Q1 2022 Compass Diversified Holdings Earnings Call
About margin.
With that I will now turn the call over to Pat.
Thanks Elias.
On a combined basis revenue and EBITDA in both our branded consumer and our niche industrial businesses grew meaningfully and exceeded our expectations as Elias mentioned, our businesses performed admirably throughout the continued supply chain and inflation headwinds, though these headwinds led margins and EBITDA performance to lag revenue growth slightly.
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While we are working through appropriate cost and pricing actions at each business to address the modest margin compression. These actions often take time to implement and may not be reflected in our financial performance in the short term our.
Our management teams partners at each of our businesses continued to execute for their customers and employees and I remain very proud to work with each of them now towards subsidiary results I'll begin with our niche industrial businesses.
For the first quarter of 2022 revenues increased by 19, 5% and adjusted EBITDA by nine 4% versus the first quarter of 2021 Arnold.
Arnold and outerwear, both posted meaningful revenue and adjusted EBITDA growth in the quarter, driven by solid execution and stronger than expected demand outdoors margins declined somewhat due to higher raw material costs, but we expect that most of these costs will be passed through contractually later this year at sterno demand for our catering products grew.
Throughout the quarter and into Q2 as leisure travel and conventions continued to return domestically.
Sterno scented wax products, however saw a reduction in demand from an abnormally strong first quarter in 2021, which was likely partially driven by federal stimulus payments in that period.
Turning to our consumer businesses.
For the first quarter of 2022 revenues increased by 14 by 14% and adjusted EBITDA increased by 13% compared to Q1 2021.
Demand for <unk> performance fit system continued to exceed our expectations. The company's revenue increased by over 55% in the quarter and it delivered a coty record $25 million of quarterly EBITDA.
Harley Lugano grew pro forma adjusted EBITDA by over 46%.
As stated we are seeing a direct correlation at Lugano between inventory purchases and revenue. We believe the team at Lugano has created a better business model to serve the needs of their clients. We will continue to support Lugano as they grow and open new salons in the back half of the year.
Which will continue to require intelligent investments in relatively liquid inventory.
Also in the quarter Marucci made a series of strategic decisions to air freight insignificant product to retail partners to gain shelf space in both new and existing product categories.
This led to strong revenue growth to impacted margins in Q1.
We believe this decision will have a significant long term benefits for the company.
<unk> will have a tough comparison in the second quarter as the company itself.
Several product launches in Q2 'twenty. One we are excited and optimistic however, about the much anticipated launch of the Capex in the third quarter and believe it should lead to favorable comparisons in that period.
It was announced that the previously scheduled shareholder meeting to approve the tempo a business combination has been postponed to allow <unk> additional time to revise and finalize its financing arrangements as a result of the announcement, we will not be taking any further questions related to the ACI transaction.
Moving to our consolidated financial results for the quarter ended March 31, 2022, I'll limit my comments largely to the overall results for Cody since the individuals 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 March 31, 2022 was 510 and a half million dollars up 25% compared to $408.6 million for the prior year period. This year over year increase primarily reflects the company's acquisition of Lugano in September of 2021, as well as the <unk>.
Strong double digit growth from Boa Rucci sports and outdoor solutions.
Consolidated net income for the quarter ended March 31, 2022 was $29.7 million or 35% increase compared to $22 million in the prior year ago quarter.
As introduced last quarter adjusted earnings a non-GAAP financial metric will allow investors to assess our operating performance in a more meaningful and transparent way.
Adjusted earnings for the quarter ended March 31, 2022 was $36 million up nine $9 million or 38% from the year ago quarter.
Are adjusted earnings generated during the quarter, we're above our expectations, primarily due to the strong performance across our consumer and industrial businesses on a combined basis.
Turning to our balance sheet as of March 31, 2022, we had approximately 97 $3 million in cash zero drawn down on a revolver and our leverage was approximately three times.
