Compass Diversified (CODI) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Compass Diversified's 2020 Investor Day. I'm Elias Sabo, CEO of Compass Diversified. We have been looking forward to this discussion and are excited to share how our differentiated model has positioned us for success during what has been nothing short of a turbulent 12 months. Of course, this year looks a little different. And while we wish we could have this update in person, we will instead be coming to you from across the country. So let's hope it all goes off without a hitch. Presenting with me today are Ryan Faulkingham, CFO of CODI; and Pat Maciariello, COO of Compass Group Management. Pat and I are here in our Irvine, California office, and Ryan joins us from our Westport, Connecticut office. Later, we will also take you out to Denver, Colorado, to hear from Shawn Neville, CEO of BOA Technology, our newest subsidiary company, which we acquired in October. Before we begin, I should remind everyone that during this presentation, we may make certain forward-looking statements. I would direct everyone to Slide 4 for important disclosures. I would also like to point out that the slides that we will be presenting today, along with certain additional financial tables and non-GAAP financial measure reconciliations, are currently available at the Investor Relations section on our website at www.compassdiversified.com. We have about 2 hours set aside today, during which we will discuss CODI's capital allocation strategy over the past few years and the 2020 performance of CODI's diverse subsidiaries amid COVID-19 with a focus on how our permanent capital model, balance sheet strength, active management and diversification have positioned CODI both amid the pandemic and for the future. You will then hear directly from Shawn about the exciting momentum at BOA. We have set aside time for Q&A with BOA, following their presentation. And then after Ryan provides a brief financial update, we will have a Q&A with CODI. There should be a Q&A box on your screen, and you can submit questions there throughout the presentation. We will aggregate those questions for the Q&A session. Looking back on the past year, I'm incredibly proud of our team and the work we have done to position our subsidiaries for long-term success, while driving value for our shareholders. Compared to both publicly traded peers and market indices, CODI has consistently generated superior returns through our culture of transparency, alignment and accountability. Many of you are already familiar with CODI. So I won't spend significant time on who we are. But for anyone who's joining us today for the first time, CODI operates a private equity-like model, and our current portfolio is comprised of 6 branded consumer and 4 niche industrial subsidiaries. However, unlike traditional private equity investors, who may be pressured to make investment decisions driven by a fund's life span instead of fundamentals, CODI's permanent capital structure enables us to be opportunistic and patient in how we acquire, manage and opportunistically divest leading middle market businesses. When I spoke at our Investor Day last year in June, which now feels like a lifetime ago, I noted that we were better positioned for a recession than economic expansion. Today, I will discuss how 2020 has proved out this thesis and how we have been able to further position the company for continued growth. Next, I will walk through the competitive advantages that differentiate CODI in more detail and outline our plans to execute on our strategy to drive value across our subsidiaries for the benefit of our shareholders. As a reminder, we remain patient and disciplined in 2018 and 2019, while valuations were inflated, consummating only one platform acquisition in early 2018, and refraining from completing another platform acquisition for over 2 years. For CODI, our consistent access to funding actually makes it unattractive to bid for companies during the frothiest times in the markets, which further cements our discipline and acts as a leading indicator for our strategy. During 2018 and 2019, we took advantage of market conditions and opportunistically divested 2 of our subsidiaries, Clean Earth and Manitoba Harvest at attractive valuations. Instead of overpaying for new platform investments, we used the proceeds of these divestitures to repay debt and strengthen our balance sheet. As a result, we had roughly $1 billion available at the start of the year, and we're ready to put that capital to work for the right companies. Our actions over the last 2 years demonstrate the effectiveness of this strategy, which helped position CODI defensively going into 2020 after 10-plus years of economic expansion, the longest in U.S. history, fast forward just a few months to the first quarter of 2020. As the COVID-19 pandemic spread across the U.S. and the world, it created a market dislocation that presented us with attractive opportunities to leverage this positioning and our permanent capital base. By funding deals off our balance sheet rather than relying on third-party capital, we have certainty of financing and increased visibility to closure in economic booms and recessions alike. This uniquely positioned us to be active this year. So at a time when uncertainty paralyzed many market players, we move forward with the platform acquisitions of Marucci Sports and BOA Technology and the add-on acquisition of Polyfoam into Foam Fabricators. These acquisitions are a testament to the structural advantage of our model and represent a meaningful shift in our portfolio. As a result of these strategic moves, CODI has now added 2 highly aspirational and rapidly growing consumer businesses to our portfolio this year, in turn, achieving a faster core growth rate and a multiple arbitrage, netting roughly $100 million in added capital while retaining essentially the same cash flow to holdings. Further, with these acquisitions, we have increased our branded consumer EBITDA concentration to over half the portfolio. And despite the negative impact of COVID, on a pro forma basis, as if we own Marucci and BOA since January 1, 2019, we estimate that our year-to-date revenue and EBITDA for our branded consumer businesses, as of September 30, would have increased by approximately 8% and 18%, respectively, over prior year. Notably, these growth trends are continuing into the fourth quarter, giving us increased confidence in our annual outlook. Later in this presentation, Ryan will provide an update to our annual guidance based on the results thus far in the quarter. Now turning to Slide 10. You can see the capital allocation breakdown, which shows the recent changes in our portfolio. You will note, we sold Clean Earth and Manitoba Harvest for net proceeds of $711 million. We acquired Marucci and BOA together for $590 million and expect that they will contribute similar levels of cash flow to CODI as the recent divested businesses did on a comparable basis, with significant upside and growth opportunities. Notwithstanding the positive impact on core growth, these acquisitions also provide significant free cash flow generation that enable us to reinvest in our subsidiaries to facilitate faster growth. Marucci has excellent EBITDA margin, typically north of 20%, low capital expenditure requirements of less than 10% of EBITDA and has significant tax assets, which shield the company from future income taxes. Likewise, BOA has EBITDA margins north of 30%, capital expenditure requirements of less than 4% of revenues and negative working capital. This combination of strong growth and free cash flow generation make these 2 acquisitions ideal contributors to the CODI portfolio. While 2020 has been a truly unprecedented year, the core principles and business attributes, which have differentiated us for almost 15 years, have never been more relevant to the market or produce stronger results for our shareholders. I want to take a moment to highlight a few central tenets that continue to drive CODI's performance, including our permanent capital model, active management, management team alignment and diversification. First, CODI's permanent capital model, which, as you just heard, has enabled our team to transform our portfolio over the past 3 years and provided us with a clear structural advantage. From sourcing to exit, this permanent capital approach allows our team to be patient in acquiring, actively managing and opportunistically divesting leading middle market businesses. With no predefined investment periods to drive our strategy, we have remained patient and disciplined in our approach to capital deployment and have avoided the moral hazard based by private equity managers operating under a fixed fund life. Further, by funding deals off our balance sheet rather than relying on third-party capital, we have certainty of financing and increased visibility to closure at a time when other industry players have struggled with debt financing due to market uncertainty. Next is CODI's active management style. Leveraging our permanent capital model and no set