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Compass Diversified Holdings (CODI)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 delivered double-digit sales growth and a new quarterly record Adjusted EBITDA of $114.0M; consolidated net sales rose 11.8% to $582.6M and income from continuing operations was $31.5M versus a loss in Q3 2023 .
  • Management raised FY24 guidance: consolidated Subsidiary Adjusted EBITDA to $510–$525M, consolidated Adjusted EBITDA to $420–$435M, and Adjusted Earnings to $155–$165M; Branded Consumer lifted to $390–$400M and Industrial to $120–$125M .
  • Liquidity strong: $71.9M cash, ~$486.6M revolver availability, term loans $377.5M, senior notes $1.3B; $100M common share repurchase program authorized on Oct 16 and quarterly distribution of $0.25 paid Oct 24 .
  • Near-term catalysts: Investor & Analyst Day on Jan 16, 2025; integration of Altor’s Lifoam acquisition (approx. $7M integration costs over 5–6 quarters) and continued Lugano expansion (Chicago Gold Coast planned for early 2025) .

What Went Well and What Went Wrong

  • What Went Well

    • “Adjusted EBITDA grew by over 25% vs. Q3’23 to $114 million, a new quarterly record,” driven by Branded Consumer (Lugano, BOA, PrimaLoft, Honey Pot) and margin expansion at key subsidiaries .
    • FY24 guidance raised across consolidated and segment metrics, reflecting momentum and stable CODI Momentum Index (1.04 at end of last week) supporting outlook into 2025 .
    • Strategic actions: $100M buyback authorization and Altor’s acquisition of Lifoam to accelerate cold-chain strategy; management emphasized confidence and intrinsic undervaluation .

  • What Went Wrong

    • Industrial headwinds persisted; Outdoor Solutions (Altor) faced challenges at cold-chain distribution partners; integration costs expected (~$7M over 5–6 quarters) to extract synergies from Lifoam .
    • Elevated corporate costs due to a CFO transition caused a sequential increase (+$1.8M vs. Q2) though excluding non-recurring items, costs were down YoY and sequentially .
    • Operating cash flow usage of $29M in Q3 driven by Lugano’s rapid inventory investment ($60M) to support growth; capex up to $15.6M including Arnold’s plant relocation with Q4 onetime move costs expected ($7M) excluding capital investments .

Financial Results

MetricQ3 2023Q2 2024Q3 2024
Net Sales ($USD Millions)$521.1 $542.6 $582.6
Operating Income ($USD Millions)$17.4 $61.3 $70.3
Income from Continuing Ops ($USD Millions)$(14.0) $(13.7) $31.5
Basic EPS - Continuing Ops ($USD)$(0.45) $(0.45) $0.08
Adjusted Earnings ($USD Millions)$29.6 $39.8 $48.7
Adjusted EBITDA ($USD Millions)$89.0 $105.4 $114.0
Adjusted EBITDA Margin (%)17.1% (=$89.0/$521.1) 19.4% (=$105.4/$542.6) 19.6% (=$114.0/$582.6)

Segment Pro Forma Net Sales

SegmentQ3 2023Q3 2024
Branded Consumer ($USD Millions)$365.4 $399.2
Niche Industrial ($USD Millions)$181.2 $183.4
Total ($USD Millions)$546.6 $582.6

Segment Adjusted EBITDA

SegmentQ3 2023Q2 2024Q3 2024
Branded Consumer ($USD Millions)$77.7 $96.6 $105.6
Niche Industrial ($USD Millions)$31.9 $29.7 $31.1
Corporate Expense ($USD Millions)$(20.6) $(21.0) $(22.7)
Total Adjusted EBITDA ($USD Millions)$89.0 $105.4 $114.0

