Q2 2023 Compass Diversified Earnings Call
Good afternoon, and welcome to Comcast diversified second quarter of 2023 conference call.
Today's call is being recorded and Oh My second please.
If you would like to ask a question at the end of the prepared remarks.
The Star T.
Number one on your chest.
At this time I would like to turn the conference over <unk> escape mucus for introduction and everything at the Safe Harbor statements. Please go ahead Sir.
Thank you and welcome to accomplish diversified second quarter of 2023 conference call representing the company today are a liar stable Cody C E O, Brian Falcon Jam Cody CSO tap Mozzarella O C O O a couple a script management.
Four we began I'd like to point out that the Q2 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, a couple of us diversify dot Com company.
Company also file this Form 10-Q at the S. E C. U today after the market closed which includes reconciliations a certain non-GAAP financial measures discuss on this call.
Also available at the Investor Relations section of the company's website. Please note that references to EBITDA in the following discussions refer you adjusted EBITDA as reconciled to net income or loss from continuing operations and the company's financial filings. The coverage is not provide a reconciliation of its full year expected.
Twenty-three adjusted earnings are adjusted EBITDA, because certain significant reconciling information is not available without unreasonable efforts.
Brought this call we will refer to accomplish diversified is cody or the company.
Allow me to read the following safe Harbor statement. During this call we may make certain forward looking statements, including statements with regard to the future performance with Cody and its subsidiaries.
And expect the timing of acquisitions in future operational plan, such as ESG initiatives.
Words, such as believes expects anticipates plans projects should in future or similar expressions are intended to identify forward looking statements. These forward looking statements are subject to the inherent uncertainties in predicting future results in conditions certain factors could cause the actual results to differ on a material basis.
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 file with the SEC For the year ended December 31st 2022, as well as in other SEC filings.
In particular that domestic and global economic environment supply chain labor disruptions inflation and rising interest rates all may I have a significant impact on Cody and our subsidiary companies, except as required by law Cody undertakes no obligation to publicly update or revise any forward looking statements.
As a result of the information future events or otherwise.
At this time I would like to turn the call over to a lie to say, though.
Good afternoon, everyone.
Thanks for joining us today.
We are pleased to report that our second quarter results exceeded our expectations as we continued to benefit from a strong and diversified set of subsidiary businesses.
During the quarter pro forma consolidated revenue and adjusted EBITDA declined by 3.4%.
Eight 5%, respectively, given the headwinds we saw three months ago. We are encouraged by these results.
Last quarter, we detailed our strategy of assembling a highly diversified group of companies that reach a wide set of customer demographics and and markets.
Each with strong underlying core growth rates and we discussed how this strategy has driven resiliency at our performance.
This quarter is no different we face the same macro challenges several of which are lasting longer than we originally anticipated.
Nonetheless.
All our results continued to hold up very well.
Looking at our niche industrial businesses unit sales remained strong, but the easing of inflationary pressures negatively impacted revenue while positively impacting margins.
Industrial businesses continued to perform above expectations reporting high single digit EBITDA growth for the quarter.
Growth of 12% year to date.
Notwithstanding the macro headwinds and slowing global economy, we expect our industrial businesses to continue to produce solid growth and adjusted EBITDA over the remainder of the year.
In our consumer businesses inventory destocking headwinds have lasted longer than anticipated.
Continue to impact our brands further down the supply chain.
Guard list and market sales continue to hold up remarkably well.
And for our brands, where there is not a large inventory overhang, we are experiencing strong performance.
For example.
Those results indicate that the ultra affluent customer continues to spend.
As they delivered 56 per cent growth in revenue in the second quarter and acceleration from 36 per cent growth in the first quarter.
Marucci is also a buck the trend reporting 35% revenue growth in the quarter.
<unk> and markets are not suffering from an inventory hangover and they're strong product lineup has demonstrated that the consumer is still spending for on trend products.
Despite the aggressive fed tightening cycle and slowing global global growth the performance of our industrial businesses, coupled with performance from Lugano in marucci.
Give us confidence that our company is well positioned and when distortions from the pandemic are behind us.
We expect to deliver solid growth.
Our subsidies their subsidiaries that are suffering the most from the Destocking headwind Butler.
<unk> Prime aloft.
Are also two of our historically fastest growing and we believe best positioned businesses. Once Destocking subsides. We expect these businesses to return to their historic growth rates and we believe we could experience above trend growth in 2024 as part of this normalization.
Process.
During the second quarter, we started to see some green shoots emerge, giving us confidence that the destocking issues will come to an end in 2023.
Specifically bookings for prime aloft improved in the second quarter.
True marginally over prior year there's.
This compares the double digit declines experienced in the first quarter.
And although one quarter does not make a trend and we expect bookings to be choppy over the course of the year. This is the first positive sign we have seen in bookings over the course of the past 12 months for Prime aloft.
