Good afternoon, and welcome to Compass Diversified's Fiscal 2025 Third Quarter Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Ben Tapper, Vice President, Investor Relations. Ben, please go ahead.

Thank you, and welcome to Compass Diversified's Third Quarter 2025 Conference Call. Representing the company today are Elias Sabo, CODI's Chief Executive Officer; and Stephen Keller, CODI's Chief Financial Officer. We are also joined by Zach Sawtelle, Chief Operating Officer for Compass Group Management; and Pat Maciariello, who recently retired after 20 years with CGM. Before we begin, I'd like to remind everyone that during the course of this call, CODI will make certain forward-looking statements, including discussions of forecasts and targets, future business plans, future performance of CODI and its subsidiaries, and other forward-looking statements regarding CODI and its financial results. Words such as believes, expects, anticipates, plans, projects, should, and future or similar expressions are intended to identify forward-looking statements. While these statements present our best current judgment about future results, performance, and plans as of today, our actual results and operations are subject to many risks and uncertainties that could cause actual results and operations to differ materially from what we expect. Except as required by law, CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. In addition to any risks that we highlight during this call, important factors that may affect our future results, performance, and plans are described in our recent SEC filings and press release. During the call, we will refer to certain non-GAAP financial measures. 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 CODI's press release and SEC filings. At this time, I would like to turn the call over to Elias Sabo. Elias?

Thank you, Ben, and good afternoon, everyone. With today's filing, we are now current with our SEC filings for 2025. We're also back in compliance with the reporting requirements under our credit facility and bond indentures, and we're returning to a more normal operating cadence. It's been a long road thus far, and I want to thank everyone for their patience throughout this process. We appreciate the support you've shown as we work through it. Before I discuss our performance, I want to give you all a quick update on some organizational changes that have occurred at Compass Group Management, our external manager. After 20 years of dedicated service, Pat Maciariello retired at the end of 2025. Pat has been an integral member of CGM's senior leadership team, and it's been a pleasure to work alongside him over the years. Stepping into the role of COO for CGM is Zach Sawtelle. Zach has been with CGM since 2009, most recently as the leader of our East Coast office. He's been instrumental in many of CODI's most successful acquisitions in his tenure and currently chairs the Boards of BOA, PrimaLoft, Altor, and Sterno. I'm thrilled to have him take on this role, and I'm confident his leadership will support continued execution by all of our subsidiaries. Before we move on, I'll pass the call to Pat to say a few words. Pat, over to you.

Thanks, Elias. It's hard to put 20 years into a few words, but I'll try. Working with the CODI team has been one of the most meaningful chapters of my life, and I want to thank each and every employee, manager, and partner at Compass. I'm also grateful to the employees at each of our current and past subsidiaries. Your professionalism and hard work were evident every day. I would also like to express my gratitude to the executive teams at each subsidiary business. I have learned and continue to learn from each of you as you have modeled drive, leadership, and character. Working with you has been the highlight of my career, and I will be forever grateful for the opportunity. I look forward to watching all of your continued successes from the sidelines. Thank you.

