Q1 2026 Compass Diversified Holdings Earnings Call

May 6, 2026

Operator: Good afternoon, and welcome to Compass Diversified's Fiscal 2026 Q1 Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. At this time, I would like to turn the call over to Ben Avenia-Tapper, Vice President, Investor Relations. Ben, please go ahead.

Operator: Good afternoon, and welcome to Compass Diversified's Fiscal 2026 Q1 Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. At this time, I would like to turn the call over to Ben Tapper, Vice President, Investor Relations. Ben, please go ahead.

Speaker #1: Good afternoon and welcome to Compass Diversifies Fiscal 2026 First Quarter Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question, during the session, you will need to press star 11 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. At this time, I would like to turn the call over to Ben Taper, Vice President, Investor Relations.

Speaker #1: Ben, please go ahead.

Speaker #2: Thank you. And welcome to Compass Diversified's First Quarter 2026 Conference Call. Representing the company today are Elias Sabo, Cody's Chief Executive Officer, and Stephen Keller, Cody's Chief Financial Officer.

Ben Avenia-Tapper: Thank you. Welcome to Compass Diversified's Q1 2026 conference call. Representing the company today are Elias Sabo, CODI's Chief Executive Officer, and Stephen Keller, CODI's Chief Financial Officer. Before we begin, I'd like to remind everyone that during the course of this call, CODI will make certain forward-looking statements, including discussions of forecasts and targets, future business plans, future performance of CODI and its subsidiaries, and other forward-looking statements regarding CODI and its financial results. Words such as believes, expects, anticipates, plans, projects, should, and future or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to many risks and uncertainties in predicting future results and conditions.

Ben Tapper: Thank you. Welcome to Compass Diversified's Q1 2026 conference call. Representing the company today are Elias Sabo, CODI's Chief Executive Officer, and Stephen Keller, CODI's Chief Financial Officer. Before we begin, I'd like to remind everyone that during the course of this call, CODI will make certain forward-looking statements, including discussions of forecasts and targets, future business plans, future performance of CODI and its subsidiaries, and other forward-looking statements regarding CODI and its financial results. Words such as believes, expects, anticipates, plans, projects, should, and future or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to many risks and uncertainties in predicting future results and conditions.

Speaker #2: Before we begin, I'd like to remind everyone that during the course of this call, Cody will make certain forward-looking statements, including discussions of forecasts and targets, future business plans, future performance of Cody and its subsidiaries, and other forward-looking statements regarding Cody and its financial results.

Speaker #2: 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 many risks and uncertainties.

Speaker #2: 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 company's Form 10-K as filed with the SEC on February 27, 2026, as well as in other SEC filings and press releases.

Ben Avenia-Tapper: 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 company's Form 10-K as filed with the SEC on 27 February 2026, as well as in other SEC filings and press releases. Except as required by law, CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. During the call, we will refer to certain non-GAAP financial measures. The Q1 2026 press release, including the financial tables and non-GAAP financial measure reconciliations for adjusted EBITDA, subsidiary adjusted EBITDA, pro forma net sales, and financial results excluding Lugano, are available at the Investor Relations section on the company's website at www.compassdiversified.com.

Ben Tapper: 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 company's Form 10-K as filed with the SEC on 27 February 2026, as well as in other SEC filings and press releases. Except as required by law, CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. During the call, we will refer to certain non-GAAP financial measures. The Q1 2026 press release, including the financial tables and non-GAAP financial measure reconciliations for adjusted EBITDA, subsidiary adjusted EBITDA, pro forma net sales, and financial results excluding Lugano, are available at the Investor Relations section on the company's website at www.compassdiversified.com.

Speaker #2: 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.

Speaker #2: During the call, we will refer to certain non-GAAP financial measures. The Q1 2026 press release including the financial tables and non-GAAP financial measure reconciliations for adjusted EBITDA, subsidiary adjusted EBITDA, pro forma net sales, and financial results excluding Lugano are available at the Investor Relations section on the company's website at www.compassdiversified.com.

Speaker #2: 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 Cody's press release and SEC filings.

Ben Avenia-Tapper: Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income or loss from continuing operations in CODI's press release and SEC filings. The company does not provide a reconciliation of its full year expected 2026 subsidiary adjusted EBITDA because certain significant reconciling information is not available without unreasonable efforts. Throughout this call, we will refer to Compass Diversified as CODI or the Company. At this time, I would like to turn the call over to Elias Sabo. Elias.

Ben Tapper: Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income or loss from continuing operations in CODI's press release and SEC filings. The company does not provide a reconciliation of its full year expected 2026 subsidiary adjusted EBITDA because certain significant reconciling information is not available without unreasonable efforts. Throughout this call, we will refer to Compass Diversified as CODI or the Company. At this time, I would like to turn the call over to Elias Sabo. Elias.

Speaker #2: The company does not provide a reconciliation of its full-year expected 2026 subsidiary adjusted EBITDA because certain significant reconciling information is not available without unreasonable efforts.

Speaker #2: Throughout this call, we will refer to Compass Diversified as Cody or the company. At this time, I would like to turn the call over to Elias Sabo.

Speaker #2: Elias?

Speaker #3: Thank you, Ben. And good afternoon to everyone. We started 2026 committed to a clear plan, and we are delivering against it. Specifically, we sold Sterno's food service business at an attractive valuation despite a muted M&A environment.

Elias Sabo: Thank you, Ben. Good afternoon to everyone. We started 2026 committed to a clear plan. We are delivering against it. Specifically, we sold Sterno's food service business at an attractive valuation despite a muted M&A environment. We completed a sale-leaseback at Altor. We applied the proceeds directly to debt reduction. We delivered solid subsidiary adjusted EBITDA growth, highlighted by double-digit growth in our consumer businesses despite uncertainty in the global economy. Collectively, our subsidiaries generated strong operating cash flow in the quarter, a hallmark of the CODI model. Incorporating our current view of the operating environment and reflecting the sale of Sterno's food service business, we are updating our full-year guidance. Before Stephen walks through the financials and our updated guidance, I would like to provide additional color on both our strategic focus and operational performance. Let me start with the sale of Sterno's food service business.

Speaker #3: We completed a sale leaseback at Altor and applied the proceeds directly to debt reduction. We delivered solid subsidiary adjusted EBITDA growth, highlighted by double-digit growth in our consumer businesses despite uncertainty in the global economy.

Speaker #3: And collectively, our subsidiaries generated strong operating cash flow in the quarter, a hallmark of the Cody model. Incorporating our current view of the operating environment and reflecting the sale of Sterno's food service business, we are updating our full year guidance.

Speaker #3: Before Stephen walks through the financials and our updated guidance, I would like to provide additional color on both our strategic focus and operational performance.

Speaker #3: Let me start with the sale of Sterno's food service business. Throughout this process, we've been asked whether the broader environment, including geopolitical uncertainty in the Middle East, tighter private credit markets, and other macro factors, would limit our ability to monetize our businesses at attractive values.

Elias Sabo: Throughout this process, we've been asked whether the broader environment, including geopolitical uncertainty in the Middle East, tighter private credit markets, and other macro factors, would limit our ability to monetize our businesses at attractive values. From the outset, our answer was straightforward. First, there is almost always a market for high-quality businesses. Second, we have an experienced team with a track record of maximizing value across market cycles. We believe the outcome here speaks for itself. We view this as an initial step towards the goals we've established, not the final step. Our leverage ratio remains above our target range, and our shares continue to trade at what we believe is a discount to intrinsic value. Our work is not done. We will continue to pursue deleveraging and value creation, both organically and inorganically, with the same urgency and discipline we have demonstrated so far.

Speaker #3: From the outset, our answer was straightforward. First, there was almost always a market for high-quality businesses. And second, we have an experienced team with a track record of maximizing value across market cycles.

Speaker #3: We believe the outcome here speaks for itself. We view this as an initial step towards the goals we've established, not the final step. Our leverage ratio remains above our target range, and our shares continue to trade at what we believe is a discount to intrinsic value.

Speaker #3: Our work is not done. We will continue to pursue de-leveraging and value creation both organically and inorganically with the same urgency and discipline we have demonstrated so far.

Speaker #3: And once leverage is within our target range, we will accelerate work to address the gap to intrinsic value including through the efficient return of capital-to-shareholders.

