Q2 2026 Compass Diversified Holdings Earnings Call

August 10, 2026

Operator: Good afternoon, and welcome to Compass Diversified's Fiscal 2026 second quarter conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 a second time. At this time, I would like to turn the call over to Ben Avenia-Tapper, Vice President, Investor Relations. Ben, please go ahead.

Speaker #1: Good afternoon, and welcome to Compass Diversified's fiscal 2026 second quarter conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise.

Speaker #1: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star, followed by the number 1, on your telephone keypad.

Speaker #1: If you would like to withdraw your question, please press star 1 a second time. At this time, I would like to turn the call over to Ben Taper, Vice President of Investor Relations.

Speaker #1: Ben, please go ahead.

Speaker #2: Thank you. And welcome to Compass Diversified's second quarter 2026 conference call. Representing the company today are Elias Sabo, Chief Executive Officer, Zach Sautel, Chief Operating Officer, and Stephen Keller, Chief Financial Officer.

Ben Avenia-Tapper: Thank you, and welcome to Compass Diversified's Q2 2026 conference call. Representing the company today are Elias Sabo, Chief Executive Officer; Zach Sawtelle, Chief Operating Officer; and Stephen Keller, Chief Financial Officer. Before we begin, I would 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 and divestiture plans, future liquidity and leverage positions, plans to return capital to shareholders, 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. Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements.

Speaker #2: 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 and divestiture plans, future liquidity and leverage positions, plans to return capital to shareholders, future performance of CODI and its subsidiaries, and other forward-looking statements regarding CODI and its financial results.

Speaker #2: Words such as "beliefs," "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: Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements. And in some of these factors, 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: 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 today's call, we will refer to certain non-GAAP financial measures. Definitions of these measures, reconciliations to the most directly comparable GAAP measures, and additional information regarding their use are included in today's earnings release, which is available in the investor relations section of the company's website at www.compassdiversified.com. Please note that references to EBITDA in our prepared remarks refer to adjusted EBITDA.

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 today's call, we will refer to certain non-GAAP financial measures. Definitions of these measures, reconciliations to the most directly comparable GAAP measures, and additional information regarding their use are included in today's earnings release, which is available in the Investor Relations section of the company's website at www.compassdiversified.com.

Speaker #2: Please note that references to EBITDA in our prepared remarks refer to adjusted EBITDA. Unless otherwise indicated, year-over-year comparisons of net sales and subsidiary adjusted EBITDA exclude Lugano from the prior-year period and exclude the divested Sterno Food Service business from both the current and prior-year periods.

Ben Avenia-Tapper: Unless otherwise indicated, year-over-year comparisons of net sales and subsidiary adjusted EBITDA exclude Lugano from the prior year period and exclude the divested Sterno food service business from both the current and prior year periods. Our full year 2026 outlook is presented on a different basis and includes the adjusted EBITDA generated by the Sterno food service business prior to its sale. CODI has not reconciled its full year 2026 subsidiary adjusted EBITDA outlook to the most directly comparable GAAP measure because CODI does not provide guidance for income or loss from continuing operations and management cannot predict with sufficient certainty all of the inputs necessary to provide such a reconciliation without unreasonable effort. Additional information regarding this limitation is included in today's earnings release. Throughout this call, we will refer to Compass Diversified as CODI or the company.

Speaker #2: Our full-year 2026 outlook is presented on a different basis and includes the adjusted EBITDA generated by the Sterno Food Service business prior to its sale.

Speaker #2: Cody has not reconciled its full year 2026 subsidiary adjusted EBITDA outlook to the most directly comparable GAAP measure because Cody does not provide guidance for income or loss from continuing operations and management cannot predict with sufficient certainty all of the inputs necessary to provide such a reconciliation without unreasonable effort.

Ben Avenia-Tapper: CODI has not reconciled its full year 2026 subsidiary adjusted EBITDA outlook to the most directly comparable GAAP measure because CODI does not provide guidance for income or loss from continuing operations and management cannot predict with sufficient certainty all of the inputs necessary to provide such a reconciliation without unreasonable effort. Additional information regarding this limitation is included in today's earnings release. 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: Additional information regarding this limitation is included in today's earnings release. Throughout this call, we will refer to Compass Diversified as CODI or the company.

Speaker #2: At this time, I would like to turn the call over to Elias Sabo. Elias?

Ben Avenia-Tapper: At this time, I would like to turn the call over to Elias Sabo. Elias?

Speaker #3: Thank you, Ben. And good afternoon, everyone. In the second quarter, our subsidiaries delivered double-digit adjusted EBITDA growth and strong cash flow. Based on our first half performance and current expectations for the remainder of the year, we are maintaining our fiscal 2026 total subsidiary adjusted EBITDA outlook.

Elias Sabo: Thank you, Ben, and good afternoon, everyone. In the Q2, our subsidiaries delivered double-digit adjusted EBITDA growth and strong cash flow. Based on our H1 performance and current expectations for the remainder of the year, we are maintaining our fiscal 2026 total subsidiary adjusted EBITDA outlook. Zach and Steven will provide detail on our operating performance and outlook shortly. Beyond subsidiary performance, we took concrete actions to strengthen our balance sheet and improve alignment with shareholders. In May, we completed the previously announced sale of Sterno's food service business at an attractive valuation, applying more than $280 million of the proceeds to debt reduction. We also amended our management services agreement. The amendment followed a board-led review that considered investor perspectives and market practices. It lowers fees and ties more of the manager's compensation to shareholder returns and operating performance. Let me provide some additional details.

Speaker #3: Zach and Stephen will provide detail on our operating performance and outlook shortly. Beyond subsidiary performance, we took concrete actions to strengthen our balance sheet and improve alignment with shareholders.

Speaker #3: In May, we completed the previously announced sale of Sterno's Food Service business at an attractive valuation, applying more than $280 million of the proceeds to debt reduction.

Speaker #3: We also amended our management services agreement. The amendment followed a board-led review that considered investor perspectives and market practices. It lowers fees and ties more of the manager's compensation to shareholder returns and operating performance.

Speaker #3: Let me provide some additional details. Effective January 1, 2027, the amended agreement reduces the base management fee from 2% to 1.25% of average adjusted net assets on the first $3 billion in assets, and caps the 2027 base fee at $30 million.

