CODI-PC Q4 2025 Earnings Call Summary

Q4 2025 Results:
- GAAP net revenue: $468.6 million, down 5.1% year-over-year, primarily due to the impact of Lugano's bankruptcy.
- GAAP net loss: $78.8 million, including over $25 million in one-time costs related to Lugano.
Full Year 2025 Results:
- Net revenues: $1.9 billion, up 4.8%.
- GAAP net loss: $293.7 million, which includes approximately $60 million in investigation and restatement-related expenses.
- Non-GAAP net sales (excluding Lugano): $1.8 billion, up 3.9%.
- Subsidiary adjusted EBITDA: $345.8 million, an increase of 8.8%.

Operational Resilience: Despite a challenging year, CODI's subsidiaries showed strength, with mid-single-digit revenue growth and high single-digit adjusted EBITDA growth (excluding Lugano).
Focus on Deleveraging: CODI aims to reduce its leverage ratio through organic growth and potential divestitures of subsidiaries.
Subsidiary Performance:
- BOA: Strong performance at the 2026 Winter Games, indicating growth potential.
- The Honey Pot: Established a leading position in feminine care, with strong consumer metrics and expansion into new product categories.
- Arnold: Increased backlog and quoting activity, despite geopolitical challenges affecting rare earth exports from China.
Divestiture Plans: CODI has initiated multiple sale processes for subsidiaries to improve financial flexibility and shareholder value.

2026 Expectations:
- Projected subsidiary adjusted EBITDA: $345 million to $395 million.
- Consumer adjusted EBITDA: $220 million to $260 million; Industrial adjusted EBITDA: $125 million to $135 million.
- Anticipated CapEx: $30 million to $40 million.
- Expected free cash flow: $50 million to $100 million.

Lugano Bankruptcy Impact: The bankruptcy has negatively affected financial results and created uncertainty.
Geopolitical Risks: Ongoing export restrictions from China are creating challenges for Arnold, with potential for continued disruption in the near term.
Consumer Spending Pressures: Tariffs and inflation are impacting consumer behavior, leading to wider guidance ranges due to uncertainty in the economy.
Altor's Caution: The industrial segment, particularly Altor, faces challenges due to reduced vaccine sales and tariff impacts on appliance purchases.

Sale Processes: Strong interest in divestiture processes, with multiple bidders expected for assets. CODI is focused on maximizing value without rushing transactions.
Industrial Outlook: While Arnold is expected to recover, Altor's growth is more uncertain due to external pressures.
Leadership Changes: The new leadership at PrimaLoft is seen as a positive move to enhance growth potential.
M&A Market Conditions: The M&A market is described as lukewarm, with some capital available for good assets, but uncertainty remains due to economic conditions and geopolitical risks.

Overall, CODI is navigating a challenging environment but remains focused on operational execution, deleveraging, and strategic growth initiatives.

CODI-PC — Compass Diversified