Elias Sabo: Once leverage is within our target range, we will accelerate work to address the gap to intrinsic value, including through the efficient return of capital to shareholders. Alongside our deleveraging efforts, we have initiated a review of our management services agreement. We are actively evaluating our MSA for opportunities to further align incentives and drive incremental shareholder value. The process is underway, and we expect to provide further updates in the coming months. Turning to operational performance. Against a backdrop of continued macro uncertainty, our subsidiaries collectively outperformed in Q1. Let me walk through a few highlights. Our consumer businesses led the way with double-digit adjusted EBITDA growth, driven by strength across these businesses. The Honey Pot continued its exceptional momentum in Q1, with revenue growth of nearly 25% and EBITDA growth of over 40% compared to the prior period.

Speaker #3: Alongside our de-leveraging efforts, we have initiated a review of our management services agreement. We are actively evaluating our MSA for opportunities to further align incentives and drive incremental shareholder value.

Speaker #3: The process is underway, and we expect to provide further updates in the coming months. Turning to operational performance, against a backdrop of continued macro uncertainty, our subsidiaries collectively outperformed in the first quarter.

Speaker #3: Let me walk through a few highlights. Our consumer businesses led the way, with double-digit adjusted double-digit adjusted EBITDA growth driven by strength across these businesses.

Speaker #3: The honeypot continued its exceptional momentum in the first quarter. With revenue growth of nearly 25% and EBITDA growth of over 40% compared to the prior period.

Speaker #3: We continue to see the brand gain share across the feminine care category, reflecting the strength of the product portfolio. Expanded distribution and growing consumer adoption as the brand continues to extend beyond its origin into the broader period care category.

Elias Sabo: We continue to see the brand gain share across the feminine care category, reflecting the strength of the product portfolio, expanded distribution, and growing consumer adoption as the brand continues to extend beyond its origin into the broader period care category. The Honey Pot is now firmly established as a leading better-for-you brand in the feminine care. We believe it has significant runway for continued growth. BOA delivered another strong quarter, with revenue growth of 6.5% and EBITDA growth of 11% compared to the prior year period. We believe the performance of the BOA Fit System is unmatched, and that technical edge continues to drive category-leading adoption across snow sports, cycling, workwear, and more. The company's focus on differentiated solutions and operational efficiency supports their category-leading margins. With continued innovation and expansion into new performance applications, we see meaningful opportunity for growth ahead.

Speaker #3: The honeypot is now firmly established as a leading better-for-you brand in the feminine care and we believe it continued growth. BOA delivered another strong quarter.

Speaker #3: With revenue growth of 6.5% and EBITDA growth of 11% compared to the prior year period. We believe the performance of the BOA fit system is unmatched.

Speaker #3: And that technical edge continues to drive category-leading adoption across snow sports, cycling, workwear, and more. The company's focus on differentiated solutions and operational efficiency supports their category-leading margins.

Speaker #3: And with continued innovation and expansion into new performance applications, we see meaningful opportunity for growth ahead. 511 Tactical delivered solid margin performance and strong cash flow in the quarter.

Elias Sabo: 5.11 Tactical delivered solid margin performance and strong cash flow in the quarter, despite some modest top-line pressure. The business continues to generate durable cash flow from its core professional customer base, and we are encouraged by the steps the team is taking to expand 5.11's appeal to the broader adventure-oriented consumer. This includes a recent grand opening of its next-generation retail format in Seattle, which significantly outperformed the chain average on opening weekend. Early customer response has been strong, and we are seeing encouraging traction. While this is an early signal, it reinforces our belief that 5.11 has meaningful runway to broaden the brand's reach over time. Finally, within our consumer businesses, a new leadership team is getting up to speed at PrimaLoft.

Speaker #3: Despite some modest top-line pressure. The business continues to generate durable cash flow from its core professional customer base. And we are encouraged by the steps the team is taking to expand 511's appeal to the broader adventure-oriented consumer.

Speaker #3: This includes a recent grand opening of its next-generation retail format in Seattle, which significantly outperformed the chain average on opening weekend. Early customer response has been strong, and we are seeing encouraging traction.

Speaker #3: While this is an early signal, it reinforces our belief that 511 has meaningful runway to broaden the brand's reach over time. And finally, within our consumer businesses, a new leadership team is getting up to speed at Primaloft.

Speaker #3: It's only month three, but we are pleased with management's progress, laying the groundwork to accelerate future growth while remaining a highly profitable, low-working capital business.

Elias Sabo: It's only month 3, but we are pleased with management's progress, laying the groundwork to accelerate future growth while remaining a highly profitable, low working capital business. Much more to come in future quarters. Turning to our industrial businesses, Arnold delivered a standout quarter with adjusted EBITDA nearly doubling year-over-year, despite ongoing geopolitical dynamics around rare earth supply, including continued export restrictions out of China. While these dynamics create near-term headwinds, they also reinforce the long-term tailwinds for the business. Demand for geopolitically secure rare earth magnet supply continues to build as customers increasingly prioritize reliable non-China sources. Arnold's Thailand facility is ramping up, adding capacity and supply chain redundancy. We believe this uniquely positions Arnold to serve aerospace, defense, and industrial customers who prioritize supply chain security and performance reliability. Altor remains a work in progress.

Elias Sabo: It's only month three, but we are pleased with management's progress, laying the groundwork to accelerate future growth while remaining a highly profitable, low working capital business. Much more to come in future quarters. Turning to our industrial businesses, Arnold delivered a standout quarter with adjusted EBITDA nearly doubling year-over-year, despite ongoing geopolitical dynamics around rare earth supply, including continued export restrictions out of China. While these dynamics create near-term headwinds, they also reinforce the long-term tailwinds for the business. Demand for geopolitically secure rare earth magnet supply continues to build as customers increasingly prioritize reliable non-China sources. Arnold's Thailand facility is ramping up, adding capacity and supply chain redundancy. We believe this uniquely positions Arnold to serve aerospace, defense, and industrial customers who prioritize supply chain security and performance reliability. Altor remains a work in progress.

Speaker #3: Much more to come in future quarters. Turning to our industrial businesses, Arnold delivered a standout quarter with adjusted EBITDA nearly doubling year over year, despite ongoing geopolitical dynamics around rare earth supply, including continued export restrictions out of China.

Speaker #3: While these dynamics create near-term headwinds, they also reinforce the long-term tailwinds for the business. Demand for geopolitically secure rare earth magnet supply continues to build as customers increasingly prioritize reliable, non-China sources.

Speaker #3: Arnold's Thailand facility is ramping up, adding capacity and supply chain redundancy. We believe this uniquely positions Arnold to serve aerospace, defense, and industrial customers who prioritize supply chain security and performance reliability.

Speaker #3: Altor remains a work in progress. The business faced a challenging first quarter, reflecting competitive pressure in the cold chain market and continued consumer headwinds in the appliance market.

Elias Sabo: The business faced a challenging first quarter, reflecting competitive pressure in the cold chain market and continued consumer headwinds in the appliance market. The team is focused on execution, optimizing the combined platform following the Lifoam acquisition, and driving commercial progress. We remain confident in Altor's long-term positioning, even as near-term results continue to reflect current market conditions. Finally, let me turn to Rimports, which is the business we retained following the sale of the Sterno food service business. Rimports is a home fragrance platform, supplying scented wax warmers, and essential oils under a range of in-house and private label brands to many of the nation's largest retailers. We want to be clear about what to expect. The balance of 2026 will be a transition period.

Elias Sabo: The business faced a challenging Q1, reflecting competitive pressure in the cold chain market and continued consumer headwinds in the appliance market. The team is focused on execution, optimizing the combined platform following the Lifoam acquisition, and driving commercial progress. We remain confident in Altor's long-term positioning, even as near-term results continue to reflect current market conditions. Finally, let me turn to Rimports, which is the business we retained following the sale of the Sterno food service business. Rimports is a home fragrance platform, supplying scented wax warmers, and essential oils under a range of in-house and private label brands to many of the nation's largest retailers. We want to be clear about what to expect. The balance of 2026 will be a transition period.

Speaker #3: The team is focused on execution. Optimizing the combined platform following the Lifefoam acquisition and driving commercial progress. And we remain confident in Altor's long-term positioning even as near-term results continue to reflect current market conditions.

Speaker #3: Finally, let me turn to RimPorts. Which is the business we retained following the sale of the Sterno Food Service business. RimPorts is a home fragrance platform supplying scented wax, wax warmers, and essential oils under a range of in-house and private-label brands to many of the nation's largest retailers.