time line to harvest investments, we have the distinct advantage of being business builders rather than asset traders. In managing our subsidiaries, we focus on a few core areas that we believe translate into the highest value creation for our shareholders, including creating a culture of accountability, supporting our subsidiary management teams and enhancing talent and depth, when necessary, investing in infrastructure and systems and enhancing our subsidiary's strategic positioning through add-on acquisitions and growth CapEx. Over the past few years, our efforts to build our businesses through implementation of these core principles has proved incredibly valuable. I'd now like to highlight a few of the accomplishments, many of which were years in the making. First, we greatly enhance the ability of our subsidiary companies to serve their customers online. A few notable accomplishments this year include: our Liberty Safe subsidiaries' enhanced e-commerce capabilities now direct approximately 20% of all end market sales to our dealer channel; our 5.11 subsidiary now has the ability to ship from virtually all of its retail stores, with its e-commerce revenue growing in excess of 75% this year, this added distribution capability is critical to meeting demand and enabling a better customer experience. We have also enhanced our management talent and depth at a number of subsidiaries, improving accountability and execution. It is important to note that, at times, we have drawn management talent from historical relationships. I am especially proud that we have maintained relationships with several successful managers and will continue to utilize and benefit from their talents in the future. We believe this is a very valuable part of our franchise. In 2018, we embarked upon the very successful management transition at 5.11, which included promoting Francisco Morales to CEO, hiring Matt Hyde as Executive Chairman; hiring Jim McGinty as CFO and making several other key hires and promotions. The impact of these management enhancements has been nothing short of remarkable with EBITDA growth of 45% in 2019 and year-to-date EBITDA growth of 15%, notwithstanding the backdrop of a pandemic. In 2019, we conducted a management restructuring at Velocity Outdoor, naming Tom McGann as Executive Chairman. We continued this progress in January of this year when we hired Kelly Grindle as CEO. With these changes in place, our execution has improved dramatically and enabled us to deliver outstanding financial results, with year-to-date revenues up 38% and EBITDA up 57%. In addition, the company has developed a robust product pipeline to drive growth in 2021 and beyond. Also in 2020, we promoted Jason frame to CEO of Ergobaby and announced the promotion of Craig Carnes to CEO of The Sterno Group. Jason has been a long-time executive with Compass. First in his capacity as CFO of CamelBak and most recently as CFO of Ergobaby. We have the utmost confidence in Jason and Craig in their new roles heading into 2021. In addition, we have played an active role guiding our subsidiaries' strategic direction by creating multiyear strategic plans. These planning activities have led to the accelerated development of the 5.11 direct-to-consumer model, and Liberty investing in a state-of-the-art small safe production line, which provided the capacity to handle the growth that business is experiencing as well as the consummation of 27 add-on opportunities. Our permanent capital model provides us with the time horizon to effectuate significant change through our active management approach. As we look to 2021 and beyond, we will continue to devote the time and resources necessary to improve the quality of our businesses, thereby providing a meaningful source of shareholder value creation. Now shifting gears to the management team you get access to at CODI. We have been executing this strategy for 20 years, over 14 years as a public company. We generated superior returns since we started this business in 1998, originally managing capital for a philanthropic organization and now doing so for public shareholders. Our management team is fully aligned with our shareholders, and we invest alongside you. As you have seen over the past 2 years, the Manager has acquired approximately $4 million of stock using after-tax proceeds. At the same time, the Manager has also waived approximately $20 million in fees: $10 million in 2019, as we divested assets and under earned our balance sheet potential; $5 million in the second quarter of this year, as we proactively moved to save the company cash flow as the pandemic hit; and $5 million prospectively in connection with the BOA acquisition as that company under earned its potential in 2020, due to the pandemic. Due to our external management structure, while we were waiving fees, we were also able to invest in our business, adding significant management talent. This year, we added a new Managing Director of Business Development and have hired 2 additional investment professionals to start in June 2021, upon their graduation from Harvard Business School. Further, as part of our ongoing focus on alignment with shareholders, governance and transparency continue to be a top priority. With a Board that remains majority independent and have separated the roles of the Chairman and CEO, CODI strives to adhere to a best-in-class governance structure. And last, the benefits of diversification. Our strong results in the year-to-date period reflect the significant advantages of our model of owning a diverse set of niche market-leading companies that serve a variety of end markets. The benefits of diversification have never been more pronounced in reducing the volatility in our financial results, and the addition of BOA and Marucci only serve to further enhance the diversification and the breadth of end markets served. Another aspect of investing for the future and creating long-term value at our subsidiaries and for our shareholders is being a responsible partner, employer and corporate citizen. This was top of mind across our firm this year, and we have formalized our commitment to ESG and corporate social responsibility. Our approach towards ESG is embedded in all aspects of our investment process from due diligence, throughout our partnership and the subsequent value creation and ultimately, our exit from the investment, with a focus on ensuring a sustainable long-term ownership structure into the future. We recognize that environmental, social and governance issues play a critical role in the long-term success of any business in today's market and believe that sustainability is key to continued outperformance. With this in mind, we have created a new ESG function within the manager and tasked 2 team members with further building out our ESG initiatives. Before I turn it over to Pat, I wanted to share just a few ESG success stories across our subsidiaries. Ergobaby introduced the first of its kind baby carrier buyback and resale program Everlove by Ergobaby, which saves up to 96% of energy use, 95% of water use and 84% of CO2 emissions. Sterno introduced a green line chafing fuel, which reduces the company's overall carbon footprint by using less steel, cardboard and nonrenewable resources, resulting in less landfill waste and greenhouse emissions. 5.11 invested in a new state-of-the-art lead-certified facility in Manteca, California, which includes a sophisticated water reclamation system for its screen printing operations, using LED bulbs in its U.S. distribution center and has adopted the American Apparel and Footwear Association restricted substance list. Home Fabricators became the first industry player to introduce BioEPS, a high-performance protective and thermal packaging solution that is 100% sustainable, recyclable, biodegradable and reusable. BioEPS is engineered to break down in only a few years into just water and methane, ensuring minimal environmental impact regardless of where it ends up in the waste stream, which is a common pain point for foam packaging. Marucci is committed to sourcing timber from sustainable forest for its wood bats, and it is establishing an end-of-life customer-facing recycling program. You'll also hear from Shawn later on BOA's impressive efforts in sustainability. At CODI, we firmly believe our team is one of our greatest assets. And investing in our people has and will continue to be a top priority. We aim to hold our corporate responsibilities and strive to make working at CODI a rewarding experience. As such, we have taken additional actions amid the COVID-19 pandemic to support our employees through these challenging and unusual times. This includes enabling employees to work remotely full-time with stipends for home office setups and flexibility with regard to work arrangements to accommodate at-home schooling for employees' families. I am incredibly proud of how our team has adapted and risen to every challenge in 2020 and have every confidence that we will continue to do so in 2021 and beyond. With that, I will now turn it over to Pat to provide a quick subsidiary update.

