Compass Diversified Q4 FY2025 earnings call

• 2025 was challenging but showed resilience; subsidiaries are strong. - 2026 outlook is solid with expected mid-single-digit subsidiary adjusted EBITDA growth. Focus on reducing leverage ratio, executing divestitures, and closing share price gap to intrinsic value. - Examples of subsidiaries: BOA Fit systems had over 100 medals in Winter Games; The Honeypot established leading position in better-for-you feminine care with strong product portfolio; Arnold ended year with backlog over 40% higher than prior year end and is ramping Thailand facility. - Committed to strong governance and oversight, enhancing internal controls and transparency.

Excluding Lugano, 2025 saw mid-single-digit revenue growth with operating leverage accelerating subsidiary-adjusted EBITDA growth to high single digits. Each consumer business grew adjusted EBITDA despite headwinds. On the industrial side, 2025 saw modest growth in adjusted EBITDA, with Altor's acquisition-driven performance offset by short-term challenges at Arnold due to sustained near-complete rare earth export restrictions out of China. For full-year 2025 non-GAAP results excluding Lugano, net sales were $1.8 billion, up 3.9%. Branded consumer net sales increased 3.7%, while industrial net sales increased 4.1%. Excluding Lugano, subsidiary-adjusted EBITDA was $345.8 million, an increase of 8.8%, with consumer up 13.8% and industrial up 1.1%.

• Full-year 2026 expected subsidiary adjusted EBITDA of $345 to $395 million, including consumer adjusted EBITDA of between $220 to $260 million, and industrial adjusted EBITDA of $125 to $135 million. - 2026 capex expected to be between $30 to $40 million. - Cody expects to pay cash management fees of between $25 to $30 million in 2026. - Outlook assumes no impact from potential acquisitions or divestitures and evolving trade environment.

• Macro-economic environment uncertainty. - Geopolitical factors like China's rare earth export restrictions impacting Arnold. - Tariff and trade policy uncertainty affecting industrial businesses. - Consumer market challenges due to inflation and tariffs leading to changes in consumer behavior. - Uncertainty related to sale processes for divestitures.

Q: Larry Solo asked about sale processes, outlook for industrial businesses like Arnold and Altor, and free cash flow assumption.

A: Sale processes are ongoing with strong interest in assets; Arnold has geopolitical risks but backlog is up and ramping Thailand facility, Altor is more cautious due to vaccine and tariff issues; free cash flow assumption remains between $1500 million with potential upside from Lugano-related recoveries.

Q: Chris Kennedy inquired about wider range in branded consumer business outlook and Primaloft leadership change.

A: Wider range due to tariff uncertainty and economic chaos; Primaloft brought in strong leader Eric Weiss with BOA's CEO as board member.

Q: Timothy D'Agostino asked about 511 business.

A: 511 has professional side with steady growth and consumer side with headwinds due to inflation and tariffs, but using AI initiatives to offset gross margin degradation.

Q: Heely Sheth questioned leverage targets and M&A market.

A: Long-term leverage target is 3-3.5 times, 2026 target around 4 times, needing sale transaction for deleveraging; M&A market is lukewarm with some capital available but policy uncertainty causing concern.