Compass Diversified Holdings (CODI) Q3 2023 Earnings Call Transcript

Good afternoon, and welcome to Compass Diversified's Third Quarter 2023 Conference call. Today's call is being recorded. All lines are placed on mute. At this time I would like to turn the conference over to Cody Slach of Gateway Group for introduction and the reading of the Safe Harbor statement. Please go ahead sir.

Thank you and welcome to Compass Diversified's Third Quarter 2023 Conference call. Representing the company today are Elias Sabo, CODI's CEO; Ryan Faulkingham, CODI's CFO; and Pat Maciariello, COO of Compass Group Management. Before we begin, I would like to point out that the Q3 2023 press release including the financial tables and non-GAAP financial measure reconciliations for 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 and 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 2023 adjusted earnings, or adjusted EBITDA because certain significant reconciling information is not available without unreasonable efforts. 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 call, we may make certain forward-looking statements, including statements with regard to expectations related to the sale of Marucci and the future performance of CODI and its subsidiaries, the impact and expected timing of acquisitions and divestitures including the divestiture of Marucci and future operational plans, such as ESG initiatives. Words such as believes, expects, anticipates, plans, projects, should and future or similar expressions are intended to 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, 2022, as well as in other SEC filings. In particular, the domestic and global economic environment, supply chain, labor disruptions, inflation and rising interest rates all may have a significant impact on CODI and our subsidiary companies. Except as required by law, CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to Elias Sabo.

Good afternoon, everyone, and thanks for joining us today. Before I discuss our third quarter results, I would like to cover the press release we issued this afternoon announcing the agreement to divest Marucci Sports to Fox Factory Holding Company at an enterprise value of $572 million. CODI expects to realize a pre-tax gain on the sale of between $225 million to $245 million, and we expect the net proceeds will be used to pay down outstanding debt and for general corporate purposes. We are extremely proud of the growth Marucci has experienced under our ownership. And we feel fortunate to have been able to partner with their outstanding team. We acquired the business in April 2020 based on our confidence in both Marucci's brand and management. Keep in mind, this was at a time when few transactions were being completed due to the pandemic, but our flexible capital structure and our commitment to seizing strong opportunities, even in times of economic uncertainty, allowed us to execute at a time when others weren't. Since then, the Marucci team has acted decisively, strengthening their brand and growing their core business. They have gained share in new markets like fielding gloves and softball. We have also expanded the Marucci product portfolio by acquiring lizard skins and Baum Bat. We are honored to have partnered in this success. Thank you to Kurt and the entire Marucci team for their contributions over the last several years. We wish them nothing but continued success. Now on to our third quarter. We are pleased to report remarkably strong third quarter results, which once again, exceeded our expectations and have us raising our full year outlook. Our consistently strong results reflect not only the diversification of our subsidiaries, but our ability to find excellent businesses that produce category leading growth. To underscore this point, since 2019, we have grown consolidated subsidiary adjusted EBITDA for four straight years, despite volatile economic cycles and a once in a generation pandemic. I am pleased to tell you, given our increased subsidiary adjusted EBITDA guidance that Ryan will highlight shortly, we fully expect 2023 to be a fifth straight year of growth. During the third quarter, pro forma consolidated revenue declined by 1%, while pro forma adjusted EBITDA grew 11%. EBITDA margins expanded by approximately 250 basis points to a record 21.9% in the quarter. The decline in revenue was due to our industrial businesses. While they benefited from lower commodity input costs, driving the 19% EBITDA growth, we passed some of those lower input costs onto our customers and experienced a mixed shift to higher margin categories, resulting in an 8% decline in revenues. When you look at year-to-date EBITDA performance, our industrial businesses have performed exceptionally well, posting 14% growth. We expect this segment to produce strong growth in the fourth quarter and into 2024. Our branded consumer businesses exceeded our expectations by growing in the third quarter. Pro forma revenues increased by 2%, and EBITDA increased by almost 9%. This represents the first quarter of positive EBITDA growth this year. As we have stated many times before, inventory-related de-stocking headwinds have significantly lowered our consumer growth rate in 2023. Even though these headwinds still existed in the third quarter, we were able to produce solid growth. While we expect inventory de-stocking to continue in the fourth quarter, comparisons to prior year are expected to ease, and we expect growth rates will further accelerate. Given the broader difficult macroeconomic backdrop, we are certainly pleased with our subsidiaries' resilience and performance to date, and we remain confident in an even stronger 2024. With that, I will now turn the call over to Pat.

