Q2 2024 Compass Diversified Earnings Call
Okay.
Operator: Good afternoon, and welcome to Compass Diversified's second quarter 2024 conference. Today's call is being recorded. All lines have been placed on mute.
Operator: Good afternoon and welcome to Compass Diversified's second quarter 2020 Conference Call. Today's call is being recorded. All lines have been placed on mute.
Speaker Change: Good afternoon, and work with the Compass diversified second quarter 2024 conference call.
Speaker Change: Today's call is being recorded all lines have been placed on mute.
Operator: If you would like to ask a question, at the end of the prepared remarks, please press star 1-1 on your touch-tone telephone.
Speaker Change: If you'd like to ask a question at the end of the prepared remarks. Please press star one one on your Touchtone telephone.
Cody Slough: At this time, I would like to turn the conference over to Cody Slough of Gateway Group for introductions and the reading of the Faith Harbor statement.
Operator: If you would like to ask a question, at the end of the prepared remarks, please press star one one on your touchtone telephone. At this time, I would like to turn the conference over to Cody Slach of Gateway Group for introductions and the reading of the Faith Carver Statement. Please go ahead.
Speaker Change: At this time I would like to turn the conference over to Cody Slaw.
Speaker Change: Floor of Gateway group for introductions and the reading of the Safe Harbor statement. Please go ahead Sir.
Cody Slough: Please go ahead, sir. Thank you and welcome to Compass Diversified's second quarter 2020 Conference Call. Representing the company today are Elias Sabo, Cody CEO, Ryan Faulkingham, Cody CFO, and Pat Mossarello, COO of Compass Group Management.
Cody Slach: Thank you and welcome to Compass Diversified's second quarter 2024 conference call. Representing the company today are Elias Sabo, Cody's CEO, Ryan Faulkingham, Cody's CFO, and Pat Massarello, COO of Compass Group Management. Before we begin, I'd like to point out that the Q2 2024 press release, including the financial tables and non-GAAP financial measure reconciliations for subsidiary adjusted EBITDA, adjusted earnings, and pro forma net sales, are available in the investor relations section on the company's website at compassdiversified.com.
Speaker Change: Thank you and welcome to accomplish diversified second quarter 2024 conference call representing the company today are Elias Sabo, Cody CEO, Ryan Bulking Ham Cody CFO and Pat last Morello C O. Our Compass group management before we begin I'd like to point out that.
Cody Slach: The company also filed its Form 10-Q with the SEC today after the market close, which includes reconciliations of certain non-GAAP financial measures discussed on this call and is also available in the investor relations section of the company's website. Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income or loss from continuing operations in the company's financial filings. The company does not provide a reconciliation of its full year expected 2024 adjusted earnings, adjusted EBITDA, or subsidiary adjusted EBITDA because certain significant reconciling information is not available without unreasonable effort. Throughout this call, we will refer to Compass Diversified as Cody or the Compass.
Unknown Executive: Before we begin, I'd like to point out that the Q2 2024 press release, including the financial tables and non-GAAP financial measure, reconciliations for subsidiary adjusted evidences. Adjusted EBITDA, adjusted earnings, and pro forma and net sales are available at the Investor Relations section on the company's website at CompassDiversified.com. The company also filed its Form 10-Q with the SEC today after the market closed, which includes reconciliations of certain non-GAAP financial measures discussed on this call, and is also available at the investor relations section of the company's website. Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income or loss from continuing operations in the company's financial filings.
Speaker Change: Q2, 2024 press release, including the financial tables, and non-GAAP financial measure reconciliations for subsidiary adjusted EBITDA Adjusted EBITDA adjusted earnings and pro forma net sales are available at the Investor Relations section on the company's website at Compass diversified dot com the company.
Speaker Change: <unk> also filed its Form 10-Q with the SEC today after the market closed which includes reconciliations of certain non-GAAP financial measures discussed on this call and is also available at the Investor Relations section of the company's website.
Speaker Change: Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income or loss from continuing operations and the company's financial filings. The company does not provide a reconciliation of its full year expected 2024 adjusted earnings adjusted EBITDA or subsidiary adjusted EBITDA.
Unknown Executive: The company does not provide a reconciliation of its full year expected 2024 adjusted earnings, adjusted EBITDA, or subsidiary adjusted EBITDA, because certain significant reconciling information is not available without unreasonable efforts. Throughout this call, we will refer to Compass Diversified as Cody or the Company.
Speaker Change: Certain significant reconciling information.
Speaker Change: He is not available without unreasonable efforts.
Speaker Change: Throughout this call, we will refer to compass diversified as Cody or the company.
Unknown Executive: Now allow me to read the following safe harbor statement. During this conference call, we may make certain forward-looking statements, including statements with regard to the expectations related to the future performance of Cody and its subsidiaries, the impact and expected timing of acquisitions in divestitures, and future operational plans such as ESG initiatives. Words such as believes, expects, anticipates, plans, projects, should, and future, or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements, and some of these factors are enumerated in the risk factor discussion in the Form 10-Q.
Cody Slach: Now allow me to read the following Safe Harbor Statement. During this conference call, we may make certain forward-looking statements, including statements with regard to the expectations related to the future performance of Cody and its subsidiaries, the impact and expected timing of acquisitions and divestitures, and future operational plans, such as ESG initiatives. Words such as believes, expects, anticipates, plans, projects, should, and future or similar expressions are intended to identify forward-looking
Speaker Change: Now allow me to read the following safe Harbor statement.
Speaker Change: During this conference call, we may make certain forward looking statements, including statements with regard to the expectations related to the future performance of Coty and its subsidiaries the impact and expected timing of acquisitions and divestitures and future operational plans such as ESG initiatives.
Speaker Change: Words, such as believes expects anticipates plans projects should and future or similar expressions are intended to identify forward looking statements.
Cody Slach: These four forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements, and some of these factors are enumerated in the risk factor discussion in the Form 10-K, as filed with the SEC for the year ended December 31, 2023, as well as in other SEC filings. In particular, the domestic and global economic environment, supply chain, labor disruptions, inflation, and changing interest rates may all have a significant impact on CODI and our subsidiary company.
Speaker Change: These forward looking statements.
Speaker Change: Our subject to the inherent uncertainties in predicting future results and conditions certain factors could cause actual results to differ on a material basis from those projected in these forward looking statements and some of these factors our NIM rated in the risk factor discussion in the Form 10-K as filed with the SEC for the year ended December 31 2023.
Unknown Executive: As filed with the SEC for the year ended December 31, 2023, as well as in other SEC filings. In particular, the domestic and global economic environment, supply chain, labor disruptions, inflation, and changing interest rates all may have a significant impact on Cody and our subsidiary companies.
Speaker Change: As well as in other SEC filings in particular, the domestic and global economic environment supply chain labor disruptions inflation and changing interest rates all may have a significant impact on coty.
Speaker Change: And our subsidiary companies except.
Unknown Executive: Except as required by law, Cody undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise.
Cody Slach: Except as required by law, Cody undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. At this time, I would like to turn the call over to Elias Sabo. Good afternoon, everyone, and thanks for joining us today.
Speaker Change: Except as required by law Coty undertakes no obligation to publicly update or revise any forward looking statements, whether because of new information future events or otherwise.
Speaker Change: At this time I would like to turn the call over to Elias Sabo.
Elias Sabo: Good afternoon, everyone, and thanks for joining us today. I am pleased to report yet another strong quarter of results. Continuing to execute our strategy of owning a growing number of innovative, disruptive, and high growth businesses, met we performed exceptionally well in the second quarter, even against the backdrop of a slowing economy. While the current business environment has had a negative impact on our industrial businesses, our branded consumer vertical performed extremely well this quarter, led by Boa, Primalaw, and Mugano. The strong performance of our consumer vertical more than offset any weakness we saw on our industrial businesses.
Elias Joseph Sabo: Good afternoon, everyone and thanks for joining us today.
Elias Joseph Sabo: I am pleased to report yet another strong quarter of results. Continuing to execute our strategy of owning a growing number of innovative, disruptive, and high-growth businesses meant we performed exceptionally well in the second quarter, even against the backdrop of a slowing economy. However, the current business environment has had a negative impact on our industrial business.
Elias Joseph Sabo: I am pleased to report yet another strong quarter of results.
Elias Joseph Sabo: Continuing to execute our strategy of owning a growing number of innovative disruptive and high growth businesses, but we performed exceptionally well in the second quarter, even against the backdrop of a slowing economy.
Elias Joseph Sabo: While the current business environment has had a negative impact on our industrial businesses, our branded consumer vertical performed extremely well this quarter.
Elias Joseph Sabo: Our branded consumer vertical performed extremely well this quarter, led by Boa, Primalof, and Lugano. The strong performance of our consumer vertical more than offset any weakness we saw in our industrial businesses. As we predicted in Q1, inventory destocking headwinds subsided this past quarter, and because of this, BOA had another great quarter, and Primaloft returned to double-digit growth. We believe both businesses are positioned for a strong back half of the year. In addition, Lugano continued its trend of remarkable growth. Last quarter we opened our first international salon in London, and in just a few short months, like many of our Lugano salons, it has vastly exceeded our expectations.
Elias Joseph Sabo: Led by bulk private law and Lugano, the strong performance of our consumer vertical more than offset any weakness we saw in our industrial businesses.
Elias Sabo: As we predicted in Q1, inventory desocking headwinds subsided this past quarter, and because of this, Boa had another great quarter, and Primalaw returned to double-digit growth. We believe both businesses are positioned for a strong back half of the year. In addition, Lugano continued its trend of remarkable growth. Last quarter we opened our first international salon in London, and in just a few short months, like many of our Lugano salons, it has vastly exceeded our expectations. Combined, Lugano, Boa, and Primalaw represent approximately half of our EBITDA. With all three of these businesses performing so well this past quarter, and with them positioned so strongly for the rest of the year, we are feeling bullish about the second half of 2024 and beyond.
Speaker Change: As we predicted in Q1 inventory destocking headwinds subsided, this past quarter and because of the Boulder had another great quarter and prime are locked returned to double digit growth.
Speaker Change: We believe both businesses are positioned for a strong back half of the year.
Speaker Change: In addition, Lugano continued its trend of remarkable growth last quarter, we opened our first international Salon in London.
Speaker Change: Just a few short months like many of our Lugano salons.
Speaker Change: It has vastly exceeded our expectations.
Speaker Change: Yes.
Elias Joseph Sabo: Combined, Lugano, BOA, and Primaloft represent approximately half of our EBITDA. With all three of these businesses performing so well this past quarter, and with them positioned so strongly for the rest of the year, we are feeling bullish about the second half of 2024 and beyond. As I mentioned earlier, despite our overall outperformance this quarter, a weakening global macroeconomy made for a challenging quarter for our industrial business. Our industrial vertical saw a decline in both revenues and adjusted EBITDA in Q2.
Speaker Change: Combined Lugano.
Speaker Change: Paula and prime aloft represent approximately half of our EBITDA with all three of these businesses performing so well this past quarter.
Speaker Change: And with them positioned so strongly for the rest of the year, we are feeling bullish about the second half of 2024.
Elias Sabo: As I mentioned earlier, despite our overall outperformance this quarter, a weakening global macro economy made for a challenging quarter for our industrial businesses. Our industrial vertical saw decline in both revenues and adjusted EBITDA in Q2. We believe this somewhat muted performance will continue through the rest of the year. However, we remain confident in the overall positioning of this vertical, and we believe it is well positioned for a strong 2025.
Speaker Change: Beyond.
Speaker Change: As I mentioned earlier, despite our overall outperformance this quarter, a weakening global macro economy made for a challenging quarter for our industrial businesses.
Speaker Change: Our industrial vertical saw a decline in both revenues and adjusted EBITDA in Q2, we believe that somewhat muted performance will continue through the rest of the year. However, we remain confident.
Elias Joseph Sabo: We believe this somewhat muted performance will continue through the rest of the year. However, we remain confident in the overall positioning of this vertical, and we believe it is well positioned for a strong 2025. All in all, it was another great quarter for Cody and one that further demonstrated the power of our long-term strategy.
Speaker Change: In the overall positioning of this vertical and we believe it is well positioned for a strong 2025.
Elias Sabo: All in all, it was another great quarter for Cody in one that further demonstrated the power of our long-term strategy. By owning a group of non-correlated, high growth, innovative businesses, we not only smooth Cody's overall performance period to period, but in any given period, are more likely to benefit from one or more of our businesses experiencing a true step change in growth. This is the story of diversified growth engines as evidence this quarter when we grew by almost 20 percent year over year.
Speaker Change: All in all it was another great quarter for Coty, and one that further demonstrated the power of our long term strategy.
Elias Joseph Sabo: By owning a group of non-correlated, high-growth, innovative businesses, we not only smooth Cody's overall performance period to period but, in any given period, are more likely to benefit from one or more of our businesses experiencing a true step change in growth. This is a story of diversified growth engines, as evidenced this quarter when we grew by almost 20% year over year. Ryan will go into detail on our financial outlook shortly, but I'd like to briefly discuss our decision to leave our outlook unchanged.
Speaker Change: By owning a group of non correlated high growth innovative businesses, we not only smooth <unk> overall performance period to period.
Speaker Change: But in any given period are more likely to benefit from one or more of our businesses experienced experiencing a true step change in growth.
Speaker Change: This is a story of diversified growth engines as evidenced this quarter when we grew by almost 20% year over year.
Elias Sabo: Ryan will go into detail on our financial outlook shortly, but I'd like to briefly discuss our decision to leave our outlook unchanged. We still anticipate we will hit the high end of our consolidated guidance ranges. However, we are not raising our guidance range at this point out of an abundance of caution regarding the weakening economy and a concern for the short-term performance of our three industrial businesses. But overall, we remain really positive about the rest of the year. As Ryan will detail shortly, within our overall outlook, we are shifting some of our adjusted EBITDA expectations from our industrial vertical to our consumer vertical.
Speaker Change: Ryan will go into detail on our financial outlook, shortly but I'd like to briefly discuss our decision to leave our outlook unchanged.
Elias Joseph Sabo: We still anticipate we will hit the high end of our consolidated guidance range. However, we are not raising our guidance range at this point out of an abundance of caution regarding the weakening economy and concern for the short-term performance of our three industrial businesses.
Ryan: We still anticipate we will hit the high end of our consolidated guidance ranges. However, we are not raising our guidance range at this point out of an abundance of caution regarding the regarding the weakening economy, Andy concern for the short term performance of our three industrial businesses while over.
Elias Joseph Sabo: But overall, we remain really positive about the rest of the year. As Ryan will detail shortly, within our overall outlook, we are shifting some of our adjusted EBITDA expectations from our industrial vertical to our consumer vertical. Even though our overall guidance is staying holistically the same, we believe this mix shift that favors our faster growing, more protected, and highest valued businesses creates an accelerated level of intrinsic value creation for our stakeholders now and positions us to drive significant growth into 2025 and beyond. With that, I will now turn the call over to Pat. Thanks, Elias.
Speaker Change: We're all we remain really positive about the rest of the year.
Speaker Change: As Ryan will detail shortly within our overall outlook, we are shifting some of our adjusted EBITDA expectations from our dust real vertical to our consumer vertical even though our overall guidance is staying holistically. The same we believe this mix shift that favors our faster.
Elias Sabo: Even though our overall guidance is saying holistically the same, we believe this mixtip that favors our faster growing, more protected and highest valued businesses creates an accelerated level of intrinsic value creation for our stakeholders now, and positions us to drive significant growth into 2025 and beyond.