Digging deeper we know prime aloft began experiencing booking weakness three to four months before our other consumer businesses, including Butler.
As we look for the bottom of this inventory cycle Prime aloft is provided the first positive signal and Lisa leaves us optimistic that some of our other consumer businesses will serve soon return to positive bookings growth.
Given the persistence and inventory destocking and the lag between bookings growth in revenue growth, we expect third quarter adjusted EBITDA to be roughly similar on an absolute dollar basis to this year second quarter.
We continue to project adjusted EBITDA growth for the full year 2023.
Compared to a full year 2022.
In addition, we are anticipating a strong rebound and growth in the fourth quarter.
Before turning the call over to Pat I'd like to summarize our performance and outlook.
We are pleased with our second quarter results as they came in above our expectations. Despite.
Despite the inventory destocking headwinds the overall strength of our subsidiaries not only gives us confidence that we will grow adjusted EBITDA. This year, but leads us to believe that our growth will accelerate in 2024.
We believe we are well positioned to capitalize on the opportunities created once these headwinds dissipate and we remain committed to our strategy, which we expect will deliver another year of growth that Cody with that I will now turn the call over to Pat.
Thanks life.
This presentation, when we discuss pro forma results.
It will be as if we owned primal off.
January 1st 2022.
Mentioned in the quarter, we continued to face headwind in several areas due to correcting inventory levels in the supply chain.
And select spots these headwinds appear like they are starting to ease.
Velocity subsidiary continues to heat and pressure and both of its major and markets due to a combination of reduced sell through.
And tied inventory controls put in place by hunting and fishing focused retailers.
As we have discussed repeatedly philosophy benefited greatly from demand pull forward during the pandemic is outdoor activity levels increased dramatically.
As anticipated the companies now paying the cost for this and demand has declined significantly below what we see as in what historically.
Historically been trendline levels.
The impact of this bullwhip effect is having an outsize and we believe short term impact on our consolidated financials.
Despite the significant headwind strength and our other subsidiaries led to only modest declines in consolidated pro forma revenue and EBITDA.
In fact.
To exclude velocities performance.
He has a whole showed growth in the quarter, both in terms of revenue and adjusted EBITDA.
Now.
<unk> subsidiary results I'll begin with our niche industrial businesses.
For the year to date period, ending June 2000, twenty-three revenues declined by approximately 4% and adjusted EBITDA increased by 12.3% versus the same period a year ago.
Similar to the first quarter each of our niche industrial business has expanded margins in the second quarter.
And aggregate adjusted EBITDA margins expanded by over 250 basis points.
Prior year.
Arnold showed solid growth in revenue and EBITDA and once again headstrong bookings in the quarter.
Company continues to gain traction securing new projects across markets, many of which were driven by increased demand for electrification in the economy.
Margins expanded due to positive mix and sales continued to skew towards more technologically advanced products and.
And market demand remains salad across segment said Arnold and we expect aerospace and defense to be Italian in the near term is spending in the commercial aerospace sector has not yet returned to pre pandemic levels.
Al towards revenue declined slightly in the year to date June period is more cyclical and market space headwinds and the company passed on raw materials savings.
Although there was a slight decline in revenue adjusted EBITDA increased by over 21% and the six month period as compared to the prior year do predominantly to a series of broad efficiency measures put in place by the new team.
Remain encouraged by the progress made it outdoor.
At Sterno revenue declined by approximately 7% in the year to a period as compared to a year ago, driven by Lumpiness in the company's scented wax business.
This decline the company was able to operate efficiently and benefit from greater stability and shipping costs driving slight growth and EBITA on a year to date basis.
Turning to our consumer businesses for the year to date June 2023 period revenues increase marginally.
And adjusted EBITDA declined by 7.5% as compared to the prior year.
The Boa continued to show a decline in adjusted EBITDA versus a record first half of 2022.
Many again added new partner platforms in the quarter that we expect should drive growth in 2024 and beyond.
But with selling continues to be significantly below and market demand.
We believe year over year comparisons will improve on a percentage basis in the third quarter of this year and at 2000 twenty-three adjusted EBITDA performance.
Track closely to full year 2021 levels the launch of Alpine boot incorporating our technology continues to track above her expectations and we expect them to have a meaningful presence on the slopes in the app and this upcoming ski season.
We're also proud of the continued widespread adoption of Bo enabled products by cyclists and this year's recently completed tour de France, approximately 75% of competitors, including overall winner you're honest when your guard competed in shoes, incorporating bullets a technology.
Rucci once again had an exceptional quarter.
And for the year to date period revenue and adjusted EBITDA grew by approximately 20%.
And over 57 per cent, respectively, as compared to the year ago period, a year ago prior period.
Salvage sales growth with strong across most channels.
Our latest acquisition of composite Bedmaker found that performed well in the corner and we are pleased with the integration to date.
The company has made significant progress in several bits adjacent categories and we're particularly excited by strides made in the large feelings glove market.