Thank you, Pat. On behalf of everyone at Compass, thank you for your leadership and partnership over the years. Best of luck in your next chapter. I'll now turn to our year-to-date results and share a few operating highlights from our subsidiaries. Then I'll close with the steps we're taking to drive long-term shareholder value. From a macroeconomic perspective, 2025 was a year marked by uncertainty driven by geopolitical risks and a fluid tariff environment. Despite that volatility, our subsidiaries, excluding Lugano, delivered mid-single-digit growth in subsidiary adjusted EBITDA through the first three quarters of 2025. That's consistent with the expectations we laid out at the beginning of the year. And while Lugano remains included in our reported results for the period, our focus today is on our eight other subsidiaries. Our solid performance reflects the disciplined execution of our subsidiary management teams as well as the attractive positions our businesses hold in their respective markets. Across CODI, we own and operate high-quality, well-managed middle-market businesses that can perform through a range of economic environments. Now let me walk through what we're seeing in each vertical and share a few examples of how our teams are driving results. Year-to-date, sales in our consumer vertical grew low single digits. BOA continues to drive significant penetration in multiple applications, including snow sports, cycling, workwear, and protective headwear. The precision and performance of the BOA Fit system is unmatched. The Honey Pot is now one of the fastest-growing feminine care brands, driving continued share gains and category growth. The team has successfully launched innovative products and is taking share from legacy brands in the feminine care category. We believe this reflects the long-term appeal of better-for-you products as well as the strength of our brand, supporting strong double-digit EBITDA growth. 5.11 moved quickly to adapt to the evolving tariff environment, using supply chain actions and targeted pricing to protect performance while continuing to invest selectively to broaden the brand's reach. Year-to-date, our industrial vertical delivered mid-single-digit sales growth, supported by Altor's 2024 acquisition of Lifoam. In 2025, the rare earth magnetics market saw meaningful disruption that we believe creates a compelling long-term opportunity for Arnold. Demand for a more geopolitically secure rare earth supply chain continues to rise, while intermittent export restrictions have increased volatility. These export restrictions created short-term headwinds in 2025, but we believe they also reinforce the long-term tailwinds for the business as reflected in Arnold's growing backlog. Today, Arnold is one of only a handful of companies producing samarium cobalt magnets in the U.S. These magnets play an essential role in the most demanding aerospace and defense applications where supply chain security and performance reliability are critical. Finally, Sterno continues to deliver double-digit EBITDA growth, driven by strength in its core food service offering. The Sterno management team continues to drive efficiency, including optimizing sourcing and production locations to navigate the tariff environment. These are just a handful of the accomplishments across both verticals. Before I hand it over to Stephen, I want to reiterate our commitment to all of our stakeholders. Now that we have completed the Lugano investigation and restated our financials, we are focused on execution and on delivering consistent long-term shareholder value. While our priority remains reducing leverage to mitigate risk and ensure long-term financial flexibility, we recognize the need to drive shareholder returns, and we are taking steps to position ourselves to be able to efficiently and prudently return capital to shareholders. We believe that our current valuation represents a significant discount to the intrinsic value of our underlying businesses. If this disconnect persists, we will factor that in as we consider the greatest risk-adjusted return opportunities, including the efficient return of capital. The bottom line is that we are committed to a better outcome for all of our stakeholders. With that, I'll now turn it over to Stephen.