Speaker #3: We want to be clear about what to expect. The balance of 2026 will be a transition period. RimPorts will absorb some stranded costs from the separation of the food service business during the year, and we are working through an updated commercial relationship with a large customer.

Elias Sabo: Rimports will absorb some stranded costs from the separation of the food service business during the year, and we are working through an updated commercial relationship with a large customer. Both of these factors will weigh on near-term results, but are expected to improve in 2027. We have confidence in the leadership team and believe the long-term opportunity remains attractive as the team focuses on the go-forward business. Before I hand the call over to Stephen, I want to underscore that the actions this quarter are part of a disciplined, sequenced plan. Our path is clear. Deleveraged. Drive continued operational performance. Further align management incentives. Over time, close the gap between our share price and intrinsic value. That is the priority we are executing against. With that, I'll turn the call over to Stephen to walk through the financial results.

Speaker #3: Both of these factors will weigh on near-term results, but are expected to improve in 2027. We have confidence in the leadership team and believe the long-term opportunity remains attractive as the team focuses on the go-forward business.

Speaker #3: Before I hand the call over to Steven, I want to underscore that the actions this quarter are part of a disciplined, sequenced plan. Our path is clear.

Speaker #3: D-leverage. Drive continued operational performance. Further align management incentives. And over time, close the gap between our share price and intrinsic value. That is the priority we are executing against.

Speaker #3: With that, I'll turn the call over to Steven to walk through the financial results.

Speaker #4: Thanks, Elias. As a reminder, our prior year gap results include Lugano, which has since been deconsolidated following its bankruptcy filing last November. With that context, I will discuss our gap results first, followed by our non-gap results that exclude Lugano to better facilitate year-over-year comparisons.

Stephen Keller: Thanks, Elias. As a reminder, our prior year GAAP results include Lugano, which has since been deconsolidated following its bankruptcy filing last November. With that context, I will discuss our GAAP results first, followed by our non-GAAP results that exclude Lugano to better facilitate year-over-year comparisons. For Q1, GAAP net revenues were $427 million, down 5.9% year-over-year due to the inclusion of Lugano in the prior period. GAAP net loss from continuing operations was $30.8 million, an improvement of approximately $19 million year-over-year, primarily reflecting the absence of Lugano's losses in the current period. I will now provide our Q1 non-GAAP results, which excludes Lugano from the prior year.

Speaker #4: For the first quarter, gap net revenues were $427 million. Down 5.9% year over year. Due to the inclusion of Lugano in the prior period, gap net loss from continuing operations was $30.8 million.

Speaker #4: And improvement of approximately $19 million year over year primarily reflecting the absence of Lugano's losses in the current period. I will now provide our first quarter non-gap results, which exclude Lugano from the prior year.

Speaker #4: Net sales were in line with prior year, as strong double-digit growth at the honeypot in Arnold were offset by ongoing challenges at Altor due largely to unfavorable macro trends.

Stephen Keller: Net sales were in line with prior year as strong double-digit growth at The Honey Pot and Arnold were offset by ongoing challenges at Altor, due largely to unfavorable macro trends. Across our businesses, our consumer net sales increased 2.3%, while industrial net sales declined 3.3% compared to the prior year period. Subsidiary adjusted EBITDA was $83.9 million, an increase of 6.3%, with consumer up 11.6% and industrial down 4.5% compared to the prior year period. While Arnold nearly doubled year over year, industrial growth was offset by the top line headwinds at Altor. Corporate management fees, excluding those paid by the subsidiaries, were $14.4 million for the quarter, as reflected on the income statement. Actual cash payments for Q1 fees will be significantly less at around $7.5 million.

Stephen Keller: Net sales were in line with prior year as strong double-digit growth at The Honey Pot and Arnold were offset by ongoing challenges at Altor, due largely to unfavorable macro trends. Across our businesses, our consumer net sales increased 2.3%, while industrial net sales declined 3.3% compared to the prior year period. Subsidiary adjusted EBITDA was $83.9 million, an increase of 6.3%, with consumer up 11.6% and industrial down 4.5% compared to the prior year period. While Arnold nearly doubled year-over-year, industrial growth was offset by the top line headwinds at Altor. Corporate management fees, excluding those paid by the subsidiaries, were $14.4 million for the quarter, as reflected on the income statement. Actual cash payments for Q1 fees will be significantly less at around $7.5 million.

Speaker #4: Across our businesses, our consumer net sales increased 2.3%, while industrial net sales declined 3.3% compared to the prior year period. Subsidiary adjusted EBITDA was $83.9 million, an increase of 6.3%.

Speaker #4: With consumer up 11.6% and industrial down 4.5% compared to the prior year period. While Arnold nearly doubled year over year, industrial growth was offset by the top-line headwinds at Altor.

Speaker #4: Corporate management fees excluding those paid by the subsidiaries were $14.4 million for the quarter, as reflected on the income statement. Actual cash payments for Q1 fees will be significantly less at around 7.5 million.

Speaker #4: As previously discussed, corporate cash management fees paid to the manager are expected to be between $25 and $30 million for the full year, as our manager pays back the overpaid management fees related to Lugano restatement.

Stephen Keller: As previously discussed, corporate cash management fees paid to the manager are expected to be between $25 to 30 million for the full year as our manager pays back the overpaid management fees related to Lugano restatement. Public company costs were $13 million in the quarter, which includes more than $7 million of one-time costs associated with Lugano, including the cost of ongoing litigation, investigation, and corporate governance changes. While these one-time costs were significantly higher than initially anticipated, they do not include any offsets that may be realized through insurance or other proceeds as we move through 2026. It is important to note that in April, we received our first insurance reimbursement, and we expect to recover additional expenses over the balance of 2026.

Speaker #4: Public company costs were $13 million in the quarter, which includes more than $7 million of one-time costs associated with Lugano, including the cost of ongoing litigation and investigations and corporate governance changes.

Speaker #4: While these one-time costs were significantly higher than initially anticipated, they do not include any offsets that may be realized through insurance or other proceeds as we move through 2026.

Speaker #4: It is important to note that in April, we received our first insurance reimbursement and we expect to recover additional expenses over the balance of 2026.

Speaker #4: More importantly, we remain focused on managing and reducing our public company costs consistent with our efforts to delever and drive long-term value creation. Cash generation was a highlight of the quarter.

Stephen Keller: More importantly, we remain focused on managing and reducing our public company costs consistent with our efforts to de-lever and drive long-term value creation. Cash generation was a highlight of the quarter. We generated $23.9 million in operating cash flow, a meaningful improvement versus the prior year. Our CapEx of $5.1 million were less than half of the prior year period, reflecting disciplined capital allocation and a capital efficient profile of our subsidiary businesses. Together, Q1's operational cash generation demonstrates the strength of our businesses and keeps us on track towards delivering significant free cash flow in 2026. We ended the quarter with $65 million in cash and cash equivalents and nearly full availability on our $100 million revolver. Our leverage ratio for debt covenant purposes at quarter end was approximately 5.3x, a strong improvement in the quarter.

Speaker #4: We generated $23.9 million in operating cash flow. A meaningful improvement versus the prior year. Our capital expenditures of $5.1 million were less than half of the prior year period, reflecting disciplined capital allocation and a capital-efficient profile of our subsidiary businesses.

Speaker #4: Together, Q1's operational cash generation demonstrates the strength of our businesses and keeps us on track toward delivering significant free cash flow in 2026. We ended the quarter with $65 million in cash and cash equivalents, and nearly full availability on our $100 million revolver.

Speaker #4: Our leverage ratio for debt covenant purposes at quarter end was approximately 5.3 times, a strong improvement in the quarter. As we announced earlier this week, the sale of Sterno's food service business has now closed and we have repaid more than $280 million of senior-secured term loan debt.

Stephen Keller: As we announced earlier this week, the sale of Sterno's food service business has now closed, and we have repaid more than $280 million of senior secured term loan debt. This reduces our total leverage to approximately 5x and brings our senior secured net leverage to below 1x. Importantly, this allows us to avoid the milestone fees under our senior credit facility that would otherwise have applied beyond 30 June. Reducing leverage has been and remains our top financial priority. Our actions thus far this year put us in a meaningfully stronger position. There is more work to do, and we remain disciplined and focused on the priorities we have laid out to our shareholders. Turning briefly to Lugano, the Chapter 11 process is advancing as expected, as are our efforts to minimize our liability and maximize our ultimate recovery.

Speaker #4: This reduces our total leverage to approximately five times and brings our senior-secured net leverage to below one time. Importantly, this allows us to avoid the milestone fees under our senior credit facility that would otherwise have applied beyond June 30th.