Thanks, Elias. It's my pleasure to speak to a few recent highlights at each of our subsidiary companies. Though the COVID-19 pandemic impacted end markets at our businesses in different ways, our broad portfolio proved resilient and, as a whole, outperformed during these unprecedented times. First, at our niche industrial businesses. At Advanced Circuits, we leveraged our 2019 growth CapEx investment in our new Chandler, Arizona, facility to attract and retain more technologically advanced defense-related businesses, greatly mitigating the pandemic-related slowdown. At Arnold Magnetics, we made the difficult cuts required by the downturn in demand from our hard hit aerospace and energy end markets, while at the same time securing significant long-term defense contracts, which put the company on firm footing heading into 2021 and beyond. At Foam Fabricators, we completed the accretive acquisition of Polyfoam, extending our geographic reach to the strategically important Northeast region and adding to our existing cold chain capabilities. We are also proud to support our national vaccine efforts with our distribution partners and operations work speed. At the Sterno Group, we launched a complete line of hand sanitizer products from scratch, which had a material impact on our financial performance as our revenues from restaurant and hospitality customers fell due to the pandemic. We also focused on product innovation and excellence in delivery in our wax warmer scented wax and essential oil categories, and we're able to drive growth in these segments. Now turning to our consumer businesses. At BOA, we negotiated, signed and closed the acquisition in unprecedented circumstances and have been pleased both by how our teams are integrating and the company's performance to date. At Ergobaby, we managed the ebbs and flows of large distributor customers globally as lockdowns impacted them differently and at varying times. We also had a tremendous year from a product development perspective. And as a result, in 2021, we will have the most innovative and exciting line of new product introductions in the company's history. At Liberty Safe, our management team and employees worked tirelessly under difficult circumstances to meet the growing demand for their highly engineered safes. In addition, we completely revamped libertysafe.com in the third quarter. And in the last month, approximately 10% of our revenue originated on this site. At Marucci, we had the most successful launch of a product line in the company's history with the CAT9 series of bats as demand for the brand and the product significantly outpaced our expectations. We are actively working with the Marucci team to explore, develop and execute strategic initiatives to build on the current momentum. Examples of medium-term growth initiatives we are pursuing are: number one, product extensions, including fielding gloves; number two, geographic expansions, including in Japan and South Korea; and three, expansion into adjacent categories, including softball. In addition, we are continuing to invest in developing systems and infrastructure to further build their direct-to-consumer capabilities. At Velocity, we strengthened the management team and made significant progress in changing our online presence from being one that is almost purely transactional in nature to providing industry-leading experiences for the consumer. These efforts included the launch of the Velocity Outdoor channel. Finally, at 5.11, we continue to serve our first responder customers during the most trying circumstances for them this year. We made significant strides in growing our direct-to-consumer business with comp store and e-commerce sales growing by more than 14% combined during the first 9 months of the year despite the headwinds of COVID-19. In addition, we entered the holiday season increasingly as an omnichannel consumer-focused business with ship-from-store capabilities in the vast majority of our 73 retail stores. I wanted to take a moment to acknowledge the hard work and dedication of each of our management teams and their employees, particularly in these trying times. We are proud of the progress made by each of our companies in the last year and look forward to continuing to deliver for our shareholders in 2021. Before I pass it off to Shawn, I wanted to spend a few minutes discussing why BOA with such an attractive investment opportunity for CODI. At CODI, we are focusing -- we are focused on partnering with niche market-leading brands, and BOA is exactly that. For those of you who aren't familiar, BOA was founded in 2001 with a revolutionary performance Fit System that transformed how snowboarders dialed in. The company's rotational dial-based system has eliminated the need for laces, buckles or tracks and provides a simple, better solution. With just one hand, users can achieve unmatched precision and micro adjustability, offering a fast, effortless precision fit that improves performance for elite athletes and enthusiasts alike. Though the company got to start with a focus on transforming snowboarding products, the team has successfully established industry-changing solutions across an array of segments, bringing better performance to countless products for the benefit of consumers. Over the past nearly 2 decades, the BOA's Fit System has been the global leader in performance Fit Solutions, integrated into market-leading well-known premium brand partner products. As background on the acquisition process, prior to the onset of COVID-19, we met with Shawn and the BOA team in advance of the launch of a formal process. Our team stayed in contact with the company's advisers. And after the economy began to reopen in parts of the U.S., we pursued a negotiated transaction in earnest. Our ability to provide certainty to close without financing contingencies proved once again to be a core competitive advantage. We see significant upside in the BOA business, and we believe our expertise and resources will prove invaluable to the team as we work to grow and build sustainable long-term success at BOA. At CODI, we are also focused on partnering with world-class management teams, and we are confident we have done that here. Shawn Neville, the company's leader is a seasoned CEO and prior to joining BOA, was successful leading several global consumer brands. He has a deep knowledge of technology and how it can be used best to improve the consumer's experience. In addition, he works with the passionate group of talented and enthusiastic employees. I would now like to turn it over to Shawn Neville, CEO of BOA Technology, who joins us from Denver.