Ryan: Growing more protected and highest valued businesses creates an accelerated level of intrinsic value creation for our stakeholders now.
Ryan: And positions us to drive significant growth into 2025 and beyond.
Pat Mossarello: With that, I will now turn the call over to Pat. Thanks, Elias. As a reminder, throughout this presentation, when we discussed pro-formal results, it will be as if we own the Honeypot company as of January 1st, 2023. I am pleased to report on another successful quarter. On a combined basis, pro-forma revenue and adjusted EBITDA grew by 6% and 18%, respectively. On a year-to-day basis, pro-forma revenue and adjusted EBITDA increased by 4.9% and 16.6%, respectively, versus year-to-day June 2023. The Lovano continues to be the largest driver of growth. We saw broadening of strength with very good performance at both Boa and Primal office quarter.
Ryan: With that I will now turn the call over to Pat.
Pat: Thanks Elias.
Unknown Attendee: As a reminder, throughout this presentation, when we discuss pro forma results, it will be as if we own the Honeypot company as of January 1st, 2020. I am pleased to report on another successful quarter. On a combined basis, pro forma revenue and adjusted EBITDA grew by 6% and 18%, respectively. On a year-to-day basis, pro forma revenue and adjusted EBITDA increased by 4.9% and 16.6%, respectively. Birth year to date, June 2023.
Pat: As a reminder, throughout this presentation when we discuss pro forma results.
Pat: It will be as if we own the honeypot company as of January one 2023.
Pat: I am pleased to report on another successful quarter.
Pat: On a combined basis pro forma revenue and adjusted EBITDA grew by 6% and 18% respectively.
Pat: On a year to date basis pro forma revenue and adjusted EBITDA increased by four 9% and 16, 6% respectively versus year to date June 2023.
Unknown Attendee: The Lugano continues to be the largest driver of growth, but we saw a broadening of strength with very good performance at both Boa and Primaloft. As Elias touched on, we believe all three of these businesses are well positioned for growth in the remainder of the year and beyond. Within our industrial segment, for the year-to-date period, revenues decreased by 6.7%, and adjusted EBITDA decreased by 8% versus year-to-date June 2023. This decline was primarily driven by weak performance at Altor, which declined meaningfully.
Pat: Nevada continues to be the largest driver of growth we saw broadening of strength with very good performance at both power and primarily this quarter.
Pat Mossarello: As Elias touched on, we believe all three of these businesses are well positioned for growth in the remainder of the year and beyond. Within our industrial segment, for the year-to-date period, revenues decreased by 6.7%, and adjusted EBITDA decreased by 8% versus year-to-date June 2023. This decline was primarily driven by weak performance at Outdoor, which declined meaningfully in Q2. The decline was driven by a combination of reduced-custer demand and some accounts, and churned at a couple of our full chain distribution partners. Though disappointing, the sales funnel at Outdoor remains robust and is almost tripled in size since this time last year.
Pat: As Elias touched on we believe all three of these businesses are well positioned for growth in the remainder of the year and beyond.
Pat: Within our industrial segment for the year to date period.
Ryan: Revenues decreased by six 7% and.
Speaker Change: And adjusted EBITDA decreased by 8% versus year to date June 2023.
Speaker Change: This decline was primarily driven by weak performance at outdoor which declined meaningfully in Q2.
Unknown Attendee: The decline was driven by a combination of reduced customer demand in some accounts and churn at a couple of our cold chain distribution partners. Though disappointing, the sales funnel at Altor remains robust and has almost tripled in size since this time last year. New contracts typically take some time to design and test, however, leading to a potentially muted second half of 2024. As a reminder, the company now has what we believe to be a world-class management team in place.
Speaker Change: The decline was driven by a combination of reduced customer demand and some accounts and churn at a couple of our cold chain distribution partners.
Speaker Change: So disappointing the sales funnel it out to a remains robust and has almost tripled in size since this time last year.
Pat Mossarello: New contracts typically take some time to design and test; however, leading to a potentially muted second half of 2024.
Ryan: New contracts typically take some time to design and test, however, mainly due or potentially muted second half of 2024.
Pat Mossarello: As a reminder, the company now has what we believe to be a world-class management team in place, and as a result, we are confident the company will rebound in 2025. Arnold continued to grow revenue in the quarter. Though once again experienced higher SGNA, as we began to modify our manufacturing footprint in an effort to improve efficiencies and grow technological capabilities. As part of this strategic relocation, we anticipate several million dollars in one-time expenses will be incurred over the next few quarters. In addition, we expect 10 to 15 million dollars in one-time capital expenditures as part of this project as we make our way through this transition.
Unknown Attendee: And as a result, we're confident the company will rebound in 2025. Arnold continued to grow revenue in the quarter, though once again experienced higher SG&A as we began to modify our manufacturing footprint in an effort to improve efficiencies and grow technological capability. As part of this strategic relocation, we anticipate several million dollars in one-time expenses will be incurred over the next few quarters. In addition, we expect 10 to 15 million dollars in one-time capital expenditures as part of this project as we make our way through this transition.
Speaker Change: As a reminder, the company now has what we believe to be a world class management team in place and as a result, we are confident the company will rebound in 2025.
Speaker Change: <unk> continued to grow revenue in the quarter, but once again experienced higher SG&A as we began to modify our manufacturing footprint in an effort to improve efficiencies and growth technological capabilities.
Ryan: As part of the strategic relocation, we anticipate several million dollars in one time expenses will be incurred over the next few quarters.
Ryan: In addition, we expect $10 million to $15 million in onetime capital expenditures as part of this project as we make our way through this transition.
Pat Mossarello: Sternow once again grew EBITDA modestly in the quarter, as slightly softer sales in the company's food service division were more than offset by strong execution throughout the business.
Unknown Attendee: Sterno once again grew EBITDA modestly in the quarter as slightly softer sales and the company's food service division were more than offset by strong execution throughout the business. Turning to our consumer segment, for the year-to-date June 2024 period, pro forma revenues increased by 10.9%, and pro forma adjusted EBITDA increased by almost 27% versus year-to-date June 2023. Lugano remained the strongest performer both in the quarter and on a year-to-date basis.
Ryan: Sterno and once again grew EBITDA modestly in the quarter as slightly softer sales in the Companys Foodservice division were more than offset by strong execution throughout the business.
Pat Mossarello: Turning to our consumer segment. For the year-to-date June 2024 period, pro-former revenues increased by 10.9%, and pro-former adjusted EBITDA increased by almost 27% versus year-to-date June 2023. Lugano remained the strongest performer both in the quarter and on a year-to-date basis. Our London salon significantly exceeded expectations during its first quarter of operation, and we continue to see strong performance in Aspen, Palm Beach, and Newport Beach. We're in the process of finalizing the location of our ninth salon and look forward to sharing its location with you, likely on our next quarterly call. We expect Lugano's extraordinary growth to continue throughout the rest of this year and into 2025.
Ryan: Turning to our consumer segment for.
Ryan: For the year to date June 2024 period.
Ryan: Pro forma revenues increased by 10, 9% and pro forma adjusted EBITDA increased by almost 27% versus year to date June 2023.
Speaker Change: Mcdonnell remained the strongest performer both in the quarter and on a year to date basis, our London Salon significantly exceeded expectations. During its first quarter of operation and we continue to see strong performance in Aspen Palm Beach, and Newport Beach, we are in the process of finalizing the location of our ninth Salon and look forward to sharing its location.
Unknown Attendee: Our London salon significantly exceeded expectations during its first quarter of operation, and we continue to see strong performance in Aspen, Palm Beach, and Newport. We're in the process of finalizing the location of our ninth salon and look forward to sharing its location with you, likely on our next quarterly call. We expect Lugano's extraordinary growth to continue throughout the rest of this year and into 2025. I'm also very pleased to report on the acceleration of BOA this quarter and Primaloft's return to growth during the period. For the second quarter, BOA grew revenue by 42.1%, and adjusted EBITDA grew by almost 60% for Q2 2023. The BOA brand saw growth in each of its industry verticals.
Speaker Change: Would you likely on our next quarterly call.
Speaker Change: We expect <unk> extraordinary growth to continue throughout the rest of this year and into 2025.
Pat Mossarello: I'm also very pleased to report on the acceleration of both of this in the quarter and primal loss return to growth in the period. For the second quarter, BOA grew revenue by 42.1% and adjusted EBITDA grew by almost 60% first Q2 2023. The boa brands are growth in each of its industry verticals. Similarly, primal loss grew revenue in EBITDA by 14.1% and 11.1%, respectively, as inventory headwinds in many of its apparel categories continue to abate as expected. We are encouraged by the performance of both primal loss and boa at this quarter and by their prospects for the rest of the year.
Speaker Change: I'm also very pleased to report on the acceleration of <unk> in the quarter and prime loss return to growth in the period for.
Speaker Change: For the second quarter <unk> grew revenue by 42, 1% and adjusted EBITDA grew by almost 60% versus Q2 2023.
Speaker Change: The Boa brands saw growth in each of its industry verticals. Similarly, <unk> grew revenue and EBITDA by 14, 1% and 11, 1%, respectively as inventory headwinds in many of its apparel categories continued to abate as expected.
Unknown Attendee: Similarly, Primaloft grew revenue in EBITDA by 14.1% and 11.1%, respectively, as inventory headwinds in many of its apparel categories continued to abate as expected. We are encouraged by the performance of both Primaloft and BOA this quarter and by their prospects for the rest of the year. Turning to the Honeypot Company, both for the quarter and for the year to date period, Honeypot declined slightly in both revenue and EBITDA versus the same periods in 2023.
Speaker Change: We are encouraged by the performance of both primary lock and both this quarter and by their prospects for the rest of the year.
Pat Mossarello: Turning to the honeypot company. Both for the quarter and for the year-to-date period, honeypot declined slightly in both revenue and EBITDA versus same periods in 2023. We purchased a company with a knowledge that honeypot was losing a small number of non-core skews at one of its large national retailers. The short-term impact was slightly greater than our expectations, and as a result, honeypot's financial performance has been slightly below our expectations for the year-to-date period. The company continues to add new retail and online accounts; however, we remain confident in the long-term mission-driven trajectory of the business.
Speaker Change: Turning to the Honey back company.
Speaker Change: Both for the quarter and for the year to date period Honeypot declined slightly in both revenue and EBITDA versus the same periods in 2023.
Unknown Attendee: We purchased the company with the knowledge that Honeypot was losing a small number of non-core SKUs at one of its large national retailers. The short-term impact was slightly greater than our expectations, and as a result, Honeypot's financial performance has been slightly below our expectations for the year-to-date period. The company continues to add new retail and online accounts, however, and we remain confident in the long-term mission-driven trajectory of the business. Lastly, on 511.
Speaker Change: We purchased a company with the knowledge that honeypot was losing a small number of noncore skus at one of its large national retailers.
Speaker Change: The short term impact was slightly greater than our expectations and as a result, honeypot financial performance has been slightly below our expectations for the year to date period.
Speaker Change: The company continues to add new retail and online accounts, however, and we remain confident in our long term mission driven trajectory of the business.
Pat Mossarello: Lastly, on 5.11. 2024 represents somewhat of a transition year for the business, given the previously announced leadership changes, lingering inventory-related issues in DTC, and the challenging PFAS transition. As a result, financial performance was somewhat muted in both the quarter and year-to-date period. However, demand for the brand this year, particularly in the professional side, remains robust. While we see financial performance in the remainder of 2024 looking similar to performance in the year-to-go period, we continue to expect strong growth in 2025 and beyond following resolution of these exogenous issues facing the business.
Speaker Change: Lastly on 511.
Unknown Attendee: 2024 represents somewhat of a transition year for the business, given the previously announced leadership changes, lingering inventory-related issues, and the Challenging PFAS Print. As a result, financial performance was somewhat muted in both the quarter and year-to-date period.
Speaker Change: 2024 represents somewhat of a transition year for the business given the previously announced leadership changes lingering inventory related issues in DTC and the challenging P fast transition.
Speaker Change: As a result financial performance was somewhat muted in both the quarter and year to date period.
Unknown Attendee: However, demand for the brand this year, particularly on the professional side, remains robust. While we see financial performance in the remainder of 2024 looking similar to performance in the year-ago period, we continue to expect strong growth in 2025 and beyond, following resolution of these exogenous issues facing the business. As a whole, we are very pleased with the first half and remain confident in our outlook for the full year. I will now turn the call over to Ryan for additional comments on our financial results. Thank you, Pat.
Speaker Change: However demand for the brand this year, particularly in the professional side remains robust while we see financial performance in the remainder of 2024 looking similar to performance in the year ago period, We continue to expect strong growth in 2025 and beyond following resolution of these exogenous issues facing the business.
Pat Mossarello: As a whole, we are very pleased with the first half and remain confident in our outlook for the full year.
Speaker Change: As a whole we are very pleased with the first half and remain confident in our outlook for the full year I will now turn the call over to Ryan for additional comments on our financial results.
Ryan Faulkingham: I will now turn the call over to Ryan for additional comments in our financial results. Thank you, Pat. Moving to our consolidated financial results for the quarter ended June 30th, 2024, I will limit my comments largely to the overall results for Cody since the individual subsidiary results are detailed in our Form 10-Q that was filed with the SEC earlier today. On a consolidated basis, revenue for the quarter-ended June 30th, 2024, was 542.6 million, up 11%, compared to 486.9 million for the prior year period. This increase was primarily result of the acquisition of the Honeypot Company and strong growth at Lugano, Boa, and Primaloft, which was partially offset by lower revenue at Altor, 511, and that velocity. As a result of the consolidated net loss for the second quarter of 2024 was 13.7 million compared to net income of 17.1 million in the prior year.
Ryan: Thank you Pat.
Ryan J. Faulkingham: Moving to our consolidated financial results for the quarter ended June 30, 2024, I will limit my comments largely to the overall results for Cody since the individual subsidiary results are detailed in our Form 10-Q that was filed with the SEC earlier today. On a consolidated basis, revenue for the quarter ended June 30, 2024, was $542.6 million, up 11% compared to $486.9 million for the prior year period. This increase was primarily a result of the acquisition of the Honeypot Company and strong growth at Lugano, BOA, and Primaloft, which was partially offset by lower revenue at Altor, 511, and at Velocity as a result of the sale of Consolidated net loss for the second quarter of 2024 was $13.7 million compared to net income of $17.1 million in the prior year.
Ryan: Moving to our consolidated financial results for the quarter ended June 32024, I will limit my comments largely to the overall results for Coty.
Ryan: Since the individual subsidiary results are detailed in our Form 10-Q that was filed with the SEC earlier today.
Ryan J. Faulkingham: The second quarter of 2024 included a loss on the sale of Crossman of $24.6 million, as well as a $7.3 million tax expense recorded at velocity related to a valuation allowance on its deferred tax asset. Adjusted EBIT for the second quarter was $105.4 million, up 27% compared to $82.9 million in the prior year. The increase was due to the acquisition of the Honeypot Company and strong growth at Lugano, Boa, and Primaloft, included in adjusted EBITDA in the second quarters of 2024 and 2023, where management fees and corporate costs of $21 million and $19.3 million, respectively. Adjusted earnings for the second quarter were above our expectations, coming in at $39.8 million.
Ryan: On a consolidated basis revenue for the quarter ended June 32024, with $542 6 million up 11% compared to $486 9 million for the prior year period. This increase was primarily a result of the acquisition of the Honeypot company and strong growth at Lugano in.