We have substantial liquidity and as previously communicated we have the ability to upsize a revolver capacity by an additional $250 million.
With this liquidity and capital we've continued to be well positioned to provide our subsidiaries with a financial support they need investment subsidiary growth opportunities and act on compelling acquisition opportunities as they present themselves.
Turning now to cash flow.
During the first quarter of 2022, we use $33.5 million of cash flow from operations, primarily a result of our strategic investment inventory at Lugano. In addition, certain of our subsidiary saw an increase in inventory in transit as a result of the port and trucking delays.
As we've mentioned before we believe a significant strategic advantage of our business model is that with our strong balance sheet and access to capital we can sustainably invest in our subsidiaries for the long term.
And in today's challenging supply chain environment, ensuring our subsidiaries have adequate inventory to meet their demand levels is crucial and accelerating our competitive advantages by solidifying strong customer relationships.
It's important to note that when the supply chain challenges abate.
Strategic investments, we've made an inventory will convert to cash.
And finally, turning to capital expenditures during the first quarter of 2022, we spent $10.4 million of capital expenditures for our existing businesses compared to $7.3 million in the prior year period.
Increase was primarily a result of the continued retailer retail store expansion at our 511 subsidiary.
Despite our excellent performance in the first quarter, we remain in uncertain times, driven by market and interest rate volatility. The unexpected GDP contraction that was recently reported inflationary pressures, causing commodity prices to rise and labor market shortages.
However, as a result of our company's strong performance in the first quarter that exceeded our expectations. We're raising our 2022 full year consolidated subsidiary adjusted EBITDA outlook to between $410 million and $430 million.
10 minutes $10 million increase in the bottom and the top end of the range.
Further we are we are raising our 2022 full year adjusted earnings outlook to between $120 million and $135 million.
Moving to Capex for the full year of 2022, we continued to anticipate total capital expenditure spend of between $70 million and $80 million. While this is a large increase from 2021. We believe these investments will have short payback periods and provide strong returns on invested capital to.
2022 capital expenditure spend will primarily be at Lugano for new retail salons and at 511 as we continued to increase its retail store count from its current 88 stores.
We believe our companies are positioned extremely well, even better than before and have the utmost confidence in our management teams to continue to drive strong results that ultimately create long term sustainable value for our shareholders.
With that I will now turn the call back over to us.
Thank you Brian .
I would like to close by briefly providing an update on the M&A market <unk> corporate initiatives and discussing our go forward growth strategy.
Beginning with the overall M&A market.
Activity remains depressed as potential sellers are choosing to delay processes, given the economic headwinds and the macro backdrop.
We anticipate activity to remain depressed in the second quarter as these headwinds persist followed by gradual uptick in activity in the back half of the year. If these headwind start to moderate.
As a brief update on one of our primary corporate initiatives, we are aggressively enhancing and institutionalizing hour ESG practices.
As we have stated in the past, we believe sound and well implemented ESG practices, not only can be beneficial to society and our environment.
But also contribute to the management of risk and enhance long term returns.
In this regard I am excited to share our progress today.
By way of background or ESG strategies will focus on initiatives, such as diversity equity and inclusion of people and thought health.
Health and wellbeing of our customers and employees <unk>.
Tracking and retaining the best talent.
Environmental considerations.
Transparency and continuing to be a trusted partner with investors businesses and communities.
Fundamentally Cody DSG strategy is a primary business decision that will be anchored throughout the corporate ethos in order to directly enhanced coding purpose of building sound and sustainable businesses, culminating in strong shareholder returns.
Along these lines, we have begun to directly link and implement our ESG practices into our portfolio companies vertically integrating and aligning these strategies throughout the organization.
These ESG parameters will become an important factor in managing risks.
Reducing the cost of capital and expanding multiples at all of our companies.
Additionally, diversity continues to stay front of mind during our hiring process and we have recently added three talented diverse hires to our team.