KPIs and Balance Sheet

KPIQ2 2024Q3 2024
Cash & Equivalents ($USD Millions)$68.4 $71.9
Revolver Outstanding ($USD Millions)$54.0 $110.0
Net Borrowing Availability ($USD Millions)$543.6 $486.6
Term Loans Outstanding ($USD Millions)$380.0 $377.5
Senior Notes 2029 ($USD Millions)$1,000.0 $1,000.0
Senior Notes 2032 ($USD Millions)$300.0 $300.0
Net Cash Used in Operating Activities ($USD Millions, quarter)$(35.2) $(29.2)
Purchases of Property & Equipment ($USD Millions, quarter)$11.2 $15.6

Subsidiary Highlights (Q3 2024 Adjusted EBITDA)

SubsidiaryQ3 2023Q3 2024
Lugano ($USD Millions)$30.3 $50.8
BOA ($USD Millions)$13.3 $17.1
PrimaLoft ($USD Millions)$2.8 $4.0
The Honey Pot Co. ($USD Millions)—$8.3
5.11 ($USD Millions)$20.2 $21.0
Altor ($USD Millions)$13.1 $10.3
Arnold ($USD Millions)$6.8 $8.6
Sterno ($USD Millions)$11.9 $12.2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Subsidiary Adjusted EBITDA (Pro Forma) ($USD Millions)FY 2024$480–$520 $510–$525 Raised
Branded Consumer Subsidiary Adjusted EBITDA ($USD Millions)FY 2024$365–$395 $390–$400 Raised
Industrial Subsidiary Adjusted EBITDA ($USD Millions)FY 2024$115–$125 $120–$125 Raised (low end)
Adjusted EBITDA (Consolidated) ($USD Millions)FY 2024$390–$430 $420–$435 Raised
Adjusted Earnings ($USD Millions)FY 2024$148–$163 $155–$165 Raised
Common Share Distribution ($/share)Q3 2024$0.25 (declared Q2) $0.25 (declared Oct 3, paid Oct 24) Maintained
Share Repurchase Authorization ($USD Millions)Through Dec 31, 2024—$100 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2024)Previous Mentions (Q2 2024)Current Period (Q3 2024)Trend
Supply chain destockingBOA rebounded; PrimaLoft bookings double-digit, turning by Q2; consumer inventories balanced Destocking headwinds subsided; BOA +42% revenue, PrimaLoft returned to growth Industrial momentum volatile; consumer stable; index 1.04 signals stable outlook Improving in consumer; mixed in industrial
Lugano expansion/performanceStrong across salons; London opening; extraordinary growth Continued extraordinary growth; incrementals strong; inventory investment model New salon planned Chicago Gold Coast; balanced growth across salons and AOV; Q4 strong despite marketing costs Strong and accelerating
Tariffs/macroConsumer resilient; macro mixed; cautious outlook Deteriorating macro hit industrial; maintained guidance Potential 10%–60% tariffs would be inflationary and disrupt consumption; monitoring geopolitical/election risks Macro risk elevated (tariff sensitivity)
M&A pipelineOptimism vs. past years; competitive edge with permanent capital Deal flow increased but quality lagged; discipline on innovation/IP Muted pre-election; expect post-election pickup; disciplined, leverage capacity flexible Near-term muted; 2025 constructive
Capital allocation & leverageComfortable temporarily higher leverage for right asset; divestitures to reposition; revolver upsizing capacity Natural deleveraging via growth; preferred issuance; comfort to add 0.5–0.75x leverage for acquisitions New $100M buyback; raised preferred; leverage near 3.68; flexible mix of M&A vs. buybacks Balanced and opportunistic
Industrial initiativesAltor pipeline; Arnold relocation capex; Sterno steady EBITDA Altor weak in Q2; robust funnel; Arnold SG&A up for relocation; Sterno modest growth Lifoam integration costs ($7M/5–6 qtrs); Arnold Q4 move costs ($7M excl. capex) Transition with integration/investment