Speaker #4: Reducing leverage has been and remains our top financial priority. Our actions thus far this year put us in a meaningfully stronger position. There is more work to do and we remain disciplined and focused on the priorities we have laid out to our shareholders.

Speaker #4: Turning briefly to Lugano, the Chapter 11 process is advanced as expected. As are our efforts to minimize our liability and maximize our ultimate recovery.

Speaker #4: We expect to have greater clarity on timing by the end of the second quarter and we'll update investors as appropriate. briefly note that while the evolving tariff environment has created significant market uncertainty, we are currently experiencing a tailwind across multiple businesses.

Stephen Keller: We expect to have greater clarity on timing by the end of Q2, and we'll update investors as appropriate. Before turning to our outlook, I'd like to briefly note that while the evolving tariff environment has created significant market uncertainty, we are currently experiencing a tailwind across multiple businesses. Separately, we also expect to receive one-time tariff-related refunds during 2026, though the specific timing and magnitude are difficult to forecast at this time. We will provide more clarity as the year progresses. I'll now provide an update on our 2026 outlook. For the full year, we expect subsidiary adjusted EBITDA of between $320 to 365 million.

Speaker #4: Separately, we also expect to receive one-time tariff-related refunds during 2026, though the specific timing and magnitude are difficult to forecast at this time. We will provide more clarity as the year progresses.

Speaker #4: I'll now provide an update on our 2026 outlook. For the full year, we expect subsidiary adjusted EBITDA of between $320 to $365 million. This range adjusted for the impact of the sale of Sterno's food service business is at or above the expectation we set at the start of the year, and reflects the continued strength of our diversified collection of businesses.

Stephen Keller: This range, adjusted for the impact of the sale of Sterno's food service business, is at or above the expectation we set at the start of the year and reflects the continued strength of our diversified collection of businesses. For our consumer businesses, this equates to adjusted EBITDA between $225 to $260 million. For our industrial businesses, we expect adjusted EBITDA of between $95 and $105 million, which includes some stranded costs associated with the sale of our Sterno business. We expect these costs will decline in 2027. For modeling purposes, we continue to assume CapEx of between $30 to $40 million for 2026, and we expect corporate cash management fees of between $25 to $30 million.

Stephen Keller: This range, adjusted for the impact of the sale of Sterno's food service business, is at or above the expectation we set at the start of the year and reflects the continued strength of our diversified collection of businesses. For our consumer businesses, this equates to adjusted EBITDA between $225 to 260 million. For our industrial businesses, we expect adjusted EBITDA of between $95 and 105 million, which includes some stranded costs associated with the sale of our Sterno business. We expect these costs will decline in 2027. For modeling purposes, we continue to assume CapEx of between $30 to 40 million for 2026, and we expect corporate cash management fees of between $25 to 30 million.

Speaker #4: For our consumer businesses, this equates to adjusted EBITDA between $225 to $260 million. And for our industrial businesses, we expect adjusted EBITDA of between $95 and $105 million.

Speaker #4: Which includes some stranded costs associated with the sale of our Sterno business. We expect these costs will decline in 2027. The modeling purposes, we continue to assume CapEx of between $30 to $40 million.

Speaker #4: For 2026, and we expect corporate cash management fees of between $25 to $30 million. As has been our practice, our outlook does not include the impact of any potential acquisitions or divestitures, except as noted regarding the sale of the Sterno food service business.

Stephen Keller: As has been our practice, our outlook does not include the impact of any potential acquisitions or divestitures, except as noted regarding the sale of the Sterno food service business. It also does not include any significant impact, positive or negative, to the evolving trade environment. With that, I'll hand it back to Elias for closing remarks.

Speaker #4: It also does not include any significant impact positive or negative to the evolving trade environment. With that, I'll hand it back to Elias for closing remarks.

Speaker #1: Thanks, Steven. Let me be clear about where we stand. The first quarter of 2026 was a quarter of execution. Solid subsidiary performance, a meaningful divestiture at an attractive valuation, and measurable progress on the priorities we laid out.

Elias Sabo: Thanks, Stephen. Let me be clear about where we stand. The first quarter of 2026 was a quarter of execution. Solid subsidiary performance, a meaningful divestiture at an attractive valuation, and measurable progress on the priorities we laid out. A single quarter does not make a turnaround, and we've, by no means, reached the finish line. We will continue to pursue our stated objective to create long-term shareholder value and close the gap to intrinsic value. That means in the near term, pursuing strategic divestitures at attractive valuations and returning capital to shareholders where appropriate. Trust is earned through consistent execution, and that is what shareholders should expect from us every quarter going forward. The sale of Sterno's food service business is an important signal of what is possible. We transacted at an attractive value on an accelerated timeline in an otherwise softer M&A environment.

Elias Sabo: Thanks, Stephen. Let me be clear about where we stand. The Q1 of 2026 was a quarter of execution. Solid subsidiary performance, a meaningful divestiture at an attractive valuation, and measurable progress on the priorities we laid out. A single quarter does not make a turnaround, and we've, by no means, reached the finish line. We will continue to pursue our stated objective to create long-term shareholder value and close the gap to intrinsic value. That means in the near term, pursuing strategic divestitures at attractive valuations and returning capital to shareholders where appropriate. Trust is earned through consistent execution, and that is what shareholders should expect from us every quarter going forward. The sale of Sterno's food service business is an important signal of what is possible. We transacted at an attractive value on an accelerated timeline in an otherwise softer M&A environment.

Speaker #1: But a single quarter does not make a turnaround. And we've, by no means, reached the finish line. We will continue to pursue our stated objective to create long-term shareholder value and close the gap to intrinsic value.

Speaker #1: That means in the near term, pursuing strategic divestitures at attractive valuations and returning capital to shareholders where appropriate. Trust is earned through consistent execution and that is what shareholders should expect from us every quarter going forward.

Speaker #1: The sale of Sterno's food service business is an important signal of what is possible. We value. On an accelerated timeline, in an otherwise softer M&A environment.

Speaker #1: That outcome reflects both the quality of the business and the capability of our team to run disciplined processes and maximize value for shareholders. Beyond a proof point, it is an important first step.

Elias Sabo: That outcome reflects both the quality of the business and the capability of our team to run disciplined processes and maximize value for shareholders. Beyond a proof point, it is an important first step. We believe in the CODI model. We take a permanent capital approach to acquire great businesses, partner with strong management teams, and actively manage growing category leaders over the long term. That model has generated value for shareholders for nearly two decades. We are confident in the model and committed to demonstrating its value through execution. Thank you as always for your support. Stephen and I will now take your questions. Operator, please open the lines.

Speaker #1: We believe in the Cody model. We take a permanent capital approach to acquire great businesses, partner with strong management teams, and actively manage growing category leaders over the long term.

Speaker #1: That model has generated value for shareholders for nearly two decades. We are confident in the model and committed to demonstrating its value through execution.

Speaker #1: Thank you, as always, for your support. Steven and I will now take your questions. Operator, please open the lines.

Speaker #2: Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.

Operator: Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Your first question is from Larry Solow of CJS Securities. Your line is now open.

Speaker #2: To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Your first question is from Larry Sallow of CJS Securities. Your line is now open.

Speaker #3: All right. Thanks. Good afternoon, guys. Can you just clarify the guidance? So you're down $25 million, and obviously you're up $5 million in branded.

Larry Solow: Right. Thanks. Good afternoon, guys. Can you just clarify the guidance? You're down $25 million, and obviously you're up $5 million in branded, so that's separate from the sale, the divestiture of Sterno. obviously Sterno, it sounds like there's some moving parts, right? For Sterno, maybe more than we would have thought the impact on the sale. You said some kind of stranded or lagging costs there. maybe there's still another adjustment. Are you reducing maybe Altor Solutions a little lower too, or anything else in there?

Larry Solow: Right. Thanks. Good afternoon, guys. Can you just clarify the guidance? You're down $25 million, and obviously you're up $5 million in branded, so that's separate from the sale, the divestiture of Sterno. Obviously Sterno, it sounds like there's some moving parts, right? For Sterno, maybe more than we would have thought the impact on the sale. You said some kind of stranded or lagging costs there. Maybe there's still another adjustment. Are you reducing maybe Altor Solutions a little lower too, or anything else in there?

Speaker #3: So that's separate. From the sale of divestiture of Sterno. But then obviously Sterno is there sounds like there's some moving parts, right? For Sterno, maybe more than we would have thought the impact on the sale.