Well isn't rookies growth geographically primarily in Japan.
Lugano.
Once again had a strong quarter and for the year to date June period revenues and adjusted EBITDA grew by 45 per cent and 41.5 per cent respectively.
As compared to the prior year the company saw strong growth in multiple salons, including Newport Aspen in Houston and experienced strong sales in the second quarter and his newly opened Washington D. C in line.
Looking ahead or Greenwich, Connecticut line is scheduled to open by the end of August and we've made progress in the quarter on construction of our second flagship Salon in Palm Beach.
In addition, we are pleased to announce that we recently executed at least for a salon in London.
Which when opened in mid to late 2024, when Mark Louganos first international Salon, We believe Louganos bespoke approached ultra high end jewelry will have success internationally.
Just as it has domestically.
Prime aloft continued to show modest declines in both revenue and adjusted EBITDA and a year to date period is customers continued to pull down target inventory levels.
Is Elias mentioned, we believe we are seeing somewhat of a bottoming in our end customers inventory cycles and bookings have shown improvement.
The end of the first quarter.
We continue to have project wins at Prime left in the second quarter and continued to believe 2024 will be a strong year for the company.
511 had a solid second quarter and for the year to date June twenty-three period revenue and adjusted EBITDA grew by close to 12% and 7.1 per cent respectively.
As revenue increase in all segments of the business.
Despite continued revenue growth in the second quarter adjusted EBITDA they'll slightly is gross profit margins dip marginally as accompany look to reduce seasonal inventory in the quarter.
Philosophy continued to struggle in the second quarter.
Point of sale activity remains sluggish and the company's Aragon segment, we are seeing slightly more positive signs with regards to end customers and the archery segment the.
The retailers have been slow to add to depleted levels of inventory.
Well, we believe the company will have meaningfully positive adjusted EBITDA in the second half of 2023, we continue to focus both on cost controls and demand stimulation as we continue to navigate this difficult period.
As a whole given the headwinds we are pleased with our performance in the second quarter as it comes in above expectations do we believe that some of the broader headwinds facing our companies are starting to improve our management team remain vigilant and controlling costs.
We believe we will grow in 2000 twenty-three and anticipate a strong 2024 I.
I will now turn the call over to Ryan for his comments on our financial results.
Thank you Pat moving to our consolidated financial results for the quarter ended June 30th 2023.
I will limit my comments largely to the overall results for Cody since the individual's subsidiary of results are detailed in our farm 10-Q that was filed with the S. C. C earlier today.
On a consolidated basis revenue for the quarter ended June 30th 2023 was $524 $2 million.
2% compared to 515.6 million for the prior year period. This year over year increase primarily reflects our acquisition of prime aloft during the third quarter of last year.
Consolidated net income for the second quarter was $17.1 million compared to net income of 31.
And in the prior year. The decrease is primarily due to an increase in interest expense as a result of financing the prime aloft acquisition.
And rising interest rates.
Adjusted EBITDA in the second quarter was $90 $1 million up three per cent compared to $87.4 million in the second quarter of 2022. The increase was due to the benefit of the prime aloft acquisition.
Adjusted earnings for the second quarter was above our expectations at $35.6 million.
Down from $39.3 million in the prior year quarter.
Decline was primarily a result of higher interest expense.
Now onto our financial outlook.
For the full year 2000, twenty-three we continue to expect consolidated subsidiary adjusted EBITDA to range between $430 million and 460 million.
For the full year 2023, we continue to expect adjusted earnings to range between $110 million and $135 million.
This is the same guidance, we had provided last conference call.
Turning to our balance sheet as of June 30th 2023, we had approximately $67.4 million in cash approximately 506 million available on a revolver at.
Our leverage was 44.08 pods just under 4.1.
We have substantial liquidity and that's previously communicated we have the ability to upsize a revolver capacity by an additional $250 million.
With our liquidity and capital, we stand ready and able to provide our subsidiaries with a 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 second quarter of 2023, we received 21.7 million of cash flow from operations, primarily result, a strong operating performance. This is up $23.5 million from the prior year's comparable period.
We use 33.7 million in working capital during the second quarter of 2023.
Substantial decrease from 63.5 million used in the prior year when we needed to support many of our business is inventory levels as a result of supply chain disruptions.
For the <unk> period cash flow provided by operations increased $72.6 million as compared to the prior year.
We expect to continue to monetize working capital across the business with the exception of legato as we continued to fund its growth objectives.
Also of note during the quarter the manager waved 50 per cent of the management fee owed by the company in respect of Prime aloft, and we used approximately $20 million to fund mabuchi that an acquisition of bombast.
Finally, turning to capital expenditures.
During the second quarter of 2023, we encouraged $15.5 million of capital expenditures that are existing subsidiaries.
To $14 million of the prior year period.
The increase was primarily result of the timing of retail Buildouts at Lugano, and 511 to support their continued growth.