Thanks, Elias. Throughout this presentation, when we discuss pro forma results, it will be as if we owned Primaloft from January 1st, 2022. As Elias mentioned, performance in Q3 materially exceeded our expectations, and we experienced significant growth in both our consumer and niche industrial segments. Lugano continued to perform extremely well, driven by new salon openings, a strong management team, and a disruptive business model. Last quarter, we mentioned that we faced headwinds in several segments due to correcting inventory levels in the supply chain. These headwinds have eased in certain areas but remain in others. Specifically, in Q3, though financial performance was muted at BOA, bookings turned positive. Primaloft, on the other hand, continued to seek to reduce demand as apparel makers remain cautious about consumer demand in 2024. Though a significant headwind to CODI's performance in 2023, we continue to expect these businesses to become a tailwind as the rate of inventory de-stocking continues to decrease. Though it may not happen at the same time for Primaloft and BOA due to different industry dynamics, we are confident it will happen for both. Now, on to our subsidiary results, I'll begin with our niche industrial businesses. For the year-to-date period ending September 2023, revenues declined by 5.7%. However, adjusted EBITDA increased by 14.5% versus the same period last year. For the third quarter, adjusted EBITDA increased by 19%. On a combined basis, our industrial businesses expanded margins in the quarter significantly and consolidated adjusted EBITDA margins grew by over 400 basis points versus the prior year's quarter. Though adjusted EBITDA declined slightly for Arnold in the third quarter, for the year-to-date period, the company continued to show solid growth and revenue in adjusted EBITDA as they gained traction securing new projects across markets. Demand levels in the aerospace and defense markets remain elevated driven by the commercial aerospace sector. And for the year-to-date period, the company's book-to-bill ratio remains above one. Altor continued to show profit growth in the quarter as adjusted EBITDA increased by almost 21% in the year-to-date September period. Though revenue continues to be pressured as lower margin, more cyclical end market space headwinds and the company passed on contractual raw material savings, the efficiency gains made by the management team at Altor significantly more than offset these revenue headwinds. At Sterno, revenue declined by approximately 8% in the year-to-date September period compared to a year ago, again driven by lumpiness in the company's centered wax business. Despite this decline, the company continued to operate efficiently and benefit from reduced input and shipping costs, leading to growth in EBITDA of over 40% in the quarter and 12.5% on a year-to-date basis. Turning to our consumer businesses, for the year-to-date September 2023 period, revenues increased marginally and adjusted EBITDA declined by 2.2% as compared to the prior year. As a group, these businesses showed significant improvement in the third quarter, however, as revenue and adjusted EBITDA increased by 2.1% and 8.6% respectively for its Q3 2022. We are hopeful that Q3 represented a turning point for BOA, while the company continued to show a decline in adjusted EBITDA through the year-to-date period, bookings were positive in Q3 versus prior year, and our belief is that the worst of the inventory de-stocking headwinds are behind us for this business. As we approach ski season, the buzz surrounding the launch of Alpine Boots incorporating our technology continues to gain momentum, and we anticipate a strong launch. Lugano's growth accelerated further in the third quarter, and for the year-to-date period, revenues and adjusted EBITDA grew by 48% and over 56% respectively compared to the year ago period. The company benefited from a solid increase in average transaction size in the quarter and saw strong growth in many of its salons, including Washington, DC, and its new Greenwich Connecticut salon. Progress continues to be made on our second flagship salon in Palm Beach, and we anticipate opening in the fourth quarter. Similarly, construction of the company's London salon is scheduled to begin prior to year-end, and we anticipate opening in the first half of 2024. The management team at Lugano continues to execute at an incredibly high level, and we look forward to 2024. Marucci once again had an exceptional quarter, and for the year-to-date period, revenue and adjusted EBITDA grew by over 17% and over 50% respectively compared to the year ago period. Primaloft continued to show modest declines in both revenue and adjusted EBITDA in the September year-to-date period as compared to the prior year. As we enter booking season for fall winter of 2024, brands remain cautious, though the company is adding new programs and customers, and we have experienced very little customer attrition. We anticipate a muted Q4 but remain optimistic about the company's prospects in 2024 and beyond. Under CODI ownership, Primaloft remains well-positioned, and we believe it will prosper following industry-wide inventory de-stocking trends in the apparel business. 5.11 had another solid third quarter, and for the year-to-date September 2023 period, revenue and adjusted EBITDA grew by 10% and 8.6% respectively. Though the company is not immune to the headwinds facing consumers today, 5.11 once again benefited from its diverse channel mix as its professional sales increased both domestically and internationally during the quarter. We continue to see this momentum in the fourth quarter. Velocity continued to struggle in the third quarter, though performance improved significantly on a sequential basis. We continue to focus both on cost controls and demand stimulation, and believe performance will improve in 2024. Before turning the call over to Ryan, I wanted to discuss a regulatory change coming in the near future impacting our business. As has been broadly covered, California and several other states have enacted laws banning the sale and distribution of textiles containing PFAS chemicals effective January 1st, 2025. These chemicals are used broadly to impart water resistance and oil repellency and prevent staining. Amongst our subsidiaries, this regulatory change will have the most impact on 5.11. However, they have been proactive in sourcing non-PFAS versions of impacted products and will be transitioning in 2024. As a whole, we are pleased with our performance in the third quarter, as it came in significantly above our expectations. While inevitably there will always be challenges in a broad group of diversified businesses, the quarter's performance once again demonstrated the strength of our model, and we look forward to growth in the fourth quarter and in 2024. I will now turn the call over to Ryan for his comments on our consolidated financial results.