Speaker #3: You said some kind of stranded or lagging costs there. But then maybe there's still another adjustment. You're reducing maybe alter solutions a little lower too, or anything else in there?

Speaker #4: No. Thanks, Larry. No, the main thing is actually it's just adjusting for the industrial is just adjusting for the sale of Sterno, specifically related to the lost EBITDA, the stranded cost, and as well as what Elias mentioned in the prepared remarks, which is we do have a couple of negotiations with some long-term customers with some large customers in that particular business that we think will be a little bit of a headwind for the year.

Stephen Keller: No. Thanks, Larry. No, the main thing is actually just adjusting for the industrial is just adjusting for the sale of Sterno, specifically related to the lost EBITDA, the stranded cost, and then as well as what Elias mentioned in the prepared remarks, which is we do have a couple of negotiations with some long-term customers with some large customers in that particular business.

Larry Solow: Right

Stephen Keller: of a headwind for the year.

Speaker #4: So it's yeah, so that's.

Larry Solow: Gotcha.

Stephen Keller: Yeah. that's

Speaker #3: So basically the remaining call of Sterno, which is RimPort's will be somewhat lower this year. Than last year.

Larry Solow: Basically, the remain co of Sterno, which is Rimports, will be somewhat lower this year.

Stephen Keller: Correct

Stephen Keller: Correct.

Larry Solow: than last year.

Larry Solow: Than last year.

Speaker #4: Right.

Speaker #3: Now, do you think that go ahead.

Stephen Keller: Yeah.

Larry Solow: And you think that-

Stephen Keller: Now, just to be clear.

Larry Solow: Go ahead. Yeah.

Speaker #4: I want to be clear. We're not we won't be fully deconciled. We're selling Sterno. We're not deconsolidating it out of the business. So you will have the first quarter of Sterno will be included in our full year EBITDA.

Stephen Keller: I wanna be clear, We're selling Sterno, we're not deconsolidating it out of the business. You will have the Q1 of Sterno is it will be included in our full year EBITDA. Then the next three quarters will just be Rimports.

Speaker #4: And then the next three quarters will just be RimPort's.

Speaker #3: Right. And is there a short-term your corporate costs are too much because you've kind of carved out Sterno, but you still have RimPort's, s, or is it going to bulk up that infrastructure maybe where it actually impacts you?

Larry Solow: Right. Is there a short term, like your corporate costs are too much because you kind of carved out Sterno, but you still have Rimports or did you like bulk up that infrastructure maybe where it actually impacts you? Yeah, go ahead.

Speaker #3: Yeah, good.

Speaker #4: As you mentioned, I think in our original press release, we are retaining the management team in the RimPort's the Sterno management team is staying with RimPort's.

Stephen Keller: As we mentioned, I think in our original press release, we are retaining the management team in Rimports. The Sterno management team is staying with Rimports. That is something that we need to work through. We actually really think this is the right team to help kind of help accelerate Rimports growth, but it is a little, we do have to make some adjustments to overall cost levels as we go forward.

Speaker #4: And so that is something that we need to work through. We think we actually really think this is the right team to help kind of help accelerate RimPort's growth, but it is a little we do have to make some adjustments to overall cost levels as we go forward.

Speaker #3: Gotcha. And the stranded cost, I imagine, those you kind of have pretty good visibility will be not repeat next year. The customer negotiations with the one I think I know one large customer, that we don't know the outcome yet.

Larry Solow: Gotcha. The stranded costs, I imagine those you kind of have pretty good visibility will be not repeat next year. The customer negotiations with the one, I think I know one large customer, that we don't know the outcome yet. The stranded costs, obviously, you should have pretty good confidence those won't repeat, right? I guess. Is that fair?

Speaker #3: But the stranded cost, obviously, you should have pretty good confidence those won't repeat, right, I guess? Is that fair?

Speaker #4: Yeah. I mean, you have to we have to address the standard cost. It is the stranded costs are costs that existed last year that will continue to exist in the business, but we need to work them down over time at an appropriate what is now a smaller business.

Stephen Keller: Yeah. I mean, We have to address the stranded costs, right? Stranded costs are costs that existed last year that will continue.

Stephen Keller: Yeah. I mean, We have to address the stranded costs, right? Stranded costs are costs that existed last year that will continue. To exist in the business, but we need to work them down over time as appropriate for what is now a smaller business.

Larry Solow: Right

Stephen Keller: to exist in the business, but we need to work them down over time as appropriate.

Larry Solow: Sure

Stephen Keller: for what is now a smaller business.

Speaker #3: Right. Okay. That's what I thought. So it's a little bit you need to downsize sort of the corporate structure there. That makes sense. And just curious, so a couple of quickies.

Larry Solow: Right. Okay. That's what I thought. It was a little bit you need to downsize sort of the corporate structure there. That makes sense. Just curious. Couple of quickies. In general, Elias, maybe just on the, you know, on the branded piece, it sounds like, you know, a lot of moving parts, but in general, just your consumer, you know, the confidence you have, anything really change over the last six months? Obviously, that encompasses the start of the Iran conflict, whatever you wanna call it, higher, you know, more, more inflationary pressures back or a lot higher. Any, you know, visibility or any, you know, have you seen any impact in any of your businesses because of this, or are you contemplating that in your guidance? Any thoughts there?

Speaker #3: In general, Elias, maybe just on the branded piece, it sounds like a lot of moving parts, but in general, just your consumer, the confidence you have anything really change over the last six months?

Speaker #3: Obviously, that encompasses the start of the Iran conflict, or whatever you want to call it. Higher, more inflationary pressure is back—or a lot higher.

Speaker #3: So, any visibility or have you seen any impact on any of your businesses because of this, or are you contemplating that in your guidance?

Speaker #3: Any thoughts there?

Speaker #4: Yeah, Larry. I would say I've seen our consumer businesses perform extremely well. First quarter was above what our expectations. And I would say coming into the second quarter and as a lot of these companies work on backlog, I would say they're set up to perform better in the second quarter than expectations as well.

Elias Sabo: Yeah, Larry, we, I would say, have seen our consumer businesses perform extremely well. Q1 was above what our expectations were. I would say coming into Q2, and as a lot of these companies work on backlog, I would say they're, you know, set up to perform better in Q2 than expectations as well. That's, you know, clearly in the face of the Iran war starting. Now, I think where it gets a little bit harder to dissect is whether customers are accelerating some orders because of the war and worries about longer term inflation and, you know, kind of oil going through, you know, kind of global oil supply. That's a little bit more to be determined.

Speaker #4: And that's clearly in the face of the Iran war starting. Now, I think where it gets a little bit harder to dissect is whether customers are accelerating some orders because of the war and worries about longer-term inflation and kind of oil going through kind of global oil supply.

Speaker #4: That's a little bit more to be determined. But I would say right now, what we can analyze the business and the consumer side looks very strong.

Elias Sabo: I would say right now what we can analyze the business on the consumer side looks very strong and better than anticipation. Currently, and I know this sounds odd to say, unaffected by the, you know, global macro events that we see, you know, kind of around us on a daily basis.

Speaker #4: And better than anticipation and currently and I know this sounds odd to say, unaffected by the global macro events that we see kind of around us on a daily basis.

Speaker #3: Okay. And Bo, I really had a nice quote. Anything outstanding there? I know I think we had you sold the footwear business, I know.

Larry Solow: Okay. BOA really had a nice quarter. Anything, you know, outstanding there? I know, I think we had, you know, you sold the footwear business, I know. You reported 11% EBITDA growth, but I imagine it was even better ex that. Any extra color there?

Speaker #3: So maybe so you reported 11% EBITDA growth, but I imagine it was even better ex that. So any extra color there?

Speaker #5: No, Bo is a great business. We say over and over how awesome this company is. It's competitive positioning. Strategic outlook. It has one of the best management teams, if not the best management team that I've ever worked with.

Elias Sabo: You know, BOA is a great business. We, you know, say over and over how awesome this company is. Its competitive positioning, strategic outlook. It has one of the best management teams, if not the best management team that I've ever worked with. I think those are all the ingredients to propel the company, you know, forward in a consistent basis. As you know, Larry, it's got a great IP position. You know, it's just, it's so well-positioned, and I think we went through a lot of, you know, kind of turbulence. Obviously, it had huge growth during the supply chain shock, you know.

