• Revenue: Consolidated net sales of $582.6 million, an increase of 11.8% year-over-year.
• Pro Forma Sales Growth: 6.6% growth in the quarter, normalizing for acquisitions.
• Adjusted EBITDA: $114 million, a 28% increase over the same period in 2023.
• Net Income: $31.5 million, compared to a net loss of $3.8 million in Q3 2023.
• Adjusted Earnings: $48.7 million, a 65% increase over Q3 2023.
• Cash Flow from Operations: Used $29 million, primarily driven by growth at Lugano.
• Capital Expenditures: $15.6 million, an increase of $5.7 million over the prior year period.
• Leverage Ratio: Total leverage ratio declined modestly to 3.68.
• Full Year Guidance for Adjusted EBITDA: Expected to be between $510 million and $525 million.
• Full Year Adjusted Earnings Guidance: Expected to be between $155 million and $165 million.

• Warning! GuruFocus has detected 6 Warning Signs with CODI.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Compass Diversified Holdings (NYSE:CODI) reported a record quarterly adjusted EBITDA of $114 million, marking a 28% increase over the same period in 2023.
• The company raised its full-year guidance for 2024, reflecting confidence in continued strong performance.
• CODI's branded consumer segment showed robust growth, with Pro Forma revenues increasing by 10.3% and adjusted EBIT rising by 27% year-over-year.
• The company successfully raised over $17 million in preferred stock capital, enhancing financial flexibility.
• CODI announced a new $100 million share repurchase program, indicating confidence in the intrinsic value of its business.

Negative Points

• The industrial segment experienced a decline, with revenues down by 4% and adjusted EBITA decreasing by 6.1% year-to-date.
• Altor Solutions faced challenges with its cold chain distribution partners, impacting performance.
• The company incurred approximately $900,000 in one-time costs due to Arnold's transition to a new facility, with further costs expected in Q4.
• Corporate costs and management fees increased by over $2 million year-over-year, partly due to non-recurring CFO transition expenses.
• The M&A market remains muted, limiting opportunities for strategic acquisitions.

Q & A Highlights

Q: Can you provide more details on the guidance increase, particularly in the industrial and branded consumer segments? A: Elias Sabo, CEO: The increase in guidance for the industrial segment is primarily due to the Life Foam acquisition. On the branded consumer side, it's broader than just Lugano; Boa, H1ypot, and PrimaLoft are also performing better than anticipated.

Q: How has the CODI Momentum Index trended throughout the year, and what does it indicate about the economic outlook? A: Elias Sabo, CEO: The consumer side has remained stable, indicating resilience among affluent consumers. The industrial side saw a downturn in the first half of the year but rebounded in August and September. However, it has slightly weakened again in October.

Q: With Lugano's strong performance, do you anticipate any impact from potential changes in capital gains tax or the upcoming election? A: Patrick Maciariello, COO: We don't expect changes in capital gains tax to affect Lugano. The growth is broad geographically, and new locations are performing well. Elias Sabo, CEO: Potential tariffs could impact us, but other policy changes are not expected to have a major effect.

Q: Can you elaborate on the key drivers of growth for Lugano and the incremental margins observed this quarter? A: Patrick Maciariello, COO: Growth is driven by both existing and new salons, with an increase in average transaction value and number of transactions. Incremental margins this quarter were slightly higher than average, but we expect strong growth to continue.

Q: What are your thoughts on the M&A landscape and how do you balance acquisitions with share buybacks given the current market conditions? A: Elias Sabo, CEO: The M&A market has been muted, but we expect more activity post-election. We prioritize acquisitions that align with our strategic plan but will consider buybacks if the stock price deviates significantly from intrinsic value.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.