Thank you, Pat. Moving to our consolidated financial results for the quarter ended September 30th, 2023, I will limit my comments largely to the overall results for CODI, since the individual subsidiary results are detailed in our form 10-Q that was filed with the SEC earlier today. On a consolidated basis, revenue for the quarter ended September 30th, 2023, was $569.6 million, down 1% compared to $575.8 million for the prior year period. This slight year-over-year decrease primarily reflects declines at velocity and therefore as a result of inventory de-stocking headwinds, partially offset by strong revenue growth at Lugano and Marucci. Consolidated net loss for the third quarter was $3.8 million compared to net income of $2.6 million in the prior year. The decrease was primarily due to impairment expense recorded at velocity outdoor of $32.6 million, partially offset by strong consolidated gross margin performance. Adjusted EBITDA in the third quarter was $103.9 million, up 13% compared to $91.9 million in the third quarter of 2022. The increase was due to an expansion in EBITDA margin at a consolidated level, as our industrial companies expanded margin significantly as Pat highlighted earlier. EBITDA margin expansion at our consumer businesses were primarily due to Lugano and Marucci. Adjusted earnings for the third quarter was significantly above our expectations at $41 million. This was down from $41.6 million in the prior year quarter, primarily due to increased interest expense, but up sequentially by over 15%. Adjusted earnings were above our expectations also due to the strong performance at Lugano and Marucci. Now onto our financial outlook. We are pleased to announce that we are raising our full year adjusted EBITDA and adjusted earnings guidance as a result of the strong performance in the third quarter. We are continuing to include Marucci in our guidance ranges as we are not certain the timing of the close of that sale process. For the full year 2023, we now expect consolidated subsidiary adjusted EBITDA to range between $450 million and $465 million, an increase of $12.5 million at the midpoint. This implies 4% growth over the prior full year adjusted EBITDA, pro forma for the acquisition of Primaloft, and implies our fourth quarter 2023 consolidated subsidiary adjusted EBITDA will be up over 10% from the prior year comparable period. For the full year 2023, we expect adjusted earnings to range between $130 million and $140 million, an increase of over $13 million at the midpoint. Turning to our balance sheet, as of September 30th, 2023, we had approximately $64.7 million in cash, approximately $486 million available on a revolver, and our leverage was 4.03 times. Our leverage decreased sequentially, and we expect it to decline in the fourth quarter. We had substantial liquidity, and as previously communicated we have the ability to upsize our revolver capacity by an additional $250 million. Upon the close of the Marucci sale process, which we expect in the fourth quarter, we anticipate using the proceeds to pay down existing debt, and for general corporate purposes. With our liquidity and capital, we stand ready and able to provide our subsidiaries with the financial support they need, invest in subsidiary growth opportunities, and act on compelling acquisition opportunities as they present themselves. Turning now to cash flow provided by operations. During the third quarter of 2023, we received $19.7 million of cash flow from operations, primarily as a result of strong operating performance. This is up $24.3 million from the prior year's comparable period. During the third quarter, we used $48.7 million in working capital, a substantial decrease from $62.8 million in the prior year, when we needed to support many of our businesses' inventory levels as a result of supply chain disruptions. For the year-to-date period, cash flow provided by operations has increased almost $100 million compared to the prior year. Year-to-date, Lugano has consumed $139 million in working capital to fund its inventory growth, which has generated exceptional return on invested capital, and enabled the strong year-to-date growth rate we have experienced. We expect to continue to monetize working capital across the business in Q4, with the exception of Lugano, as we continue to fund its growth objectives. And finally, turning to capital expenditures, during the third quarter of 2023, we incurred $12.1 million of capital expenditures at our existing subsidiaries, compared to $15 million in the prior year period. The decrease was primarily a result of the timing of retail build-outs at Lugano and 5.11 to support their continued growth. For the full year of 2023, we anticipate total capital expenditures of between $60 million and $70 million. We continue to see strong returns on invested capital at several of our growth subsidiaries, and believe they will have short payback periods. Capital expenditures in the fourth quarter will primarily be at Lugano for new retail salons. With that, I'll now turn the call back over to Elias.