For the full year of 2023, we continue to anticipate total capital expenditures of between $60 million and $70 million.
We continue to see strong returns on invested capital at several of our gross subsidiaries and believe they will have short payback periods.
Capital expenditures and funny twenty-three will primarily be at Lugano for new retail salons and at 511 as we continued to increase its retail store count from it's 121 stores as of June 30th.
With that.
Now turn the call back over to her life.
Thank you Brian .
I would like to close by briefly providing an update on the M&A market and our strategic initiatives.
In terms of M&A deal activity has remained suppressed below historic levels for some time now.
However, we started to see some increased activity in the second quarter that we expect to gain momentum over the balance of the year.
On the ESG fraud, we continue to advance our key initiatives and execute our strategy.
Our approach to ESG is directly tied to our business model.
M E. S. G is becoming increasingly important to potential employee seeking new opportunities for these reasons. It is critical that we consistently and clearly communicate R. E. S G philosophy and practices, both internally and externally.
To reflect the work in progress that has occurred across the organization over the past 12 months.
We have updated the sustainability page on our website.
We have spent significant time working with our subsidiaries to understand how our over arching ESG framework will be implemented in our companies to facilitate value creation and our webpage as a source to tell this story.
We aim to generate measurable measurable benefits that a line with our values and create strong financial returns for our stakeholders, we believe that the environmental social and governance factors that we used to build our framework overtime will allow us to deploy capital N a.
Different way that many in the marketplace, reflecting risk more appropriately.
The volatility that we face today.
Only underlines the importance of businesses like ours stepping up with purpose.
We are committed to driving positive change and leading the industry to become the model of choice.
An example worth discussing comes from one of our niche industrial subsidiaries the Sterno group.
In June of 2023, <unk> Texarkana manufacturing facility of troops Oh cheap the true silver certification for zero waste.
True, which stands for total resource use and efficiency.
Is administered by the Green business certification, which is a leadership standard for facilities to measure zero waste performance.
Currently <unk> Texarkana facility is the only manufacturer that is true certified in the state of Texas, and we are proud of <unk> recognition in their pursuit of zero waste.
In conclusion, we're proud of our second quarter results, which highlight the true benefits of our diversification strategy.
While several of our consumer businesses continued to be impacted by persistent inventory destocking headwinds are niche industrial businesses continued to perform well.
The overall strength of our subsidiaries gives us confidence in our belief that we're well positioned to not only grow this year, but have a snap back here in 2024, one sees headwinds fully dissipate.
Before we open the phones for Q&A is.
Is with a heavy heart that we acknowledge the passing of our friend former board chair and mentor to so many of us that compass Shawn day.
Over the last 25 years, Sean played an integral role in the formation of our strategy.
His business acumen professionalism.
Integrity and kindness will be greatly missed throughout our company. So on behalf of the entire Cody team at our board of Directors, We express our deepest condolences to the entire day family.
Without operator, please open the lines for Q&A.
Thank you.
Time, I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from the line of <unk>.
C J asked the Cherokee.
It's asking a question Greg.
Thanks, Thanks, so much and good afternoon. Good evening I guess, just a couple of general won't question does not compensate civic one just I guess on the corner was it seems like we're starting with a bad unexpected I think it was basically flat or close to it sequentially on EBITDA.
Called out kind of a mid to high single digit drop expected I guess last quota uhm just <unk>. The reason why you're kinda not increasing guidance <unk>.
<unk> just.
Operations running better, but inventory draws are a little bit.
<unk>, just a little longer really into Q3 does that kind of <unk> stomach.
Yeah, Larry I think you know your spot on we did better in the second quarter than we had forecasted on our first quarter earnings call.
But we didn't raise our guidance and.
The reason behind that is you know as you have identified the inventory headwinds are a little more persistent than we thought and they're gonna bleed forward a little bit longer you know as I said, we're starting to see some green shoots by you know stabilization of new orders at Prime aloft, we haven't seen that in some.
Of our other consumer facing businesses. So I think as a result of that we're just being a little bit more brunette.
Although you know there's some positive signs in the portfolio as well so I would really caution or you know position this more as us being incredibly conservative right now because the business is performing better than we have and it's anticipated.
I think I know that that that that's all the explanation good call into question.
Question <unk> I guess, what was there any <unk> to the management change was that brought on by anything and then I guess a second I'm just great. A question just on Sterno itself was.
EBITDA is running sort of and the 40 45 million dollar range, but if I remember correctly that the point. He business itself. You know are <unk> pre COVID-19 used to do close to that and I know you're required reports and that's probably not nearly not doing quite as well as it was doing probably in its heyday during COVID-19 and and.
With Wal-mart large customer, maybe you're losing some shelf space, yeah, but can you just give up <unk>.
Two questions that the reason for the management change of the <unk>.
What sort of what is the importance can kind of give us an idea of what reports of doing today versus you can't eat business.