Speaker Change: And prime left which was partially offset by lower revenue at <unk> 511, and that velocity is a result of the sale of its crossman division.
Speaker Change: Consolidated net loss for the second quarter of 2024 was $13 7 million compared to net income of $17 1 million in the prior year. The second quarter of 2024 included a loss on the sale of crossman of $24 6 million as well as a $7 $3 million tax expense recorded at velocity.
Ryan Faulkingham: The second quarter of 2024 included a loss on the sale of Crossman of 24.6 million, as well as a $7.3 million tax expense recorded at Velocity related to evaluation allowance on its deferred tax assets. Adjusted even on the second quarter was 105.4 million, up 27% compared to 82.9 million in the prior year. The increase was due to the acquisition of the Honeypot company and strong growth at Lugano, Boa and Primaloft, included in adjusted EBITDA in the second quarters of 2024 and 2023, where management fees and corporate costs of 21 million and 19.3 million, respectively. Adjusted earnings for the second quarter were above our expectations, coming in at 39.8 million.
Speaker Change: Related to a valuation allowance on its deferred tax assets.
Speaker Change: Adjusted EBITDA in the second quarter was $105 4 million up 27% compared to $82 9 million in the prior year.
Speaker Change: The increase was due to the acquisition of the Honeypot company and strong growth at Lugano, Boa and prime aloft.
Speaker Change: <unk> and adjusted EBITDA in the second quarters of 2024, and 2023 or management fees and corporate costs of $21 million and $19 3 million respectively.
Speaker Change: Adjusted earnings for the second quarter were above our expectations coming in at $39 8 million. This was up significantly from $29 2 million in the prior year quarter due to strong performance is that Lugano in Butler.
Ryan J. Faulkingham: This was up significantly from $29.2 million in the prior year quarter due to strong performances at Lugano and BOA. Now, moving to our 2024 guidance. As a result of our financial performance in the second quarter, our expectations for the remainder of 2024, and our current view of the economy, we are maintaining our 2024 outlook. Thus, our full-year 2024 subsidiary adjusted EBITDA is consistent with what we provided on our last earnings call of between $480 million and $520 million.
Ryan Faulkingham: This was up significantly from 29.2 million in the prior year quarter due to strong performances at Lugano and Boa.
Ryan Faulkingham: Now moving to our 2024 guidance. As a result of our financial performance in the second quarter, our expectations for the remainder of 2024 and our current view of the economy, we are maintaining our 2024 outlook. Thus, our full year 2024 subsidiary adjusted EBITDA is consistent with what we provided on our last earnings call of between 480 million to 520 million. Given the outperformance of our branded consumer companies, we are increasing the subsidiary adjusted EBITDA range for our branded consumer vertical by $10 million to $365 million to $395 million. However, we are reducing the subsidiary adjusted EBITDA range for our industrial vertical also by $10 million to $115 million to $125 million.
Ryan J. Faulkingham: Given the outperformance of our branded consumer companies, we are increasing the subsidiary adjusted EBITDA range for our branded consumer vertical by $10 million to $365 million to $395 million. However, we are reducing the subsidiary adjusted EBITDA range for our industrial vertical by $10 million to $115 million to $125 million.
Speaker Change: Now moving to our 2024 guidance.
Speaker Change: As a result of our financial performance in the second quarter, our expectations for the remainder of 2024 and our current view of the economy, we are maintaining our 2024 outlook. Thus.
Speaker Change: Thus our full year 2024 subsidiary adjusted EBITDA is consistent with what we provided on our last earnings call of between $480 million to $520 million.
Speaker Change: The outperformance of our branded consumer companies, we are increasing the subsidiary adjusted EBITDA range for our branded consumer vertical by $10 million to 365 million to 395 million.
Speaker Change: However, we are reducing the subsidiary adjusted EBITDA range for our industrial vertical also by $10 million to a $115 million to a $125 million.
Ryan Faulkingham: We expect full year 2024 adjusted EBITDA to be between 390 million and 430 million, consistent with what we provided on our last earnings call. This range factors in and expected $86 million in corporate level overhead and management fees in 2024. This compares to 341 million in adjusted EBITDA in 2023. Finally, we are maintaining our full year 2024 adjusted earnings guidance range of between 148 million and 163 million, and we expect the remaining six months of adjusted earnings to be slightly more skewed toward the fourth quarter.
Ryan J. Faulkingham: We expect full-year 2024 adjusted EBITDA to be between $390 million and $430 million, consistent with what we provided on our last earnings call. This range factors in an expected $86 million in corporate level overhead and management fees in 2024. This compares to $341 million in adjusted EBITDA in 2023. Finally, we are maintaining our full-year 2024 Adjusted Earnings Guidance Range of between $148 million and $163 million, and we expect the remaining six months of Adjusted Earnings to be slightly more skewed toward the fourth quarter. Turning to our balance sheet, As of June 30, 2024, we had approximately $68.4 million in cash, approximately $544 million available on our revolver, and our total leverage ratio was 3.72 times.
Speaker Change: We expect full year 2024, adjusted EBITDA to be between $390 million and $430 million consistent with what we provided on our last earnings call.
Speaker Change: This range factors in an expected $86 million in corporate level overhead and management fees in 2024.
Speaker Change: This compares to $341 million and adjusted EBITDA in 2023.
Speaker Change: Finally, we are maintaining our full year 2024, adjusted earnings guidance range of between $148 million and $163 million and we expect the remaining six months of adjusted earnings to be slightly more skewed towards the fourth quarter.
Ryan Faulkingham: Turning to our balance sheet. As of June 30, 2024, we had approximately 68.4 million in cash, approximately 544 million available on our revolver, and our total leverage ratio was 3.72 times. Our leverage ratio at the end of the quarter declined, as anticipated, as a result of our strong operating performance. Absent any significant acquisitions for the remainder of 2024. We expect our total leverage ratio to continue to decline. We have substantial liquidity, and as previously communicated, we have the ability to upsize our revolver capacity by an additional $250 million. With our liquidity and capital, we stand ready, able to provide our subsidiaries with the financial support they need, invest in subsidiary growth opportunities, and act on compelling acquisition opportunities as they present themselves.
Speaker Change: Turning to our balance sheet.
Speaker Change: As of June 32024, we had approximately $68 4 million in cash approximately $544 million available on our revolver and our total leverage ratio was 372 times.
Ryan J. Faulkingham: Our leverage ratio at the end of the quarter declined, as anticipated, as a result of our strong operating performance. Absent any significant acquisitions for the remainder of 2024, we expect our total leverage ratio to continue to decline. We have substantial liquidity, and as previously communicated, we have the ability to upsize our revolver capacity by an additional $250 million. With our liquidity and capital, we stand ready and able to provide our subsidiaries with the financial support they need, invest in subsidiary growth opportunities, and act on compelling acquisition opportunities as they present themselves.
Speaker Change: Our leverage ratio at the end of the quarter declined as anticipated as a result of our strong operating performance.
Speaker Change: And any significant acquisitions for the remainder of 2024, we expect our total leverage ratio to continue to decline.
Speaker Change: We have substantial liquidity and as previously communicated we have the ability to upsize, our revolver capacity by an additional $250 million.
Speaker Change: With our liquidity and capital we stand ready enable to provide our subsidiaries with the financial support they need invest in subsidiary growth opportunities and act on compelling acquisition opportunities as they present themselves.
Ryan Faulkingham: Turning now to cash flow provided by operations. During the second quarter of 2024, we used $35 million of consolidated cash flow from operations. Lugano used $71 million in cash flow from operations to support its continued extraordinary growth. Outside of Lugano, the other nine subsidiaries combined produce $36 million in cash flow from operations in the second quarter, allowing us to reduce our leverage, as stated earlier.
Ryan J. Faulkingham: Turning now to cash flow provided by operations, during the second quarter of 2024, we used $35 million of consolidated cash flow from operations. Lugano used $71 million in cash flow from operations to support its continued extraordinary growth.
Speaker Change: Turning now to cash flow provided by operations.
Speaker Change: During the second quarter of 2024, we used $35 million of consolidated cash flow from operations Lugano used $71 million in cash flow from operations to support its continued extraordinary growth outside of.
Ryan J. Faulkingham: Outside of Lugano, the other nine subsidiaries combined produced $36 million in cash flow from operations in the second quarter, allowing us to reduce our leverage, as stated earlier, and finally, Turning to Capital Expenditures. During the second quarter of 2024, we incurred $11.2 million of capital expenditures at our existing subsidiaries, compared to $13.7 million in the prior year period. The decrease was primarily a result of a decline in 511 store rollouts in 2024.
Speaker Change: Lugano the other nine subsidiaries combined produced $36 million in cash flow from operations in the second quarter, allowing us to reduce our leverage as stated earlier.
Ryan Faulkingham: And finally, turning to capital expenditures. During the second quarter of 2024, we incurred $11.2 million of catbacks at our existing subsidiaries compared to $13.7 million in the prior year period. The decrease was primarily result of a decline in 5.11 store rollouts in 2024. For the full year of 2024, we anticipate total capital expenditures of between $55 million and $65 million. We continue to see strong returns on invested capital at several of our growth subsidiaries and believe they will have short payback periods. Capital expenditures for the remainder of 2024 will primarily be at Lugano for new retail salons and at Arnold, as previously discussed by Pat.
Speaker Change: And finally, turning to capital expenditures during.
Speaker Change: During the second quarter of 2024, we incurred $11 2 million of Capex at our existing subsidiaries compared to $13 7 million in the prior year period. The decrease was primarily a result of a decline in 511 store Rollouts in 2024.
Ryan J. Faulkingham: For the full year of 2024, we anticipate total capital expenditures of between $55 million and $65 million. We continue to see strong returns on invested capital at several of our growth subsidiaries and believe they will have short payback periods. Capital expenditures for the remainder of 2024 will primarily be at Lugano for new retail salons and at Arnold, as previously discussed by Pat. With that, I will now turn the call back over to Elias. Thank you, Ryan.
Speaker Change: For the full year of 2024, we anticipate total capital expenditures of between $55 million and $65 million. We continue to see strong returns on invested capital at several several of our growth subsidiaries and believe they will have short payback periods.
Pat: Capital expenditures for the remainder of 2024 will primarily be at Lugano for new retail salons and at Arnold as previously discussed by Pat.
Unknown Executive: With that, I'll turn the call back over to the list.
Pat: With that I will now turn the call back over to Elias.
Unknown Executive: Thank you, Ryan.
Elias Joseph Sabo: Thank you Ryan.
Elias Joseph Sabo: Before moving to the Q&A portion of the call, I'd like to briefly discuss both our ESG strategy and the current M&A market. As we have told you before, our business model is designed to foster the long-term development and growth of our subsidiaries. We are not constrained by short investment horizons, and our permanent capital base allows us to take a long-term view. This approach is vital because meaningful innovation and industry disruption both require time, and they also require an exceptional talent pool. The future thinking for people and planet pillar of our ESG strategy prioritizes tracking the best people and focusing on their professional development and holistic well-being.
Unknown Executive: Before moving to the Q&A portion of the call, I'd like to briefly discuss both our ESG strategy and the current M&A market. As we have told you before, our business model is designed to foster the long-term development and growth of our subsidiaries. We are not constrained by short investment horizons, and our permanent capital base allows us to take a long-term view. This approach is vital because meaningful innovation and industry disruption both require time, and they also require an exceptional talent pool. The future thinking for people and planet pillar of our ESG strategy prioritizes attracting the best people and focusing on their professional development and holistic well-being.
Elias Joseph Sabo: Before moving to the Q&A portion of the call I'd like to briefly discuss both our ESG strategy and the current M&A market.
Elias Joseph Sabo: As we have told you before our business model is designed to foster the long term development and growth of our subsidiaries, we are not constrained by short investment horizons.
Elias Joseph Sabo: And our permanent capital base allows us to take a long term view.
Speaker Change: This approach is vital because meaningful innovation and industry disruption both require time and they also require an exceptional talent pool.
Speaker Change: Future thinking for people and planet pillar of our ESG strategy prioritizes, attracting the best people and focusing on their professional development and holistic wellbeing. Additionally.
Elias Joseph Sabo: Additionally, our commitment to diversity and inclusion enriches our teams with a variety of perspectives and experiences. We have integrated these principles into our business model so that we can attract and keep people who are not only really good at what they do but who will also join us in taking bold steps, pushing boundaries, and creating lasting value for our stakeholders. Turning to the M&A market, while there has been an uptick in deals recently compared to what we've seen in years past, we have not returned to historic activity levels, and recent deal quality hasn't met our standards.
Unknown Executive: Additionally, our commitment to diversity and inclusion enriches our teams with a variety of perspectives and experiences. We have integrated these principles into our business model so that we can attract and keep people who are not only really good at what they do but who will also join us in taking bold steps, pushing boundaries, and creating lasting value for our stakeholders.
Speaker Change: Additionally, our commitment to diversity and inclusion enriches our teams with a variety of perspectives and experiences we have integrated these principles into our business model. So that we can attract and keep people who are not only really good at what they do but who will also join us and taking bold steps.
Speaker Change: Pushing boundaries and creating lasting value for our stakeholders.
Unknown Executive: Turning to the M&A market, while there has been an uptick in deals recently compared to what we've seen in years past, we have not returned to historic activity levels, and recent deal quality hasn't met our standards. We remain steadfast in our efforts to identify, own, and actively manage innovative, high-growth companies. We also believe our competitive edge will shine in today's high interest rate landscape. When debt markets are weak for single asset buyouts, our permanent capital competitive image only grows. As Ryan mentioned, our strong liquidity position also enables us to act on acquisition opportunities and to invest in our subsidiaries to build upon our track record of delivering growth into 2025 and beyond.
Speaker Change: Turning to the M&A market, while there has been an uptick in deals recently compared to what we've seen in years past, we have not returned to historic activity levels and recent deal quality Hasnt met our standards.
Elias Joseph Sabo: We remain steadfast in our efforts to identify, own, and actively manage innovative, high-growth companies. We also believe our competitive edge will shine in today's high interest rate landscape. When debt markets are weak for single asset buyouts, our permanent capital competitive advantage only grows. As Ryan mentioned, our strong liquidity position also enables us to act on acquisition opportunities and to invest in our subsidiaries to build upon our track record of delivering growth into 2025 and beyond. With that said, operator, please open the lines for Q&A. Thank you.
Speaker Change: We remain steadfast in our efforts to identify and actively manage innovative high growth companies. We also believe our competitive edge will shine in today's high interest rate landscape.
Speaker Change: When debt markets are weak for single asset buyouts are permanent capital competitive advantage only grows.
Speaker Change: As Ryan mentioned, our strong liquidity position also enables us to act on acquisition opportunities and to invest in our subsidiaries.
Ryan: Build upon our track record of delivering growth into 2025 and beyond.
Operator: With that operator, please open the lines for Q&A. Thank you. As a reminder, if you would like to ask a question, please press star 1-1 on your telephone. We also asked you to wait for your name and company to be announced, and your line opened before you proceed with your question.
Ryan: With that operator, please open the lines for Q&A.
Operator: As a reminder, if you would like to ask a question, please press star 11 on your telephone. We also ask that you wait for your name and company to be announced and your line to open before you proceed with your question. Our first question today comes from Larry Osuzmisolo of CJS Securities. Your line is open.
Speaker Change: Thank you.