We believe diversity of people and thought introduces new perspectives skills and approaches to problem solving that enhances the company's strategic and operating capabilities.
We are pleased with our progress to date and feel confident that we can continue to expand on these efforts.
In conclusion, it was a great quarter for Cody.
Relative to our expectations or performance was outstanding.
In this backdrop, the fact that gross domestic product contracted 1.4% and we grew revenue and adjusted EBITDA by double digit is an incredible effort and.
And I'd like to give thanks and recognition to all of our management teams and employees with that operator, Please open up the lines for Q&A.
As a reminder to ask a question you will need to press, Taiwan on your telephone keypad until the giant question posed to town.
Key again that will be Taiwan.
Keep add to ask a question.
We had the first question comes from the lineup.
Kathy telling your line is now open you May ask me a question.
Hey, guys. Good afternoon show in the quarter.
So just.
Maybe starting out with <unk> and then I'll follow up with maybe one or two on the segments, but just in terms of the consumer businesses you guys have a lot of diversity in your consumer segment.
You will so any takeaways that you guys have on consumer behavior sort of through the <unk> of the first quarter and maybe for the last month here just any changes that you've noticed in terms of behavior on the higher the low end as consumers kind of respond to the inflationary environment.
Market volatility or the Ukraine, Russia conflicts.
Yes that is.
We obviously are monitoring trends throughout our entire portfolio.
Even in our industrial business, where some of the end products may make its way into.
The consumer markets I would say in general we were surprised by the strength of consumer spending pretty much across the board in the first quarter.
Really with the exception as Pat mentioned of Sterno, where our scented wax products.
Benefited greatly from some of the pandemic conditions people staying at home and I think I drove a significant increase in demand for that product and that saw some weakness now I would also say one conclusion, we could draw is that also goes through the mass channel principally.
And I think if you thought about it.
Consumer stratification.
<unk>.
Kind of more affluent customer right now is continuing to spend.
I was venturing a guess wage gains are offsetting for that consumer.
Their basket of goods and how they measure inflation and yet on the lower end of the spectrum with sort of a more mass products and lower price points.
My sense is inflation is eating away at purchasing power and if somebody is making a decision to buy eggs or milk.
Or by.
Of a consumer discretionary product clearly staples become the thing that they purchase so I think we are starting to see initial signs of erosion for.
More of the mass consumer.
In the lower price point items as inflation is quite problematic and eroding purchasing power there but.
But as you know most of our consumer businesses.
More enthusiasm type.
Type brands.
Tend to skew towards the higher end consumer the more affluent consumer and we just have not seen a real weakening of demand there and in fact as we run forward through April .
I would say we continue to see really good strong demand.
Across most of the consumer portfolio. So we have not seen weakening yah I think some of the market volatility that we're starting to see right now could eventually play into that.
But it has not manifested yet into any of the real time data that we're seeing.
Okay Super thorough and helpful. Thank you.
Maybe just a segment one.
Putting up pretty studying growth and margins to boot.
Just was curious.
Curious if you guys might be able to.
You can't really quantify pull forward, there, but I'm wondering how much and you're set.
Is your sense that.
That is put forward some revenue from like.
But wherever that may be a little bit nervous about supply chain disruption versus sort of just core growth and share take for that business.
Matt This is Pat and thanks, that's it.
A good question and when we spent a lot of time thinking I can tell you.
Demand is broad ample.
Then.
Many channels.
We think it's strong.
We can see in the second quarter, and we think it's sustainable.
I can tell you there might be some pull forward if you think about the what.
What is there on the ocean. Another month, another 45 days right that there wasn't sort of a year and a half ago. If you think of that as sort of a small headwind.
But we think we're going to perform very well despite.
Despite that and we think much of the demand most of the demand.
Israel.
Excellent and when they go to sneak one <unk> as well as just curious about and.
That segment, where do you think you are taking the most share you mentioned kind of using airfreight strategically.