Okay.
Let me take that.
Yes. Please.
Okay, Hi, Larry.
I mean I would just say you know as is typical people retire Craig Carnes, who is a.
Longterm colleague of ours at the firm decided to retire and we believe we found a great replacement for him and Jeff and we're excited by that.
As it relates to kind of the breakout we don't say the breakout I would tell you your numbers are kind of a little bit off in that regard.
You're right conceptually put you in a little bit off the candy business on its own or the.
Chief and fewer business never never got right North of 30. It was always below 30, even at even at the peak years. So I will let you what kind of kind of read into that otherwise.
And you're also right at the Yeah, sorry go ahead.
No I was saying I was saying they can't hit and in some of like starting a home those combined before your blood <unk> thyroid side.
Excellent we face in Chrysler's, but it was never quite as high it yeah.
Gotcha.
The.
The wax business as a <unk>, it's eaten lumpy business and it's a business that has some great quarters and and some some weaker periods.
We bought it at a very attractive price for the company and we continued to to see it performing or for the shareholders and we continue to see a performing.
Okay fair enough.
Just like at one point yeah.
You know it.
Just make one other point you know as you've identified with you know kind of a large a large customer of that business. You know if you think about where inflation has really impacted consumer spending. It's been on you know kind of consumer that has the least disposable income and these products.
X are generally going through a channel, where it's targeting that customer and so as inflation eases and you know kind of real wages start to grow we would expect the sent did you know kind of wax part of our business to start performing a little bit better.
No longer be a drag on earnings at that company, but inflation, you know kind of at that customer was a really significant headwind that the company was suffering from.
Fair enough and then just to end on a more positive note that could just on we're getting lots of questions. Our lives on on Lugano and over the last few months, especially you know some question sends around sort of you know it's.
It's.
<unk> <unk> <unk> <unk>.
<unk> sat on how much you know how how much can the business grow.
Being you know how much have you built the infrastructure around him to support him and so just kind of you know questions. There. The growth has been so rapid last year and now you're up another 45 per cent.
So yeah, I know you don't have a crystal ball, but.
I guess the questions are what makes this business so different special from other high end.
<unk>.
Record this business be in five years.
Yeah, So Larry I think it's a good question obviously when you see a company that has this kind of rapid growth you know the natural question is how long can it sustained this kind of growth and is an experienced something that is making it more temporary right like you know the pandemic.
Obviously.
Impacts on a company like velocity that now is getting paid back I think that's a natural question to wonder if that's a living to Lugano, you know actually quite to the contrary I think the market that Lugano was going after and the approach that they have created which is very unique and distinct in the industry is one that is.
Is generally under served and I know that May sound, a little bit strange, but this you know kind of customer subset.
Is one that has it been targeted at the same level by a lot of the major players in the industry. You know it is much more of a one off unique kind of you know a jewelry piece. You said is created versus you know a lot of the competitors that want something that can be much more.
More math and have you know the same key soul you know throughout multiple over their outlet. So the model is completely different and it's something that you know given the community type aspect that our founder has built the business around with his customers you know has significant.
Lee you know greater room to run in our opinion a lot of the limitations on the growth of this business was really predicated on investment how much capital was available to put new salons in place how much capital was available for inventory to create these pieces and.
When we partnered.
With Modi to you know kind of drive this business forward, we were able to solve a lot of those capital issues and what you've seen as an acceleration in the company's growth because of that you know we don't view this as temporary and.
We don't view, the you know kind of growth opportunity as being limited right now and in fact, we're seeing some of the programs that we're putting in place and some of the you know additional tie ins that we have around our customer segments, it's only accelerating and strengthening you know kind of the community effect.
And the purchase of kind of product ultimately and profitability of this business. So you know <unk>, who is the founder that we've partnered here you know it was one of the most visionary C E o's that I've ever had the pleasure of working with and he has created a unique business model that has a lot of runway for.
Rose and you know, it's limitation will be how much capital do we Wanna put in to facilitate that growth in our view has been with return on invested capital rates as high as they are here will continue to fund all of this and these opportunities until we see some sort of.
Slowdown in growth and we're just not experiencing that so you know I think that's a long winded answer I know to a short question, but we think there's legs to this and that it can grow to multiple sides of of what it is today because it's such a unique mousetrap in so differentiated from everybody else in the industry.
Got it all I appreciate the enthusiasm and the caller. Thank thanks for all the all the way.
I appreciate it thank you Larry.
Thank you.
Next question is from <unk>.
<unk>.
Can I ask you a question.
Yes, so my <unk>.
Maybe just on the industrial segment really encouraging to see the sizeable margin expansion the industrial businesses last quarter we.
We mentioned an expectation for bookings to continue to slow and it looks like it might have so maybe just an update on how bookings in the industrial segment have trended since last call and then specifically on Alt or just how sustainable are these margins should we be pulling forward in north of 20 per cent EBIT margin going forward or <unk> margins come.