Speaker #5: And so I think those are all the ingredients to propel the company forward in a consistent basis. As you know, Larry, it's got a great IP position.

Speaker #5: So it's just it's so well positioned. And I think we went through a lot of kind of turbulence. Obviously, it had huge growth during the supply chain shock.

Speaker #5: And then we had some softness that came from that. And then more recently, we had a customer in Asia on our kids' line that from price competitive reasons, we walked away from.

Elias Sabo: We had, you know, some softness that came from that. More recently, we had a customer, you know, in Asia on our kids line, that from price competitive reasons we walked away from. There's been a little bit of noise, and I think right now the business is in a much better spot based in where the industry is and kind of its inventory positioning and where we are in terms of the customer mix and durability and then all the growth you know, that it has ahead of it.

Speaker #5: And so there's been a little bit of noise. And I think right now, the business is in a much better spot based in where the industry is and kind of its inventory positioning.

Speaker #5: And where we are in terms of the customer mix and durability and then all the growth that it has ahead of it. So I would say where there's been some extraneous sort of kind of choppy things that have happened here, this business now, we think, is sort of in a smoother set of waters and should produce the kind of double-digit kind of growth rates that we saw in the first quarter on a continuing basis.

Elias Sabo: I would say where there's been some extraneous sort of, you know, kind of choppy things that have happened here, this business now we think is sort of in a smoother set of waters and should produce the kind of double-digit kind of growth rates that we saw in Q1 on a continuing basis.

Speaker #3: Great. Last question, Elias. You did a nice announcement, you completed a nice divestiture, and then you said you look and probably will do more. Are you pretty confident you'll complete at least one more this calendar year?

Larry Solow: Great. Last question, Elias. You did a nice, you know, announcing you completed a nice divestiture. I know you said you know, look and probably do more. You know, you're pretty confident you'll complete at least one more this calendar year?

Speaker #5: I mean, that is our plan. The M&A markets I referred to are a bit choppy. They're weaker than where they've been in the past.

Elias Sabo: I mean, that is our plan. The M&A markets I referred to are, you know, a bit choppy. They're weaker than, you know, where they've been in the past. You know, they ebb and flow, as you know. You know, we own really great quality assets, Larry, you know, as I mentioned in my, you know, opening remarks, there's always the market to transact for a great company or great companies. You know, we do feel confident we'll be able to transact. Now against that, there's still a war in Iran going on and $100 oil prices and lots of uncertainty.

Speaker #5: But they ebb and flow as you know. We own really great quality assets, Larry. And as I mentioned in my opening remarks, there's always a market to transact for a great company or a great companies.

Speaker #5: And so, we do feel confident we'll be able to transact. Now, against that, there's still a war in Iran going on and $100 oil prices.

Speaker #5: And lots of uncertainty private credit markets have really tightened. I think we see that kind of in the public stock prices of a lot of these private credit providers.

Larry Solow: Sure.

Elias Sabo: Private credit markets.

Elias Sabo: Private credit markets have really tightened. I think we see that kind of in the public stock prices of a lot of these private credit providers. That is clearly a headwind for, you know, being able to transact. It's where our focus is. You know, we understand we need to get our leverage down, and that is, you know, kind of the number one, two, and three goals right now, to get back into a position where we can be allocating capital again, and, you know, as we said in our opening remarks, you know, looking to close the intrinsic value discount once we get there. You know, we remain confident we'll be able to execute against that, although I wanna caution the M&A markets continue to remain choppy.

Larry Solow: Absolutely

Elias Sabo: have really tightened. I think we see that kind of in the public stock prices of a lot of these private credit providers. That is clearly a headwind for, you know, being able to transact. It's where our focus is. You know, we understand we need to get our leverage down, and that is, you know, kind of the number one, two, and three goals right now, to get back into a position where we can be allocating capital again, and, you know, as we said in our opening remarks, you know, looking to close the intrinsic value discount once we get there. You know, we remain confident we'll be able to execute against that, although I wanna caution the M&A markets continue to remain choppy.

Speaker #5: So, that is clearly a headwind for being able to transact. But it is where our focus is; we understand we need to get our leverage down.

Speaker #5: And that is kind of the number one, two, and three goals right now to get back into a position where we can be allocating capital again and as we said in our opening remarks, looking to close the intrinsic value discount once we get there.

Speaker #5: So we remain confident we'll be able to execute against that, although I want to caution the markets continue to remain the M&A markets continue to remain choppy.

Speaker #3: Great. I appreciate it. Thanks.

Larry Solow: Great. I appreciate it. Thanks.

Speaker #5: Thank you, Larry.

Elias Sabo: Thank you, Larry.

Speaker #1: Thank you. Our next question will come from Timothy D'Agostino from B Reilly Securities, your line is now open.

Operator: Thank you. Our next question will come from Timothy D'Agostino from B. Riley Securities. Your line is now open.

Speaker #4: Yeah, hi. Thanks for taking the questions. Regarding leverage, could you remind us again what your long-term goal is? Where do you want leverage to be?

Timothy D'Agostino: Yeah, hi. Thanks for taking the questions. Regarding leverage, could you remind us again what your long-term goal is? You know, where do you want leverage to be? As well, you know, given the sale of Sterno Food Services, how does that impact kind of your timeline and your path in order to getting to that leverage target? Lastly on that, you know, given where the stock is today and let's say looking into the future, getting to your leverage target, you know, when would share buybacks become part of the equation for you all? You know, at these levels, is it attractive? Understanding you still have more deleveraging to do. Thank you.

Speaker #4: As well, given the sale of Sterno Food Services, how does that impact kind of your timeline and your path in order to getting to that leverage target?

Speaker #4: And then lastly, on that, given where the stock is today, and let's say looking into the future, getting to your leverage target, when would share buybacks become part of the equation for you all?

Speaker #4: And at these levels, is it attractive? Understanding you still have more de-leveraging to do. Thank you.

Speaker #5: Yeah, thanks for the question. Long-term, we've always said we'd like to be around 3 to 3 and a half times leverage. That would be our long-term goal if things were in a more in a more normal situation.

Stephen Keller: Yeah. Thanks for the question. The long term, we've always said we'd like to be around 3 to three and a half times leverage. That would be like our long-term goal if things were, you know, in a more, you know, in a more normal situation. I would say our current focus is now to get under 4 times lever as a key milestone for us. Once we got under 4 times, we would start to think, you know, given where the stock is trading and discount to intrinsic value, we would start thinking it would make sense to look to return capital to shareholders, potentially through a share buyback.

Speaker #5: I would say our current focus is now to get under four times leverage. As a key milestone for us. Once we got under four times, we would start to think given where the stock is trading and discount to intrinsic value, we would start thinking it would make sense to look to return capital to shareholders.

Speaker #5: Potentially through a share buyback. And so I think, again, long-term, 3, 3 and a half, but I think the next milestone for us is to get below 4, which just allows us to be a little bit more think a little bit more about return capital.

Stephen Keller: I think again, long term, 3.5, but I think the next milestone for us is to get below 4, which just allows us to be a little bit more, you know, think a little bit more about return capital.

Speaker #3: Okay, great. Thank you for that. And then with, I guess, with an additional sale of a full subsidiary, do you think you can get to that four times by year-end, or do you think it's going to take a little bit more work?

Timothy D'Agostino: Okay, great. Thank you for that. Then with I guess, you know, with an additional sale of a full subsidiary, you know, do you think you can get to that four times by year-end, or do you think it is going to take a little bit more work? Just understanding, you know, the impact of the next sale might have in your opinion.

Speaker #3: Just understanding the impact of the next sale might have in your opinion.

Speaker #5: Yeah, I think so the way I would think about it, if you think about it organically, I think the rest of the year you kind of get you have another step down probably to around 4 and a half somewhere, a little bit higher than that, but somewhere around there.

Stephen Keller: Yeah, I think the way I would think about it, if you think about it organically, I think the rest of the year you kinda get, you have another step down probably to around four and a half somewhere, a little bit higher than that, but somewhere around there. You start talking about the kind of inorganic activities, which would include recovery from Lugano, which would be straight deleveraging. You would have a sale of a subsidiary. That obviously it just depends on which subsidiary. There's obviously a little bit of a circular reference there where you get rid of EBITDA, but you know, you get how much, you know, you get the multiple on it.

Speaker #5: And then you start talking about the kind of inner gap activities, which would include recovery from Lugano, which would be straight de-leveraging. And then you would and then you would have a sale of a subsidiary.