Thanks, Elias. As a reminder, our reported results still include Lugano Holdings, unless otherwise stated. Lugano will be included in our consolidated results through November 16, 2025, the date that entered Chapter 11 bankruptcy proceedings and will be deconsolidated thereafter. For the third quarter, net sales were $472.6 million, up 3.5% year-over-year. GAAP net loss for the quarter was $87.2 million, which includes expenses related to the Lugano investigation as well as Lugano's operations. Now given the timing of this call and because this is the first time we publicly discussed our 2025 results, I'll focus my commentary on year-to-date performance. This captures the first three quarters in full and helps normalize for inter-quarter shifts as customers prepared for and then reacted to changes in the tariff landscape. Year-to-date, consolidated net sales were $1.4 billion, an increase of 8.6% over the prior year or 6.1%, excluding the impact of Lugano. In our consumer vertical, sales were up 3.1%, driven by very strong growth at the Honey Pot with additional contribution from 5.11. Year-to-date, BOA declined slightly as the team exited a lower value, less performance-oriented business in the children's market in China. This planned exit supports BOA's long-term strategy. Excluding the children's business in China, BOA's core business grew double digits. Year-to-date, sales in our industrial vertical grew 10.5%, driven primarily by Altor's acquisition of Lifoam. Growth was partially offset by near-term headwinds at Arnold due to the geopolitical uncertainty and disruptions in the rare earth supply chain. As discussed, while that disruption creates short-term challenges, we believe it also reinforces the long-term strategic relevance and growth opportunities of that business. Excluding Lugano, year-to-date subsidiary adjusted EBITDA was $257 million, an increase of 5.8% over 2024. The growth in subsidiary adjusted EBITDA was primarily driven by double-digit growth at the Honey Pot and Sterno, as well as Altor's acquisition of Lifoam. This growth was partially offset by short-term challenges at Arnold as it deals with the rare earth supply chain disruptions and broader tariff-related uncertainty. Our consolidated net loss year-to-date was $215 million, which includes a $155 million loss at Lugano. Public company costs and corporate management fees were $99.5 million year-to-date. Included in that amount is more than $37 million of one-time costs associated with the Lugano investigation and restatement. CODI and our Board continue to work with the manager to fully recoup overpaid cash management fees from prior periods affected by Lugano's results as originally reported. The overpayment will be partially offset by a voluntary cash management fee reduction made by the manager during 2025. In the fourth quarter, we expect to reconcile these items through a significant true-up related to the restatement. We expect this to result in a one-time noncash benefit in CODI's P&L and the recognition of a current asset that will be used to offset future cash management fees. CODI expects to fully recoup the overpaid cash management fees by the end of 2026. Turning to our cash flow. Year-to-date, we used $54 million of cash in operating activities, primarily due to costs associated with Lugano's operations and its disposition. Year-to-date, we've invested $34 million in capital expenditures in line with the prior year as we continue to protect and invest in our eight subsidiaries to support sustained growth. We ended the third quarter with $61.1 million in cash and cash equivalents and less than $10 million used on our revolver. As a reminder, due to the credit agreement amendment we signed in late 2025, we have restored access to the full $100 million capacity on our revolver. As Elias discussed, reducing leverage is our priority, and we are focused on deleveraging both organically and through value-accretive strategic transactions, including the potential opportunistic sale of one or more businesses. The credit agreement amendment we signed in December gives us the time and flexibility to deleverage in an orderly way. Under the amended agreement, our leverage covenant is relaxed through 2027 with milestone fees paid to the lender beginning June 30, 2026, if our leverage ratio is not below 4.5x, which serves as an incentive for faster deleveraging. That structure allows us to deleverage organically while remaining in compliance. It also preserves the flexibility to accelerate deleveraging through a value-accretive sale of one or more businesses. As a reminder, our year-end leverage ratio, excluding the deconsolidated Lugano results, is expected to be around 5.3x. Finally, we expect to continue to fund the growth of our subsidiaries alongside our debt reduction and to maintain appropriate liquidity as we execute against our plans. Turning to our outlook for 2025. Consistent with previously communicated guidance, we are tightening our expected subsidiary adjusted EBITDA range, excluding Lugano, to between $335 million and $355 million. We'll provide an outlook for 2026 when we hold our fourth quarter call. However, we do expect to organically deleverage in 2026 through solid growth in our subsidiary adjusted EBITDA. As has been our practice, our outlook does not include the impact of any potential acquisitions or divestitures and assumes no incremental material impact from changes in the tariff environment or other macro and geopolitical developments. Finally, we know many investors have inquired why members of management and the Board have not yet purchased shares following the completion of the restatement. The main reason is timing and process. Given the cadence of our SEC filings this year, we expect our insider trading window to remain closed until after we file our 2025 Form 10-K and complete the annual audit. When the window does reopen, any purchases would be subject to our normal reclearance and compliance procedures.

Thanks, Stephen. Before I wrap up, I want to share one additional thank you from our Board and everyone at CODI. James Bottiglieri retired from the CODI Board at the end of last year. For over 20 years, Jim was a key member of both the management team and eventually our Board. Jim was instrumental in our initial public offering and has been a valued Board member, providing deep institutional knowledge, financial expertise, and wise counsel to the Board and management. We truly appreciate everything he contributed to CODI. Now as I conclude today's prepared remarks and we look ahead, I want to reiterate our commitment to generating sustained long-term shareholder value. This objective is reflected in our capital allocation priorities to reduce leverage, invest for growth and long-term value creation, and at the appropriate time, return capital to shareholders. With 2025 in the rearview mirror, we're ready to get back to what has historically defined CODI. We believe we have a battle-tested business model, strong enough to withstand the unprecedented events of this past year. We offer a permanent capital approach that allows us to acquire, manage, and grow attractive businesses that are leaders in their space. We provide shareholders access to high-quality middle-market businesses backed by engaged ownership, strategic resources, and a long-term approach, while empowering strong management teams to run and grow our subsidiary businesses. We know 2025 was challenging, and trust is earned through consistent execution. That's our focus as we enter 2026. With that, Stephen and I will now take your questions. Operator, please open the lines.

And our first question comes from Lance Vitanza with TD Cowen.

Congratulations on getting the restatement done. My question would be with respect to the Honey Pot. My recent channel checks seem to suggest both more shelf space and also faster inventory turns than at least I had expected. And I'm wondering if you could comment on how the performance has been shaping up relative to your internal expectations. And to the extent there's been outperformance on that basis, what do you think the drivers of that have been?