Thank you, Pat. Really appreciate the kind words, especially those for my team. We're deeply committed not only to successes we've had, but every one of my senior team members is reinvesting in the new company and really excited about the future. I also want to take this opportunity to thank the entire team at CODI. Ever since our first meeting last March, where we had a chance to meet Zack and Pat and talk about the possibility together and even through all the challenges of COVID, we've come through this from my vantage point as a really strong partner for the future. And from Elias, all the way through everyone we've met with, it's been a first-class experience. In fact, personally, as a result of that, I've actually become an investor not only in BOA, but in CODI. And it's not just because of the investment in BOA, of course, but it's the investment that I see encompass in what you're trying to do as a company. So looking forward to a great partnership in the future. What I'd like to do over the course of the next 25 minutes is answer a few questions. Who are we? What do we do? Why does it matter to all of our constituents? What do we see as our potential, which obviously relates to investors as well as end-consumers and brand partners? And what are the foundational elements and key to success for us to achieve that? To start, let's go back to the beginning. 19 years ago, well, in fact, this is the last presentation that I'll be giving that denotes 19 years. We'll be 20 years young in about 3 weeks, which is pretty exciting. The company started because of an individual, Gary Hammerslag. He had a unique combination of 3 things: entrepreneurship; a background in medical devices and specifically catheter technology for angioplasty surgery that he and his father had built, built a number of IP elements behind it, sold the company. He end up moving to Steamboat Springs and his passion for snowboarding and surfing, more specifically snowboarding, coupled with his background, he started to deal with the possibility of dramatically improving his experience with the snowboard boots. And as a result, it was the creation of the BOA, at the time, lacing system. Over the course of the last 20 years, we've remained committed to our roots in the mountain and disruptive innovation. And at the same time, we're innovating and transforming from an organization that delivers a product that is outstanding and getting in and out of the product through our system to transforming fit for athletes getting dialed in for fast, effortless precision fit. [Presentation]