Elias Sabo: Effective 1 January 2027, the amended agreement reduces the base management fee from 2% to 1.25% of average adjusted net assets on the first $3 billion in assets, and caps the 2027 base fee at $30 million. It also establishes two additional awards, each equal to 12.5 basis points of average adjusted net assets. One is designed to increase the manager's ownership of CODI shares, and the other is tied directly to shareholder returns and operating performance. Even assuming full payout of both awards, we expect the amended agreement to reduce 2027 fees by approximately $20 million compared with the prior management fee formula. While the Sterno sale and MSA changes are important milestones, our work is not done. Our shares continue to trade at what we believe is a meaningful discount to intrinsic value, and we remain focused on closing that gap.

Speaker #3: It also establishes two additional awards, each equal to 12.50 basis points of average adjusted net assets. One is designed to increase the manager's ownership of CODI shares, and the other is tied directly to shareholder returns and operating performance.

Speaker #3: Even assuming full payout of both awards, we expect the amended agreement to reduce 2027 fees by approximately $20 million, compared with the prior management fee formula.

Speaker #3: While the Sterno sale and MSA changes are important milestones, our work is not done. Our shares continue to trade at what we believe is a meaningful discount to intrinsic value, and we remain focused on closing that gap.

Speaker #3: Before I hand the call over to Zach, I want to briefly address the leadership transition we announced in June. I will retire as Chief Executive Officer at the end of this year.

Elias Sabo: Before I hand the call over to Zach, I want to briefly address the leadership transition we announced in June. I will retire as Chief Executive Officer at the end of this year, and Zach will succeed me. CODI has been the focus of my career, and I am proud of what we have accomplished. The challenges following Lugano made the past year one of the most difficult periods in our history. I wanted to remain in place through the most acute phase of that work and help put CODI in a position to move forward. With the progress we have made and Zach ready to lead, I believe this is the right time for the transition. I have worked with Zach for 17 years. He understands our businesses, our people, and our model, and I have complete confidence in him.

Speaker #3: And Zach will succeed me. Cody has been the focus of my career, and I am proud of what we have accomplished. The challenges following Lugano made the past year one of the most difficult periods in our history.

Speaker #3: I wanted to remain in place through the most acute phase of that work and help put Cody in a position to move forward. With the progress we have made, and Zach ready to lead, I believe this is the right time for the transition.

Speaker #3: I have worked with Zach for 17 years. He understands our businesses, our people, and our model, and I have complete confidence in him. Over the remainder of the year, Zach and I will continue working closely to ensure a smooth transition.

Elias Sabo: Over the remainder of the year, Zach and I will continue working closely to ensure a smooth transition. With that, I will turn the call over to Zach.

Speaker #3: With that, I'll turn the call over to Zach.

Speaker #4: Thanks, Elias. I appreciate your confidence, and I look forward to working closely with you through the transition. Our near-term priorities are straightforward: drive profitable growth across our subsidiaries, pursue divestitures where we can realize attractive value, further reduce debt, and as our balance sheet strengthens, efficiently return capital to shareholders, to close evaluation gap in our current share price.

Zach Sawtelle: Thanks, Elias. I appreciate your confidence, and I look forward to working closely with you through the transition. Our near-term priorities are straightforward. Drive profitable growth across our subsidiaries, pursue divestitures where we can realize attractive value, further reduce debt, and as our balance sheet strengthens, efficiently return capital to shareholders to close the valuation gap in our current share price. We are moving with urgency and discipline to realize value for our shareholders. Turning to the quarter, our strong operating performance was broad-based. Every one of our Branded Consumer businesses grew adjusted EBITDA. BOA grew adjusted EBITDA 27% on growth across all primary segments with expanding gross margins. The Honey Pot grew adjusted EBITDA 32% on expanded period care distribution across grocery, drug, and mass, where it is significantly outpacing the broader category.

Speaker #4: We are moving with urgency and discipline to realize value for our shareholders. Turning to the quarter, our strong operating performance was broad-based. Every one of our branded consumer businesses grew adjusted EBITDA.

Speaker #4: BOA grew adjusted EBITDA 27% on growth across all primary segments with expanding gross margins. The honeypot grew adjusted EBITDA 32% on expanded period care distribution across grocery, drug, and mass, where it has significantly outpacing the broader category.

Speaker #4: Primaloft returned to growth, with adjusted EBITDA up 28%, supported by strong demand from our Asian brand partners. 5.11 grew adjusted EBITDA by 14% on expanded margins of more than 200 basis points through more disciplined promotional activity and tariff refunds.

Zach Sawtelle: PrimaLoft returned to growth with adjusted EBITDA up 28%, supported by strong demand from our Asian brand partners. 5.11 grew adjusted EBITDA by 14% on expanded margins of more than 200 basis points through more disciplined promotional activity and tariff refunds. We estimate that some of the Q2 strength at BOA and PrimaLoft reflected the timing of customer orders. We have considered that timing in our expectations for the remainder of the year. Within Industrial, Arnold delivered a standout performance with adjusted EBITDA up nearly 50%. Backlog remains strong, supported by demand for rare earth magnets sourced outside China and continued progress at our Thailand facility. Rimports, our home fragrance business, benefited from tariff refunds while absorbing separation costs related to the Sterno food services divestiture. As discussed last quarter, lower expected volume from a large customer will weigh on results in the H2.

Speaker #4: We estimate that some of the second quarter strength at BOA and Primaloft reflected the timing of customer orders. We have considered that timing in our expectations for the remainder of the year.

Speaker #4: With an industrial Arnold delivered a standout performance with adjusted EBITDA up nearly 50%. Backlog remained strong, supported by demand for rare earth magnets, sourced outside China, and continued progress at our Thailand facility.

Speaker #4: Rimports, our home fragrance business, benefited from tariff refunds while absorbing separation costs related to the Sterno Food Services divestiture. As discussed last quarter, lower expected volume from a large customer will weigh on results in the second half.

Speaker #4: Altor is where we have work to do. Adjusted EBITDA declined roughly 50% in the quarter. Tariff-related disruption weighed on white goods, while softer vaccine demand affected the cold chain business.

Zach Sawtelle: Altor is where we have work to do. Adjusted EBITDA declined roughly 50% in the quarter. Tariff-related disruption weighed on white goods, while softer vaccine demand affected the cold chain business. Higher input costs and competition added further pressure. Those are real market factors, but they are not the only issue. Our commercial execution has not been good enough, and we are urgently working to correct this issue. The team is focusing its commercial efforts on the end markets where Altor is strongest and taking costs out to match current demand. This will take several quarters. Taken together, the quarter reinforced our confidence in our businesses and the teams running them. With that, I will turn the call over to Stephen to review our financial results, balance sheet, and outlook.

