Compass Diversified Holdings

Good afternoon and welcome to Compass and Vice Safari third 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 touch-tone phone. At this time, I would like to turn the conference call over to Cody Slough of Gateway Group for introductions and the reading of the safe harbor statement. Mr. Slough, you may begin the conference.

Thank you. And welcome to Compass Diversified's third quarter 2024 conference call. Representing the company today are Elias Sabo, Cody's CEO, Stephen Keller, Cody's CFO, and Pat Massarello, COO of Compass Group Management. Before we begin, I would like to point out that the Q3 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. Unless otherwise noted, References in these remarks to company specific financial measures relate to the third quarter of 2024 and references to period to period increases or decreases in financial metrics are year over year. 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. 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 political and economic environment, disruption in the global supply chain, labor disruptions, inflation, risks associated with the company generally due to natural disasters or social, civil, and political unrest, 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 Szabo.

Good afternoon, everyone, and thanks for joining us today. Today, I am pleased to announce we delivered another strong quarter. In Q3, we saw our combined revenue grow double digits and our adjusted EBITDA grow by over 25% versus the third quarter of 2023. In fact, our Q3 adjusted EBITDA of $114 million represents a new quarterly record for Cody and is a byproduct of our strong business model and our long-term value creation strategy. Based on performance to date, we are raising our full year guidance for 2024, and we believe we are well positioned into 2025. Before I hand it over to Pat and Steven to provide more details about both our Q3 performance and our full year outlook, I wanted to take this opportunity to provide a little more color on both our strategy and our current operating environment. Despite ongoing economic and geopolitical uncertainty, the North American consumer, especially the more affluent consumer, appears to be holding up well. We are encouraged by recent interest rate cuts and the continued slowing of inflation over the last several quarters. We think this supports a stable outlook for the economy. Obviously, geopolitical uncertainties driven by the U.S. election and conflicts in the Middle East and Russia create some incremental risks that we are monitoring and will manage as required. We believe that our diverse mix of businesses provides us with useful insights into the underlying market outlook. In order to better gauge both the economic outlook and the strength of our businesses, we have recently developed a proprietary indicator that we call the Cody Momentum Index. This index uses data from our subsidiaries, including the last 12 weeks of both bookings and sales, to help us identify shifts in market sentiment. At the start of the year, we saw a momentum index of 1.02. And as of the end of last week, we had a momentum index of 1.04. We believe this reading is consistent with a stable economic outlook for Q4 and into 2025. As I mentioned, our positive results this past quarter demonstrate the strength of our business model and our long-term strategy. Innovation and disruption are at the heart of Kodi. And over the last few years, we have begun to codify our goal of owning and actively managing companies that demonstrate our innovative and disruptive spirit. These are high-growth, middle-market companies with a sustainable competitive advantage that are poised to gain share in attractive markets. Partnering with and empowering our subsidiary management teams to realize their vision is a key part of our value creation strategy. We don't just provide capital. We provide strategic and active support and a long-term orientation. We work with our management teams to ensure that our businesses have the right strategy, processes, and talent as they drive outsource growth through innovation, superior execution, and a focus on the long term. I am proud to note that just yesterday, we were awarded Inc. Magazine's Founder Friendly Investor Award. a testament to our collaborative and bespoke approach to working with our businesses and management teams. Our collaboration with our businesses goes well beyond traditional value drivers. For example, the work of our internal audit team often happens outside the spotlight but creates tremendous value. As you know, we typically acquire middle market companies that have varying levels of financial processes and controls in place. Our internal audit team works very closely with our subsidiaries to systematically review and improve our subsidiaries' financial processes and controls, creating both better outcomes and more confidence. This positions our businesses to scale and ultimately drives exceptional value for all stakeholders. Consistent with our long-term strategy, in the third quarter, we raised more than $17 million of preferred stock capital. We plan to continue to raise capital through the issuance of preferred stock as we believe this lowers our long-term cost of capital while maximizing our financial flexibility. We also continue to focus on opportunities for capital deployment. Our goal is to be active but disciplined as we look for the type of companies we want to own and manage. While the M&A market remains somewhat muted, We continue to cultivate relationships with founders, entrepreneurs, bankers, and private equity companies in order to position us to buy great Cody-like companies at appropriate prices. We are confident that we can be the buyer of choice for innovative businesses that have strong business models and need long-term capital as well as strategic and active support to unlock value. In the meantime, we continue to invest in our subsidiaries. On October 1st, Altor completed the acquisition of Lifepoint. This addition accelerates Altor's long-term strategy, expands its capabilities, and we expect will support faster growth as Altor partners with its customers to bring advanced cold chain packaging solutions to the market. Each of our businesses continues to explore inorganic opportunities to drive long-term value creation, and we stand ready to support their growth. Lastly, on October 16th, we announced a new $100 million repurchase program that authorizes us to opportunistically repurchase common shares throughout the balance of 2024 and beyond, subject to extension of the program by our board. This program indicates that we do not believe our current share price reflects the intrinsic value of our business, and it further indicates our confidence in Cody's strategic plan and our continued growth prospects. Our performance in the quarter was not an accident. It is the direct result of the execution of our strategy. I want to take a moment to thank the outstanding team here at Cody who worked tirelessly to bring our vision to life. I also want to thank our subsidiary management teams and employees for their hard work fostering innovation, driving exceptional results, and exceeding expectations. With that, I will now turn the call over to Pat.