Speaker #5: And that obviously, it just depends on which subsidiary. There's obviously a little bit of a circular reference there where you get rid of EBITDA, but then you get how much you get the multiple on it.

Speaker #5: And so we think with the sale of another company and the organic work and the work from Lugano recoveries, I think we would anticipate being below 4 times.

Stephen Keller: We think with the sale of another company and the organic work and the work from Lugano Diamonds recoveries, I think we would essentially be below 4 times. Again, it is dependent on the specific subsidiary and the multiple that we get for it.

Speaker #5: But again, it is dependent on the specific subsidiary and the multiple that we get for it.

Speaker #3: Okay, great. That's super helpful, Color. And if I could just sneak a final quick one in there. I may have missed it earlier. I apologize.

Timothy D'Agostino: Okay, great. That's super helpful color. If I could just sneak a final quick one in there. I may have missed it earlier. I apologize. On SG&A, lower this quarter and, you know, on my model, a lower percentage of revenue. I guess, is there anything to flag there on why SG&A was lower in the quarter? Again, might have missed it, apologies if I did.

Speaker #3: On SG&A, lower this quarter and on my model, a lower percentage of revenue. I guess, is there anything to flag there on why SG&A was lower in the quarter?

Speaker #3: Again, might have missed it, so apologies if I did.

Speaker #5: You mean collectively across the business, or are you talking about corporate costs are higher, right? As we talked about on the prepared remarks. In terms of the overall business, if you're looking at collectively, SG&A on the GAAP accounts line, I think there's nothing specific to call out.

Stephen Keller: You mean collectively across the business, or are you talking about corporate costs are higher, right? As we talked about in the prepared remarks. In terms of the overall business, if you're looking at collectively the SG&A on the GAAP accounts line, I think it's nothing specific to call out. It's, you know, nothing, just normal, you know, prudent management within the teams. As I think we talked about at the last call, 5.11 Tactical has made some significant strides in using AI to reduce overhead costs in all of our businesses. As, you know, prudent managers do, they look to reduce SG&A costs, especially at a time when there's a little bit more macro uncertainty.

Speaker #5: It's nothing just normal food management within the teams. I think we talked about at the last call, 511 has made some significant strides in using AI to reduce overhead costs.

Speaker #5: And all of our businesses, as prudent managers do, they look to reduce SG&A costs, especially in a time when there's a little bit more macro uncertainty.

Speaker #3: Okay, great. Thank you for taking the questions today.

Timothy D'Agostino: Okay, great. Thank you. Take the questions today.

Speaker #5: Thank you, Tim.

Stephen Keller: Thank you, Tim.

Elias Sabo: Thank you, Tim.

Speaker #1: Thank you. Our next question. We'll come from Matt Kuranda, from Roth Capital. Your line is now open.

Operator: Thank you. Our next question will come from Matt Koranda from Roth Capital. Your line is now open.

Speaker #6: Hi, guys. I guess one fundamental one on segment, and then maybe a couple of housekeeping things. But on Honeypot, maybe can you just unpack a little bit more about what's driving the really substantial growth there?

Matt Koranda: Hey, guys. I guess one fundamental one on segment and then maybe a couple of housekeeping things. On Honey Pot, maybe can you just unpack a little bit more about what's driving the really substantial growth there? I guess notice north of 30% EBITDA margins in that segment, how sustainable do you view that level as, and how should we be thinking about sort of a normalized level going forward?

Speaker #6: And I guess notice north of 30%, even on margins, and that segment. How sustainable do you view that level as? And how should we be thinking about sort of a normalized level going forward?

Speaker #5: Yeah, Matt. What's driving the growth is market share gains in the category. If you recall, when we acquired the company, it was principally in the hygiene side, the washes and wipes.

Elias Sabo: Yeah, Matt, the What's driving the growth is market share gains in the category. If you recall, when we acquired the company, it was principally in the hygiene side, the washes and wipes side of the business. That is a very small percentage of the overall addressable market. Only about 5% of the potential population of candidates use washes and wipes as instead of regular soap. So the big opportunity with this company was, you know, one, to increase that percentage, which we've been doing and, but secondly, to extend the brand into other adjacent categories. We've had really good success extending into the period care market.

Speaker #5: Side of the business. That is a very small percentage of the overall addressable market, only about 5% of the potential population of candidates use washes and wipes as instead of regular soap.

Speaker #5: And so the big opportunity with this company was one, to increase that percentage, which we've been doing in but secondly, to extend the brand into other adjacent categories.

Speaker #5: We've had really good success extending into the period care market. That is the market that is kind of 20 times bigger than the original market that we started out with.

Elias Sabo: That is the, you know, a market that is kinda 20 times bigger than the original market that we started out with, and our brand has shown the elasticity to be able to move into that. Remember, we stand for better for you, which is something that resonates, especially with the younger consumer, and our goal is to win that younger consumer as they're coming into the category. The strategy is working extremely well. I would say growth in period care can continue to drive, you know, really dramatic growth because we are relatively small in an enormous market right now with a differentiated proposition to the customer. In terms of margin, you know, the company is in a category where it can generate higher margins. I mean, these are better for you products.

Speaker #5: And our brand has shown the elasticity to be able to move into that. Remember, we stand for better for you. Which is something that resonates, especially with the younger consumer.

Speaker #5: And our goal is to win that younger consumer as they're coming into the category. And so the strategy is working extremely well. I would say growth in period care can continue to drive really dramatic growth because we are relatively small in an enormous market right now with a differentiated proposition to the customer.

Speaker #5: In terms of margin, the company is in a category where it can generate higher margins. I mean, these are better for you products. The positioning and brand association is all around better for you.

Elias Sabo: The positioning, you know, and brand association is all around better for you. As a result, consumers are willing to pay up for that. Now, I will say, you know, the company also has some benefits, and we've had Stephen mention from tariff rulings here. There were huge tariff costs that were incurred as part of Liberation Day last year. Now with the IEPA ruling, some of those costs have significantly come down. That is aiding margin without question. I think if your view is those tariffs creep back in some other way, then there'll be some give back of margin, naturally. I think if your view is tariffs are gonna be sort of where they are right now at this temporary level, then you should view those margins as being stable.

Speaker #5: And as a result, consumers are willing to pay up for that. Now, I will say the company also has some benefits, and we've had Steven mentioned from tariff rulings here.

Speaker #5: There were huge tariff costs that were incurred as part of liberation day last year. And now, with the AIPA ruling, some of those costs have significantly come down.

Speaker #5: That is aiding margin without question. I think if your view is those tariffs creep back in some other way, then there'll be some giveback of margin, naturally.

Speaker #5: I think if your view is, tariffs are going to be sort of where they are right now at this temporary level, then you should view those margins as being stable.

Speaker #5: But there's nothing from a pricing standpoint that we look at that says we aren't able to maintain these margins. And I think if you see the growth rate of mid-20s top-line growth, it's indicative of a very healthy brand that price is not the reason that people are not buying.

Elias Sabo: There's nothing from a pricing standpoint that we look at that says we aren't able to maintain these margins. I think if you see the growth rate of, you know, mid-20s top line growth, you know, it's indicative of a very healthy brand. That price is not the, you know, reason that people are not buying. We believe we can hold that.

Speaker #5: So we believe we can hold that.

Speaker #6: Okay. Appreciate that, Elias. And I guess maybe this is a broader question for all the segments. But on tariff recoveries, I just want to make sure there were none within the first quarter that benefited margins.

Matt Koranda: Okay. Appreciate that, Elias. I guess maybe this is a broader question for all the segments. On tariff recoveries, I just wanna make sure. There were none within Q1 that benefited margins. Just clarify that for us. Also, as you get recoveries throughout the year, how will those flow through the financial statements, just so we're clear on sort of how it shows up?

Speaker #6: So just clarify that for us. But also, as you get recoveries throughout the year, how will those flow through the financial statements just so we're clear on sort of how it shows up?

Speaker #5: Yeah, so there was no one-time recovery of last year's tariffs in our Q1. As Elias mentioned, we did have some benefits of not having lower tariffs than we had maybe in Q4 of last year, if that makes sense.

Stephen Keller: Yeah. There was no one time like recovery of last year's tariffs in our Q1. As Elias mentioned, we did have some benefits of having lower tariffs than we had maybe at Q4 of last year, if that makes sense. To the extent that when we do get one time historical refunds on tariffs, that would just be a positive in the P&L, and we will be sure to call that out for everyone for modeling purposes. Any margin that you see right now is not related to one-time tariff benefits. It's more related to the current tariff environment that we're in today.