I get fired up every time I see that, and I think I've seen it 150 times. The essence of that video is rooted in who we are as pioneers, fearless, confident and focused. We're fortunate that our brand, our product connects with 3 senses. You can see it. You can feel it, and it's also incredibly cool, as you can hear it, that sound. The essence of that sound getting dialed in is about mindset. It's altering a state. It's connecting to that possibility to perform at your peak. And over the last 3 years, as we started to build that mantra around who we are and what we deliver, we started to tell those stories through what we deem as pioneers, disruptive, innovative, elite athletes that constantly are pushing themselves and connecting to what it means to be dialed in themselves. And of course, tying that to the world's greatest athletes, who are they and others, with over 1,000 athletes that have performed at their best in world championships in multiple sports. We started to tell these stories through our DIALED IN campaign starting last year. I'm going to show you 2 examples. One was the first we did that encompasses the team with the BORA hansgrohe team or best cycling teams in the world, featuring Peter Sagan, 3 time world champion; and also, an elite ultra trail runner in the Dolomites, using one of our most exciting new products, the VK La Sportiva, which hopefully, you can feel the essence of the connection of dialed in as well as dialed in with our products from that [indiscernible]. Let's take a look. [Presentation]

I would suggest you be careful if you want to test that theory. But as you can see, getting down in a very extreme position. In addition to building out the foundation for the brand, all of this has been done in-house, we're very impressed with our creative team. We've also, over the last 2 years, built a foundation moving from a trade marketing direct-to-brand partners to end consumer marketing to start to build the foundation around the world for end consumers to go to a place where they can connect with us, connect over 1,400 products, but also make sure that we can cross-market and connect people with our brand partners. Although modest and still early in our process, in the last 2 years, we've doubled our traffic, but more importantly, 20% of people that visit our site go to brand partner sites to experience and hopefully purchase those products. And although on a relative scale, it's relatively small, the foundation of this that we can build to make sure that we have a powerful global platform around the world, we believe, will not only be important to create community with BOA but also drive traffic and support as we become better partners for our brand partners. So why are people coming? And what are they interested in? What's about what we do. Three years ago, we refined what we stood for in product, and it moved from being about a system into a fully integrated solution and experience for end consumers. We create disruptive, innovative, high-quality products and solutions that transform fit and performance. It starts with the end consumer, the possibilities to improve their performance and then scientifically proving it and making sure that we have defensible IP position today with over 255 patents with over 60 of them pending with new recent innovations, and we protected our trademarks around the world. And who do we work with in order to support that? Well, as you know, we do not go direct to the end consumer, although we're a consumer brand, we partner with incredible carriers, which are premium brand partners across all the segments we compete in. Today, we have over 400 premium brand partners, 50 less than when I came here 4 years ago by design. Our objective is not the number of partners. It's the quality and the depth. And our business is up almost 70% from that period collectively, and it's all about building these deep collaborative relationships from design, development, marketing support and supporting around the world from an operational perspective. We're fortunate to deliver almost 99% on-time delivery even in COVID and also 5 sigma quality, which obviously is incredibly important when working with the best brands in the world. So why are they and the consumers buying our products? What makes them important? Well, it's all about delivering a distinct performance advantage. As I mentioned, the early foundation of the company was we were incredibly good at getting people in and out of product. Our future and where we've evolved is scientifically proving that we can deliver performance enhancement while they're performing, which adds to the true foundation of fast effortless precision fit. We started and have always been important -- it's always been important for us to have a foundation in durability and quality, which has always been a hallmark, including a money-back guarantee from the standpoint we'll give free product to any consumer that comes to our site for the life of that product called Lifetime BOA Guarantee. And over the course of the last 3 years, we built a hypothesis that we believe -- when you combine these effects of benefits that typically work against each other, agility and speed, power and precision and endurance and health, that if we can alter the way the consumer behaved and radically shifted the way the upper of the product works from what was traditional with laces, we believe that we could create a real revolution. We now have a human Performance Fit Lab. We have 2 PhDs, both of them are world-class athletes. We have now done 3 major pilot programs. And with agility and speed, we did a full validation study University of Denver and published our first white paper. We've been involved in 9 symposiums around the world about the impact of the agility and speed, which is about lateral media movement. The connectivity of our product has created up to a 5% improvement in the responsive rate as well as exclusiveness. In power and precision, we've already finished our pilot, specifically with Golf and that's resulted in 2 major product initiatives next year with FootJoy and Adidas. And the one that's the most underlying from along-term benefit is endurance and health. And obviously, they typically work against each other. When you go longer, you put yourself at risk. Our initial study in the pilot, which is now going to validation, proved up to a 2% improvement efficiency -- in efficiency from a metabolic assessment. This is dramatic. The Nike 4% study obviously revolutionized the market with the addition, for those of you know, with a graphite plate. We believe this is just the start. We've already worked with a number of brands, and it's been catalyst for new innovation. Over the course of the next year, we're working with the University of Denver to validate this and deliver a white paper and will have significant impact across multiple segments. We could spend a lot of time walking through this. I hope you'll get a chance to visit our site, but also thought I'd give you a just sneak peek of what goes on in our human Performance Fit Lab. [Presentation]