To kind of fill customers and then when shelf space. So just curious like in which categories. Maybe that you think you're winning the bus sure. There and then the the costs essentially go away in the near term or are we going to kind of continue to use that as as a tool.
To continue to make sure.
So answering your second question first will selectively used it as a tool, but they should mitigate and as we look ahead.
A lot more of kind of what we have planned in Q3 Q for sales.
Is is not using expediting freight going back to your first question. We're we're trying to grow into a lot of categories and some of that air freight that we spent helped us do that this quarter b that gloves with their bags be that fast pitch softball.
We think that Maruge user disrupted brand that really has the potential to expand into additional adjacencies within baseball within software softball, and maybe beyond.
So that's the opportunity we took in Q1.
Okay excellent Hollywood there guys. Thank you.
Thank you ma'am.
Thank you May I have the next question comes from the lineup Chris Kennedy.
The line is now open you may I ask the question.
Thank you and good afternoon. Thanks for taking my question.
Can you give a little bit more details on Lugano, just because we don't have the history with the business are.
Are we kind of had a normalised run right or how should we think about that going forward.
So I mean, I think Q2 or Q1, excuse me is seasonally a bit high.
We have.
Location in Aspen that is.
As a.
Heavy Q1.
That being said the business has seen a noticeable uptake in sort of run right.
And so I would say.
Can you say you can multiply you for no excuse me Q1 by forward to get to our current run right no but.
But the business has seen significant significant growth in underlying demand.
And.
We see that continuing.
Okay, Great and then Elias I appreciate your comments on.
Potential acquisitions in the space.
I assume you are mostly referring to platform deals, but can you talk about AD on opportunities.
Yeah sure Chris I mean.
Platform certainly have been slow in the beginning of the year given all the headwinds and.
A couple of things are clearly occurring there.
You've got earnings degradation from the vast majority of companies I mean, we were able to Buck this trend, but for most companies dealing with supply chain and the inflationary environment is causing their earnings too.
Take a hit and generally sellers don't want to be in the market and those conditions and then if you couple that with the multiple compression and just the risk off sentiment that you're seeing in the public markets that clearly factors its way through the private markets and for kind of the deals that we're looking at that also.
So R.
<unk> would be tapping into the bond market in order to provide financing I think we all know the bond market is really struggling right now and generally not open for business. So.
As a result, I think investment bankers are telling their clients and sellers are seeing that now is not an opportune time now we do thank the first half of the year Q2 looks like it's going to be equally as week hopefully it starts to ease as the year goes on but that's going to be predicated on market.
Conditions in terms of add ons, we're working a number of add ons. These are a little bit different than these.
These are generally direct negotiated transactions, where we're coming up with a list of potential companies that would benefit.
Our subsidiaries and we continue to work through that I would tell you that sellers of those businesses are not immune to the same factors that are happening broadly in the marketplace and what's happening in the platform side and I think unless we are willing to give credit for some of the pro for.
Aw, what kind of adjustments that sellers would be looking for around normalizing earnings when the supply chain starts to normalise itself. It makes doing transactions more difficult today. It doesn't mean that there is not a robust pipeline and that we're not pursuing them I think it just.
Means that it's a little bit more difficult to transact in this market. So.
I would say our views and our expectations are muted right now in terms of M&A and I would.
Suggest that kind of we we think this is going to be probably a tough year.
But that doesn't mean that we're not out pounding the the.
The pavement and working extraordinarily hard to generate M&A opportunities.
If you went back and you thought in 2020.
Probably saying the same tune.
R Q1 earnings call when we were dealing with the pandemic and why would companies want to come to market in these times and yet we acquired two businesses that were extraordinary so I don't want to paint a dire picture that it isn't going to be possible. The.
Truth is when we're in these times and our business model with committed financing and permanent capital. This is really where we shine when our peers are not able to gain access to the financing that they need to transact. This is generally where we are able to come in and acquire business.