Speaker #4: Higher input costs and competition added further pressure. Those are real market factors, but they are not the only issue. Our commercial execution has not been good enough, and we are urgently working to correct this issue.

Speaker #4: The team is focusing its commercial efforts on the end markets where Altor is strongest, and taking costs out to match current demand. This will take several quarters.

Speaker #4: Taken together, the quarter reinforced our confidence in our businesses and the teams running them. With that, I'll turn the call over to Steven to review our financial results, balance sheet, and outlook.

Speaker #2: Thanks, Zach. As Ben noted in the introduction, the year-over-year comparisons are complicated by the inclusion of Lugano in the prior year period and the sale of Sterno's food service business during the quarter.

Stephen Keller: Thanks, Zach. As Ben noted in the introduction, the year-over-year comparisons are complicated by the inclusion of Lugano in the prior year period and the sale of Sterno's food service business during the quarter. I will begin with our reported GAAP results and then discuss our results on a more comparable basis. For Q2, GAAP net sales were $424 million, compared with $479 million in the prior year period. Income from continuing operations was $82 million, compared with a loss of $81 million last year. Basic earnings per share were $0.86, compared with a loss of $0.88 in the prior year period. The current quarter results included a $182 million gain on the sale of Sterno's food service business and a $58 million reduction in the fair value of our receivable from Lugano.

Speaker #2: I will begin with our reported gap results and then discuss our results on a more comparable basis. For the second quarter, gap net sales were $424 million, compared with $479 million in the prior year period.

Speaker #2: Income from continuing operations was $82 million, compared with a loss of $81 million last year. Basic earnings per share were $0.86, compared with a loss of $0.88 in the prior-year period.

Speaker #2: The current quarter results included a $182 million gain on the sale of Sterno's food service business and a $58 million reduction in the fair value of our receivable from Lugano.

Speaker #2: Turning to the operating results on our continuing subsidiaries, which exclude Lugano and divested food service business, net sales were approximately $411 million, roughly flat with the prior year.

Stephen Keller: Turning to the operating results on our continuing subsidiaries, which exclude Lugano and the divested food service business, net sales were approximately $411 million, roughly flat with the prior year. Branded Consumer net sales increased 7.2%, while Industrial net sales declined 11.5%. On the same basis, subsidiary adjusted EBITDA was approximately $92 million, an increase of 12.6%. Branded Consumer adjusted EBITDA increased 24.2%, while the adjusted EBITDA for Industrial declined 12.8%. It is important to note that these results benefited from IEEPA tariff refunds received across several of our businesses during the quarter. As Zach described in detail, strong performance across our Branded Consumer businesses and in Arnold more than offset the challenges at Altor. On a reported basis, including Sterno's food service business, which generated approximately $2 million in adjusted EBITDA through the 1 May sale date, subsidiary adjusted EBITDA was approximately $94 million.

Speaker #2: Branded consumer net sales increased 7.2%, while industrial net sales declined 11.5%. On the same basis, subsidiary adjusted EBITDA was approximately $92 million, an increase of 12.6%.

Speaker #2: Branded consumer adjusted EBITDA increased 24.2%, while the adjusted EBITDA for industrial declined 12.8%. It is important to note that these results benefited from our EBIT tariff refunds received across several of our businesses during the quarter.

Speaker #2: As Zach described in detail, strong performance across our branded consumer businesses and at Arnold, more than offset the challenges at Altor. On reported basis, including studio Sterno's food service business, which generated approximately $2 million in adjusted EBITDA through the May 1 sale date, subsidiary adjusted EBITDA was approximately $94 million, corporate expenses were approximately $29 million, resulting in total adjusted EBITDA of approximately $66 million.

Stephen Keller: Corporate expenses were approximately $29 million, resulting in total adjusted EBITDA of approximately $66 million. Corporate management fees, excluding fees paid by our subsidiaries, were $12.3 million for the quarter, as reflected in our income statement. Actual cash payments related to Q2 fees were $6.2 million, roughly half that amount. We continue to expect corporate cash management fees paid to the manager to be between $25 million and $30 million for the full year, reflecting the manager's repayment of the remaining management fees overpaid in connection with the Lugano restatement. Public company costs were approximately $16 million in the quarter. This includes more than $12 million of Lugano-related and other one-time costs. We do not add these costs back in calculating adjusted EBITDA. They are included in corporate expenses and reduce total adjusted EBITDA.

Speaker #2: Corporate management fees excluding fees paid by our subsidiaries were $12.3 million for the quarter, as reflected in our income statement. Actual cash payments related to second quarter fees were $6.2 million, roughly half that amount.

Speaker #2: We continue to expect corporate cash management fees paid to the manager to be between $25 million and $30 million for the full year, reflecting the manager's repayment of the remaining management fees overpaid in connection with the Lugano restatement.

Speaker #2: Public company costs were approximately $16 million in the quarter. This includes more than $12 million of Lugano-related and other one-time costs. We do not add these costs back in calculating adjusted EBITDA.

Speaker #2: They are included in corporate expenses and reduced total adjusted EBITDA. These costs remain elevated due primarily to ongoing professional fees associated with Lugano and the related litigation, investigation, and bankruptcy proceedings.

Stephen Keller: These costs remain elevated due primarily to ongoing professional fees associated with Lugano and the related litigation, investigation, and bankruptcy proceedings. To date, D&O insurance recoveries have offset only a small portion of the related cash outlays. Year to date, we have received around $2 million of D&O insurance reimbursements. We have submitted additional claims and expect significant further recoveries, though the timing and amount are not fully within our control. I am accountable for both and am focused on recovering more and spending less. Cash generation improved substantially. We generated approximately $30 million of operating cash in Q2, bringing year-to-date operating cash flow to more than $50 million, compared with an operating cash outflow of approximately $65 million in H1 2025. Capital expenditures were $6 million in the quarter and $11 million year to date, roughly half the prior year level.

Speaker #2: To date, D&O insurance recoveries have offset only a small portion of the related cash outlays. Year to date, we have received around $2 million of D&O insurance reimbursements.

Speaker #2: We have submitted additional claims and expect significant further recoveries, though the timing and amount are not fully within our control. I am accountable for both and am focused on recovering more and spending less.