Management Commentary

  • “In Q3, we saw our combined revenue grow double digits, and our adjusted EBITDA grew by over 25% versus the third quarter of 2023. In fact, our Q3 adjusted EBITDA of $114 million…representing [a] new quarterly record for CODI.” — CEO Elias Sabo .
  • “We are raising our full year guidance for 2024, and we believe we are well positioned into 2025…our CODI Momentum Index…was 1.04” — CEO Elias Sabo .
  • “On October 1, Altor completed the acquisition of Lifoam…we’re expecting approximately $7 million in integration costs over the next 5 to 6 quarters.” — COO Patrick Maciariello .
  • “Adjusted earnings in the quarter were $48.7 million, up 65%…we used $29 million of consolidated [operating] cash…around $60 million in cash [was used] to support [Lugano]” — CFO Stephen Keller .
  • “We announced a new $100 million repurchase program…we do not believe our current share price reflects the intrinsic value of our business.” — CEO Elias Sabo .
  • “Investor and Analyst Day in New York City on January 16, 2025” — CEO Elias Sabo .

Q&A Highlights

  • Guidance composition: Upward revisions are broader than Lugano, with BOA, Honey Pot, and PrimaLoft contributing; Industrial lift tied to Lifoam .
  • Lugano drivers: Balanced growth across salons; rising average transaction value and transaction count; planned Chicago Gold Coast opening in early 2025; international salon in London performing well .
  • Incremental margins: Q3 Lugano margins slightly above normalized; caution not to extrapolate straight-line; Q4 expected “great” despite marketing spend .
  • Macro/tariff risk: Potential 10%–60% tariffs on imports would be inflationary and likely reduce consumption; monitoring geopolitical/election outcomes .
  • Capital allocation: Flexible between M&A and buybacks; preferred issuance continues; intrinsic value vs. stock price drives buyback use; strategic “North Star” to reach $1B EBITDA over time .
  • Dividend: Board remains committed to quarterly dividend; no change contemplated .
  • M&A landscape: Muted pipeline pre-election; optimism for 2025 as financing conditions improve; discipline on innovative, IP-protected assets .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2024 revenue and EPS was unavailable due to S&P Global daily request limit. As a result, estimate comparisons could not be provided at this time [SPGI error].

Key Takeaways for Investors

  • Q3 marked peak execution: double-digit top-line growth and record Adjusted EBITDA, with broad-based Branded Consumer strength and raised FY24 guidance—a positive signal for estimate revisions and sentiment into Q4 and early 2025 .
  • Lugano remains a high-ROIC growth engine but consumes working capital; continued salon expansion (Chicago, international) and higher AOV underpin momentum, yet investors should model intermittency in margins quarter to quarter .
  • Industrial transition: Lifoam integration (costs ~$7M over 5–6 quarters) and Arnold relocation (Q4 onetime move costs ~$7M excluding capex) suggest near-term margin noise but mid-term synergy potential and operational benefits .
  • Balance sheet and capital deployment optionality: strong liquidity and preferred issuance capacity support both buybacks ($100M authorization) and selective M&A; Investor Day is a near-term catalyst to showcase subsidiaries and strategy .
  • Macro risk watch: tariff scenarios could be inflationary and dampen consumption; CODI’s affluent customer skew and diversified asset base mitigate some exposure, but portfolio sensitivity varies by subsidiary .
  • Guidance implies continued outperformance: Branded Consumer uplift and a higher consolidated Adjusted EBITDA range point to stronger earnings power vs. H1 trajectory; monitor Q4 marketing investments at Lugano and Honey Pot’s quarterly lumpiness .
  • Trading setup: With raised guidance, buyback authorization, and a January Investor Day, near-term narrative favors positive revisions and multiple support; execution on industrial integration and sustained consumer strength are key to upside .

Sources: Q3 2024 earnings call transcript ; Q3 2024 press release and financial tables ; Q2 2024 transcript and press release ; Q1 2024 transcript ; share repurchase authorization ; dividend declaration ; Lifoam acquisition context .