Speaker Change: Thanks, If you would like to ask a question. Please press star one on your telephone. We also asked situates, where you need the company to be announced and your line's open before you proceed with your question.
Lawrence Solow: Our first question today comes from Larry, Lou Asus, and Solow, CJF Securities; your line is open. Great. Thanks. Good afternoon.
Speaker Change: Our first question today comes from Larry.
Larry: The us is with solo.
Speaker Change: C. J S Securities Your line is open.
Lawrence Scott Solow: Great. Thanks. Thanks. Good afternoon.
Larry: Great. Thanks, Good afternoon, I guess two questions one operating in one just on the M&A.
Pat Mossarello: I guess two questions: one operating and one just on the M&A environment. Just I sound like Boa had a really nice court of really good to see. Could you maybe give us a little more color on the strength? Is it just the deciding of inventory destocking? Is Boa the primary driver of the 10 million increase on the brand of Todd? Okay, certainly one of them.
Lawrence Scott Solow: I guess two questions, one operating and one just on the M&A environment. It just sounds like BOA had a really nice quarter. Really good to see. Can you maybe give us a little more color on the strength?
Larry: M&A environment.
Speaker Change: It sounds like <unk> really nice quarter.
Speaker Change: Good to see.
Unknown Attendee: Is it just the subsidizing of inventory destocking? And is BOA the primary driver of the $10 million increase on the branded side? I would say it's certainly one of them. Larry, this is Pat. How are you?
Speaker Change: Can you maybe give us a little more color.
Speaker Change: On the strength.
Speaker Change: Is it just.
Speaker Change: The signing of the inventory Destocking.
Speaker Change: The primary driver of.
Speaker Change: With $10 million increase on the <unk>.
Speaker Change: Todd.
Larry: Okay.
Unknown Attendee: Um, you know, it had really broad breadth, as I mentioned, across each of the BOA verticals. I would say the company is developing a great business in workwear, and it's becoming a, you know, a more material part of their business. And that was certainly a driver of growth here as well, both domestically and internationally. Yeah, with respect to the 10 million drivers of growth, Larry, I would say it is sort of a combination. Primaloft, you know, bounced back and exceeded our expectations, as did BOA. The numbers BOA put up were really extraordinarily high.
Larry: It's certainly one of them Larry This is Pat how are you.
Pat Mossarello: Larry, this is Pat. How are you? You know, it was really broad breadth, as I mentioned across each of the Boa verticals. I would say the company is developing a great business and workwear, and it's becoming a more material part of their business, and that was certainly a driver of growth here as well, both domestically and internationally. Yeah, with respect to the 10 million driver of growth, Larry, I would say is sort of a combination, primal off bounce back and exceeded our expectations, as did Boa. The numbers Boa put up were really extraordinarily extraordinary. And as you know, this has been one of the better performing businesses that we've owned prior to the inventory destocking.
Larry: It was really broad Brett as I mentioned across each of the verticals I would say the company is developing a great business in workwear and it's becoming.
Speaker Change: A more material part of their business and that was certainly a driver of growth here as well both domestically and internationally.
Speaker Change: Yes, with respect to the $10 million driver of growth Larry I would say is sort of a combination prime aloft bounce back and exceeded our expectations as did the <unk>.
Speaker Change: <unk> put up a really extraordinarily extraordinary.
Unknown Attendee: And, you know, as you know, this was one of the better performing businesses that we've owned prior to the inventory destocking. So it's really good to see that behind them and get back on, you know, kind of a normal growth trajectory. And then, of course, Lugano continues to grow at a remarkable level.
Speaker Change: This is.
Ben: Ben one of the better performing businesses that we've owned prior to the inventory Destocking. So it's really good to see that behind them and get back on kind of a normal growth trajectory and then of course Lugano continues just.
Pat Mossarello: So it's really good to see that behind them and get back on kind of a normal growth trajectory. And then, of course, you've got to continue just to grow at a remarkable level. And so those three together, and as they said, they roughly represent half of our EBITDA. Having them be growing like they are right now, that kind of enables us to up our expectations in the back half of the year by, for the full year, by 10 million bucks on the consumer side. And just on the honey pie, a little bit below expectations, as you called out, some of it you, you know, sounds like you thought something, you're going to lose some of these skews.
Ben: Grow at a remarkable level and so those three together and as I said, they roughly represent half of our EBITDA, having them be growing like they are right now that kind of enables us to up our expectation in the back half of the year, but for the full year by 10 million Bucks on the consumer side.
Unknown Attendee: And so those three together, and, you know, as I said, they roughly represent half of our EBITDA. Having them be growing like they are right now, that kind of enables us to up our expectations for the back half of the year by, you know, for the full year by 10 million bucks on the consumer side. And just on the honeypot, a little bit below expectation, as you called out, some of it, you know, it sounds like you thought some of it, you're going to lose some of these skews. Is there also some traffic at these bigger box retail stores?
Speaker Change: And just on the honeypot, a little bit below expectation as you called out some of it it sounds like your thoughts on what youre going to lose some of these skus.
Pat Mossarello: Is it also some traffic at these bigger box retail stores, you know, one in particular, and is that still, you know, the big box still the majority of your revenue? Yeah, those couple of the bigger box stores are close to half of our revenue, or slightly more than that; probably a good chunk of our revenue. And I would say there is some well-publicized traffic reductions, at least one of those that would come into account.
Speaker Change: Is it also some traffic at these bigger box retail stores.
Unknown Attendee: You know, one in particular, and is that still, you know, the big box still the majority of your revenue? Yeah, a couple of the bigger box stores are close to half of our revenue or slightly more than that, probably, or a good chunk of our revenue. And I would say there are some well-publicized traffic reductions on at least one of those that would come into account. Fair enough. Okay, just last on the acquisition environment.
Speaker Change: One in particular is that still the big box well the majority of your revenue.
Ben: Yes.
Speaker Change: Couple of the bigger box stores or close to half of our revenue or slightly more than that probably or a good chunk of our revenue.
Speaker Change: I would say there is some well publicized traffic reductions at at least one of those that would come into account.
Lawrence Solow: Okay, just last in the acquisition environment. Just curious, you know, obviously multiple of them haven't really come down. And I know, you know, in the healthcare, particular, I'm just curious, your thoughts, no timetable, and I'm sure you've perked a good man, as I'm sure you've repurposed him and doing a lot of good stuff behind the scenes there. But curious, are you expanding your horizons a little bit around healthcare, you know, again, any thoughts on, you know, potential investments in that vertical specifically? Yeah, Larry, I would say just in general in the M&A market, you know, there is increased deal volume, as I mentioned, but, you know, we're really, you know, kind of focused on making sure that companies are very innovative in what they do today and the products and the margins they can enjoy from that, but then have a source of continuing innovation to be able to continue and enjoy that.
Unknown Attendee: Just curious, you know, obviously, multiples haven't really come down yet. And I know, you know, in the healthcare particular, I'm just curious, your thoughts, no timetable, and I'm sure you've Kurt's a good man. So I'm sure you repurposed him and are doing a lot of good stuff behind the scenes there.
Speaker Change: Fair enough. Okay, just lastly on the acquisition environment.
Speaker Change: Just curious obviously multiples havent really come down and I know.
Speaker Change: Healthcare, particularly I am just curious your thoughts no timetable and I am sure you of.
Bob: Of course, the good man as Im sure you repurpose time and doing a lot of good start with Bob It seems there, but curious you're expanding your horizons, a little bit about health care.
Elias Joseph Sabo: But curious, are you expanding your horizons a little bit around healthcare? You know, again, any thoughts on, you know, potential investments in that vertical specifically? Yeah, Larry, I would say just in general in the M&A market, there is increased deal volume, as I mentioned, but we're really, you know, kind of focused on making sure that companies are very innovative in what they do today and the products and the margins they can enjoy from that, but then have a source of continuing innovation to be able to continue and enjoy that.
Ben: Again.
Ben: Any thoughts on.
Boston: Potential Boston cannot verticals specifically thanks.
Boston: Yes, Larry I would say just in general in the M&A market.
Speaker Change: Is increased deal volume as I mentioned, but we're really.
Speaker Change: Kind of focused on making sure that companies are very innovative in what they do today and their products and the margins. They can enjoy from out but then have a source of continuing innovation to be able to continue to enjoy that and I would say that really narrows down the target opportunities pretty significantly.
Elias Joseph Sabo: And I would say that really narrows down the target opportunities pretty significantly of what we will go after. Unfortunately, broadly, in the market, we haven't seen those really premium companies coming to market yet, but I think that probably there's some green shoots in that the market is recovering. In terms of healthcare, in particular, and by the way, this goes across great consumer and great industrial sectors, when you see an A or an A plus business, which are the kind of businesses that we look for, these things trade; they always trade at, you know, premium multiples because they don't trade in compromised times, typically.
Lawrence Solow: And I would say that really narrows down the target opportunities pretty significantly of what we will go after. Unfortunately, broadly, the market in the market, we haven't seen those really premium companies coming to market yet. But I think that probably there's some green shoots in that the market is recovering. In terms of healthcare in particular, and by the way, this goes across great consumer and great industrial, when you see an A or an A plus business, which are the kind of businesses that we look for, these things are trade, they always trade at, you know, premium multiples because they don't trade and compromise times typically.
Speaker Change: What we will go after unfortunately broadly the market and the market, we haven't seen those really premium companies coming to market, yet, but I think that probably there are some green shoots in that the market is recovering in terms of healthcare in particular and by the way. This goes across great consumer and great industrial when you see it.
Speaker Change: <unk> and <unk> plus business, which are the kind of businesses that we look for these things are they always trade at premium multiples because they don't trade in compromised times typically and so our expectation is when these businesses come we're going to have to pay a clearing multiple.
Elias Joseph Sabo: And so, you know, our expectation is that when these businesses come in, we're going to have to pay a clearing multiple. It kind of goes back to the fact that we're just not seeing a lot of them out there.
Lawrence Solow: And so, you know, our expectation is when these businesses come, we're going to have to pay a clearing multiple. It kind of gets circular back to the fact that we're just not seeing a lot of them out there. With respect to healthcare, we are opening the parameters a little bit. I would say, you know, kind of, we would consider something maybe a little bit smaller than kind of the historical deal sizes that we've done. Maybe down in the $15 million EBITDA range, so dipping a little bit lower with a more of a build strategy. But other than that, we're remaining, you know, very disciplined in what our criteria are.
Speaker Change: It kind of gets circular back to the fact that we're just not seeing a lot of them out there with respect to healthcare we are.
Elias Joseph Sabo: With respect to healthcare, we are opening the parameters a little bit. I would say, you know, we would consider something maybe a little bit smaller than kind of the historical deal sizes that we've done, maybe down in the $15 million EBITDA range, so dipping a little bit lower with more of a build strategy. But other than that, we're remaining, you know, very disciplined in what our criteria are. Fair enough. I appreciate the call.
Speaker Change: Our opening the parameter is a little bit I would say kind of we would consider something maybe a little bit smaller than kind of the historical deal sizes that we've done maybe down in the $15 million EBITDA range, so dipping a little bit lower with a more of a build strategy.
Speaker Change: But other than that we're remaining very disciplined in what our criteria are.
Lawrence Solow: Fair enough, I appreciate the call; I thank the last.
Speaker Change: Fair enough I appreciate the color thanks, a lot.
Lawrence Scott Solow: Thank you. One moment while we prepare for the next question. And the next question that we have is coming from Matt Koranda of Rothkapp. Your line is open. Thanks for taking the questions.
Matthew Koranda: Thank you. One moment while we prepare for the next question. And the next question that we have is coming from Matt Koranda of War of Capital. Your line is open. Thanks for taking the questions. Maybe just sticking on the deal for a second, just curious. It sounds like a little bit of a ton shift from you guys in terms of just a little bit more awareness on slowing or softening economy, especially on the industrial side of things. Does that change your posture toward or appetite for larger acquisitions going forward here?
Speaker Change: Thank you one moment, while we prepare for the next question.
Speaker Change: And the next question that we have is coming from Matt Koranda.
Matthew Butler Koranda: Of Roth capital <unk>.
Speaker Change: Your line is open.
Matthew Butler Koranda: Maybe just stick on the deal front for a second. I'm just curious, it sounds like a little bit of a tone shift from you guys in terms of just a little bit more awareness of a slowing or softening economy, especially on the industrial side of things. Does that change your posture toward or appetite for larger acquisitions going forward here? And maybe Elias, if you could just unpack your commentary around deals not meeting your standards?
Matthew Butler Koranda: Hey, guys. Good evening, thanks for taking the questions.
Matthew Butler Koranda: Just sticking on the deal front for a second I'm just curious it sounds like a little bit of a tone shift from you guys in terms of just a little bit more awareness.
Speaker Change: Knowing our softening economy, especially on the industrial side of things does that change your posture toward.
Elias Joseph Sabo: It sounds like it may be more quality deal flow, but maybe just curious if you could talk a little bit about pricing expectations and, sort of, if you could unpack that theme as well, that'd be helpful. Yeah, sure. I mean, you know, Matt, we've, it feels like the economy is weakening, and we clearly factor that into our expectations in the back half. And that's why we didn't raise, notwithstanding having a really good quarter and feeling really good about the business.
Elias Joseph Sabo: Our appetite for larger acquisitions going forward here and maybe Elias if you could just unpack your commentary around deals not meeting our standards. It sounds like maybe more quality of deal flow, but maybe just curious if you could talk a little bit about pricing expectations in sort of we can.
Elias Sabo: And maybe Elias, if you just unpack your commentary around deals not meeting your standards, it sounds like it may be more quality of deal flow, but maybe just curious if you could talk a little bit about pricing expectations and sort of you could unpack that that team as well to be helpful. Yeah, sure, I mean, you know, Matt, we've, it feels like the economy is weakening, and we clearly factor that into our expectations in the back half and why we didn't raise, notwithstanding having a really good quarter and feeling really good about the business. But that obviously factors into how we're looking at companies right now, too, in that there's probably going to be some reduced expectation of growth at a minimum, or maybe even, you know, they don't grow at all.
Elias Joseph Sabo: To unpack that that team as well it would be helpful.
Elias Joseph Sabo: Yes, sure I mean.
Speaker Change: It feels like the economy is weakening and we clearly factor that into our expectations in the back half and that's why we didn't raise notwithstanding having a really good quarter and feeling really good about the business, but that obviously factors into how we're looking at companies right now too.
Elias Joseph Sabo: But that obviously factors into how we're looking at companies right now, too, in that there's probably going to be some reduced expectation of growth at a minimum, or maybe even, you know, they don't grow at all, as the economy feels like it's reigning in a little bit. So that impacts our view of forward earnings, which is going to impact our view of, you know, kind of valuation. And that may or may not allow us to be competitive because we have maybe a slightly more negative view of how the economy is unfolding right now.
Speaker Change: In that there's probably going to be some reduced expectation of growth at a minimum or maybe even they don't grow at all.
Elias Sabo: As the economy feels like it's raining in a little bit. So that impacts our view for earnings, which is going to impact our view on, you know, kind of valuation. And that may or may not allow for us to be competitive because we have maybe a slightly more negative view of kind of how the economy is unfolding right now. I would say, in terms of multiples, you know, we expect to pay more elevated multiples. And if you think of the businesses that we've acquired recently, you know, Primal off and Boa. You know, as two examples, those were companies that traded, you know, kind of in the mid double-digit range, you know, kind of 15-ish times.