Speaker #2: Cash generation improved substantially. We generated approximately $30 million of operating cash in the second quarter, bringing year-to-date operating cash flow to more than $50 million.

Speaker #2: Compared with an operating cash outflow of approximately $65 million, in the first half of 2025. Capital expenditures were $6 million in the quarter and $11 million year-to-date.

Speaker #2: Roughly half the prior year level. We ended the quarter with $87 million of cash and near full availability on a revolver. Total debt was approximately $1.6 billion, down nearly $300 million from year-end, primarily reflecting the application of the Sterno sale proceeds to our term loan.

Stephen Keller: We ended the quarter with $87 million of cash and near full availability on our revolver. Total debt was approximately $1.6 billion, down nearly $300 million from year-end, primarily reflecting the application of the Sterno sale proceeds to our term loan. Our covenant leverage ratio was 4.8 times, down from 5.3 times at the end of the first quarter. Our senior secured net leverage was 0.66 times. Subsequent to the quarter end, we amended our senior credit facility to extend all of our term loan and $54 million of our revolving commitments to 12 January 2028. We have rights as a revolver to reflect our expected liquidity needs, strong cash generation, and continued focus on reducing debt. We believe the amended facility provides the financial flexibility we need. Reducing leverage remains a top financial priority. We made real progress during the first half, but there is more work to do.

Speaker #2: Our covenant leverage ratio was 4.8 times, down from 5.3 times at the end of the first quarter. Our senior secured net leverage was 0.66 times.

Speaker #2: Subsequent to the quarter end, we amended our senior credit facility to extend all of our term loan and $54 million of our revolving commitments to January 12th, 2028.

Speaker #2: We have rightsized the revolver to reflect our expected liquidity needs, strong cash generation, and continued focus on reducing debt. We believe the amended facility provides the financial flexibility we need.

Speaker #2: Reducing leverage remains a top financial priority. We made real progress during the first half, but there is more work to do. Before turning to our outlook, I want to provide a brief update on Lugano.

Stephen Keller: Before turning to our outlook, I want to provide a brief update on Lugano. During the quarter, we announced a settlement with the unsecured creditors committee intended to facilitate the orderly liquidation of Lugano's assets, preserve value in the state, and accelerate a portion of our recovery. Under the settlement, we currently expect to receive nearly $20 million in recovery by early fall, which we intend to apply to debt reduction. We expect additional recoveries over time, although the timing and amount remains uncertain. We will continue to update investors as appropriate. Turning to our outlook, we are maintaining our fiscal 2026 total subsidiary adjusted EBITDA outlook of $320 million to $365 million. One note on the outlook, it includes the roughly $9 million of adjusted EBITDA generated by the food service business before the sale, because that is how we report the full year.

Speaker #2: During the quarter, we announced a settlement with the unsecured creditors committee intended to facilitate the orderly liquidation of Lugano's assets preserved value in the state and accelerate a portion of our recovery.

Speaker #2: Under the settlement, we currently expect to receive nearly $20 million in recovery by early fall, which we intend to apply to debt reduction. We expect additional recoveries over time, although the timing and amount remains uncertain.

Speaker #2: We will continue to update investors as appropriate. Turning to our outlook, we are maintaining our fiscal 2026 total subsidiary adjusted EBITDA outlook of $320 million to $365 million.

Speaker #2: One note on the outlook: it includes the roughly $9 million of adjusted EBITDA generated by the food service business before the sale, because that is how we report the full year.

Speaker #2: The quarterly year-over-year comparisons I gave you a moment ago exclude it. We now expect branded consumer adjusted EBITDA of $235 million to $270 million.

Stephen Keller: The quarterly year-over-year comparisons I gave you a moment ago exclude it. We now expect Branded Consumer adjusted EBITDA of $235 million to $270 million. For Industrial, we expect $85 million to $95 million. This reflects a stronger outlook for our Branded Consumer business and a softer outlook for Industrial. For modeling purposes, we continue to assume capital expenditures of $30 million to $40 million for the full year. Our outlook incorporates the order timing at BOA and PrimaLoft that Zach discussed, as well as the current operating environment at Altor. It does not assume any additional acquisitions or divestitures or significant changes in the current trade environment. With that, I'll turn the call back to Zach.

Speaker #2: For industrial, we expect $85 million to $95 million. This reflects a stronger outlook for our branded consumer business and a softer outlook for industrial.

Speaker #2: For modeling purposes, we continue to assume capital expenditures of $30 million to $40 million for the full year. Our outlook incorporates the order timing at BOA and PrimaLoft that Zach discussed, as well as the current operating environment at Altor.

Speaker #2: It does not assume any additional acquisitions or divestitures or significant changes in the current trade environment. With that, I'll turn the call back to Zach.

Speaker #1: Thanks, Steven. I want to close by emphasizing two things. First, we have great businesses led by strong management teams. We will continue to support our teams with the resources and flexibility they need to perform.

Zach Sawtelle: Thanks, Stephen. I want to close by emphasizing two things. First, we have great businesses led by strong management teams. We will continue to support our teams with the resources and flexibility they need to perform. We are focused on ensuring that our businesses deliver long-term shareholder value. Second, our priorities are unchanged. Drive profitable growth across our subsidiaries, pursue divestitures where we can realize attractive value, and reduce debt. As our balance sheet strengthens, we intend to efficiently return capital to shareholders. We believe that our continued execution against these priorities will narrow the gap between our share price and the underlying value of our business. Thank you for your time. Elias, Stephen, and I will now take your questions. Operator, please open the line.

Speaker #1: We are focused on ensuring that our businesses deliver long-term shareholder value. Second, our priorities are unchanged. Drive profitable growth across our subsidiaries. Pursue divestitures where we can realize attractive value and reduce debt.

Speaker #1: As our balance sheet strengthens, we intend to efficiently return capital to shareholders. We believe that our continued execution against these priorities will narrow the gap between our share price and the underlying value of our business.

Speaker #1: Thank you for your time. Elias, Steven, and I will now take your questions. Operator, please open the line.

Speaker #3: Thank you. We'll now begin the question and answer session. If you've dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your questions. Again, it is star one to join the queue. Our first question comes from the line of Cristopher Kennedy with William Blair. Your line is open.

Speaker #3: If you would like to withdraw your question, press star one a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker #3: Again, it is star one to join the queue. And our first question comes from the line of Chris Kennedy with William Blair. Your line is open.