Thank you, Ryan. I would like to close by briefly providing an update on the M&A market and our strategic initiatives. In terms of M&A, we have seen some green shoots emerge with a few higher quality deals being reviewed, but overall, markets are weak. Of course, the current economic backdrop suppresses M&A activity with rising borrowing costs and treasury yields hitting 20-year highs. The lack of visibility continues, and as we remain on the sidelines, we continue to strengthen our pipeline of targets for each of our verticals, including healthcare, and fully expect to capitalize once the broader market headwinds ease. In the realm of ESG, our steadfast objective has always been to create tangible social and environmental benefits that resonate with our core values while delivering robust financial returns for our stakeholders. Transparency and accountability have remained the cornerstones of our business ethos, driving us to invest in people, refine processes, and explore growth avenues that pave the way for transformative long-term changes within our companies. Throughout 2023, we have developed a systemic approach to ESG initiatives. We focused on climate action with a number of new programs aimed at waste reduction and emissions, both scopes one and two. We have made progress on social responsibility with diverse new hires, new programs designed to improve the wellbeing of our employees, and by strengthening partnerships with community organizations. We've recently developed our human rights and labor policy, and through sound corporate governance, we continue to uphold the highest standards of ethics, transparency, and accountability in order to safeguard our shareholders' interests. We are also collaborating with each of our subsidiaries so that they too can create their own ESG strategies that align with our vision. I extend my gratitude to our dedicated employees, shareholders, and all stakeholders who have partnered with us in our journey towards positive change and sustainable value creation. Moving forward, Compass remains committed to driving positive change and leading the industry to become the model of choice through our unwavering commitment to ESG principles. We will continue to innovate, collaborate, and set an example for others, ensuring our business practices not only meet the demands of the present but also enhance the future. In conclusion, we are proud of our third quarter results. They continue to highlight the benefits of our strategy. Owning a diversified group of strong, disruptive, and industry-leading businesses is how we were able to produce the robust, double-digit adjusted EBITDA growth we saw this quarter. As we continue to work through this period of uncertainty, we are entering the end of the year from a position of strength. The strategic decision to divest Marucci will allow us to de-leverage our balance sheet and provide ourselves with strong liquidity to act when we feel is appropriate. I'd like to extend my thanks to the entire CODI family for their strong execution during the quarter amidst the persistent, challenging environment. Before turning over to Q&A, I'd like to mention that we will be hosting our investor and analyst date in Newport Beach, California on January 17th, 2023. We will be showcasing our Lugano Diamonds subsidiary with presentations from Lugano and CODI Management, and we will hold the event at their newest membership club, Prive. Expect more details in the coming weeks, but we hope to see you all there. With that, operator, please open the lines for Q&A.

Your first question comes from the line of Larry Solow from CJS Securities. Your line is now open.

Great. Good afternoon, guys and congrats on the announced sale. It looks like 11.5 times trailing EBITDA, but I don't remember the credit I've been about what you have paid for it, but of course, you've run the business quite long since. So I guess the first question related in terms of reducing the debt, are there any restrictions or you'll be able to reduce sort of the, I guess, the very old piece first, right?

Yes, Larry, this is Ryan. There's no inability of us. We could pay our revolver back and our term loan, both are pre-payable.

