Yahoo Finance Compass Diversified Holdings (CODI) Q1 2024 Earnings Call Transcript Highlights: Strategic ...
Revenue: Q1 2024 revenue was $524.3 million, up 8% from $483.9 million in Q1 2023.
Net Income: Q1 2024 net income was $5.8 million, compared to $109.6 million in Q1 2023, including an $8 million goodwill impairment charge.
Adjusted EBITDA: Increased by 28% to $94.8 million in Q1 2024 from $74.1 million in Q1 2023.
Adjusted Earnings: $34.3 million in Q1 2024, significantly up from $19.8 million in Q1 2023.
Pro Forma Adjusted EBITDA Growth: Branded consumer vertical saw a 22% increase; industrial vertical saw a 3% decrease.
Capital Expenditures: $7.7 million in Q1 2024, down from $14.9 million in the prior year period.
Leverage Ratio: Total leverage ratio was 3.84 times at the end of Q1 2024.
Cash and Liquidity: $64.7 million in cash and $552 million available on the revolver as of March 31, 2024.
Full Year 2024 Guidance: Adjusted EBITDA expected to be between $390 million and $430 million.
Adjusted Earnings Per Share: Expected to be $2.7 per common share in 2024.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Compass Diversified Holdings reported strong first-quarter results, exceeding expectations with significant growth in adjusted earnings compared to Q1 of the previous year.
The branded consumer vertical showed robust performance, with an 11% increase in pro-forma revenue and a 22% growth in pro-forma adjusted EBITDA, driven by strong performances at Lugano and BOA.
The acquisition of the Honeypot company has integrated smoothly, showing significant gains in shelf space and robust point of sale data, indicating strong consumer demand.
Compass Diversified Holdings successfully divested the Crosman air gun division, aligning with strategic focus on managing innovative and disruptive companies.
The company raised its full-year adjusted earnings outlook due to strong first-quarter performance and positive momentum, reflecting confidence in sustained growth.
Negative Points
Despite overall strong performance, the industrial vertical experienced a decline in both revenue and adjusted EBITDA in Q1.
The company faces ongoing challenges from elevated inflation, delayed rate cuts, and heightened geopolitical risks, which could impact financial stability and growth.
Some subsidiaries like PrimaLoft and Sterno are experiencing revenue declines and are facing challenges due to inventory destocking and weaker demand levels in certain divisions.
The global economic environment remains uncertain, with potential impacts on supply chain and labor disruptions that could adversely affect operations.
While the company is optimistic about its strategic positioning, there is an inherent risk in relying on future acquisitions and divestitures to maintain growth and manage leverage.
Q & A Highlights
Q: Can you discuss any initiatives at Velocity post-COVID demand surge and inventory destocking trends similar to those at PrimaLoft and BOA? A: (Patrick Maciariello - COO, Compass Diversified Holdings) The focus is on technology and new product development, particularly in the archery side with exciting new technologies expected to accelerate sales in 2025.
Q: What is driving the turnaround at PrimaLoft, and when can we expect to see these bookings convert to revenue? A: (Ryan Faulkingham - CFO, Compass Diversified Holdings) Growth is expected as soon as the second quarter, with bookings not fully in yet but all signs pointing to growth. The turnaround is driven by new customer acquisitions and new project wins, particularly in the performance segment.
Q: Regarding the industrial segment's revenue decline, is it more of a price or volume issue, and how are EBITDA margins being maintained? A: (Ryan Faulkingham - CFO, Compass Diversified Holdings) The decline involves both price and volume, with specific pressure in the wax melt business. Margin improvement is attributed to efficiency gains driven by strong management teams across the subsidiaries.
Q: Can you elaborate on the drivers of growth for Legato, especially considering the new London salon? A: (Ryan Faulkingham - CFO, Compass Diversified Holdings) Growth drivers include low market penetration, significant investments in inventory, maturation of recently invested salons, and geographic expansion, including the new London salon which is expected to impact revenue positively almost immediately.
Q: What are the growth drivers for Honeypot, and where are you seeing shelf space gains? A: (Ryan Faulkingham - CFO, Compass Diversified Holdings) Growth is driven by strong performance with major big box retailers, expansion in drug and grocery channels, and new product introductions. The company is seeing shelf space gains across these channels.
Q: With the sale of Crossmann, why not divest the entire Velocity segment? What's the posture towards acquisitions and leverage? A: (Elias Sabo - Director, Compass Diversified Holdings) The remaining Velocity segment has potential for significant growth with new technology in 2025. The company is comfortable increasing leverage for acquisitions, expecting to manage it through future divestitures and operational cash flow.
These Q&A highlights from the Compass Diversified Holdings earnings call reflect strategic initiatives across various subsidiaries, focusing on new product development, market expansion, and operational efficiency to drive future growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