I can assure you that wasn't me in the video. And to finish with what I mentioned around the foundation of the company, all of our systems and all the application end products have to withstand double the life of the product and double the torque intension, which is the stress factor that comes on the product, and as well, if for some reason, that product ever breaks, they can come to our website or visit many retail partners that support us for lifetime money-back guarantee, which has been very foundationally important in building that trust and retention and repurchase rate for end consumers. So who's purchasing our product? Well, fortunately, millions of consumers. This year, we will surpass 100 million systems sold over our 20 years. And this year, over 17 million sold, relatively flat with last year due to the COVID impact, but obviously the underlying foundation of market share growth is there. And there's 2 reasons why we're seeing significant growth. One, as I mentioned, is the strong retention rate of consumers once they purchase BOA, repurchasing our product. The second is constant new innovation and looking at new segments that we believe we can deliver real value and starting to build within that adoption curve. What's most interesting from an investor perspective is that we're still relatively small as a percent of our addressable market, only 2.5% share today, which means we have tremendous opportunity. So where we see that opportunity? We break down the market into 3 levels of the adoption curve. Let's start with really where we were at the beginning, mid- to-late adoption segments: snowboarding, cycling and golf, where, today, we collectively represent about 40% of a very small market of $10 million and still has potential to grow. In fact, we have over 70% of the snowboard market. We're now reaching over 50% of the cycling market. And in golf, in Asia, we have almost 80% market share as it relates to our addressable market. So we have tremendous potential there, although, albeit relatively small on a larger scale. The most important thing is what do we learn from that is we build more stickiness and growth in even larger segments. The second is the early adoption segment of workwear, outdoor, footwear and medical bracing. As you can see, a much larger market and over 300 million units, our systems sold worldwide is potential. Workwear is actually our largest single segment, and we only have 5% of the global market. We're now starting to grow beyond our core, which is Northern Europe, which we have over 30% of the addressable market as we start to expand and build our systems and more capabilities in balance of Europe, Asia as well as parts of North America. And outdoor footwear, as you saw, the foundation is still relatively small, but starting to build. It's a large segment, over 60 million addressable consumer purchases in that market. We're very strong at the high-end in mountaineering and trails where we want to build a foundation at the top and the bottom of the mountain, where there's immense energy. Over the next 3 to 4 years, we see tremendous growth. And then we have our pioneering segments, those areas where we're just starting to enter the segment. If you look at the athletic segment, one of the reasons why we build human Performance Fit Lab is because within the athletic realm, our ability to prove meaningful benefits to the end consumer was critical for our success. And being there was almost 20 years in my past, I had appropriate levels of skepticism going in and felt that we must deliver true performance benefit to that end consumer in order for us to really be meaningful. And we're early in the process but very excited about the progress. And another segment that we started to kick off 3.5 years ago was Alpine Downhill Ski. We've already been in the Ski Mountaineering market where we have almost 30% of a very small market, but the potential for Downhill Alpine Ski is significant. And we're ready to launch that product in a couple of years. We already have a number of major brand partners in position. And within 3 to 5 years of that launch, probably will be larger than our snowboard business. And part of it is the size of that market is double, but also the foundation of what delivery vehicle we can bring to the end consumer is very exciting. When you look at the long-term potential of the business, we've kind of set a target, and we're going to call it 8 to 10 years. You can't hold us directly accountable on the exact number. Of course, if you look at our historical growth rate and you move that forward 8 to 12 years, it's not inconceivable that we could quadruple our market share, especially as some of these markets continues to grow. And we believe that that's clearly a high potential. And everything we're doing is to build that probability, and most importantly, the end consumer and building our brand. So why is this also important as an investor? Unfortunately, as you probably know, based on the presentations in CODI, is that the underlying business model is very strong and continues to get better. Over the course of the last 4 years, we've done a pretty solid 15% CAGR growth up until this year, which will be relatively flat. And we've been able to take the underlying EBITDA of the business from 18% to 30%. And with that, we've been making modest investments in order to build capabilities for the future. The working capital requirements of this business are very low. In fact, we have negative working capital for multiple reasons, and we have relatively low CapEx. We buy molds for the factories, but we do not own that infrastructure, which gives us immense flexibility. Over the course of the next 5 to 10 years, we believe that we can maintain that EBITDA percentage as we ramp up further investment in marketing and capabilities on the innovation side to build a long-term foundation growth and profitability for this business. But it's not just about delivering profit, it's about how we do it. Our organization, very similar to CODI, has a deep dedication to our organization, the community and the environment. And even though we had higher profits this year, we didn't lay off one individual. We said we want to keep everyone in our company safe, healthy and financially secure in what we did. And 3 years ago, we started our sustainability journey. We set some very bold audacious goals to dramatically reduce virgin plastic, be as efficient as possible with use of renewable and recycled materials and creating a culture of continuous improvement around our facilities and efficiency and also looking at the future of plastics move away from traditional virgin. I won't go through all the detail, but we're on pace for the goals we set a few years ago for 2026. In fact, we've won a couple of awards for composting in Denver for the work that our team has done to make sure we get right. Almost 100% of our employees are involved in the community. And it's not just because we provide them the time and the energy, it's part of the culture and well over 1,000 hours that we've logged, but we believe it's 5 to 7x more than that. But it's all about getting back in the right way, staying connected to make sure we have sustainable communities, same environment and also our organization. So very proud of that effort. And it's part of the culture before I got here. And my goal, just like it is with CODI, is perpetuate that. So what are the foundational elements to close? Hopefully, this is consistent with what you've heard. We break it down to a couple of elements. We've evolved the company from a product-driven-only company into an end market position, understanding and providing foresight and insight to those end markets so that we can anticipate consumer needs delight them and create systems that they never thought were possible. Our Performance Fit Lab will allow that because it will be not just a scientific place. It will be a foundation of innovation. We will constantly pioneer new end product solutions that are measurable, meaningful and are connected to a continuous improvement standpoint. With over 50 engineers and over 50 people in product development, over 100 of our 240 people are dedicated to innovation. Partnerships with our leading brands globally, not only is a good thing from a long-term business standpoint, it truly allows us to create and make the best gear better together, which is ultimately what we want to achieve. We're in the early stages of building our brand. We've identified and built what that ethos is in terms of what we call the trust mark, which is delivering fast and effortless precision fit and the love mark, which is about dialed in, that mindset, that sound that connects that consumer with what it means, building a foundation of digital leadership and then building community and traffic to support our brand partners. Operational excellence, as we scale the company, making sure that as we work digitally, in most cases, we already had an advantage because we work around the world with multiple offices, is that making sure that our quality, efficiency, speed, sustainability and how we stay connected globally, internally and externally, is world class. And of course, lastly, importantly, it's all about the team. And we're incredibly fortunate to have a passionate-driven team that's focused, confident and fearless to go further. Hopefully, enjoy getting dialed in and really appreciate you listening. I'm going to turn it back to Pat.