Got it. Okay, great. And then just switching gears, Elias, you gave us a good kind of state of the union on the M&A environment. How about just in terms of, obviously, it feels like the consumer has certainly gotten a little bit better through the year and certainly, or not as worse as we thought it was going to be in the beginning of the year, and it looks like finally, your inventory of the stocking might be starting to wane, but just kind of what's your assessment where you stand today from where we were in the beginning of the year in terms of your average consumer. I know you had kind of gotten a little bit more optimistic that a lot of your businesses, your consumers weren't being impacted by this, the flow that in the economy, but any kind of update on that, those thoughts would be great?

Sure, Larry. Looking back a year from now, or even at the start of this year, we are definitely more optimistic across the board. Our industrial businesses have experienced a strong year, despite facing some revenue challenges. A significant part of this is attributed to falling commodity prices, which we have passed on to our customers. It's important to see past these challenges because unit growth remains strong, and our companies are performing exceptionally well in terms of earnings generation. We expect this trend to continue. The major shift from last year and earlier this year lies in our perspective on consumer businesses. End consumer demand has held up better than most expected throughout the year, not just for us but in terms of general consumption as well. We are witnessing solid wage and employment growth, which is a strong foundation for consumer behavior. This has helped counterbalance some of the rising interest costs and monetary challenges we all face. Overall, the consumer market remains resilient. A critical issue for us is that most of our earnings come from wholesale sales to retailers, including brands like Primaloft and BOA. Over the past year, we've been warning about the inventory de-stocking issue, which surprised many of us, including myself, a year and a half ago. This situation arose from post-pandemic distortions and supply chain problems that compelled us to over-order, leading to excess inventory that we're now managing. We were cautious about its potential to impact our consumer earnings negatively, and it has indeed done so. As we move into the fourth quarter, it's important to note that while the headwinds haven't completely disappeared, the comparisons have become much easier. Companies like BOA, Primaloft, and others within the wholesale sector are better positioned now. Looking ahead to 2024, we anticipate that sell-through will eventually align with sell-in, which should result in a significant rebound in earnings for companies exposed to the wholesale market. Currently, we're observing some incremental improvement in order patterns from these companies, though they're not yet back to levels seen a year and a half ago. Nevertheless, the easier comparisons mean they are no longer significant obstacles. We are quite optimistic, and what we've experienced in Q4 and October gives us strong confidence that we are heading towards another successful quarter. As we approach 2024, we're preparing for what we believe will be a robust year ahead.

Awesome. And you gave a lot of detail, Lugano obviously really, really not going to cover up the ball, just on BOA, which obviously one of your larger consumer brands and probably been taking the big impact from the de-stocking. Can you just speak to some of sort of the operating trends outside of that de-stocking? I know you had, I think in the beginning of the year, kind of projected or called out that you thought SKUs would be up over 10% by this fall compared to last fall. And for what it's worth, I have seen a lot more BOA and REI circular and whatnot. So it does seem to be, at least anecdotally, getting more into the U.S., but just any color on trends that we might not actually be seeing in the reported numbers would be great? Thanks.

Sure. I would just, this is Pat. Larry, how are you? I would just say, we touched on it that the headwinds and bookings are starting to not be as much headwinds anymore. And I touched on that specifically. We are continuing to grow SKUs and at every quarterly board meeting, I see solid growth in our SKUs. I don't have the exact numbers in front of me, but it's in that same realm, and as you look out to 2025 kind of project, and beyond 2024 projected SKUs are strong too. We mentioned Alpine. It's getting a really strong start. If you go in the, any of the ski outfitters and ski stores, I think they'll tell you the same thing. It's taking a significant chunk of demand there. And then there's other pockets. I mean, we have some strong momentum in some of our Asian businesses, and you've probably seen the Under Armour slip speed, which is being pushed very well and is a really amazing shoe. I'm wearing them right now. So, there's a lot of other pockets of sort of success and growth there.

Great. Thanks, Pat. Appreciate it. Thanks for the color, guys.