Speaker #4: Yeah. Good afternoon. Thanks for taking the question. Zach, you've had a large role at Compass over the years. Can you just provide some perspective as to what you think the consumer and the industrial subsidiaries can grow over the long term?

Cristopher Kennedy: Yeah, good afternoon. Thanks for taking the question. Zach, you have had a large role at Compass over the years. Can you just provide some perspective as to what you think the Branded Consumer and the Industrial subsidiaries can grow over the long term?

Speaker #1: Sure. Absolutely. Thank you for the question. I think we have a carefully curated portfolio of very high-quality consumer and industrial businesses that are well-positioned in their respective markets.

Zach Sawtelle: Sure, absolutely. Thank you for the question. I think we have a carefully curated portfolio of very high-quality consumer and industrial businesses that are well-positioned in their respective markets. As we have outlined in prior earnings calls, I think across the spectrum, the consumer businesses vary from high single digit to double digit profitability growth opportunities. I think on the industrial side of the business, the opportunity remains in the mid-single digit to high single digit growth opportunities in the future.

Speaker #1: And as we've outlined in prior earnings calls, I think across the spectrum, the consumer businesses vary from high single-digit to double-digit profitability growth opportunities.

Speaker #1: And I think on the industrial side of the business, the opportunity remains in the mid-single-digit to high single-digit growth opportunities in the future.

Speaker #4: Got it. Thank you for that. And then, any update on free cash flow guidance for this year? Clearly, it's improving. Are we at a sustainable level going forward?

Cristopher Kennedy: Got it. Thank you for that. Any update on free cash flow guidance for this year? Clearly, it is improving. Are we at a sustainable level going forward? Thanks for taking the questions.

Speaker #4: Thanks for taking the questions.

Speaker #2: Yeah. I think.

Zach Sawtelle: Yeah, I think I am going to let Stephen answer that question.

Speaker #1: I'm going to let Steven answer that question.

Speaker #2: Yes, sorry. Yeah. No, I think no significant changes here. I mean, again, obviously, short of any divestiture that we may do during the second half of the year, which would substantially change it.

Stephen Keller: Sure. Yeah, I think no significant changes here. Again, obviously, short of any divestiture that we may do during the H2 of the year, which would substantially change it, I think we are still on track for the way that we have described it. Still kind of in that $60 million range, given where we are at. That is after all payments.

Speaker #2: But I think we're still on track for the way that we have described it, still kind of in that $50 million range given where we're at.

Speaker #2: And that's after all payments.

Speaker #4: Thank you. I'll jump back in the queue.

Cristopher Kennedy: Thank you. I will jump back in the queue.

Speaker #3: And our next question comes from the line of Lance Vitanza with TD Cowen. Your line is open.

Operator: Our next question comes from the line of Lance Vitanza with TD Cowen. Your line is open.

Speaker #5: Thanks, guys. A couple if I can. The first is on the corporate cost structure—I think that's an area that appears increasingly important to the equity story.

Lance Vitanza: Thanks, guys. A couple, if I can. The first is on the corporate cost structure. I think that is an area that appears increasingly important to the equity story. As investors look toward 2027, should we be thinking about total corporate expense, including management fees and public company costs, as being closer to $50 million than the levels we have seen historically? Are there additional opportunities over the longer term beyond the MSA amendment that might further reduce corporate overhead over time?

Speaker #5: And as investors look toward 2027, should we be thinking about total corporate expense including management fees and public company costs as being closer to $50 million than the levels we've seen historically?

Speaker #5: And are there additional opportunities over the longer term beyond the MSA amendment that might further reduce corporate overhead over time?

Speaker #2: Yeah, I think, Lance, the way to think about it is, I think a little bit higher than $50 million is probably the right way.

Stephen Keller: Yeah, Lance, the way to think about it is, I think a little bit higher than $50 million is probably the right way. On the base fees next year, from the management fee, there is a $30 million cap. We are targeting this year to have about, excluding the one-time fees on public company costs, we are talking about $25 million this year. I would expect those to come down next year as we deal with some of the auditor changes, et cetera. I think for corporate costs, somewhere around $20 million is probably the right number to think about it. Then for management fees, thinking that $30 to $35 million is probably the right way to think about it.

Speaker #2: There is a cap on the base fees next year. There is also a cap on the management fee; there is a $30 million cap. We're targeting this year to have about $25 million, excluding the one-time fees and public company costs.

Speaker #2: But I would expect those to come down next year as we kind of deal with some of the as we deal with some of the auditor changes, etc.

Speaker #2: So, I think for corporate costs, somewhere around $20 million is probably the right number to think about. And then for management fees, I think $30 to $35 million is probably the right way to think about it.

Speaker #5: Okay, that's helpful. And then, on Altor, you mentioned in the prepared remarks that the work to improve performance remains fairly comprehensive, and it sounds like it's going to take several quarters to execute.

Lance Vitanza: Okay, that is helpful. Then on Altor, you mentioned in the prepared remarks that the work to improve performance remains fairly comprehensive, and it sounds like it is going to take several quarters to execute. EBITDA down obviously quite a bit in Q2. As we think about the next few quarters, what milestones can we be watching for to gauge whether the turnaround is progressing as expected? How should we think about the cadence of improvement from here, both towards stabilizing results and then ultimately returning the platform to growth? Is it going to be sort of like the proverbial straight line towards flat and then growth, or do we have a few more really tough quarters to come and then a big hockey stick up higher in two or three quarters' time? How would you sort of describe that?

Speaker #5: EBITDA down, obviously, quite a bit in the second quarter. As we think about the next few quarters, what milestones can we be watching for to gauge whether the turnaround is progressing as expected?

Speaker #5: And how should we think about the cadence of improvement from here both toward stabilizing results and then ultimately returning the platform to growth? Is it going to be sort of like a the proverbial straight line towards flat and then growth, or do we have a few more really tough quarters to come and then a big hockey stick up higher in two or three quarters' time?

Speaker #5: How would you describe that?

Zach Sawtelle: Hi, Lance, this is Zach. Thank you for the question. Our assumption is a gradual improvement over the next four to five quarters. Q2 was a very challenging quarter. Some external factors, some internal factors of note with high oil prices, our primary raw material has inflated and that is squeezing margins, and we do not anticipate that to abate for several quarters. I would anticipate the recovery to stretch modestly over a handful of future quarters.