That we think are top quality businesses.
Typically not in as an as competitive as an environment. So.
We're out there working really hard and trying to find new opportunities and think if we can find some will be in a really advantage position relative to our competitors, but the overall M&A environment remains muted both for platforms and add ons.
Great.
Create the color thanks, guys.
Thank you. The next question comes from the lineup of Raymond James shall line is now open you may ask a question.
Hi, guys and congratulations on the quarter margin a full set.
Quite a bit of swelling.
Kind of following home actually.
Question.
I mean, how many tough environment multiple with them et cetera, et cetera, how long do you think the environment needs to remain volatile disrupted et cetera.
Four.
Sellers potentially become.
Motivated.
I may be willing to accept a little bit of that.
The lower multiple then.
They have capital needs, you have capital et cetera, and how long would it need to to go on before that would.
Really shift and you'll you'll pay Utah.
Yes, Robert.
That's a tough question to answer I mean, I think you got Ah we look back at history. There is there is some amount of time, where.
A seller needs to readjust expectations and it's difficult.
Say asset prices are sticky on the downside right.
So when you have.
Expectation that the private market is delivering multiples of whatever X and now, it's 80% of X or 70% of eggs.
Mentally getting comfortable with that is difficult and I think it all permit Lee becomes really a case by case decision.
There are some companies that have to transact you think of the.
The competitors that were typically dealing with and traditional private equity well a lot of them have one life. So if you are at the end of the phone life, you're going to have to sell your business regardless right.
And there is generational changes.
Us.
Where you have maybe a founder that wants to kind of get all of their.
Ducks in a row as they're starting to do some estate planning. So there can be specific things that generate dealflo as you know, though that generally just means that you're sort of looking amongst a smaller funnel.
It's just not as wide open as it's historically been.
My sense is it's going to take the better part if market stay volatile like this if multiple in the public markets continue to contract as they have.
Probably going to take the better part of this year for price expectations to re adjust and then I think there is a point where you just have to kind of give in and say this is the new environment that we're working in and here is the value that we should expect to receive and we would be happy to.
Transacting, but I can tell you, it's not three months and it's likely not six months there needs to be a kind of setting in process that happens now we do remain hopeful that the.
The back half of the year gets a little better than the 23 is meaningfully better.
But some of that is going to be predicated on market conditions, starting to ease of it.
[noise] helpful. Thanks, Thanks, a lot enough on on on both.
You said this broad based strength.
While the <unk> I mean are there any.
It's broad based as it flowed paced across all product types I mean, obviously, there's different levels of penetration so.
No longer.
Yeah, I mean, we just might not be growing as fast, but but in geography, I mean, any any any areas that are doing exceptionally well.
It's across geography, maybe in this quarter, there was a little bit of strength in Asia.
And but that is the thing right. This boy is a company, whose revenue really sort of comes close to as far as the breakout matching GDP.
Of the of the globe and so it's a much more international business.
Certain of our other businesses and so we have seen strong demand internationally, we've seen strong demand in Europe , we seen.
Strong demand in Asia.
It comes down to the fact, I think that the the sort of performance fit rapid Boas technology, just as a small penetration in overall footwear right.
I, maybe I personally believe it's a lot better product and shoe laces, particularly for performance applications and we have a lot of data that back that up so there's there's market share to be gained.
And a lot of segments and that's what that's what you are seeing and we believe that what you are going to continue to see.
I appreciate that and if I <unk>.
Okay legato.
Obviously also.
Very well I <unk> is the inventory investment is that.
Is that.
Call it the number of salon and growth et cetera, but is it <unk>.
Investing in the same level of inventory salon or that you're growing inventory settled as well.
It's both.
It's both were.
We're making.
Opportunistic purchases that we can then convey value onto our end consumer that we have a strong relationships with throughout the country and so it's both of those there's a certain level of inventory you need when you build a new salon, but we also see that sort of the more <unk>.