Thanks, Shawn. Thanks, again, Shawn. That was really awesome. And let me just start by saying again how excited we are here at CODI to partner with you and your team there at BOA. We feel just as you know that the future is very bright.

Got a series of questions here I'd like to ask you from people on the call, investors, analysts, et cetera. So that's okay. I'll start with Chris Kennedy from William Blair. Chris asks, 90% of your -- and it's a 3-part question. About 90% of your revenue seems to be from footwear, can you talk more about BOA's ability to expand beyond the footwear vertical? And is this needed to kind of get to your growth goals? He also asked, could you provide more detail on why 75% of BOA products are kind of sold or end markets outside the U.S.? And does this need to change again to achieve those growth goals? And then lastly, he asked, you've talked about growing to -- potential growth of up to $500 million in revenue, can you just talk a little bit about the road map that's needed to get to that opportunity or to achieve that?

Right. Sure. Before I talk about the opportunity outside of footwear, maybe I'll provide perspective on why we see footwear is such a large opportunity. If we look at the benefits that we bring to the marketplace and where we have delivered true value to the end consumer has been in that lower extremity in footwear. And part of the reason it's where you see a lot of activity and movement and it's where you have a lot of challenges for end consumers, both to perform and dealing with health issues. So fundamentally, our Performance Fit Lab has proven, that's where we see huge value. And we already had a great foundation even in our foundation of being a closure system. So number one, we believe that the value across multiple segments is significant. The second issue is that, fundamentally, it's an incredibly large addressable market. If you look at the addressable market, as we define as $700 million, that's almost entirely footwear. And that is only a fraction of the entire footwear market. So if you look at our ability to meet and drive that innovation and build meaningful market share, in 80% of all the footwear segments we compete in, we have less than 5% of the market. So part of our challenge as a company was one of the things when I came here was that we had so much opportunity, the question was where do we focus? Where does it matter? And although bracing technology in medical bracing and performance is an important subsegment of where we do business, and we will take a lot of the learnings that we have of what we're doing at Performance Fit Lab, helmet technology is also very important. But if you look at those on a relative scale to where the footwear potential is, it still pales in comparison. And so the challenge for our group is if we look forward to achieve our goals in the next 5 to 10 years, of course, we want to move beyond footwear, but we fundamentally must establish that first. So that's the reason for it as opposed to looking at -- when you've got a market where only at 2.5% of your addressable market, we have that luxury of focus without having to go after multiple new segments.

Got it.

With regard -- does that make sense?

No. It makes sense to me.

I think it was consistent with what we talked about. So that's good. And secondarily, it's interesting when you have U.S.-based centric companies and you say, well, your U.S. business is 25%, it does seem concerning. I would maybe spin it to say that we are truly a global company. And you look at the U.S. market as a percent of the global GDP, you really -- if you have a great global company, your U.S. business should be in the mid-20s, consistent with its percent of the global marketplace. So although we still have growth potential in the U.S., today, if we look at our future addressable market, we believe about 1/3 of that is in North America. But the bulk of it, as you know -- right now, we have approximately 40% of our consumptions in Asia and were heavily indexed in Japan and Korea, part of that is average selling price, a propensity to move to technology and they have been early movers and adopters in our business. Europe is also a very strong market for us. Workwear has been a foundational segment. So it's over indexing. And as I've mentioned earlier, we'll be growing that in the rest of the world, which we see as huge potential. And the cycling market is so significant. That's one of the reasons why we have a strong base. If you look at our 2 largest global businesses that we have deep penetration, snowboarding and cycling, it is relatively consistent across the world. And that's the way we want to approach it for all the segments. And then lastly, just to your third -- that was a 3-part question.