Elias Joseph Sabo: As the economy feels like its rating and a little bit so that impacts our view of forward earnings which is going to impact our view on kind of valuation.
Elias Joseph Sabo: And that may or may not allow for us to be competitive because we have maybe a slightly more negative view of.
Elias Joseph Sabo: I would say in terms of multiples, you know, we expect to pay more elevated multiples. And if you think of the businesses that we've acquired recently, you know, Primaloft and BOA, you know, as two examples, those are companies that traded, you know, kind of in the mid-double-digit range, you know, kind of 15-ish times. And these are incredibly high-quality businesses with really deep economic modes, and those are the kind of businesses that we're looking for. I mean, we want a source of real innovation.
Elias Joseph Sabo: Kind of how the economy is unfolding right now.
Elias Joseph Sabo: I would say in terms of multiples.
Elias Joseph Sabo: We expect to pay more elevated multiples and if you think of the businesses that we've acquired recently.
Elias Joseph Sabo: Prime aloft and Boa.
Elias Joseph Sabo: As two examples those are companies that trade it kind of in mid double digit range kind of 15 ish times and these are incredibly high quality businesses with really deep economic moats and those are the kinds of businesses that we're looking for I mean, we want source of real innovation, we want.
Elias Sabo: And these are incredibly high quality businesses with really deep economic moats. And those are the kind of businesses that we're looking for. I mean, we want the source of real innovation. We want, you know, protected IP or some go to market strategy that we can feel really good about is being durable. And ultimately, it needs to manifest in the company being able to significantly outgrow, outgrowing its underlying industry. And so those are sort of the criteria that we're evaluating. And this has been part of our, you know, sort of strategic sort of, you know, kind of not shift.
Elias Joseph Sabo: We want, you know, protected IP or some go-to-market strategy that we can feel really good about being durable. And ultimately, it needs to manifest in the company being able to significantly outgrow its underlying industry. And so those are sort of the criteria that we're evaluating. And this has been part of our, you know, sort of strategic, you know, kind of not shift, but as our capital costs have come down, we've been talking to you about buying faster growing businesses that are more well protected; those two things have gone hand in hand. And so that is what we are looking for, and we're very strict about meeting that criteria.
Elias Joseph Sabo: <unk> IP or some go to market strategy that we can feel really good about is being durable and ultimately it needs to manifest in the company being able to significantly outgrow outgrowing its underlying industry and so those are sort of the criteria that we're evaluating and this has been part of our sort of.
Elias Joseph Sabo: <unk> sort of kind of that shift, but as our capital costs have come down we've been talking to you about buying faster growing businesses and more well protected those two things have gone hand in hand.
Elias Sabo: But as our capital costs have come down, we've been talking to you about buying faster growing businesses and more well protected. Those two things have gone hand in hand. And so that is what we are looking for. And we're very strict about meeting that criteria. And I would just say whether, you know, you're today or a year ago, or you're back in 21 when times were really robust, or 19. Those companies always trade for strong multiples because when you identify companies with those characteristics, it's typically about, you know, you have to pay the clearing price for those.
Elias Joseph Sabo: So that is what we are looking for and we're very strict about meeting that criteria and I would just say whether you are today or a year ago or youre back in 'twenty. One when times were really robust or 19, those companies always trade for strong multiples because when you identify companies.
Elias Joseph Sabo: And I would just say, whether you know, you're today or a year ago, or you're back in 21, when times were really robust or 19, those companies always trade for strong multiples. Because when you identify companies with those characteristics, it's typically about, you know, you have to pay the clearing price for them. And, you know, those are really in demand assets. When we look back historically at our performance, notwithstanding that they're our highest priced assets, they're also our best performing assets on return on invested capital as well. So, you know, that's sort of where we see the deal market right now, and volume has come back. But, as you said, quality is still lagging. Okay, very helpful.
Elias Joseph Sabo: Those characteristics, it's typically about.
Elias Joseph Sabo: You have to pay the clearing price for those and those are really in demand assets. When we look back historically at our performance notwithstanding they're our highest priced assets. They're also our best performing assets on return on invested capital as well so.
Matthew Koranda: And, you know, those are really in-demand assets. You know, when we look back historically in our performance, notwithstanding there are highest price assets. They're also our best performing assets on return on invested capital as well. So, you know, that's sort of where we see the deal market right now. And volume is come back. But, as you said, quality is still like. Okay, very helpful.
Elias Joseph Sabo: That's sort of where we see the deal market right now.
Speaker Change: Volume has come back, but as you said quality is still lagging.
Speaker Change: Okay very helpful.
Matthew Butler Koranda: And then just curious, maybe on the balance sheet front, like, if we're a little bit more reticent about the economy, why not focus on reducing that leverage? I know that you already are starting to do so. And you mentioned that without a deal, I guess, we just naturally sort of de-lever over the next couple of quarters. But maybe if you could talk about the trajectory there where we might expect to end the year on that leverage if we didn't see a deal, and maybe that would be a priority of ours? Like if we kind of see things softening a bit. Yeah, Matt, this is Ryan.
Ryan Faulkingham: And then just curious, maybe on the balance sheet front, like, if we're a little bit more reticent about the economy, why not focus on reducing that leverage. I know that you're starting to do so. And you mentioned that without a deal, I guess we just naturally sort of the lever over the next couple of quarters. Maybe we could talk about the trajectory there where we might expect to end the year on that leverage. If we didn't see a deal and maybe with that the priority of ours, like if we kind of see things, something about.
Speaker Change: And then just curious maybe on the balance sheet like.
Speaker Change: If we're a little bit more reticent about the economy.
Speaker Change: Why not focus on reducing that leverage I know that you already are starting to do so.
Speaker Change: And you mentioned that without a deal I guess, we just naturally sort of de lever over the next couple of quarters, but maybe if you could talk about the trajectory there where we might expect to end the year on that leverage.
Speaker Change: If we didn't see a deal and maybe would that be.
Speaker Change: Our priority.
Speaker Change: Of ours like if we if we kind of see things softening a bit.
Ryan Faulkingham: Yeah, Matt, this is Ryan. Thanks for the question. You know, you're right in that our leverages continuing to come down, and you heard us on the past few calls, you know, talk about that post the honey pot transaction. You know, we're seeing some continued really strong performance that our consumer subsidiaries, which is growing the denominator there. So as we, you know, build our business, our leverage is coming down, came down from little above three eight down to about three seven this quarter. I'd expect, you know, kind of similar declines over the next two quarters as we, you know, not only grow the EBITDA line, but we start to, you know, cash convert some of our other subsidiaries, inventory and such.
Ryan J. Faulkingham: Thanks for the question. You know, you're right in that our, you know, leverage is continuing to come down. And you heard us on the past few calls talk about that post-honeypot transaction. You know, we're seeing some continued really strong performance at our consumer subsidiaries, which is growing the denominator there. So as we, you know, build our business, our leverage is coming down, came down from a little above 3.8 down to about 3.7 this quarter. I'd expect, you know, kind of similar declines over the next two quarters as we, you know, not only grow the EBITDA line, but we start to, you know, cash convert some of our other subsidiaries' inventory and such. So, you know, still a focus of ours, but I'd say it's more organic.
Speaker Change: Yes, Matt This is Ryan thanks for the question.
Ryan: Youre right in that our Leverages continuing to come down and you heard us in the past few calls talk about that post the honeypot transaction. We're seeing some continued really strong performance at our consumer subsidiaries, which is growing the denominator. There. So as we build our business our leverage is coming down.
Ryan: It came down from little above three eight down to about $3. Seven this quarter I'd expect kind of similar declines over the next two quarters as we not only grow the EBITDA line, but we start to.
Ryan: Cash convert some of our other subsidiaries inventory and such so still a focus of ours I would say it's more organic.
Ryan Faulkingham: So, you know, still a focus of ours. I'd say it's more organic. You know, I think what you also saw during the quarter is we raised a little bit of preferred. So, you know, I think that's been a good source of, you know, some equity capital for us to do leverage. But I do think we feel confident in our growth prospects for this year. You know, clearly we're guiding to, you know, north of 12% growth in EBITDA year over year. So I think that all, you know, feels good. So I think we're in good shape on the balance sheet as I think about closing out the year.
Ryan J. Faulkingham: You know, I think what you also saw during the quarter is that we raised a little bit of preferred equity. So, you know, I think that's been a good source of, you know, some equity capital for us to deleverage. But I do think we feel confident in our growth prospects for this year. You know, clearly we're guiding to, you know, north of 12% growth in EBITDA year over year. So I think that all, you know, feels good.
Ryan: I think what you also saw during the quarter is we raised a little bit of preferred so I think thats been a good source of some equity capital for us to deleverage.
Ryan: But I do think we feel confident in our growth prospects for this year.
Ryan: Clearly, we're guiding to north of 12% growth in EBITDA year over year. So I think that all feels good. So I think we're in good shape on the balance sheet as I think about closing out the year.
Unknown Attendee: So I think we're in good shape on the balance sheet as I think about closing out the year. Okay, great. And if I could just do one more on one of the fundamental businesses. So on Lugano, wanted to hear if you guys had any sort of preliminary learnings that you could share from the London salon opening. Any, like if you have quantifiable metrics, that's great, but just any learnings around that and how that sort of informs the additional expansion plans you may have for the rest of Europe.
Matthew Koranda: Okay, great.
Speaker Change: Okay, great and if I could just do one more on.
Pat Mossarello: And if I could just do one more on one of the fundamental businesses. So on Luke Gano wanted to hear if you guys had any sort of preliminary learning so you can share from the London to on opening. Any, like, if you have quantifiable metrics, that's great, but just any learnings around that and how that sort of informs the additional expansion plans you may have for the rest of Europe. And also, I guess I noticed that the incrementals there just continue to be really strong, and it's kind of hard to model this thing given your, you know, punch and above 40% in terms of incrementals.
Speaker Change: One of the fundamental businesses saw in Lugano wanted to hear if you guys had any sort of preliminary learnings you can share from the London Salon opening.
Speaker Change: If you have quantifiable metrics, that's great, but just any learnings around that and how <unk>, how that sort of informs the additional expansion plans you may have for the rest of Europe.
Unknown Attendee: And also, I guess I noticed that the incrementals there just continue to be really strong, and it's kind of hard to model this thing given you're punching above 40% in terms of incrementals. How sustainable is that?
Speaker Change: And also I guess I noticed that the Incrementals. There just continues to be really strong and it's kind of hard to model. This thing given you're punching above 40% in terms of incrementals.
Pat Mossarello: How sustainable is that sort of how should we think about modeling that going forward? I would assume you're probably going to try to sample style in that front, but it wasn't impressive. So I just wanted to hear a little bit more on that. Sure. I mean, the company does a great job. You said some of the learnings that we take from London company does a great job of sort of seeding the market with a lot of deep relationships before they enter a market. And they did the same thing here in London. We had a smaller business working with European equestrian customers that we spent some time with and that helped us see this market when we went into London.
Speaker Change: How sustainable is that sort of how should we think about modeling that going forward I would assume youre, probably going to try to temper style on that front, but.
Unknown Attendee: Sort of, how should we think about modeling that going forward? I would assume you're probably gonna try to tamp us down on that front, but it was impressive. So I just wanted to hear a little bit more on that. Sure. I mean, the company does a great job. You said some of the learnings that we take from London. The company does a great job of sort of seeding the market with a lot of deep relationships before they enter a market. And they did the same thing here in London.
Speaker Change: It was impressive so I just wanted to hear a little bit more on that.
Ryan: Sure.
Speaker Change: Company does a great job you said some of the learnings.
Speaker Change: That we take from London, if somebody does a great job of sort of seeding the market with a lot of deep relationships before they enter a market.
Speaker Change: And they did the same thing here in London, we had a smaller business working with European equestrian.
Unknown Attendee: We had a smaller business working with European equestrian customers that we spent some time with, and that helped us seed this market when we went into London. So that would be point one. Point number two would be that our sort of way we do business, which is sort of deep relationships and good value on really amazing products, works over there as well. And so there was some sort of, you know, you work with a buyer who buys differently; you work with customers who purchase differently. We're learning that it works there as well.
Speaker Change: Customers that we that we spent some time with and that helped us see this market.
Pat Mossarello: So that would be point one. Point number two would be that our sort of the way we do business, which is sort of deep, deep relationships and good value on really amazing product works over there as well. And so there was some sort of, you know, you know, you work with a buyer who buys differently, work with customers who purchase differently. We're learning that it works there as well, and we are optimistic that there are several more, at least European locations that it could it could work to. So it only made us more bullish on sort of growth internationally and growth within within Europe.
Speaker Change: When we went into London, so that would be 0.1 point number two would be that are sort of the way, we do business, which is sort of deep deep relationships and good value.
Speaker Change: And really amazing product works over there as well.
Speaker Change: And so there was some sort of.
Speaker Change: With a buyer who buys differently you work with customers who purchase differently.
Unknown Attendee: And we are optimistic that there are several more, at least European, locations that it could work to. So it only makes us more bullish on sort of growth internationally and growth within Europe. As far as growth goes, I'm not going to make your modeling exercise any easier. I'm sorry, Matt.
Speaker Change: We're learning that it works there as well and we are.
Speaker Change: We are optimistic that there are several more at least European locations that it could it could work to so it only made us more bullish on sort of growth internationally and growth within within Europe as far as the growth I'm not going to make your modeling exercise any easier I'm sorry, Matt.
Ryan Faulkingham: As far as the growth, I'm not going to make your modeling exercise any easier. I'm sorry, Matt. I think we're going to, you know, continue to see really robust growth in 2024 and into 2025. And the robustness of that beyond that, you know, will somewhat be determined by the number of salons we open and somewhat just be driven by, you know, continued growth at the company and continued depth of relation. of relationships. Got it. Any rule of thumb around inventory investment, translating the sort of sales and he has to provide some metrics around that. Let me curious if you have another crack at that one or anything strange on that front.
Unknown Attendee: I think we're going to, you know, continue to see really robust growth in 2024 and into 2025. And the robustness of that beyond that will somewhat be determined by the number of salons we open and somewhat just be driven by, you know, continued growth at the company and continued depth of relationships.
Speaker Change: I think we're going to continue to see really robust growth in 2024 and into 2025.
Speaker Change: And the robustness of that beyond that.
Speaker Change: We will somewhat be determined by the number of salons, we open and.
Speaker Change: And somewhat just be driven by.
Speaker Change: Continued growth at the company and continued depth of relationships.
Matthew Butler Koranda: Any rule of thumb around inventory investment, translating to sort of sales? I think you guys have provided some metrics around that. Curious if you have another crack at that one or if anything's changed on that.
Speaker Change: Got it and any rule of thumb around inventory investment.
Speaker Change: Translating to sort of sales and he has it provided some metrics around that.
Speaker Change: Curious if you have another crack at that one or if anything's changed on that front.
Ryan Faulkingham: Yeah, man, it's basically, you know, remain similar to, you know, where it's been. I would say we do have some additional investment we're making up front as our growth rate is actually accelerating, which is, you know, really remarkable given how fast this business has been growing. But if it's accelerating, it actually requires a little bit more up front capital, especially as we're, you know, expanding our footprint. And for example, going to London, you know, now being international, it creates some challenges about moving inventory that, you know, kind of required a little bit more investment. So, you know, in general, I would say the numbers are sticking exactly where, you know, they have been historically.