Speaker #1: Hi, Lance. This is Zach. Thank you for the question. Our assumption is gradual improvement over the next four to five quarters. Q2 was a very challenging quarter.

Speaker #1: Some external factors and some internal factors are of note. With high oil prices—our primary raw material cost has inflated, and that is squeezing margins. We do not anticipate that to abate for several quarters.

Speaker #1: So, I would anticipate the recovery to stretch modestly over a handful of future quarters.

Speaker #5: So, if I could just get one—thank you for that, Zach. And if I could just get one more in before I jump back in the queue.

Lance Vitanza: Thank you for that, Zach. If I could just get one more in before I jump back in the queue. You've talked a lot, including today, about the substantial discount to intrinsic value. We agree. You've made progress over the past year with the Sterno transaction, balance sheet's in much better shape, et cetera. As you think about closing the discount from here, do you believe additional asset sales remain the primary catalyst, or can continued operating performance and deleveraging begin to narrow the gap even absent another transaction?

Speaker #5: You've talked a lot, including today, about the substantial discount to intrinsic value. We agree. And you've made progress over the past year with the Sterno transaction, the balance sheet's in much better shape, etc.

Speaker #5: As you think about closing the discount from here, do you believe additional asset sales remain the primary catalyst, or can continued operating performance and deleveraging begin to narrow the gap even absent another transaction?

Speaker #1: Great question. We are still highly committed to an additional divestiture in order to accelerate the deleveraging process. And that hasn't changed. And we are continuing to evaluate multiple opportunities to pursue what would be an attractive divestiture in realization for our shareholders.

Zach Sawtelle: Great question. We are still highly committed to an additional divestiture in order to accelerate the deleveraging process. That hasn't changed, and we are continuing to evaluate multiple opportunities to pursue what would be an attractive divestiture in realization for our shareholders. We still think that is an important part of the next steps in order to close that gap between our intrinsic value and where the share price is currently trading.

Speaker #1: We still think that is an important part of the next steps in order to close that gap between our intrinsic value and where the share price is currently trading.

Speaker #5: Thanks very much.

Lance Vitanza: Thanks very much.

Speaker #3: And our next question comes from the line of Larry Solo with CJS Securities. Your line is open.

Operator: Our next question comes from the line of Larry Solow with CJS Securities. Your line is open.

Speaker #5: Great. Zach, just want to welcome you. I know you've been with the company for a while, but welcome to your new role or your pending new role.

Larry Solow: Great. Zach, just want to welcome you. I know you've been with the company for a while, but welcome to your new role or your pending new role or, well, I guess

Speaker #5: Well, I guess you're the COO, so that is a new role. You're welcome. I guess just follow up on that question. I think we all agree probably that the fastest way and to close that gap and underlying value and value we see in the market today is through an asset sale.

Zach Sawtelle: Thank you, Larry.

Larry Solow: you're the COO, so that is a new role. You're welcome. I guess just to follow up on that question. I think we all agree probably that the fastest way to close that gap in underlying value and value we see in the market today is through an asset sale. Just your thoughts, kind of big picture, thinking outside the box, any other levers besides an asset sale at a good price, which I think is an obvious way to hopefully improve the value there. But just any other thoughts? Clearly, the playbook's probably going to be run pretty much the same. I don't expect you to come in there and upend everything. But just any thoughts on other ways to sort of narrow that gap over time?

Speaker #5: Just your thoughts, kind of big picture, thinking outside the box. Any other levers besides an asset sale at a good price—which I think is an obvious way to hopefully improve the value there—but just any other thoughts?

Speaker #5: Clearly, you're going to run by the playbooks probably going to be run pretty much the same. I don't expect you to come in there and upend everything.

Speaker #5: But just any thoughts on other ways to sort of narrow that gap over time?

Speaker #1: Certainly. There are alternative methods, but I do believe that the most prudent way, given where our share price is is currently trading, would be to monetize an asset, whether that is a full monetization or a partial monetization.

Zach Sawtelle: Certainly. There are alternative methods, but I do believe that the most prudent way, given where our share price is currently trading, would be to monetize an asset, whether that is a full monetization or a partial monetization. And we're evaluating everything across the spectrum with the North Star being what is the best way to create value in the share price for our shareholders.

Speaker #1: And we're evaluating everything across the spectrum, with the North Star being: What is the best way to create value in the share price for a shareholder?

Speaker #5: Okay. Okay. And just a more operational question—it sounds like, just in general, broadly speaking, the consumer, and more specifically, the consumer as it relates to your businesses, still seems to be marching along and doing pretty well.

Larry Solow: Okay. Just more operational question. It sounds like just general broad brush. More specifically, the consumer as it relates to your businesses. Sounds like the businesses are still marching along, doing pretty well. There was maybe a little bit of some pull forward this quarter. But general broad brush, have you seen any change since the beginning of the year up to today across at least your Branded Consumer businesses?

Speaker #5: There was maybe a little bit of some pull forward this quarter. But general broad brush, yeah, have you seen any change since the beginning of the year to today?

Speaker #5: Across at least your brand new businesses?

Speaker #1: Generally speaking, we are seeing a strong consumer through our businesses in the data that we see. I would generally characterize Q2 performance on the consumer side of our subsidiaries as slightly above expectation.

Zach Sawtelle: Generally speaking, we are seeing a strong consumer through our businesses in the data that we see. I would generally characterize Q2 performance in the consumer side of our subsidiaries at or slightly above expectations. So we are not seeing a weakness in the consumer and probably performing, again, modestly better than expectations set in January of this year.

Speaker #1: So we are not seeing weakness in the consumer and probably performing, again, modestly better than expectations set in January of this year.

Speaker #5: Got it. And just lastly, tariff refunds total—can you give us just an idea? I think you mentioned Rimport and 5.11 benefited from them.

Larry Solow: Got it. Just lastly, tariff refunds total, can you give us just an idea? I think you mentioned Rimports and 5.11 benefiting from them. Can you kind of give me some thought on what it was in the quarter? I assume there is a number you have kind of baked into guidance, or is that just for what it was in the quarter? Thanks.

Speaker #5: Can you kind of give us a thought on what it was in the quarter and I assume there's a number you have kind of baked into guidance, or is that just for what there was in the quarter?

Speaker #5: Thanks.

Speaker #1: Yeah, that's correct. I would characterize IEPA tariff rebates in Q2 as relatively modest. Mid-single-digit millions. And I would characterize expected tariff refunds for the business modestly more than that in the back half of the year.