In a bit as the booking environments lows.
Yeah, I'll, let you handle that.
Sure. Okay. So first one is on bookings I'd say in general.
The business in our industrial as I think from industrial those longer lead businesses that we have that actually bookings have a large sort of spend some time between booking shipping we actually saw an increase in or excuse me bookings were higher than revenue. So there was a <unk>.
Book to bill rate of over one so <unk>.
Salad there I think the second question was an outdoor and if we should see expanding margins. You know, we think will continue to see efficiency gains. There. We believe we will look to add on acquisitions that we can then also add more efficiency gains to this management team is very good tyrion his team.
Have done it before and we've been impressed by them. So we think.
We can get a minimum this sort of you know margin level is sustainable absent sort of price increases remember, we pass on sort of the raw material price increases to our customers with a lag right. So even though we will be making the same sort of dollar contribution on a per pound basis. The margins may go down if.
E P S and other raw material prices increase if that makes sense.
Got it.
A lot of sense, so that it's moving to marucci is one of the stronger businesses in the quarter, both top and bottom line relative to our expectations. So maybe just a little bit more color on what drove the outperformance are we still seeing strong caddock sell through and then.
Further what type of margins are baked into the guide for the back half of the year should we expect something similar Martin similar to last year in the mid 20 per cent range.
I would expect margins similar to the first half of this year and as it relates to what drove the revenue growth would continue to have strong sales through on <unk>. We also continue to expand into new categories. We mentioned feeling gloves, which is a big category that we're getting a lot of traction and you know I mean, if you.
And then we just had no strength kind of really across segments, where growth in Japan, we've broken softball, you know if you looked at many of the hitters in the home run Derby, where we're using victor's bathroom rucci bad so they're just sort of.
It's a great brand that continues to green trick gain traction.
Got it makes sense last one for me along similar lines of Maruti, maybe just touch on the bomb acquisition quarterly performance any trends are seeing in D. C and just overall commentary on the integration process any plans for the future for bump.
Sure. We think we can grow bomb they were capacity constrained, we're not gonna I'm not gonna touch on sort of specific financial performance. Ryan said, we borrowed I think our Latin roots with $20 million as far as they use the proceeds for that and I think it was.
So you can get your head around sort of the about the purchase price, but we're <unk>, we will be adding capacity for bomb in 2024 likely I don't know if that will be the biggest driver of growth for the company, but it will be another driver of growth and R. D. T C. Both of 'em Rucci ended palm room.
Main strong.
Got it is it from you guys. Thanks.
Thank you Mike.
Yeah.
Thank you your next question.
<unk>.
May I ask you a question.
Yeah. So this is mark on for Chris Kennedy just wanted to ask on velocity I know you had mentioned that but could you talk about any of the initiatives that are in place turn that business back to grass on the revenue line and then also improve margins Sir.
Sure Yeah I'm all good thank you know with velocity.
Have the and we should all expect and I think we've been pretty clear about this over the last couple of years.
This was a company that.
Experienced a dramatic growth and participation and revenue and earnings through the pandemic.
And you know if you just think about it people were staying home. This was activity that people could go out and do you know hunting really exploded as a category.
If it's on the archery side. These are you know really big Capex, you know our big kind of durable items that are being purchased some cases, it's you know 2500 $3000 per.
Per item and for an individual to do that you know, they're just not it's not a consumable that you're gonna go out and by year in and year out and so with this business is you know we experienced a dramatic uptick in the pandemic and then of course, there was not enough supply available.
So we were rushing to get as much product as possible to our retail partners.
Right over into 2021, as having a banner year, but I think you know we had been very careful to say we.
We don't expect it to be a normalised level of earnings for this company and this is benefiting disproportionately from anything else in our portfolio from the pandemic now. It was you know fun to experience that and it's nice when you're getting an earnings tailwind micah, but inevitably.
There's gonna be a payback and we're suffering through that payback right. Now. So you know it's hard to say what can we do to stimulate demand. We're doing everything that we can do to stimulate demand. The you know reality is out in the field, there's more inventory on shelves and what's needed and.
Foot traffic coming into our retail partners is really low for this company right now and unlike the other nine businesses. This is the company where the market is not growing for the products that we sell and so it's a payback for you know the really strong performance that.
We saw in 2021 now do I think that it's gonna get worse from here.
I would say no chance and this business you know, we'll just by virtue of you know some of the inventory depletion that's going on right now have some level of you know better performance in revenue growth next year, but this year, there's really not much that can be done we have great new.
Products that are coming out and being introduced into the marketplace and you know we're trying to stimulate demand from customers, but if a customer purchased an item that they don't want to purchase another item for three or four or five years. You know you just can't stimulate that demand again and because the rush all happened you know coincidence.
Emily with you know buyers coming in and and acquiring during the pandemic, there's gonna be a payback period here. So twenty-three is.