Elias Joseph Sabo: Yeah, man, it's basically, you know, remained similar to where it was. I would say we do have some additional investment we're making up front, as our growth rate is actually accelerating, which is, you know, really remarkable, given how fast this business has been growing. But as it's accelerating, it actually requires a little bit more upfront capital, especially as we're, you know, expanding our footprint. And for example, going to London, you know, now being international, it creates some challenges about moving inventory that, you know, kind of required a little bit more investment.
Speaker Change: Yes, Matt it's basically remained similar to where it's been I would say, we do have some additional investment we're making upfront as our as our growth rate is actually accelerating which is really remarkable given how fast this business has been growing but as it's accelerating it actually Rick.
Speaker Change: <unk> is a little bit more upfront capital, especially as we're expanding our footprint and for example going to London.
Speaker Change: <unk> now being international it create some challenges about moving inventory that kind of required a little bit more investment so.
Elias Joseph Sabo: So, you know, in general, I would say the numbers are sticking exactly where they have been historically. And as we look at the business, I mean, part of the question that Pat asked you for your answer on modeling, I mean, the level of inventory investment also is a, you know, kind of component to modeling out how large and fast this business will grow. We've said this for 3 years, and I know it's hard for everybody and for us to accept a little bit that as we put in more inventory, there is, you know, a kind of demand within our network.
Speaker Change: In general I would say the numbers are sticking exactly where.
Speaker Change: They have been historically.
Ryan Faulkingham: And as we look at the business, I mean, you know, part of the question that Pat said on your answer, Pat did for your question on modeling. I mean, the level of inventory investment also is a, you know, kind of component to modeling out how large and fastest business will grow. We've said this for three years, and I know it's hard, you know, for everybody. And for us too to accept a little bit that, as we put in more inventory, there is, you know, kind of demand within our network. And as we're growing that network of buyers for, there's additional demand that is there.
Speaker Change: And as we look at the business I mean part of the question that passed that on your answer Pat did for your question on modeling I mean, the level of inventory investment also as they can.
Speaker Change: Component two modeling out how large and fast this business will grow we've said this for three years and I know, it's hard for everybody and for us to accept a little bit as we put in more inventory there is kind of demand within our network and as we're growing that network.
Elias Joseph Sabo: And as we're growing that network of buyers, there's additional demand that is there, and so we are creating more revenue opportunities with inventory investment. I think that continues, and that has not slowed down. And so, as we look into 2025, other than a desire to be a little bit more conservative and not get out over our skis, I would say there's nothing present right now that says this business should have a material change and sort of, you know, its performance and growth outlook. It's going to be the kind of same things getting the people on board, getting the product and the inventory built.
Speaker Change: Buyers for there is additional demand that is there and so we are creating more revenue opportunity with inventory investment I think that continues and that has not slowed down and so as we look into 2025 other than a desire to be a little bit more conservative and not get out over our skis.
Ryan Faulkingham: And so we are creating more revenue opportunity within inventory investment. I think that continues and that has not slowed down. And so, as we look into 2025, other than a desire to be a little bit more conservative and not get out over our skis, I would say there's nothing present right now that says this business should have a material change in sort of, you know, kind of its performance and growth outlook. It's going to be the, you know, kind of same things, getting the people, you know, onboarded, getting, you know, kind of the product and the inventory, you know, Bill, you know, those are sort of some of the constraints right now that we have to grow.
Speaker Change: I would say there is nothing president right now that says this business should have a material change in sort of kind of its performance and growth outlook, it's going to be the kind of same things getting the people onboard or getting kind of the product and the inventory build.
Elias Joseph Sabo: Those are sort of some of the constraints right now that we have to grow. It feels like demand still is solidly higher within our network than what we're currently satisfied with. Okay, fair enough. I appreciate all the detail there, guys. I'll jump back.
Speaker Change: Or sort of some of the constraints right now that we have to growth it feels like demand still is Sal.
Ryan Faulkingham: It feels like demand still is, you know, solidly more within our network than what we're currently satisfying.
Speaker Change: We'll leave more within our network than what we're currently satisfying.
Matthew Koranda: Okay. Fair enough. I appreciate all the detail there, guys.
Speaker Change: Okay Fair enough I appreciate all the detail there guys I'll jump back in queue.
Operator: I'll jump back and thank you.
Operator: Thank you. And one moment for the next question. Our next question will be coming from the line of Derek Somers of Jeff Rings. Your line is open. Hey, good afternoon, everyone. A couple of quick questions on the subsidiaries, just on Honey Pot and the Ghana. Could you remind us if there's any sort of seasonality we should be cognizant of in modeling those. And then additionally, any kind of commentary on the 511 business transition or transformation will be helpful as well. Sorry, what was the second part? 511. So, seasonality at Honey Pot, I mean, it's lessening.
Matthew Butler Koranda: Thank you. And one moment for the next question. Our next question will be coming from the line of Derek Sommers of Jefferies. Your line is open. Hey, good afternoon, everyone.
Speaker Change: Thank you and one moment for the next question.
Speaker Change: Our next question will be coming from the line of Derek <unk> of Jefferies. Your line is open.
Derek Sommers: A couple of questions on the subsidiaries, just on Honeypot and Lugano. Could you remind us if there's any sort of seasonality we should be cognizant of in modeling those? And then additionally, any kind of commentary on the 5.11 business transition or transformation would be helpful as well.
Speaker Change #112: Hey, good afternoon, everyone. A couple of questions on subsidiaries just on Honeypot Lugano could you remind us if there is any.
Speaker Change #102: Sort of seasonality, we should be cognizant of and modeling those and then additionally.
Speaker Change: Any kind of commentary on the 511 business transition or transformation will be helpful as well.
Speaker Change: Sorry, what was the second part.
Unknown Attendee: So, seasonality at Honeypot, I mean, it's diminishing. I think Q1 tends to be a pretty strong quarter for them. But other than that, there's not too much seasonality at Lugano.
Speaker Change: Okay.
Speaker Change: So five elevens so.
Speaker Change: Seasonality of Honeypot.
Derek Sommers: I think Q1 tends to be a pretty strong quarter for them. But other than that, it doesn't; there's not too much seasonality. At Logano, I think we've tended to see sort of Q4 and Q1 be bigger than Q2 and Q3. And it just depends on the year.
Speaker Change #110: It's lessening I think Q1 tends to be.
Speaker Change: Pretty strong quarter for them, but other than that.
Speaker Change: It doesn't there's not too much seasonality at.
Speaker Change #116: Lugano I think we've tended to see sort of Q4 and Q1 be bigger than.
Speaker Change: Q2 and Q3.
Speaker Change: And it just depends on the year as it relates to the 511 transition.
Unknown Attendee: I think we've tended to see sort of Q4 and Q1 be bigger than Q2 and Q3, and it just depends on the year. As it relates to the 511 transition, we're spending a lot of time working on sort of opening up the aperture for 511. And how do we, you know, how do we bring in more customers for this product that just performs incredibly well and has an incredibly trusted and authentic brand? And so we're spending a lot of time understanding just how we do that.
Pat Mossarello: As it relates to the 511 transition, we're spending a lot of time working on sort of opening up the aperture for 511. And how do we bring in more customers to this product that just performs incredibly well and has an incredibly trusted and authentic brand? And so we're spending a lot of time understanding just how we do that. And that's been a big part of our focus over the last sort of two to three months, and we'll be for the next three to four months. What also is happening though at the same time is you know inventory fluctuations still related to COVID where you'll purchase too much or too little is impacting our retail sell somewhat in DTC. And then lastly, as I touched on with PFAS, you know we have a lot of different skews that we now need to bring in PFAS free product for, and it's a relatively complex process. Different states, different agencies, and different states and different consumer wholesale customers will demand different specs; some will want PFAS products, some will not. So you essentially have to keep a double inventory on a lot of products, and that's presenting us with some operational challenges. I think we're going faster than most in the industry, and so I think it could potentially be a talent when we get through it in 2025, but it is it's a bit of a headwind right now.
Speaker Change: We're spending a lot of time working on sort of opening up the aperture for 511 and how do we.
Speaker Change: How do we bring in more customers.
Speaker Change: To this product that just performed incredibly well.
Speaker Change: And has it incredibly trusted and authentic brand and so we're spending a lot of time understanding just how we do that and thats been a big part of our <unk>.
Speaker Change: Focus over the last sort of two to three months and will be for the next three to four months.
Unknown Attendee: And that's been a big part of our focus over the last sort of two to three months and will be for the next three to four months. What also is happening, though, at the same time, inventory fluctuations still related to COVID where you purchase too much or too little are impacting our retail sales somewhat in DTC. And then lastly, as I touched on with PFAS, we have a lot of different SKUs that we now need to bring in PFAS-free products for, and it's a relatively complex process. Different states, different agencies in different states, and different consumer wholesale customers will demand different specifications.
Speaker Change: What also is happening though at the same time is.
Speaker Change: Tori fluctuation still related to Covid, where you purchased.
Speaker Change: Much or too little is impacting our retail sell somewhat in DTC and then lastly, as I touched on with <unk>, we have a lot of different skus that we now need to bring in PFS free product for.
Speaker Change: And it's a relatively complex process different states different agencies in different states and different.
Unknown Attendee: Some will want PFAS products, some will not. So you essentially have to keep double inventory on a lot of products. And that's presenting us with some operational challenges. I think we're going faster than most in the industry. And so I think it could potentially be a tailwind when we get through it in 2025, but it's a bit of a headwind right now.
Speaker Change: Consumer wholesale customers will demand a different specs somewhat lumpy first products and will not so you essentially have to keep double inventory on a lot of products and that's presenting us with <unk>.
Speaker Change: Some operational challenges I think we're going faster than most in the industry and so I think it could potentially be a tailwind when we get through it in 2025, but it is it's a bit of a headwind right now.
Derek Sommers: Got it, thank you, and then just on that industry cuts, you know you'll flow through on your variable rate debt at the corporate level, but is it very kind of industry exposure we should be aware of at the subsidiary level. No, Derek, all that you know, all that subsidiary debt is owed us, so there's no, you know, exogenous risk outstanding with respect to interest rate risk. Any cut would be a positive to the business. Got it, thank you for the color of the talk. Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone.
Ryan J. Faulkingham: And then just on the interest rate cuts, you know, it'll flow through on your variable rate debt at the corporate level, but is there any kind of interest rate exposure we should be aware of at the subsidiary level? No, Derek, all that, you know, all that subsidiary debt is owed us. So there's no, you know, exogenous risk outstanding with respect to interest rate risks.
Speaker Change #122: Got it. Thank you and then just.
Speaker Change #119: On the interest rate cuts.
Speaker Change: It will flow through on your variable rate debt at the corporate level, but is there any kind of interest.
Speaker Change: Interest rate exposure.
Speaker Change: At the subsidiary level.
Speaker Change: No Derrick all that all of that subsidiary that is owed us so.
Speaker Change #100: So theres no.
Derek Sommers: Any cut would be a positive to the business. Got it. Thank you for the call and the poll for me.
Speaker Change #121: Largeness risk outstanding with respect to interest rate risks.
Speaker Change #100: Cut would be a positive to the business.
Speaker Change: Got it. Thank you for the color that's all for me.
Derek Sommers: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. Our next question will be from Robert Dodd of Raymond James. Your line is open.
Speaker Change #158: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.
Robert Dodd: Our next question will be coming from Robert Dodd of Raymond James. Your line is open. Hi guys, sorry about the background noise here. It feels kind of like reading it down to my question for actually quarters, but Magano, so a couple quarters go.
Speaker Change: Our next question will be coming from Robert Dodd of Raymond James Your line is open.
Robert James Dodd: Hi guys. Sorry about the background noise here. It feels kind of like beating a dead horse after my questions for the last few quarters, but Lugano.
Robert James Dodd: Hi, guys, sorry about the background noise.
Robert James Dodd: It sounds kind of like we can get back to my question for last few quarters Lugano. So.
Elias Joseph Sabo: So a couple of quarters ago, I asked you if you thought it could hit a third of Tony Bidart's this year, and you said no. Well, it's a third this quarter. Obviously, that's not a guarantee that it's going to keep growing as a share, but the discussion point is, I mean, again, the concentration issue. It's a great business, but it is such a big driver of your growth and a big consumer of cash.
Robert Dodd: I asked you if you thought it could fit a third of totally bizarre this year. You said no. Well, it's a third this quarter. Obviously, that's not a guarantee that it's going to keep growing as a share, but the discussion point is, I mean, again, the concentration issue. It's a great business, but it is such a big driver of your work. And a big consumer of cash. I think it was about 71 million in operating cash flow consumption in the first half, so you know to fund the accelerating growth. You know you talked about it last quarter, but can you give us an update on what your thoughts on how do you can continue to maximize the performance and the returns that Lagana while not having it just dominate all the, you know, all the financial needs.
Speaker Change #114: A couple of quarters.
Speaker Change #101: Got it.
Speaker Change #104: A third of total EBITDA.
Speaker Change #124: This year, you said no.
Speaker Change #115: It's a third this quarter.
Speaker Change: Obviously, thats not a guarantee that it's going to keep growing as a share.
Speaker Change: Please.
Speaker Change #105: The concentration issue, it's a great business, but it is such a big driver.
Speaker Change #117: And the cumulative cash certainly we listen our mindset was $71 million.
Speaker Change #106: Operating cash consumption.
Speaker Change #103: So just on the accelerating.
Elias Joseph Sabo: I think it was around 71 million in operating cash flow consumption in the first half. So, you know, to fund the accelerating growth, you talked about it last quarter, but can you give us an update on what your thoughts are on how you can continue to maximize the performance and the returns at Lugano while not having it just dominate all the, you know, all the financial needs of the platform? Yeah, I mean, Robert, it's, you know, we talked about this last time.
Speaker Change: Yes.
Speaker Change #111: You talked about in the last quarter, but I mean can you give us an update on what your thoughts on how you can continue to maximize the performance and the returns that look on a while now but you can't just dominate.
Speaker Change: All the all the financial needs.
Elias Joseph Sabo: It's kind of a high-class problem because the return on invested capital is so, you know, abnormally high here. From a capital allocation standpoint, it's really hard to ignore the request for additional capital because we can't direct it in an alternative manner and get a better return. And so, I think that, you know, leads us to want to continue to fund this, notwithstanding the risk that you're highlighting, which is, you know, it's becoming more concentrated in the portfolio, and, you know, it is like any hyper-growth business that has a capital need for it.
Elias Sabo: Yeah, I mean Robert, it's, you know, we talked about this last time, it's kind of a high-class problem because the return on invested capital is so, you know, abnormally high here. From a capital allocation standpoint, it's really hard to ignore the request for additional capital because we can't direct it, you know, an alternative matter and get a better return. And so I think that you know leads us to want to continue to fund this notwithstanding the risk that you're highlighting, which is you know it's becoming more concentrated in the portfolio and you know it is like any hyper growth business that has a capital need to it.
Speaker Change: Yes, I mean, Robert is we talked about this last time, it's kind of a high class problem because the return on invested capital is so.
Robert James Dodd: At normally high here from a capital allocation standpoint, it's really hard to ignore the request for additional capital because we can't direct and then alternative matter and get a better return.
Speaker Change: So I think that.
Speaker Change #107: Leads us to want to continue to fund this notwithstanding the risk that you're highlighting which is.
Speaker Change #107: It's becoming more concentrated in the portfolio.
Speaker Change #107: It is like any hyper growth business that has a capital need to it.
Elias Joseph Sabo: It is a capital consumer while it's in this massive growth phase. I mean, if this thing slowed down to a 20% growth business, it would be a really good growth, you know, cash flow producer. And if it grew at 3% or 4%, it would produce a ton of free cash flow.