Stephen Keller: Yeah, that is correct. I would characterize EBITDA tariff rebates in Q2 as relatively modest, mid-single-

Larry Solow: Okay

Stephen Keller: digit millions. I would characterize expected tariff refunds for the business modestly more than that in the back half of the year.

Speaker #5: Okay. And that's already in the guidance, or not?

Larry Solow: Okay. Is that already in the guidance or not?

Speaker #1: That's correct. It is included in the guidance.

Stephen Keller: That is correct. It is included in the guidance.

Speaker #5: Got it. Okay. Thanks.

Larry Solow: Got it. Okay. Thanks.

Speaker #3: And as a reminder, it is Star One if you would like to ask a question. Our next question comes from the line of Timothy D'Agostino with B.

Operator: As a reminder, it is star one if you would like to ask a question. Our next question comes from the line of Timothy D'Agostino with B. Riley Securities. Your line is open.

Speaker #3: Reilly Securities. Your line is open.

Speaker #4: Yeah. Hi. Thank you for taking the questions today. Just on leverage, and then obviously deleveraging going forward, I'm looking at the 10-Q. And for the covenants, it seems you're within your range for all three.

Timothy D'Agostino: Yeah. Hi. Thank you for taking the questions today. On leverage, and then obviously deleveraging going forward. I am looking at the 10-Q, and for the covenants, it seems you are within your range for all three on those covenant ratios. I guess thinking to the end of 2026 and into 2027, is there a certain leverage ratio you are targeting getting to? Could you maybe just provide some color or commentary on your focus for deleveraging through the end of 2026 and maybe how we should think about it for 2027?

Speaker #4: On those covenant ratios. So I guess thinking to the end of '26 and into '27, is there a certain leverage ratio you're targeting getting to?

Speaker #4: And then could you maybe just provide some color commentary on your focuses for deleveraging through the end of '26 and maybe how we should think about it for '27?

Speaker #1: Sure. Look, again, our number one, we've always said that we would like to be operating around 3 or 3.5 times. So, we think that's the right level.

Stephen Keller: Sure. Look, again, our number one. We have always said that we would like to be operating around three or 3.5x. So we think that is the right level. To get there, we clearly need to do a divestiture, which is what Zach has been talking about as one of the key focus areas. Outside of that, the things that we are doing is, one, driving the businesses forward and also trying to maximize our recoveries from Lugano and some other areas. We think, excluding a divestiture, which is lumpy and it happens when it happens, we think we can get down to kind of close to around 4.5x by the end of the year on an organic basis. Then we would, like I said, we would like to add additional inorganic, whether it is asset sales, business sales, et cetera.

Speaker #1: And so to get there, we clearly need to do a divestiture, which is what Zach's been talking about as one of the key focus areas.

Speaker #1: Outside of that, the things that we're doing are, one, driving the businesses forward, and also trying to maximize our recoveries from Lugano and some other areas.

Speaker #1: We think excluding a divestiture, which is lumpy and happens when it happens, we think we can get down to kind of close to around 4 and a half times by the end of the year on an organic basis.

Speaker #1: And then we would, like I said, we would like to add additional inorganic actions, whether it's asset sales, business sales, etc. And so, getting that leverage down is a key focus and driving cash flow.

Stephen Keller: Getting that leverage down is a key focus and driving cash flow. Ultimately, given our businesses, though, we do have really strong free cash flow generating businesses, and that is going to be a key point for organic deleveraging this year and into next year.

Speaker #1: Ultimately, given our businesses, though, we do have really strong free cash flow-generating businesses, and that's going to be a key point for organic deleveraging this year and into next year.

Speaker #4: Okay, great. And then if we just think about maybe potential other ways of capital, or just returning capital to shareholders in terms of maybe a dividend or share repurchases, should we really not start to think about that until you get within that leverage target you're focusing on?

Timothy D'Agostino: Okay, great. If we just think about maybe potential other ways of capital, or just returning capital to shareholders in terms of maybe a dividend or share repurchases, should we really not start to think about that until you get within that leverage target you are focusing on, or could we see that even if you do get to a 4x leverage, let us say? Thanks.

Speaker #4: Or could we see that even if you do get to a four times leverage, let's say? Thank you.

Speaker #1: I think you would see us under four times. I think you would see us start thinking through how to return capital efficiently to shareholders.

Stephen Keller: I think you would see us under 4x. I think you would see us start thinking through how to return capital efficiently to shareholders. Obviously, we would have to work with the board to do that. But that, I think under 4, we would see ourselves in a position to probably return capital and again, with a focus on closing the gap to intrinsic value.

Speaker #1: Obviously, we'd have to work with the board to get to do that. But I think, under four, we would see ourselves in a position to probably return capital, and again, with a focus on closing the gap to intrinsic value.

Speaker #4: Okay. Great. Thank you so much for taking the questions.

Timothy D'Agostino: Okay, great. Thank you so much for taking the questions.

Speaker #3: And as a reminder, it is *star one* if you would like to ask a question. Our next question comes from the line of Robert Dodd with Raymond James.

Operator: As a reminder, it is star 1 if you would like to ask a question. Our next question comes from the line of Robert Dodd with Raymond James. Your line is open.

Speaker #3: Your line is open.

Speaker #5: Oh, hi, guys. Hello, everybody. And yeah, welcome, Zach, to Public Company Conference Calls 101. On the kind of on Lugano, right, and you gave us, right, you've got a $20 million recovery coming by the 4th.

Robert Dodd: Oh, hi, guys. Hello, everybody. Welcome, Zach, to public company conference calls 101.

Zach Sawtelle: Thank you, Robert.

Robert Dodd: On Lugano, right? You gave us where you've got a $20 million recovery coming by Q4 and maybe more ultimately. Can you give us, I am not asking for precise, are there potential recoveries beyond that? Is it another zero to 20, or is it a zero to 100? Can you give us any kind of idea about the scale there? Because obviously, any recovery from Lugano straight to debt is "free," air quotes around free, deleveraging. So any qualitative idea you can give us about the relative scale?

Speaker #5: And maybe more, ultimately. Can you give us and I'm not asking for precise I mean, are there potential recoveries beyond that? I mean, is it another 0 to 20, or is it a 0 to 100?

Speaker #5: I mean, can you give us any kind of idea about the scale there? Because obviously, any recovery from Lugano straight to debt is "free"—air quotes—around free.

