Compass Diversified Holdings

Good afternoon and welcome to Compass Diversified's fourth quarter and full year 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 the star key then 1-1 on your touchtone phone. At this time, I would now like to turn the conference over to Cody Slaw of Gateway Group for introductions and the reading of the Safe Harbor Statement. Mr. Slaw, you may now begin the conference.

Thank you, and welcome to Compass Diversified's fourth quarter and full year 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'd like to point out that the Q4 and full year 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-K 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 metrics relate to the fourth 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 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 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 four 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, 2024, 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, changes to U.S. tariff and import-export regulations, risks associated with the company generally due to natural disasters or social, civil, and political unrest, and changing interest rates, as well as difficulties in integrating acquired businesses, 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.

Thank you, Cody. Good afternoon, and welcome to Compass Diversified's fourth quarter earnings call. I'm very pleased to report that, once again, we delivered strong financial results. For the full year 2024, we achieved double-digit sales growth and increased our adjusted EBITDA by more than 30%. Growth in both revenue and adjusted EBITDA accelerated in the fourth quarter, exceeding our expectations for both the quarter and for the full year. Before I hand it over to Pat and Steven to provide more details on our performance in the fourth quarter and for the full year, I want to take this opportunity to reflect on the progress we made in 2024 and also provide a little more color on both our long-term strategy and our current operating environment. 2024 was a transformational year for Cody. We took concrete steps to shift our focus to more innovative and disruptive businesses that can grow faster and drive long-term value creation for all stakeholders. In 2024, we acquired The Honey Pot, a purpose-driven business focused on disrupting the feminine hygiene market by educating consumers and providing plant-derived, better-for-you feminine care solutions. Further, our Altor subsidiary acquired Lifephone, a leading manufacturer of temperature-controlled packaging products that will expand our presence in the cold chain sector and diversify our customer base with additional blue chip cold chain accounts. We also strategically divested our Ergobaby subsidiary, a global leader in premium juvenile products and further streamlined our Velocity Outdoor business by divesting the Crosman Airgun business. Both transactions were aimed at optimizing our long-term focus while ensuring these businesses are well positioned for their next phase of development under new ownership. Outside of our strategic M&A activity, we continued to focus on improving our capital structure. For the full year 2024, we raised more than $115 million in preferred equity. Adding this flexible, non-dilutive capital helps us deleverage our balance sheet and reduces our overall weighted average cost of capital, supporting our long-term strategy. As we discussed at our investor day last month, we also bought back more than 400,000 shares of Cody Commons stock in the fourth quarter. While our preference remains to use our capital to fund our long-term strategic plan, The large discount between our share price and what we believe to be the intrinsic value of our shares encouraged us to return capital to shareholders. As we move forward, we will continue to look for ways to drive shareholder value and expect to reinvest in our businesses to accelerate earnings growth while also looking for efficient ways to return capital to shareholders. Consistent with our goal of driving shareholder value, earlier this year we revised our management services agreement. While we discuss this in detail during our investor day, I want to reiterate it here as we believe this will have a meaningful impact on our shareholders. The key changes include implementing a sliding scale for base management fee, introducing an incentive management fee, eliminating integration services fees on acquisitions, and excluding excess cash from the management fee calculation. Collectively, these changes will significantly reduce long-term costs for shareholders further align management compensation with shareholder interests, increase the oversight of our board's compensation committee, and focus any performance rewards on active members of our management team. Organizationally, we are also excited about our emerging centers of excellence. These centers of excellence will focus on critical areas such as internal audit and financial controls, sustainability, AI, and business automation. These are areas that our individual subsidiaries may not have the resources or bandwidth to tackle independently. By helping to develop foundational frameworks and best practices, we enable our businesses to identify opportunities, ensure and ensure that our businesses stay ahead of industry shifts. Whether it's improving financial compliance, strengthening sustainability principles to bolster corporate citizenship, or leveraging AI to improve operations, Our centers of excellence represent a major opportunity to drive value and further differentiate both Cody and our subsidiaries. Looking ahead, we remain cautiously optimistic about Cody's prospects for 2025. The Cody Momentum Index, our proprietary gauge of economic activity based on booking and sales activities from our subsidiaries, currently reads 1.06. While this is a slight decline from year-end levels, it remains consistent with a stable outlook. Although we have observed a modest slowdown in economic activity in recent weeks, we continue to expect resilience and growth in the economy throughout 2025. Consumer spending remains steady, with higher income consumers standing out as a key driver. Given our portfolio's focus on innovative and differentiated solutions, many of which ultimately cater to more affluent consumers, we believe our businesses are well positioned to outperform the broader market. Obviously, geopolitical uncertainty driven by tariffs and the potential for a trade war create incremental risks for 2025. We are monitoring the situation closely, but believe that our subsidiaries have taken the right step to diversify our supply chain and limit risk. We believe that our subsidiaries are positioned as well or better than our competition, and we expect to be able to successfully navigate the evolving tariff landscape. Our focus remains on acquiring and managing high quality companies for long term success. We are committed to identifying, owning, and actively supporting strong businesses with innovative and sustainable business models. Guided by our buy, build, and grow philosophy, we seek to create lasting value for all stakeholders. While M&A activity has increased recently, the overall market remains subdued. Nevertheless, we continue to cultivate relationships with entrepreneurs, bankers and private equity firms to identify and acquire great companies at appropriate valuations. Our goal is to be the buyer of choice for exceptional businesses that can benefit from our long-term capital, strategic guidance and hands-on support to unlock their potential. Despite macroeconomic and geopolitical uncertainties, we believe our values-driven approach, diverse group of subsidiaries, unique business model, and disciplined capital allocation position us well for continued growth in 2025 and beyond. With that, I will now turn the call over to Pat.