Elias Sabo: It is a capital consumer while it's in the massive growth phase. I mean, if this thing slowed down to a 20% growth business, it would be a really good growth, you know, cash flow producer. And if it grew at 3%, it would produce a ton of cash flow; you know, it just is happening to grow at 40% 50%, and that causes, you know, our capital, the capital requirements, to be quite substantial. I think it really is, you know, kind of strategically how we think about the asset. I think funding is needs as long as it is a you know kind of subsidiary of us is important and it is important to the value creation of Cody and it's important to Lugano reaching its maximum value potential as well.
Speaker Change #107: As a capital consumer while it's in this massive growth face I mean, if there's things slowed down to a 20% growth business. It would be a really good growth cash flow producer and if it grew at three 4% it would produce a ton of free cash flow.
Elias Joseph Sabo: You know, it just is happening to grow at 40%, 50%, and that causes, you know, our capital, the capital requirements to be quite substantial. I think it really is, you know, kind of strategically how we think about the asset. I think funding its needs, as long as it is a, you know, kind of subsidiary of us, is important, and it is important to the value creation of COTI, and it's important to Lugano reaching its maximum value potential as well. So, I think, you know, there isn't really an alternative to funding the capital that they can wisely put to work with these types of returns.
Speaker Change #107: Happening to grow at 40% 50%.
Speaker Change: And that causes our.
Speaker Change: Our capital the capital requirements to be quite substantial.
Speaker Change #108: I think it really is kind of strategically how we think about the asset I think funding needs as long as it is a subsidiary of US is important.
Speaker Change #108: It is important to the value creation of Coty, and it's important to lugano, reaching its maximum value potential as well. So I think there isn't really an alternative to fund the capital that they can wisely put to work with these type of returns.
Elias Sabo: So I think you know there isn't really an alternative to fund the capital that you know they can wisely put to work with these type of returns. Clearly, if that breakdown and return on the capital happens, then everything gets reevaluated. But if you say that that sort of a status quo, then you know we will continue to fund that. You know I think what it points to is given the differential in growth rate and it is growing so much faster than the rest of the portfolio. The third you know 33% concentration it represented in the quarter is likely only going to grow if that you know differential continues, which we would expect it to.
Elias Joseph Sabo: Clearly, if that breakdown in return on invested capital happens, then everything gets re-evaluated. But if you say that that's sort of a status quo, then, you know, we will continue to fund that. You know, I think what it points to is, given the differential in growth rates, and it is growing so much faster than the rest of the portfolio, the third, you know, 33% concentration it represented in the quarter is likely only going to grow if that, you know, differential continues, which we would expect it to.
Speaker Change #108: Clearly if that breakdown in return on invested capital happens then everything gets reevaluated, but if you say that's sort of a status quo than we.
Speaker Change #108: We'll continue to fund that.
Speaker Change #109: I think what it points to is given the differential in growth rate.
Speaker Change: It is growing so much faster than the rest of the portfolio.
Speaker Change: Third 33% concentration it represented in the quarter is likely only going to grow if that differential continues which we would expect it to and so in the next couple of years, it's going to become a bigger part of Cody unless we do something creatively with it and I would say that could be anything.
Elias Joseph Sabo: And so, in the next couple of years, it's going to become a bigger part of COTI unless, you know, we do something creative with it. And I would say that could be, you know, anything from, you know, a divestiture, which, you know, clearly that is part of our strategy, and we've done that historically with our assets, to, you know, kind of continuing to own it and financing it in, you know, a more creative way.
Elias Sabo: And so in the next couple of years it's going to become a bigger part of Cody and last you know we do something creatively with it and I would say that could be you know anything from you know a devastature which you know clearly that is part of our strategy and we've done that historically with our assets. So I think that's a big part of that to, you know, kind of continuing to own it and financing it in, you know, a more creative way. And I could think of, like, you know, Fox as an example of how we owned a business and creatively financed it through taking part of it public and then having, you know, on the its own access to capital markets or debt markets, wherever it could, you know, participate.
Speaker Change: From.
Speaker Change: Divestiture, which clearly that is part of our strategy and we've done that historically with our assets to kind of continuing to own it and financing it in a more creative way and then I can think of like.
Elias Joseph Sabo: And I can think of, like, Fox as an example of how we owned a business and creatively financed it through taking part of it public and then having, you know, its own access to capital markets or debt markets wherever it could, you know, participate. And that was a win-win because it lowered their cost of capital, while we still owned a big piece.
Speaker Change: Fox as an example of how we own the business and creatively finance that through taking part of it public and then having.
Speaker Change: Its own access to capital markets or debt markets wherever it could participate and that was a win win because it lowers their cost of capital we still own the big piece, though as the majority owner in the beginning kind of with an overall weighted.
Elias Sabo: And that was a win-win because it lowers their cost capital. We still own the big T, so as the majority owner in the beginning, you know, kind of was an overall way to it. It was overall reduction in our lack. By continuing to own a majority of that business, so there's, you know, some options that we have. And by the way, I just point to two things we've done in the past. We're thinking about a plethora of options of financing and ways. You know in this business over the next couple of years to both manage risk and obviously get the best return for our shareholders. But you know suffice to say it is top of mind for us as well and we recognize the high class problem that has come from a company that is growing this rapidly and now represents you know kind of a big cap are a big concentration with such a large capital need.
Elias Joseph Sabo: So, as the majority owner in the beginning, you know, kind of was an overall way to – it was an overall reduction in our whack by continuing to own a majority of that business. So, there's, you know, some options that we have. And by the way, I just point to two things we've done in the past. We're thinking about a plethora of options of financing and ways, you know, in this business over the next couple of years to both manage risk and, obviously, get the best return for our shareholders.
Speaker Change: Overall reduction in our WAC.
Speaker Change: By continuing to own a majority of that business. So there is some options that we have.
Speaker Change: And by the way I'd just point to two things we've done in the past, we're thinking about a plethora of option of financing and ways. In this business over the next couple of years to both manage risk and obviously get the best return for our shareholders, but suffice to say it is top of mind for us as well and rerun.
Elias Joseph Sabo: But, you know, suffice to say, it is top of mind for us as well, and we recognize the high-class problem that has come from a company that is growing this rapidly and now represents, you know, kind of a big cap or a big concentration with such a large capital need. Unknown Speaker, Unknown Attendee, Kyle Joseph, Derek Sommers, Mark Feldman, Unknown Attendee, [inaudible] Sure
Speaker Change #136: <unk> guide the high class problem that has come from a company that is growing this rapidly and now represents kind of a big cap or a big concentration with such a large capital need.
Elias Sabo: It is really a high cost problem. So kind of kind of that.
Speaker Change #128: Got it.
Speaker Change #130: It is really hard.
Todd: So Todd.
Elias Sabo: I mean, you told about the healthcare that you might be considering doing, you know, a more build strategy. Are you making a smaller acquisition? Obviously, if you had done something larger on healthcare or hypothetical, that would actually reduce the gun concentration. So if you aim at something smaller in healthcare, when, if you enter that, does that actually accelerate the need to find a solution? I mean, the gunner is not a problem, right? But, but to find a some kind of creative way to manage the gasification in healthcare, it's going to quite a lot to be a smaller add-ons than might be the case you thought, you know, a year or so.
Speaker Change #139: How does that I mean, you talked about the health care that you might be considering doing.
Todd: More build strategy are you, making a smaller acquisition. Obviously, if you had done something larger on health, Canada, all hypothetical Vincent.
Speaker Change #127: That would actually would you still got a concentration. So if your aim is something smaller and healthcare when you enter that does that actually accelerate.
Speaker Change #126: The need to find a.
Vincent: Solution I mean, the guy.
Vincent: No there is not a problem.
Todd: To find.
Speaker Change #118: Some kind of creative.
Speaker Change: Way to manage the diversification in health care is going to be.
Speaker Change: Smaller add ons and market mix.
Speaker Change: The case you thought.
Speaker Change: Okay.
Elias Sabo: Sure, and that's sort of, you know, door number three that also exists, which is we do enough acquisitions; you've identified healthcare. But that's only one of the three verticals that we invested. So it could be another consumer business; it could be another, you know, industrial tech business that we're looking at. Or, you know, just broadly, I mean, the teams are out, you know, day in and day out, Robert looking aggressively for acquisition candidates. And as we are starting to see some green shoots, I think there are opportunities that are going to come about to deploy capital.
Elias Joseph Sabo: And that's sort of, you know, door number three that also exists, which is we do enough acquisitions. You've identified healthcare. But that's only one of the three verticals that we invest in. So it could be another consumer business, it could be another, you know, industrial tech business that we're looking at. Or, you know, just broadly, I mean, the teams are out, you know, day in and day out, Robert looking aggressively for acquisition candidates.
Speaker Change #129: Sure and that sort of.
Speaker Change #129: Number three that also exists which is we do enough acquisitions you've identified healthcare.
Speaker Change: But that's only one of the three verticals that we invest and so it could be another consumer business. It could be another industrial tech business that we're looking at.
Speaker Change: Or just broadly I mean, the teams are out day in and day out Robert looking aggressively for acquisition candidates.
Elias Joseph Sabo: And as we are starting to see some green shoes, I think there are opportunities that are going to come about to deploy capital. That clearly is something that will diversify Lugano, diversify Cody more, and bring Lugano's concentration down.
Speaker Change: As we are starting to see some green shoots I think there are opportunities there.
Speaker Change: We're going to come about to deploy capital that clearly is a.
Elias Sabo: So that clearly is a, you know, something that will diversify, diversify Lugano, diversify Cody more and bring Lugano's concentration down. So that's the third way we can do it. Clearly balancing, there is the leverage. And so, you know, kind of access to capital markets becomes important. There's a lot of factors that are in it. But I wouldn't focus too much on the fact that we're, you know, maybe looking at some smaller healthcare deals; we're also looking at healthcare deals that are larger. It just so happens that in that vertical, we would start slightly smaller than where we will in our industrial and our consumer verticals.
Speaker Change: Something that will diversify diversify lugano diversify cody more and bring louganos concentration down. So that's a third way we can do it clearly balancing there is the leverage.
Elias Joseph Sabo: So that's the third way we can do it. Clearly, there is the leverage. And so, you know, kind of access to capital markets becomes important. There are a lot of factors that are in it. But I wouldn't focus too much on the fact that we're, you know, maybe looking at some smaller healthcare deals.
Speaker Change: So kind of access to capital markets becomes important and there's a lot of factors that are in it but I wouldn't focus too much on the fact that we're maybe looking at some smaller healthcare deals. We're also looking at health care deals that are larger it just so happens that in that vertical we would start slightly smaller than where we will.
Elias Joseph Sabo: We're also looking at healthcare deals that are larger. It just so happens that in that vertical, we would start slightly smaller than we would in our industrial and our consumer verticals. But, you know, we would be just as happy to do a $500 million deal in the healthcare market as we do in the consumer or industrial markets. But if we're, you know, to do a $200 million deal, we will start there as well. And that was sort of the only point I was making earlier.
Speaker Change: Our industrial and our consumer verticals, but we would just be just as happy to do a $500 million deal in the health care market as we do in our consumer or in industrial but if were do a $200 million deal. We will start there as well and that was sort of the only point I was making earlier.
Elias Sabo: But, you know, we would just be just as happy to do a $500 million deal in the healthcare market as we do in a consumer or an industrial. But if we're, you know, do a $200 million deal, we will start there as well. And that was sort of the only point I was making earlier. But yes, we are looking to acquire and do so prudently without overusing, you know, kind of leverage on our balance sheet. So, you know, we're walking that fine line.
Speaker Change #145: <unk>, but yes, we are looking to acquire and.
Elias Joseph Sabo: But yes, we are looking to acquire and do so prudently without overusing, you know, the kind of leverage on our balance sheet. So, you know, we're walking that fine line.
Speaker Change #145: Do so prudently without overusing kind of leverage on our balance sheet. So we're walking that fine line.
Matthew Howlett: Thank you.
Speaker Change #131: Got it thank you.
Speaker Change #135: Thank you one moment for the next question.
Matthew Howlett: One moment for the next question. And our next question will be coming from Matthew P. Howellick of Be Riley. Your line is open. Okay, guys, thanks for taking my question. Just to be clear, I think you said last call that you'd be comfortable taking leverage of half a turn, three quarters of a turn temporarily. You still feel the same that, you know, if you found something you really wanted. Yes. And I would say, Ma, given Boa and Primaloft, and their return to growth, I mean, these are just really outstanding businesses. And, you know, we kind of, I think all went through a traumatic period where, you know, inventory desocking was kind of a generational thing nobody anticipated.
Robert James Dodd: One moment for the next question. And our next question will be coming from Matthew P. Howlett of B. Riley. Your line is open. Hey guys, thanks for taking my question. Just to be clear, I think you said last call that you'd be comfortable taking leverage of half return, three quarters return temporarily. Do you still feel the same that, you know, if you found something you really wanted?
Speaker Change: And our next question will be coming from Matthew.
Speaker Change: Of.
Speaker Change #133: B Riley your line is open.
Matthew: Hey, guys. Thanks for taking my question just to be clear I think you said last call that you'd be comfortable.
Speaker Change #142: About taking leverage up have returned three quarters between temporarily we still feel the same.
Speaker Change #134: It sounds like you really wanted.
Matthew Philip Howlett: Yes. And I would say, Matt, given BOA and Primaloft and their return to growth, these are just really outstanding businesses. And, you know, we kind of, I think, all went through a traumatic period where, you know, inventory destocking was kind of a generational thing. Nobody anticipated the events that COVID would unleash, including, you know, sometimes sell-in being half of what sell-through is. And it really had to lower all of our expectations for a period of time.
Speaker Change: Yeah.
Speaker Change #143: Yes, and I would say.
Speaker Change #147: Given boa and prime aloft and their return to growth I mean, these are just really outstanding businesses.
Speaker Change #162: And we kind of I think all went through a traumatic period, where inventory destocking was kind of a generational thing nobody anticipated the events that COVID-19 will unleash including.
Elias Sabo: The events that COVID would unleash, including, you know, sometimes sell in being half of what sell through is. And it really had to reset all of our expectations lower for a period of time. But these are great businesses that have good industries with growth. And they're taking share, and they're really well protected. And so, even if the macro economy weakens a little bit here or there. Those businesses can grow right on through it. And they've proven the ability to do that in normal times where inventory changes aren't so wild. And so we look at Bugano, which is frankly totally disconnected to the macro economy.
Speaker Change #123: Sometimes sell in being half of what sell through is.
Speaker Change #123: And it really had to reset all of our expectations lower for a period of time, but these are great businesses that have good industries with growth and they are taking share and they are really well protected and so even if the macro economy weakens a little bit here or there those businesses can grow.
Elias Joseph Sabo: But these are great businesses that have good industries with growth, and they are taking share, and they are really well protected. And so, even if the macro economy weakens a little bit here or there, those businesses can grow right on through it. And they've proven the ability to do that in normal times where inventory changes aren't so wild. And so, we look at Lugano, which is, frankly, totally disconnected from the macro economy unless there's another great financial event that occurs.
Speaker Change #137: Right on through it.
Speaker Change #123: Proven the ability to do that.
Speaker Change #123: In normal times were inventory changes arent so wild.
Speaker Change #123: So we look at Lugano, which is frankly totally disconnected to the macro economy unless there is another great financial event that occurs.