Speaker #5: Deleveraging. So, any qualitative idea you can give us about the relative scale?

Stephen Keller: It is a similar amount of money from tax. That $20 million that we are talking about would primarily come from the Gordon Brothers guarantee that was

Speaker #1: It's a similar amount of money from tax. That $20 million that we're talking about would primarily come from the Gordon Brothers guarantee that was related to the inventory.

Stephen Keller: related to the inventory. The additional recoveries that we have line of sight to would be tax refunds. Those are just hard to predict when it is not entirely clear. It is hard to predict when the IRS will refund the money, but you would expect another $20 million or so coming in from that over the next couple of years or so. There are other things. There are lots of other recoveries that we would expect the liquidation trust of the final estate to go after. They are very hard to predict, both the amount and the timing. I think we would expect some additional recovery. It is just hard to quantify, and so we would not want to. We are operating as if those would be zero, and then if there are more, to your point, we will use that to pay down debt immediately or return capital to shareholders.

Speaker #1: The additional recoveries that we have line of sight too would be tax refunds. Those are just hard to predict when. It's not entirely clear.

Speaker #1: It's hard to predict when the IRS will refund the money, but you would expect another $20 million or so coming in for that over the next couple of years or so.

Speaker #1: And then there are other things. There are lots of other recoveries that we would expect the liquidating trust or the final estate to go after.

Speaker #1: They're very hard to predict, both in terms of the amount and the timing. So, I think we would expect some additional recovery.

Speaker #1: It's just hard to quantify. And so we wouldn't want to, we're operating as if those would be zero. And then if they're more, to your point, we'll use that to pay down debt immediately or return capital to shareholders.

Speaker #5: Got it. Got it. Thank you. On to another operating target. BOA, and formerly obviously a good quarter this quarter. And this is seasonality, right?

Robert Dodd: Got it. Thank you. On to another operating CODI. BOA and PrimaLoft, obviously a good quarter this quarter, and this is seasonality, right? Customers stocking up, so to speak, before the manufacturing season for the back half of the year, however exactly we want to turn that. How confident are you that this is normal seasonality, which you had built into the guidance already, versus is there a risk that this is inventory overstock again, that the customers are worried about other tariffs or whatever, and so they are overstocking? Is there a risk that this has a kind of a negative effect in 2027? Or is it just it is normal and it is just SKU growth, et cetera?

Speaker #5: I mean, customers are stocking up, so to speak, before the manufacturing season for the back half of the year—however exactly we want to term that.

Speaker #5: How confident are you that this is normal seasonality, which you had built into the guidance already? Or is there a risk that this is inventory overstock again, that customers are worried about other tariffs or whatever, and so they're overstocking? And is there a risk that this could have a negative effect in '27?

Speaker #5: Or is it just normal, and it's just skewed growth, etc., etc.?

Speaker #1: Thanks for the great question. I would not characterize it as normal seasonality, per se. As we noted in the prepared remarks, we do think that the Iran conflict did cause some B2B partners to likely modestly accelerate some orders into Q2.

Zach Sawtelle: Thanks for the great question. I would not characterize it as normal seasonality per se. As we noted in the prepared remarks, we do think that the Iran conflict did cause some B2B partners likely to modestly accelerate some orders into Q2. However, I do want to emphasize, we believe that to be modest, and that is reflected in our projections for our back half of the year. We remain confident in the business's performance for the back half of the year. So we think that they did perform modestly above expectations as a result of some pull forward. But despite that tailwind, the businesses are really well-positioned for a strong back half of the year.

Speaker #1: However, I do want to emphasize that we believe that to be modest, and that is reflected in our projections for the back half of the year.

Speaker #1: And we remain confident in the business's performance for the back half of the year. So we think that they did perform modestly above expectations as a result of some pull forward, but the bit despite that tailwind, the businesses are really well positioned for a strong back half of the year.

Speaker #5: Got it. Got it. Thank you. And then, just on five of them, you mentioned more moderate promotional activity, which obviously contributed to margin expansion.

Robert Dodd: Got it. Thank you. Then just on 5.11, you mentioned more moderate promotional activity, which obviously contributed to margin expansion. Some kind of question, how moderate and is there any risk to impairing end user relationships who like their coupons, et cetera? Thoughts on trimming back sometimes on promotional activity might annoy an end customer and what your view is there?

Speaker #5: I mean, some kind of question: is there a way to moderate, and is there any risk to impairing end-user relationships who like their coupons, etc.? I mean, any thoughts on trimming back at times on promotional activity—it might annoy an end customer—and what your view is there?

Speaker #1: Sure. We think that moderating the promotional activity is the right decision to create long-term value in the business, to ensure that we're getting the right customer that's paying full price for a great quality product.

Zach Sawtelle: Sure. We think moderating the promotional activity is the right decision to create long-term value in the business to ensure that we are getting the right customer that is paying full price for a great quality product.

Zach Sawtelle: It is striking the right balance of ensuring that we are not disappointing our customer in a tough market environment, but also ensuring that we are realizing the appropriate value for the great products that 5.11 is delivering. I would also call out that the professional business, which is the heritage of the business, the B2B portion of the business, is performing incredibly strong and is seeing a robust demand both in North America and across Europe in particular, somewhat driven by the increase in conflicts both in Europe and the Middle East.

Speaker #1: And so it is striking the right balance of ensuring that we are not disappointing our customer in a tough market environment, but also ensuring that we're realizing the appropriate value for the great products that 5.11 is delivering.

Speaker #1: I would also call out that the professional business, which is the heritage of the business, the B2B portion of the business, is performing incredibly strong.

Speaker #1: And is seeing robust demand both in North America and across Europe in particular, somewhat driven by the increase in conflicts both in Europe and the Middle East.

Speaker #5: Got it. Thank you.

Robert Dodd: Got it. Thank you.

Speaker #3: And with no additional questions, I would now like to turn the conference back over to Zach Sotel for closing remarks.

Operator: With no additional questions, I would now like to turn the conference back over to Zach Sawtelle for closing remarks.

Speaker #1: Great. Well, thank you, everyone, for your time. And we look forward to discussing Q3 with you in the future. Take care.

Zach Sawtelle: Well, thank you everyone for your time, and we look forward to discussing Q3 with you in the future. Take care.

Operator: Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Q2 2026 Compass Diversified Holdings Earnings Call

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