He's a year, where we should all have very muted expectations. It is very difficult for us to be able to generate revenue growth. What our management team is doing an extraordinary job of cutting costs and creating operating efficiencies as much as they can you know the truth is though.
And all of these businesses, there's a certain amount of operating leverage that exists and when revenue was down and you can't stimulate it because of you know market background and conditions you just gotta have negative operating leverage that's gonna impact. Your financial result, So you know I would expect velocity to have.
You know a poor 2000 twenty-three overall with a snap back coming in 2024 to some better performance, but you know we were pretty clear when the company was doing north of 50 million of EBITDA coupla years ago that that wasn't a sustainable level of earnings that it had but I can tell you right now where the company's <unk>.
<unk>, you know two or 3 million Bucks, a first half EBITDA, that's not sustainable either on the low side and it likely is somewhere in between that is a normalised level of demand revenue generation earnings potential I do think the significance of the revenue declines.
Has caused us to take more cost action than we otherwise would of and by leaning this business al. It likely is gonna have a better margin profile going forward. Because these are the types of times, where management teams you know really sharpen their pencils and kind of you know.
Cut deeper and trim off all of the non necessary you know kind of aspects of the business because you're more into survival mode, but that generally leads to you know kind of outsize earnings wrote when revenue comes back. So like you know we all wish that the market was different in that we could give you some idea and you know kind of.
Of this bouncing back now the hunting seasons coming back.
Back half of the year will categorically be better than the first half there's no doubt about that this is when these products are sold when retailers are bringing them onto their shelves. So we will not replicate the first happened in the second half it will be far better, but we should have muted expectations for this year and it could be you know next year I'm sure.
Sure there will be some you know bounce back and it will be stronger than it is this year, but I doubt. We're back on you know kind of trend line, there's probably a couple of years of normalization and payback for the pandemic boom that we experienced in this company and then it will revert back to <unk>, you know a more <unk>.
Table and normalized business. This industry has typically been a pretty stable, albeit very slow growth industry. It's typically been very stable. You know this was one where the pandemic effects were just exaggerated well beyond you know kind of what anyone could have anticipated.
Great. Thank you for that and extremely helpful. There and then I guess on primal off I know when you guys acquired it and since then you've talked about some of the additional markets an additional revenue opportunities in there like therma plume or the licensing opportunity of increasing you know <unk>.
Facing image of <unk> can you talk about any of those initiatives there beyond US you know.
Synthetic down.
Yeah, No I mean, one of the large initiatives were pushing us is our new pure initiative.
Which is I forget exactly what the things were but it's produce using reduced emissions I believe and we are working very hard to kind of work through the supply chain to give our end customer a product that they can trust is is you know using as few emissions.
Possible to create that product.
And that is having that has significant interest from many of our customers right now.
Just as an example.
Got it thank you guys.
Thank you.
Thank you once again, please press star one should you need to ask the question.
The next thing.
<unk> next summer.
And can I ask you a question.
Hi, Good afternoon, everyone was just wondering if you could sharing your commentary on how international performance has been at the portfolio companies. We started to see a little bit of you know volatility coming out of macro economic data.
Some policy decisions, there and just wanted to get your input.
Asher Mmm, Yeah sure I can't see there's been any.
You know huge trends I mean, obviously, China is is coming back slower than anticipated and everybody's looking for stimulus there right and so we have seen that we have seen that in our distributor customers. We have seen that in places, where we have sales to China and we have seen that one we've had you know <unk>.
People visiting retail in Asia, we have seen that sort of at at at stores there.
You know I'd say.
Europe is muted and North America is pretty strong in general if by the end consumer right. So it's kind of those are the three but no sort of you know.
And I was sort of big see changes right now or at least in this last quarter.
[noise] got it thanks guys.
Thank you.
You. Our last question is from Nancy Heritage comment beat Riley. Please ask you a question.
Hi, Thanks, Thanks for taking my question just on the Guy who did I hear you right that three Q, just anybody that would be dollar amount equal to the second order.
Yes, <unk> and what's written with the dollar amount we just posted.
So I look at it basically with the midpoint of your of your 430 to 460, excluding the corporate you know you're talking about 111.
And something like 115, 116, four quarters that sort of thing should think about the <unk>.
I think that's good that's a good way to think about it you know.
Yep.
Okay, Great and the last time I was intrigued by that you had to come within their like about 24, I know I know you don't provide guidance for $20 I'm not trying to ask you play you sort of touch of of how it could be really snap that I think historically, you said, 10% growth for your portfolio companies can be could we possibly be thinking about something much better than that in 24 in a snap.
That scenario.
Yeah, I think you know what we're trying to highlight is.
The you know kind of if you just think about what's happening right now and Pat alluded do this and we keep talking about inventory destocking.
And market sales for virtually all of our companies that are in the consumer space and are going through the wholesale channel are being muted or the end market sales are stronger than what are selling and so our revenues are being needed probably the notable exception to that matters. If you look at it.
