pass Diversified LLC(CODI) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q3 2022, consolidated revenue increased by 22% to $597.6 million compared to $488.2 million in the prior year period, driven by the acquisition of PrimaLoft and strong growth from several subsidiaries [38] - Adjusted earnings for the quarter were $46 million, up $10.1 million or 28% from the year-ago quarter [40] - Consolidated net income for the quarter was $2.6 million, down from $90.1 million in the comparable year-ago quarter, primarily due to a prior year gain on the sale of Liberty Safe [39] Business Line Data and Key Metrics Changes - For the first nine months of 2022, revenues for niche industrial businesses increased by 13.2% and adjusted EBITDA increased by 10.8% compared to the same period in 2021 [26] - Consumer businesses saw a year-to-date revenue increase of 16.5% and pro forma adjusted EBITDA growth of 18% compared to the same period in 2021 [30] - BOA's revenue increased by 38.5% and EBITDA by close to 50% year-to-date, while Lugano's growth accelerated with nearly 70% growth in revenue and pro forma adjusted EBITDA [30][32] Market Data and Key Metrics Changes - Domestic spending remains strong among affluent consumers, but there has been a decline in discretionary purchases among price-sensitive shoppers [12] - Global demand has eased, particularly in Europe, while Asia's growth has become erratic due to China's zero COVID policy [11] - The company is preparing for a more challenging demand environment in 2023, with easing supply and inflationary pressures [22] Company Strategy and Development Direction - The company is focusing on launching a healthcare vertical, with Kurt Roth joining to lead this initiative [14][16] - The healthcare industry is viewed as a significant opportunity for growth, with a focus on essential services that are not broadly subject to government reimbursement [73] - The company aims to continue its strategic initiatives in ESG, enhancing its framework and board involvement [51][53] Management's Comments on Operating Environment and Future Outlook - Management acknowledges ongoing macro challenges, including supply chain disruptions, labor shortages, and high inflation, but remains confident in the company's competitive positioning [10][12] - The company expects continued economic headwinds in the fourth quarter but believes it is well-positioned to weather these challenges [37] - Management is cautious about potential inventory destocking and is prepared to adjust spending based on demand fluctuations [84] Other Important Information - The company raised its full-year consolidated subsidiary adjusted EBITDA outlook to a range of $460 million to $470 million, implying a 12% year-over-year growth [46] - Adjusted earnings guidance was revised upwards to a range of $145 million to $155 million, reflecting strong performance and a tax benefit from PrimaLoft [48] - The company will host an Investor and Analyst Day in New York City on January 19, 2023, to showcase its consumer companies [55] Q&A Session Summary Question: Are there any subsidiaries still feeling supply chain impacts? - Management noted that while supply chains are improving, some subsidiaries like Velocity and Advanced Circuits are still facing challenges due to incomplete components affecting revenue [59][61] Question: What is the outlook for BOA's growth? - Management expressed confidence in BOA's long-term growth potential, highlighting its low market share and disruptive technology, although growth may slow in the near term [64][66] Question: Can you elaborate on the healthcare strategy? - The healthcare vertical will focus on essential services rather than high-risk areas like biopharmaceuticals, with expectations for actionable opportunities in 2023 [72][74] Question: What is the company's posture on opportunistic divestitures? - Management stated that while they are open to divestitures if they are value-accretive, current market conditions make it challenging to achieve favorable valuations [88][90] Question: What is the company's leverage target in the current environment? - The target leverage remains at 3.5, with over 70% of total obligations fixed, providing some insulation against rising borrowing costs [91][92]