Inventory we have.
More choices, we have for our consumers.
The greater amount of activity were able to see and Robert I would just say you know when we acquired Lugano and we talk to you guys. About this originally we said this is a highly disruptive business model and they approach the industry.
And a fundamentally different way that disintermediated, so a lot of steps in the process and they deliver a phenomenal value to their customer as a result.
And the the demand in that business is really constrained by the amount of investment that we could make in it and we had said look theirs.
A real strong correlation between investing in inventory and have a more product availability.
Revenue profitable revenue growth in that business and I think we obviously monitor this on a real time basis and very closely but what we've seen is that correlation continues to exist as we put more investment in the business and when you run the return on invested capital.
And that's in it is so high that the our goal is to continue to pump capital in until that correlation would breakdown. The fact that it's not breaking down just means there is significant excess demand that is sitting there.
And it will be driven greater revenue and profitable revenue growth.
Can be driven by further investment so what.
What we've experienced so far has been exceptional growth the correlation if anything has actually gotten stronger under our ownership not weaker and as a result of that we plan on continuing to put significantly greater amounts of capital into.
Our inventory here, because we think demand is significantly greater than what we're currently satisfying and we think this is going to be not only a big year in 22, but we think we're sending this company up for multiple years of accelerated growth.
I appreciate that thank you.
Thank you again, if anyone would like to ask a question you don't need to first Taiwan telephone keypad again that will these Taiwan on your telephone keypad to ask the question. Our next question comes from the line.
Matthew.
And you May I ask you a question Oh, Hey, guys. Thanks, Thanks for taking my questions. Congrats first what's the update on healthcare vertical I know yours.
You're in the market for the team I just want to get the update there.
Yes, Matthew and thanks for the question.
And as we've said we continue to.
Look for the leader we've got a couple of candidates in mind we're.
We're not ready to make an announcement, yet but that does progress and we think when we get the right leader that will be something that we are able to launch we remain confident that we will launch this effort sometime in 2022, but.
But we continue to progress along that.
Finding that right leader and tell you for US we continue to believe having someone with that domain expertise.
Who can come in and be able to guide that effort is.
Incredibly important in.
For us as we go forward and making sure that we are identifying the right assets.
Kind of fit within our model.
And so we are progressing forward without an.
I'm confident that in 2002 will be able to fully launched to that effort.
Great Okay.
Look forward to that.
An update or just on interest rates Dakota, just tremendous job refinancing the balance sheet Fitch Street my questions around it does go to 300 basis for sure.
At the portrayal company level.
Is there any impact the east you could see.
Especially things differently during the company launched in the traditional I'll be able to just go over or anything.
It's way to do a short term rates go up significantly what <unk> is up to your advantage.
Maybe walk me through that.
Yeah. So as you identified we hit the market and probably timed it pretty well with the.
The bonds that we issued last year.
And kind of in hindsight, we were glad to get that duration entire balance sheet really pretty much optimal timing so.
We view that as a great asset that we have on our balance sheet. If you remember those are eight and 10 year bonds, respectively. So we've got long duration in our balance sheet and I would point out that we have no short term debt and so interest rate volatility today has zero impact.
On US now if we were to borrow into our revolver that is a LIBOR base or whatever LIBOR I guess is phased out but it's.
Kind of an index plus the margin and so is the index goes up of course that would be variable rate that but we have nothing drawn there. So our interest rate exposure at the parent is zero now we use mostly floating rate that as we went through our subsidiaries.
And our structure and so what would happen theoretically and I think it's probably more than theoretical and practice as as the interest expense rises due to the fact that there is kind of a higher base rate that's being charge right. The index has gone up.
That would have the net effect of lowering taxable income at the subsidiary level and as a result, lowering the amount of tax burden that our companies have now offsetting that is that interest expense from the sub comes up to be interest income at the parent, but but because the parent absent assess.
Al generates a net loss in a normal year.