Marucci, obviously, where inventories did an overhang as much and you know they had a better opportunity to be able to match you know kind of cell in to sell through.
And so you know if there is a company that.
It's sell through is 20 or $30 million greater than Sal in just by no longer having inventory Destocking you could have you know a pretty material impact on revenue growth without even having revenue growth come from the you know kind of initiatives that.
We have in place and so if you think about a company like Boa just take it as an example, we know there is a huge differential between the amount of sell through in the amount of selling now on top of that boy has done an extraordinary job of continued continuing to proliferate.
On the number of new platforms, and so we know that we have a ton of new platforms in the market compared to where we were in let's say 2021, and so and we know the products that were on our the I'm trying products that are growing above the industry growth rate.
So that should lead to really strong growth absent any differential between sell in and sell through and so we look at it and we say okay. That's a business that if it just no longer had inventory destocking what have a substantial amount of revenue growth and then you couple on top of that the fact that it is can.
<unk> to take rapid market share gains through proliferating on <unk> platforms that should be really accelerated growth at the company you experience is getting back to the normalization product and so I give that as an example, because there's no reason to think that prime aloft won't experience that or.
Are you know ergo baby or 511, and it's consumer wholesale segment.
When you think about that amount of inventory headwind you know, we think of it as a rubber band that's getting kind of pulled farther and farther back as inventories are being depleted here and when it snaps back I think that it would be reasonable to expect and I'm not trying to give 24 guidance right now will do.
As we come into the new year, but it would be reasonable to expect that 24 could be a growth year that is higher than what our longterm.
<unk> should be that you know it must there's some continued inventory shrinkage, which doesn't really seem plausible from where we're sitting right now I think that would be a good baseline expectation and so you know we think we could have a really strong step back and.
Q for based on you know, we obviously have a lot more information a lot more granularity on what each of our companies are doing to take market share and I can tell you we've never felt better about our companies and what they are doing to increase their shelf space and their share, but yeah, it's not coming.
<unk> through and and market numbers because of Destocking you know that should provide you know a real acceleration into next year and you know personally if I was a betting man I'd, probably you know take the odds that we will grow faster than our longterm core growth rate next year as a result.
The way you explain it makes it very clear that the headwinds that.
The Destocking, Wisconsin.
Normalization is gonna give you just pop right off the bat as it was back towards you know normal growth rate. So that makes a lotta sense. Thanks for explaining that and then I'll just ask the question usually get I don't think anyone asked on the health care I know gives you update on Emmett age is anything new on our friend <unk> can you look it deals with just just didn't update their thank thank you very much.
Yeah, you know Kurtz active and I think you know we are in terms of we're in a really weird market backdrop. I mean this has been one of the slowest M&A markets that I've seen in 25 years of you know being involved in middle market M&A and you know I'd say, it kinda is matching or even probably.
The longer duration than the pandemic and the financial crisis in terms of how long is last thing in terms of you know kind of muted M&A activity. So against that backdrop, it's really hard in any industry to think there's gonna be you know a lot of activity happening you know sellers are just.
Hesitant for price discovery. So I you know I think Kirk is doing an outstanding job. We look at you know the funnel off potential opportunities that fit within sort of the core critical outsource services space.
That have you know kind of the right economic <unk> around the businesses that have the right size, but there's no catalyst to bring those to market. All we can do is track those no. Those are out there no they will be coming and get in position to be able to execute when one or multiple of those businesses.
Come out and you know I can tell you. The list is very robust. So you know we can only control what is in within the span of our control and that is you know to be tracking and understanding the companies that we'd like to execute against and add those companies and those sellers start to feel more confident than I think we're <unk>.
Have a really robust opportunity to put money to work in that space, if anything I'm, probably more encouraged by the breath and number of opportunities that we currently have on our target list and it leads me to believe that there's absolutely is the right vertical we should be in the space.
And I think there are you know so my initial green shoots there that are emerging I mean look we saw the I B O market open up not with respect to health care, but just in general we saw a restaurant group that got out there in the consumer space and did really well you know some of these initial signs of okay. The I P O markets are opening <unk>.
Dancing is starting to come back to the market you know that gives people more confidence to say you know what the M&A markets are coming back I postponed and waited for a year or in this case, maybe a year and a half. It's now time to come back into the market place and so we're getting increasingly more bullish that you know in the back half of the.
This year and into 24, there's gonna be a material uptick in M&A activity and I think we're positioned really well and in particular in health care, where physician really well to be you know an active buyer in the space.
It's in a setting broke up and we look forward to the first that transaction. It. Thanks a lot. Thank you <unk>.
Thank you.
There are no further questions at this time I would now like to turn the conference back to the channel I N. Okay.
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 Cody.
Thank you for your continued support.
Thank you.
This is Comcast My first conference call. Thank you and have a great day.
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