Sure. And thank you, Lance. It feels good to be back up to date with all of our filings and the company getting back to a more normal operating level. With respect to the Honey Pot, this is really an extraordinary brand. I think we told you when we bought this business that this was a company founded by an extraordinary woman and that she was really changing the entire industry and using better-for-you products. And it was mostly a business that was in the hygiene side, and it was not in the broader part of the feminine hygiene market. It was in more of the washes and wipes. And so that's a very small market. One of the things that the company has been able to do, and it was always part of the plan was to extend the brand into other categories. And in this case, the company has been able to get into the menstrual category, which is a massive market compared to the market they were entered into before. And we've had very successful execution. Our product really does stand for something in our brand and with our customers, it's extendable into other adjacent categories. And so what we've seen is more shelf space being dedicated to us in this new category, and our turns are doing extraordinarily well. So relative to expectations, I can tell you the company is significantly outperforming expectations given the additional shelf space that we continue to talk to our retailers about as the next year gets set. We expect that growth to continue. And we're investing in the brand. You just see a lot more marketing. It was always our strategy. And so everything is coming together, and it is really producing wonderful results. And I think 2026 is shaping up to be a great year.

That's really helpful. I appreciate it. If I could just squeeze in one last question. On the divestiture front, and I know you've talked about this previously, but could you just sort of remind me like are there any assets that are off the table there that you would just simply not consider selling at any price? Or should we just consider this you're going to look to maximize shareholder value. And if that's subsidiary, XYZ, it's subsidiary XYZ?

Yes, everything is for sale at any time, depending on the value someone is willing to pay. If that value is appealing to us, we are always open to selling. Our stance on this has not changed. Our businesses are available for sale because it's fundamental to our business model. Some companies are growing rapidly and hold strong market positions, and we know which ones those are. Valuation expectations for them will be high, and if they don't meet those expectations, we might want to divest but don’t have to. We will not sell a premium asset at a significant discount. Everything is still available for sale, as it has always been. We aim to divest in order to reduce our balance sheet and return to normal leverage, which would give us more capital allocation options. This includes considering stock buybacks at attractive prices. Divestment is our goal, but it will be done with respect to valuation, and we will be disciplined in this process.

Our next question comes from Larry Solow with CJS Securities.

Great. Welcome back to the current financial world. I want to extend my best wishes to both Pat and Jim; I have great working and personal relationships with both of them, so I wish you both the best of luck. My first question is broad. I appreciate the insights you've shared about your holdings, but it seems like growth has slowed a bit. I believe you experienced around 8% growth in the first quarter and then 2% or 3% this quarter. It appears that this might be related to timing in some of your larger holdings like Bank of America and possibly the exit from China. From a broader perspective, how do you view the economy today compared to earlier in the year, considering you had various factors on your mind?

Thank you, Larry. I appreciate your kind words for Pat and Jim. They have both played essential roles in building Compass and have become dear friends, and we wish them well in their future pursuits. Regarding the economy and how we perceive its evolution, we experienced a strong first quarter, but there was a moderation in the second and third quarters. We noticed a pull-forward in demand that we believe would have followed a more typical pattern coinciding with the Liberation Day announcement, leading to a rush in bringing goods in, which created some quarter-to-quarter distortion. However, normalizing for that, we still saw a downturn after Liberation Day. As you might expect, inflation has been significant, and many companies found it challenging. Consumers have reached a point where they are unwilling to absorb further inflationary pressures, creating a tough operating environment. 5.11 has likely felt the most significant impact from this, as our production is in Southeast Asian countries rather than China. We moved swiftly out of China during the previous administration amid concerns about tariffs and other complications. However, in neighboring markets where a substantial amount of apparel is produced, we still face 20% tariffs, and our customer base is hesitant to accept additional price increases, putting many companies in a challenging situation. While this may not directly affect BOA or PrimaLoft, if our customers are experiencing these same challenges, it ultimately impacts us. Broadly speaking, these tariffs have slowed down the consumer side of our business. The industrial sector faced unique challenges due to China's export restrictions on rare earth minerals, resulting in significant EBITDA reductions as seen in Arnold's results. This situation seems to be more of a one-off, and we anticipate a return to normalcy by 2026. Overall, while growth has slowed somewhat, we still feel there is growth occurring.

Yes. I understand you're not providing guidance for next year yet, but you have mentioned the goal of reducing leverage organically into the mid-4s, which suggests some growth. It seems like even if consumer activity slows down a bit more, Altor is expected to remain stable this year. A significant portion of its performance appears to be unrelated to economic factors, particularly with cold storage. Additionally, as you noted, Arnold is expected to improve somewhat next year. Overall, it seems like your outlook remains positive, indicating that you expect to continue growing next year without getting too ahead of ourselves.