We think that the effect of rising interest rates will actually in this case, because we were <unk>.
Fortunate to lock in with long duration, our interest rates last year at the parent the effect of rising interest rate actually lower the tax expense holistically for the company and raise the amount of free cash flow production that we would be able to generate.
And that's important given your new.
Structure in the conversion to think of it.
I think I would assume that that from.
Sort of strategic standpoint, and a portfolio when you bid on these portfolio companies certainly your your structures has to be advantageous versus traditional available in depth leveraged loan market day as rates rise.
Yeah, I think well I mean as I commented earlier the types of companies that were typically going after it.
Especially the larger businesses, if they're kind of 500 million dollar type businesses, plus or minus those accompany that largely would be trying to tap into the bond market, maybe the smaller end of the bond market that market is completely banned eviscerate. It as you know the leverage loan market is.
Pretty much on pause right now as well and so our structure, we always say that our business shines in times like this the higher the volatility the more advantaged we are as a buyer we bring certainty to a process. We have committed financing so if you're selling a business today and you.
To go out and rely on financing.
The reality is there is a bigger level of risk and that financing being able to come through today. Then there was a year ago and so what is the value of the certainty we bring it's greater today than it was a year ago I know that putting a numerical number on that is always hard to do and it's in the eyes of the <unk>.
How much risk they are willing to take but our structure is absolutely advantage from a financing standpoint in times of increased volatility in market uncertainty now I can also say, we just have an advantage structure in many other respects as well even when market value.
Utility isn't high or permanent capital in our mentality of being long term business builders is something that transcends through all types of market conditions, and it's a massive advantage to us whether we sit in today's market or we sit in a market that was relatively robust form of financing standpoint, a year.
<unk> ago.
Why we think permanent capital is really sort of what a lot of people would like to emulate.
That are competing for these type of assets because it is so advantageous in terms of not only being able to wind companies, but being able to build businesses, but your point of having an exaggerated advantage in these times of market volatility is spot on.
Great Thanks for that and just.
Just for one further putting on that revolver clearly you got that at your hip pocket. The acquainted feature at well over a billion dollars I think.
Laid out the M&A environment pretty clearly to us but is there.
Scenario Edward.
Utilize that the sheriff and go into it it was just a tremendous opportunity just what should we expect on that revolver being drawn down this year is that all.
I think it's going to be predicated on.
Whether or not we can transact against a meaningful size platform acquisition as to whether we would borrow on that in terms of cash flow.
Her pattern Ryan and are.
Scripted comments already talk about the fact that we've made a significant investment and inventory in order to ease supply chain and frankly this is something that with the strength of our balance sheet is a huge advantage for us and you see it in the results we were able to post in Q1, which were extraordinary in this backdrop.
But that is somewhat predicated on the fact that we did do a $1 billion three of financing at roughly 5% last year and long duration financing and we're able to use you know I think the number is over the last six months about $150 million to invest in inventory to take market share and that's not.
I'm only going to pay dividends in Q1 as you saw an over the balance of 2022, but those share gains are going to be here long after supply chain normalized and when supply chain normalizes. Ryan said, we expect to monetize a big part of that kind of inventory investment that we've made to get through these times.
So if I look at our business today and I stay on the one hand, we have inventory investment that we made a huge investment in over the course of the last six months likely we have enough inventory and I'm going to exclude lugano from that because it just went through the correlation of how Lugano inventory investment drives really high return on.
And capital growth in that business, so let's separate that for a second the remainder of the business frankly has adequate inventory and if anything is likely to be monetizing over the balance of the year and into 2023. So that's a cash flow positive you'll also have our business, which.
Which we had said you know we have to.
The change in the corporate structure is now a meaningful free cash flow pretty working capital provider and so we've got high free cash flow production that we're creating you've got working capital that should be a cash producer not cash user now against that we have some elevated capex for <unk>.
