe it is well positioned for a strong 2025. All in all, it was another great quarter for Cody and one that further demonstrated the power of our long-term strategy. By owning a group of non-correlated, high-growth, innovative businesses, we not only smoothed Cody's overall performance period to period, but in any given period, are more likely to benefit from one or more of our businesses experiencing a true step change in growth. This is the story of diversified growth engines, as evidenced this quarter when we grew by almost 20% year over year. Ryan will go into detail on our financial outlook shortly, but I'd like to briefly discuss our decision to leave our outlook unchanged. We still anticipate we will hit the high end of our consolidated guidance ranges. However, we are not raising our guidance range at this point out of an abundance of caution regarding the weakening economy and a concern for the short-term performance of our three industrial businesses. But overall, we remain really positive about the rest of the year. As Ryan will detail shortly, within our overall outlook, we are shifting some of our adjusted EBITDA expectations from our industrial vertical to our consumer vertical. Even though our overall guidance is staying holistically the same, we believe this mixed shift that favors our faster growing, more protected, and highest valued businesses creates an accelerated level of intrinsic value creation for our stakeholders now and positions us to drive significant growth into 2025 and beyond. With that, I will now turn the call over to Pat. Thanks, Elias.