Speaker #5: To the extent that we when we do get one-time historical refunds on tariffs, that would just be a it would be an it would just be a positive in the P&L.

Speaker #5: And we will be sure to call that out for everyone for modeling purposes. But any margin that you see right now is not related to one-time tariff benefits.

Speaker #5: It's more related to current the current tariff environment that we're in today.

Speaker #6: Okay. Got it. And then maybe just one more if I could. You mentioned kind of a revisiting or review of the MSA. Are you willing to share any preliminary thoughts on that front in terms of what some of the changes could be or the changes you're contemplating?

Matt Koranda: Okay. Got it. Then maybe just one more, if I could. You mentioned kind of a revisiting or a review of the MSA. Are you willing to share any preliminary thoughts on that front in terms of what some of the changes could be or the changes you're contemplating, maybe based around either, I guess, the asset-based management fee or allocation interest and how those are calculated?

Speaker #6: Maybe based around either, I guess, the asset-based management fee or allocation interest and how those are calculated.

Elias Sabo: We are not in a position yet to start to discuss that. What we wanted to convey to the market is that there are discussions that are ongoing now between the manager and the compensation committee to the board of directors, and we anticipate MSA changes to come in the, you know, next couple, few months. We just were really conveying that. It would be premature, Matt, at this point to start talking about the flavor of what those changes will look like.

Speaker #5: We are not in a position yet to start to discuss that. What we wanted to convey to the market is that there are discussions that are ongoing now between the manager and the compensation committee to the board of directors, and we anticipate MSA changes to come in the next couple of months.

Speaker #5: And we just were really conveying that. But it would be premature at this point to start talking about the flavor of what those changes will look like.

Speaker #6: Okay. Fair enough, guys. I'll leave it there. Thank you.

Matt Koranda: Okay. Fair enough, guys. I'll leave it there. Thank you.

Speaker #2: Thank you.

Speaker #5: Thank you.

Stephen Keller: Thank you.

Speaker #2: Thank you. And we do have time for a few additional questions. So as a reminder, to ask a question, you will need to press star 11 on your telephone, and wait for your name to be announced.

Elias Sabo: Thank you.

Operator: Thank you. We do have time for a few additional questions. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. At this time, we have our next question is from Haley Sconfitto of Raymond James. Your line is now open.

Speaker #2: And at this time, we have our next question, which is from Ali Sheff of Raymond James. Your line is now open.

Speaker #7: Good afternoon. Thanks for the question and congrats on the sale. So now that you've completed this and kind of gotten your senior leverage down below one, is there any urgency with other sale processes?

Haley Sconfitto: Good afternoon. Thanks for the question, and congrats on the sale. Now that you've completed this and kind of gotten your senior leverage down below 1, is there any urgency with other sales processes, especially with a muted M&A market?

Heli Sheth: Good afternoon. Thanks for the question, and congrats on the sale. Now that you've completed this and kind of gotten your senior leverage down below 1, is there any urgency with other sales processes, especially with a muted M&A market?

Speaker #7: Especially with a muted M&A market.

Speaker #5: Yeah. I would say, Ali, there's urgency because leverage at five times is too high. And there's urgency because our shares trading at these prices and our opinion don't reflect intrinsic value.

Elias Sabo: Yeah, I would say, Haley, there's urgency because leverage at 5 times is too high. There's urgency because our shares trading at these prices, in our opinion, don't reflect intrinsic value. The urgency really becomes getting our leverage down and getting back into a position where we have capital allocation availability. You know, there was a direct question earlier, and we said, you know, it would include potential share buybacks as part of that capital allocation. I think, you know, that creates urgency. Now, it is a fair question, and we have to juxtapose, you know, kind of that urgency against the conditions that exist in the M&A markets. They are somewhat muted.

Speaker #5: And so the urgency really becomes getting our leverage down and getting back into a position where we have capital allocation availability. And there was a direct question earlier, and we said, it would include potential share buybacks as part of that capital allocation.

Speaker #5: And so I think that creates urgency now. It is a fair question. And we have to juxtapose kind of that urgency against the conditions that exist in the M&A markets.

Speaker #5: And they are somewhat muted. But we transacted in a equally difficult M&A market on Sterno. And I think there's the ability to do that with another asset here over the course of the year.

Elias Sabo: You know, we transacted in a equally difficult M&A market on Sterno, and I think there's the ability to do that, you know, with another asset here over the course of the year. We're, you know, taking it with a sense of urgency. I do wanna be clear, though, to the extent the markets would significantly undervalue an asset in an M&A market, by doing the Sterno deal, it's taken the pressure off to do something that would be a necessity. We will transact to the extent it can create additional shareholder value. If the market conditions were so weak that it didn't create additional shareholder value, we have bought time to be able to, you know, kind of have other strategic alternatives we could consider. That would be not our central case.

Speaker #5: And we're taking it with a sense of urgency. I do want to be clear, though, to the extent the markets would significantly undervalue an asset in an M&A market by doing the Sterno deal, it's taken the pressure off to do something that would be a necessity.

Speaker #5: We would transact to the extent it can create additional shareholder value. But if the market conditions were so weak that it didn't create additional shareholder value, we have bought time to be able to kind of have other strategic alternatives we could consider.

Speaker #5: But that would be not our central case our central case is the markets although they're not extremely strong, they're also not extremely weak. They kind of are a bit muted.

Elias Sabo: Our central case is the markets, you know, although they're not extremely strong, they're also not extremely weak. They kinda are a bit muted, and we believe the appropriate thing is continued deleveraging through divestitures.

Speaker #5: And we believe the appropriate thing is continue de-leveraging through divestitures.

Speaker #7: Got it. Thanks for the detail. And then if I can squeeze another quick one in here. On the tariffs, I know you mentioned that there's not much clarity right now on the timing or the magnitude of tariff refunds.

Haley Sconfitto: Got it. Thanks for the detail. If I can squeeze another quick one in here. On the tariffs, I know you mentioned that there's not much clarity right now on the timing or the magnitude of tariff refunds. What does the process look like for that? Any clarity on whether there would be an inflection point at which you would have a better idea of the magnitude or the timing?

Heli Sheth: Got it. Thanks for the detail. If I can squeeze another quick one in here. On the tariffs, I know you mentioned that there's not much clarity right now on the timing or the magnitude of tariff refunds. What does the process look like for that? Any clarity on whether there would be an inflection point at which you would have a better idea of the magnitude or the timing?

Speaker #7: What does the process look like for that? And any clarity on whether there would be an inflection point at which you would have a better idea of the magnitude or the timing?

Speaker #5: Yeah. I mean, it was just a couple of weeks ago or whatever where the government set up the set up the website to actually start the process.

Stephen Keller: Yeah, I mean, it was just a couple of weeks ago or whatever, where the government set up the website to actually start, you know, start the process. Each of our companies is going through the process. We really just do not have clarity. We will be sure to As soon as this happens, we will provide clarity. Again, we will when the future earnings reports when we have it, we will call it out as a one-time benefit. At this point, It's just really hard to predict. We expect, you know, I think we'd expect it'll be a little bit choppy. We'll get some back. We'll probably have to fight some. Each company will be a little bit different.

Speaker #5: And so, each of our companies is going through the process. We really just do not have clarity. We will be sure to provide, as soon as it happens, we will provide clarity.

Speaker #5: And again, we will call it future earnings reports when we have it. We will call it out as a one-time benefit. But at this point, we do not it's just really hard to predict.

Speaker #5: And we expect I think we would expect that it'll be a little bit choppy. We'll get some back. We'll probably have to fight some.

Speaker #5: Each company will be a little bit different.

Speaker #7: Makes sense. Thank you so much.

Haley Sconfitto: Thanks, guys. Thank you so much.

Heli Sheth: Thanks, guys. Thank you so much.

Speaker #5: Thank you.

Stephen Keller: Thank you.

Speaker #6: Thank you.

Elias Sabo: Thank you.

Speaker #2: Thank you. And at this time, I'm showing no further questions. I would now like to turn it back to Elias Sabo for closing remarks.

Operator: Thank you. At this time, I'm showing no further questions. I would like to turn it back to Elias Sabo for closing remarks.

Speaker #5: Thank you, everyone, for your time today. We look forward to seeing you and talking to you on our next conference call.

Elias Sabo: Thank you everyone for your time today. We look forward to seeing you and talking to you on our next conference call.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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