511 in Lugano, which we think is very high return Capex and we have investment and further inventory growth Lugano, which is extremely high return on invested capital, but the net of that should be positive free cash flow going forward. So the use of the revolver really is a function of.
How much we can deploy into either add ons or new platform acquisitions.
Yeah, It looks like a very return on invested capital I really appreciate it. Thank you.
Thank you.
Thank you. The next question comes from the lineup team along as I do.
On your line is now offering you may ask you a question.
Oh, thank you.
I'm going to try BLA again, hopefully you can help.
Helped me out how much of the growth was.
I guess, let's call it seasonal the obvious seasonal drivers.
And then second derivatives.
How much was it.
Gross was.
Call it existing product platforms articles whoever wanted to describe it.
Product extensions.
Listing customers and then maybe how much was brand new.
Brand new customers I guess.
I don't know if you can.
Parson, a little bit better.
Yeah, Tim It's Elias I guess long time I haven't seen you hopefully will reconnect at a conference here one of these days.
When I climb management, when I find management that execute.
Out of the way [laughter].
Okay. So maybe I don't want to see you then.
Future confidence.
But you know the.
To your question I would say, we look at it a little bit differently and when we acquired Boa. We had said what are the things we really like about it it's a.
<unk> technology that is for the <unk> for the most part up ending an industry that hasn't had innovation that came in in 100 years.
It is.
A performance enhancement. So it's not just the convenience product and that really is kind of very important in here and we now have a lot of documentation around it and we work with a broad range of partners.
And within that it's a global business.
I think the U S is probably the smallest market and and market that we actually deliver product too and then we coupled out with.
One of the best if not the best management team that I've ever worked with and I think that creates really explosive underlying organic opportunities. So it's hard to parse out with all the different things that you said, but what I would say is the market share of this business is around 5% of its addressable.
Market and it's got incredible IP over 160 patents that we have globally issued and so.
Has really the element that you would look for for being able to drive.
Sustainable long term growth.
So I would say that every year, we work with our brand partners to extend our technology, an additional platforms that they have and that is an ongoing thing that we do year in and year out.
In addition to that our management team has done an exceptional job of being able to get into new industry vertical and each one of those are at different levels of their maturation. So if you took snowboard where the company started we have a very high level of market penetration by definition that means the.
<unk> and the growth rate in that business are going to be lost but we have seeded market.
And if you call them verticals or whatever you Wanna call them.
We've really had the management had the foresight to see a lot of different vertical and they are at different stages of their maturation process. So what we see with this company is that it's sort of a little bit of everything that you said, except we're really not bringing a lot of new brand partners into the fall.
We have so many outstanding opportunities with our brand partners to be able to expand on new platforms that they have and then of course, when we get on those new platforms.
Ultimate thing that drive this business and it's like in any consumer product. If we put our if we partner on a new platform, how does that product gonna due to the unconcerned <unk> and what we find is that product does really well and takes market share in its own little area.
When are when we're on there so it's a little bit of everything that you said, probably not as much in terms of getting new brand partners. Because we have the brand partners that we want to work with of course, there's probably some here there that we add into the pool, but mostly it's we're taking market share from Ah.
Relatively small point right now with a disruptive technology and Ah.
Outstanding management team and great out and great IP position so.
We think those continue to be all the elements for making a company that has long term sustainable growth opportunities.
Translation.
Very early innings and the runway is really long you don't need to start.
Dissecting that that closely cause there's just a lot a lot on the plate and a lot of opportunity keep up the good work. Thanks, Yeah. Tim you just said what it took me five minutes to say in 10 seconds, maybe I'll turn the call over to you [laughter].
[laughter].
Yes that is 100% correct.
Super Thanks.
Thank you I know, it's like a question at this time I would now like to turn the conference back I'll think to Mister Elliot.
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 coding. Thank you for your continued support.
Ladies and gentlemen that concludes today's conference call. Thank you also thank the competing you may now disconnect.
Okay.
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