Yes. We will provide an outlook for next year sooner than usual since our year-end call is scheduled earlier than normal. I want to emphasize that we have strong expectations for growth next year, along with substantial free cash flow. Until now, we have not generated actual free cash flow because it has been reinvested in growth, working capital, and other assets. In 2026, regarding our deleveraging strategy, we anticipate two things: first, growth of the portfolio, and second, actual free cash flow that will be used to reduce our debt, resulting in a lower total debt amount by the end of the year. We are not issuing guidance today, but when we do so in 5 or 6 weeks, it will reflect these foundational principles.

Yes. We need to make some adjustments to reconcile the overpaid management fees, and as mentioned, there will be changes in the fourth quarter. For the management fee cost next year, you can estimate it to be around $55 million, which includes what subsidiaries pay directly. This estimate is based on our current business portfolio and does not account for Lugano, as those assets will be deconsolidated and not under management. From a cash perspective, next year’s payments will be significantly lower since CODI will have reduced cash payments to CGM to offset the historically overpaid management fees. Therefore, in terms of cash, it will be much less, but from an accounting standpoint, you can expect around $55 million.

Congratulations on achieving current status in everything, which is a significant accomplishment. My first question relates to asset sales. I would appreciate some insight on potential interested parties or the approach you might consider for a sale, rather than specifics about what you're selling. I reflect on Fox Factory and ponder the possibility of going public as a method for selling an asset. So, my question is, what avenues can you explore when looking to sell one of these assets?

Thank you for the question, Tim. When it comes to selling an asset, there are several paths we can consider. Fox was an example of going public through an IPO. You may recall that we filed for an IPO for 5.11 right before the market declined sharply in 2022, but we had to withdraw it due to market conditions. That company is the type that could potentially pursue an IPO route. Other companies are also approaching that scale. An IPO can be a viable option for monetizing our position, as it can unlock value and showcase it to the market. However, it doesn't offer quick deleveraging since we would hold a significant number of shares and would need to sell them gradually over time to realize the value. While this approach is effective for monetizing assets and is included in our plans, it does have the downside of slower liquidity. For quicker liquidity, we typically work with investment banks that engage with strategic and private equity buyers. Since we are constantly in the market, we receive inbound inquiries and maintain ongoing discussions with bankers about potential interest from strategic buyers or PE firms in our assets, as well as assets we might be interested in. Though in 2025, we weren't actively seeking additional assets, we are always aware of the market dynamics. We have a good understanding of current interest from strategic buyers based on our companies and their acquisition cycles, including who has shown interest and who hasn’t, and where PE firms stand. We typically assess the demand for an asset like this with the help of our investment banking partners. We focus on the assets that appear to attract the most interest, which we consider bringing to market. I want to emphasize that we have a few assets under consideration, and while we're not planning to sell multiple assets this year, we aim to execute on at least one sale without giving any undue advantage to potential buyers. As part of that process, we will evaluate various businesses where we see adequate market demand to achieve good value, and then we'll decide which asset to divest based on how the market evolves.

We discussed during the restatement call that we have implemented some changes from both an internal audit and compliance perspective. We decided to outsource our internal audit function, believing that a third-party approach would allow us to adjust the size of the team according to our assets and the companies we manage. Additionally, utilizing an outsourced team enables us to obtain industry-specific experience quickly when we encounter businesses with unique characteristics. We believe that transitioning to an outsourced model for internal audit and compliance will be more effective. This is the main change we are making in terms of oversight, although we will also review other internal processes. We acknowledge that the situation with Lugano was extremely unfortunate and unprecedented, being very specific to that case. As we mentioned in the previous call, we will likely modify some of our criteria, such as avoiding situations where a founder remains the CEO, holds a significant ownership stake, and is a key decision-maker, as this poses a risk we would prefer to address differently in future deals. However, it's important to note that the issues related to Lugano were very specific to that scenario. Overall, the model and oversight we have maintained for these companies have proven successful for 20 years, and this incident is an outlier caused by a unique individual.

I'm not showing any further questions. I would now like to turn the call back over to Elias Sabo for any closing remarks.

Thank you all for joining our call today. We understand this has been a very difficult last almost year for all of us. We are really excited to be caught up, and we look forward to speaking with you all again in another couple of months and previewing our 2026 expectations. Thank you, and have a great day.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.