Yes, sure. Let's see. On retail, I'd say we're, given the current retail environment, we're slowing our store rollout. And we're going to come up with a plan, a more limited plan for 2024. I would say, though, that our e-com continues to be a growth, continues to grow. And so let's not say in retail continues to grow. So it's not to say that DTC is not going to be a driver of growth. It just may be a little bit less investment in 2024. And you'll see that in our CapEx numbers holistically when we provide those for 2024. On inventory, we think we're managing it well. I've learned a long ago, never to say never, as far as inventory goes, and if you need to take further actions. But we believe we're managing it well. I would, in a lot of cases, we can sell slow-moving inventory through our DTC channel, which obviously has higher margins, obviously maximizes the chance that you don't have to take any markdown. So never say never. And there's a lot of stuff out like PFAS that we just talked about, but we're going to try hard to manage inventory appropriately. And then the last question is on the prosumer, anecdotally, I have heard of the conflict in the Middle East driving pockets of orders here or orders there. I haven't broken that out, and I haven't seen that broken out in the professional business specifically. But I would say our professional business has been a driver of growth, was a driver of growth in Q3, and we believe will continue to be a driver of growth in Q4. And really speaks to our diversified model and the strength of that within 511 specifically.

Got it. That makes sense. Last one for me. It's just, preliminarily, how are we thinking about top-line growth in 2024? Maybe just speak to which brands might be leading the way and why, and then which brands a couple group of brands could be potentially more constrained based on today's environment?

Yes. So, Mike, we don't give sort of top-line growth targets. We typically give EBITDA growth. And as you know, with 10, I guess, now going down to nine subsidiaries that can vary and margins are a lot different. And so we focus a little bit less on top-line, and we've always focused on kind of EBITDA and adjusted earnings as the right metrics. As I said earlier and to start the call, holistically, we feel that Q3 was a turning point for us, and that there's accelerating results in Q4 and 2024 should be a really good year for us. And I would say if you think about what we've said historically our core growth, we expect to be high single digit possibly low double digit. We're going to be call it half of that this year. Is it possible next year we have enough growth to make up for kind of coming in underneath it so that over the two-year period together, we get back to our core growth? It's absolutely possible. Now, I'm going to ask everyone not to take that as a kind of early guidance, but I'm saying that is a possibility given what we're seeing right now in trending. If you want to get a little bit more granular, I would say we look at our industrial vertical, which has had a phenomenal year in 2023 is likely slowing the pace of growth in '24, but still having good growth as that's not a double digit growth kind of vertical. We've never thought of it as that. So I think that probably reverts back to something that is more normalized, which is kind of a mid-single-digit growth. And then within the consumer business, I think as you look across it clearly we have big expectations for Lugano. We expect to continue to have large funding needs that will go into that. One of the things with Lugano is it's not an up-leveraging when we fund additional working capital, the way that translates into even dog growth doesn't add leverage. It's not a huge de-leverager, but it is an up-leverager as well. And so Lugano, we continue to remain with very high expectations. I think you're going to see BOA come back with some pretty good growth probably as the year develops and inventories start to, someone starts to match, sell through. My sense is you're going to see that accelerating pretty strong, but we have pretty good expectations on that. And I think in general, we would see our consumer businesses getting back holistically to be kind of that double-digit type growth business that has been historically and that we would expect going forward, which drives sort of the consolidated growth rate and that high single-digit, low double-digit range. So it's a little early for us to give too much more granularity than that, but I would say it feels like there's some tailwinds coming. In terms of, are there any problem areas that we look at coming into 2024? The answer is no. Right now we suffered through a really difficult year with consumer wholesale, and that negatively impacted 5.11 and negatively impacted Ergo Baby and negatively impacted at a big time level, Velocity, Primaloft and BOA. And so, we look at that and say if those, if that huge negative is starting to subside, it is eventually going to actually turn into a positive, I think that really bodes well for our business, and that's kind of a idiosyncratic microeconomic issue that's benefiting us. I don't really know the macro and how 2024 is going to shape up. It could be a soft landing, it could be a shallow recession, could be continued growth. I think none of us really know that's creating the murkiness, but regardless of that, I think the micro kind of economic outlook that each of our companies are suffering from or benefiting from going forward gives us great optimism, that there really aren't right now anticipated problem areas coming in the portfolio in 2024.

Very helpful. So that's all from me, guys. Thank you.

Thank you.

Thank you.

There are no further questions at this time. I would now like to turn the conference back over to Mr. Elias. Sir?

Thank you, operator. As always, I'd like to thank everyone again for joining us on today's call and for your continued interest in CODI. Thank you for your support.

This concludes Compass Diversified's conference call. Thank you and have a great day.