Elias Sabo: Unless there's another great financial event that occurs. I mean, this is a company that deals with the clientele that is very unique. And it is a very disruptive business in a massive industry that they've got a tiny amount of share. But it's a really good formula to be able to grow outside of general macroeconomic conditions. And so when, you know, as we said before, you look at those three businesses.
Matthew Philip Howlett: I mean, this is a company that deals with a clientele that is very unique, and it is a very disruptive business in a massive industry that they've got a tiny amount of share in. So, it's a really good formula to be able to grow outside of general macroeconomic conditions. And so, you know, as we said before, you look at those three businesses, and they are poised to grow not only now but in 25 and beyond.
Speaker Change #123: This is a company that deals with the clientele that is very unique and it is a very disruptive business at a massive industry that they've got a tiny amount of share, but it's a really good formula to be able to grow outside of general macro macroeconomic conditions and so as we said before you look at those.
Elias Sabo: and their employees to grow not only now, but in 25 and beyond; it's just such a good stable base that you can get comfortable with to then take on a little bit more balance sheet leverage and be comfortable with that. So, you know, maybe a long-winded answer of saying, yes, we remain, you know, confident for the right asset that we could take leverage up a half to three-quarters of a term. That's incredible. You have that loyalty, that gives you that much confidence. So, it's really, there really are special companies.
Speaker Change #123: Three businesses.
Speaker Change #123: And they are poised to grow not only now but in 'twenty five and beyond it's just such a good stable base that you can get comfortable with to then take on a little bit more balance sheet leverage and.
Matthew Philip Howlett: It's just such a good stable base that you can get comfortable with to then take on a little bit more balance sheet leverage and be comfortable with that. So, you know, maybe a long-winded answer of saying, yes, we remain confident for the right asset that we could take leverage up a half to three quarters of a term. That's incredible.
Speaker Change #123: And be comfortable with that so maybe a long winded answer of saying, yes, we remain confident for the right asset that we could take leverage up a half to three quarters of return.
Elias Joseph Sabo: Yeah, you have that loyalty, that consumer loyalty gives you that much confidence. So it's really, they are special companies. So on that note, I mean, just, you talked about, you know, new products at the honeypot and looking at 2025, we talked about maybe some new technology at Velocity, new products and honeypot, anything. Can you go into a little more detail and what what could happen? What could the impact be on 25?
Speaker Change #153: Incredibly yes, you have that.
Speaker Change #141: Royalty that consumer loyalty that gives you gives you that much confidence. So it's really there really are special company. So on that note I mean, just you talked about new products at the Honeypot I'm looking at 2020, you talked about maybe do some new technology at velocity, new products and Honeypot. If anything can you go into a little more detail on what could happen.
Elias Sabo: So, on that note, I mean, you talked about, you know, new products at the Honeypot and looking at 2020. Let me talk about maybe new, some new technology at Polar City, new products at Honeypot. I mean, anything. Can you go into a little more detail and what could happen? What could the impact could be on 25, or is there anything else, anything else in the other subsidiaries to flag in 25? Just when we think about 25, something stopped being rolled out in the subsidiaries. So, anything that I like is going on in detail. In general, all of our companies are working on, I mean, we, you know, work really closely with our businesses, and everybody has product road maps.
Speaker Change #148: Could the impact could be in 'twenty, five and is there anything else any new anything else any other subsidiaries. The flag in 'twenty just when we think about 25 something stop being rolled out in the subsidiaries so anything to highlight.
Matthew Philip Howlett: Or is there anything else, anything new, anything else in the other subsidiaries to flag in 25? Just when we think about 25, something, stuff being rolled out in the subsidiaries, anything to highlight? Unknown Speaker, in general, all of our companies are working on it. I mean, we work really closely with our businesses, and everybody has product roadmaps. If it's a consumer business, there are very detailed product roadmaps and new product introductions that are coming out and how we're going to execute and be more profitable.
Speaker Change #148: Thank you.
Speaker Change #132: Don't you think.
Speaker Change #144: In general.
Speaker Change #155: All of our companies are working on I mean, we work really closely with our businesses and everybody has product roadmap. So if its a consumer business theyre very detailed product roadmaps and new product introductions that are coming out and how we're going to execute and be more profitable. We give you a little bit of a preview.
Elias Sabo: So, if it's a consumer business, there are very detailed product road maps and new product introductions that are coming out and how we're going to execute and be more profitable. We give you a little bit of a preview quarterly, and we talk about some of the highlights in our businesses. But, you know, I could just tell you that across all of our consumer businesses, they are all working on innovative products to roll out. In our industrial businesses, we're trying to figure out how to, you know, again, continue to innovate. Can we become more efficient? Can we lower our costs and deliver better value to our customer and capture some of that for ourselves?
Matthew Philip Howlett: We give you a little bit of a preview quarterly, and we talk about some of the highlights in our businesses. But, you know, I could just tell you that across all of our consumer businesses, they are all working on innovative products to roll out. In our industrial businesses, we're trying to figure out how to, you know, again, continue to innovate. Can we become more efficient? Can we lower our costs and deliver better value to our customers and capture some of that for ourselves? Can we create new solutions that are environmentally friendly and differentiated?
Speaker Change #144: Quarterly and we talk about some of the highlights in our businesses, but I.
Speaker Change #144: I can just tell you that across all of our consumer businesses. They are all working on innovative products to a rollout.
Speaker Change #144: In our industrial businesses, we're trying to figure out how to again continue to innovate can we become more efficient can we lower our cost and deliver better value to our customer and capture some of that for ourselves can we create new solutions that are environmentally friendly and differentiate it.
Elias Sabo: Can we create new solutions that are environmentally friendly and differentiated?
Elias Sabo: You know, it would be too much to go into detail in all of our companies. What I can tell you are, you know, kind of driving, you know, daily mission in our company. And when we come in every day and what we talk to our companies about is what are you doing to maintain your source of innovation and competitive lead over our competition that's out there? And they focus on this on a daily basis. It's a tone that's set at the top. It starts with me. It goes through Pat and everybody at Compass and down through all of our portfolio companies.
Speaker Change #144: Would be too much to go into detail in all of our companies, but I can tell you are kind of driving daily mission in our company and when we come in every day and what we talked to our company is about is what are you doing to maintain your source of innovation and competitive lead over our.
Elias Joseph Sabo: You know, it would be too much to go into detail about all of our companies, but I can tell you our, you know, kind of driving mission in our company and when we come in every day, and what we talk to our companies about is, "What are you doing to maintain your source of innovation and competitive lead over our competition that's out there?" And they focus on this on a daily basis. It's a tone that's set at the top. It starts with me.
Pat: Competition, that's out there and they focus on this on a daily basis, it's a tone that said at the top it starts with me it goes through Pat and everybody at Compass and down through all of our portfolio of companies. So.
Elias Joseph Sabo: It goes through Pat and everybody at Compass and down through all of our portfolio companies. So, you know, I will tell you the innovation engine is stronger within our organization today than it's ever been. And that's why we feel that, you know, we're poised to not only meet but, you know, potentially exceed our core growth rates over the next few years, disconnected from the global economy because we just put up nearly 20% growth and one of our industrial businesses had a really difficult quarter. You know, that's a tough thing to do.
Elias Sabo: So, you know, I will tell you, the innovation engine is stronger within our organization today than it's ever been. And that's why we feel that, you know, we're poised to not only meet, but, you know, potentially exceed here our core growth rates over the next few years disconnected from the global economy because we just put up nearly 20% growth, and one of our industrial businesses had a really difficult quarter. You know, that's a tough thing to do. We have some great businesses that are driving that, and that gives us a lot of really good, you know, hope and not only hope, visibility into 25 and beyond that this company is, you know, set up to really have these kind of growth rates for an extended period of time.
Speaker Change #144: I will tell you the innovation engine is stronger within our organization today than it's ever been and that's why we feel that we're poised to not only meet but potentially exceed here our core growth rates over the next few years disconnected.
Speaker Change #151: The global economy, because we just put up nearly 20% growth and one of our industrial businesses had a really difficult quarter.
Speaker Change #149: The tough thing to do.
Elias Joseph Sabo: We have some great businesses that are driving that, and that gives us a lot of really good, you know, hope, and not only hope, visibility into 25 and beyond that this company is, you know, set up to really have these kind of growth rates for an extended period of time. To tell you the truth, it's an incredibly strong statement. I really appreciate the confidence with it with the outlook, I guess, I guess just to throw in on the honeypot, and that was growing at an incredible rate when you bought it, I know, it ran into a little bit of a speed bump, but you still feel that, you know, I think that was growing at like, 52% kager. I mean, it's something incredible.
Speaker Change #123: We have some great businesses that are driving that and that gives us a lot of really good.
Speaker Change #123: Hope and not only hope visibility into 'twenty five and beyond that this company is set up to really have these kind of growth rates for extended period of time.
Elias Sabo: Let's say it's an incredibly strong statement. I really appreciate the confidence with the outlook. I guess just to throw in on the honey pie that was growing at, you bought it in a credible rate. I know it ran into a little bit of a speed bump, but you still feel that's, you know, I think there was growing at like 52% k. I mean, it was something incredible. You still feel like it's a double-digit grower, long-term or double-digit grower. Yes, I feel like it's a double digit or double digit grower long term, and I think we'll get back on that trajectory.
Speaker Change #123: It's an incredibly strong statement.
Speaker Change #152: I appreciate the confidence with the outlook I guess I guess just to throw in on the hunting part that was growing at you bought at an incredible rate I know you ran into a little bit of a speed bump, but you still feel that's yes, I think that was growing at like 52% CAGR I mean, its something incredible you still feel like it's a double digit grower long term or mid double digit growth.
Matthew Philip Howlett: You still feel like it's a double digit grower long term or double digit growth. Yes, I feel like it's a double digit or double digit grower long term. And I think we'll get back on that trajectory. The brand is authentic, and they're really, You know, they're really trying to de-stigmatize any issues around feminine care, and there is a real mission-driven aspect to them that we respect, and we think the market and customers will reward.
Speaker Change #160: Yes, I feel like it's a double digit north double digit grower long term and I think we will get back on that trajectory.
Elias Sabo: The brand is authentic and they're really, you know, they're really trying to destigmatize any issues around feminine care, and there's a real mission-driven aspect to them that we respect and we think the market and customers will reward. Unusual in the first integration period when we, you know, buy a company, there's a lot that these guys have to go through to become part of the Cody family. And, you know, as we Cody eyes, the company as we say internally, you know, the first part of that is there's a lot of reporting and other obligations that, you know, inevitably consume a lot of resources.
Speaker Change #150: Our brand is authentic and Theyre really.
Speaker Change #156: They're really trying to destigmatize any issues around feminine care and there is a real mission driven aspect to them that we respect and we think the market and customers will reward.
Elias Joseph Sabo: And, you know, Matt, it's not unusual in the first integration period when we buy a company; there's a lot that these guys have to go through to become part of the Cody family. And, you know, as we Codyize a company, as we say internally, the first part of that is there's a lot of reporting and other obligations that, you know, inevitably consume a lot of resources. We have to make some investments there.
Speaker Change #159: The unusual and the first integration period, when we buy a company. There's a lot that these guys have to go through to become part of the Coty family and as we Coty is a company as we say internally. The first part of that is there is a lot of reporting and other obligations that.
Speaker Change #156: Inevitably consume a lot of resources, we have to make some investments there.
Elias Joseph Sabo: And before you start to get the benefit of some of the productivity that results from that, you're starting to have the resource drain and the costs that go into it. So, it is not abnormal for us to have, you know, a period where growth is a little bit slower and then to see that start to accelerate, especially as we get more of an infrastructure built in a lot of the companies that we partner with, you know, for long-term growth, and that starts to manifest.
Elias Sabo: We have to make some investments there, and before you start to get the benefit of some of the productivity that results from that, you're starting to have the resource strain and the cost that can win. So it is not abnormal for us to have, you know, a period where growth is a little bit slower and then to see that start to accelerate, especially as we get more of an infrastructure built in a lot of the companies that we partner with, you know, for long term growth. And that starts to manifest, and we would expect by putting more investment in that their growth rates, you know, can pick up from where they were.
Speaker Change #156: And before you start to get the benefit of some of the productivity that results from that Youre starting to have the resource drain in the costs that go in so it is not abnormal for us to have.
Speaker Change #150: A period, where growth is a little bit slower and then to see that start to accelerate especially as we get more of an infrastructure bill in a lot of the companies that we partner with for long term growth and that starts to manifest and we would expect by putting more investment in that their growth rates.
Elias Joseph Sabo: And we would expect by putting more investment in, that their growth rates, you know, can pick up from where they were. Now, Honeypot was such a small company; its growth rate is the law of large numbers, or I guess the reverse here. So, coming off such a small base, you know, you're not going to get a 40%, 50% growth rate. But, you know, we're putting in a lot of infrastructure investment right now so that this company can be a double-digit grower consistently under our ownership.
Speaker Change #154: Can pick up from where they were now honeypot with such a small company its growth rate if the law of large numbers or I guess the reverse here. So it was coming off such a small base youre not going to get a 40% growth rates, but we're putting in a lot of infrastructure investment right. Now so that this company can be a double digit grew.
Elias Sabo: Now, honey pot with such a small company, it's growth rate. It's a lot of large numbers, or I guess the reverse here. So it was coming off such a small base, you know, you're not going to get a 40% growth rate. But, you know, we're putting in a lot of infrastructure investment right now so that this company can be a double-digit grower consistently under our ownership and given its, you know, innovative products, given the TAM that it has, given its current market share, and given the, you know, strength of the brand and perception from its consumer.
Elias Joseph Sabo: And given its, you know, innovative products, given the TAM that it has, given its current market share, and given the, you know, strength of the brand and perception of its consumers, there is nothing that suggests that it can't, you know, kind of be a double-digit grower for an extended period of time.
Speaker Change #154: Lower consistently under our ownership and given its innovative products given the Tam.
Matthew Philip Howlett: Thanks for clarifying everything. Thank you. Thank you. Thank you. There are no more questions at this time. I would like to go ahead and turn the call back over to Mr. Elias.
Speaker Change #164: Given its current market share and given the strength of the brand and perception from its consumer there is nothing that suggests that it can kind of be a double digit grower for an extended period of time.
Operator: There is nothing that suggests that it can't, you know, kind of be a double-digit grower for an extended period of time. Thanks for clarifying everything. Thank you.
Speaker Change #157: Thanks for clarifying everything thank you.
Speaker Change #138: Thank you.
Operator: There are no more questions.
Speaker Change #163: Thank you and there are no more questions at this time I would like to go ahead and turn the call back over to Mr. Elias. Please go ahead.
Elias Sabo: At this time, I would like to go ahead and turn the call back over to Mr. Elias. Please go ahead. Thank you, operator. As always, I'd like to thank everyone again for joining us on today's call and for your continued interesting code. Thank you for your support.
Elias Joseph Sabo: 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 support. This does conclude today's conference call for today. Thank you so much for joining us. You may disconnect. Thanks for watching!
Elias Joseph Sabo: 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 Coty.
Speaker Change #146: You for your support.
Speaker Change #146: Okay.
Operator: This does conclude today's conference call for today. Thank you so much for joining. You may disconnect. Thank you.
Speaker Change #161: This does conclude today's conference call for today. Thank you so much for joining you may disconnect.
Speaker Change #146: Okay.
Speaker Change #146: [music].
Speaker Change #123: Okay.