No. Well, let me ask you, you mentioned average selling price, is there an average selling price target? Or how does average selling price sort of work into addressability?

Well, we actually take each market segment, not to bore you too much, but we've broken the market down to 39 subsegments, 4 price lanes and then we build a probability analysis and where we need to believe we need to be for price value. Each market segment has a current position and a target. And so I'll talk about 2 extremes. One is Alpine Ski. As we come into that marketplace, where the average end product is over $500 we're targeting, our system price will be between $17 and $30 predicated on what we bring to the market. If you look at a product like kid's footwear, it's more like under $3, and then it grows up from there. Our average current price across all the markets is about $6. And we expect that to decline slightly, but not from a margin standpoint, just because we'll have larger penetration in lower price with important segments in athletic and outdoor.

Got it. So you're saying the $20 pair of shoes or $30 is not part of what you view as the addressable market?

Yes. It's really -- the opening price point across most segments is a little over $100 because if you take our system price, you normally have to time it by 4 to get the consumer value. And then did you want me to the third part of that?

Yes. No, the third question is a good one, I think, which is just -- what are the big segments -- to get to $500 million in revenue, what are the big segments or how do you see the bites to get there?

Well, we're fortunate that it doesn't require a silver bullet. And if we look at each of our segments, there is not one segment or geography that will be the #1 predicating factor of our growth. So if you look at a segment like Alpine, if you look at our business going from $100 million to $300 million, it would represent approximately $20 million to $30 million of that growth. If you look at our growth within athletic and outdoor collectively is in the $20 million to $30 million range. Workwear potential is even higher just based on penetrating the marketplace. And so when you look across all of the segments, we have clear plans against each of them, and that's why we have teams that are committed to geographies and segments to make sure we increase adoption. So fundamentally, it's broken down into each of those subsegments and prices to say, "Here's where our game plan is." The most important thing is that we've been very fortunate to be very sticky. So when you saw that occur with millions of consumers, you haven't seen a material shift any year down because we've been fortunate that our repurchase rate is very high, and then we constantly are adding new solutions.

I think that's very helpful and a complete answer. Thank you very much. The next question comes from Laurent Vasilescu of BNP Paribas. And he asks, I would love to know how Shawn and the BOA team work with some of the sportswear brand partners? Typically, brands come up with their own technology and protect the IP vigorously. Can you talk about BOA's IP patents and how they are able to maintain ongoing relationships with multiple potentially competing sportswear brands?

Great question. And I would say the analogous connection would be how Gore-Tex works, how Vibram, which is an outsole company works, is that, first and foremost, we own and always have IP around our system, first and foremost. So of course, protecting against any competitor being able to replicate that or for a brand partner being able to go to another supplier where we have IP protection, that gives us enormous amount of defense. The secondary aspect, and which is where we've really moved the business over the last 3 years, is building end product solutions and creating utility patents and design patents around those so that when we go to the marketplace, as an example, when we launch Alpine, we're not going in and just collaborating with one partner. We have already created a thesis. We've already created patents around those. And of course, then we want to make sure we have room for each of the partners to play. We -- each of them, of course, has their own IP and challenges, and we're fortunate to have the partners we work with really understand the collaborative nature of having a brand partner like ours where we can jointly develop. So that -- the discipline around our IP and making sure that we're clear going in with expectations has allowed us not have, I would say, conflicts that create risk for the long-term business. We've been able to retain over 99% of our brand partners over the last 20 years. And that's all about respect and being clear and transparent about how we play.

Got it. Very much. Could you touch on -- this is a question from an investor. He asks, you talked about a lot of your segments, but you realize that workwear is a big component. Can you talk about some of the benefits that BOA system imparts to workwear? And why we're so relevant there?

Sure. And I would start with where we were and where we're going. If you look at the -- there's 2 basic benefits that we bring even without the revolution performance fit. The uniform fit of BoA and the micro adjustability is incredibly helpful for people who are on their feet all day. Whether they're in a factory, whether they're out in the oil fields or on the construction site, that aspect of incredible comfort, feel and adjustability makes that end consumer very positive. In fact, one of the reasons that we expanded dramatically in Northern Europe was that it became a standard. And as I've talked in a number of those brand partners and factories and companies, once they have moved to BOA and when -- especially when the company is supporting it, we've seen enormous passion for those employees to make sure that BOA is that solution. Now you add to that, the health and endurance studies that we're providing, our very simple motto is that everyone is an athlete. And when you're working all day, how you're operating in -- just like on the tennis court in your last set or if you're on the factory floor, you're reducing injury risk without laces, you've got that feel with regard to the impact from your body, those are the factors that are really causing us to increase our penetration in workwear.

Got it. Kyle Joseph asked earlier, he's an analyst at Jefferies. And he says that you talked about the bit how COVID was tough and how the business has struggled a bit in some sections. Can you walk us through the impact of COVID on your business? Kind of have you seen tailwinds in certain items, headwinds in certain items or just broadly, and I guess as a compass representative, I won't get too specific, but maybe some big...

Broadly speaking.

Broadly speaking, yes.

Obviously, if you look at our performance that we had forecast for the year, we have had a fairly consistent 15% -- approximately 13% to 17% growth rate over the course of the last number of years. And if we look at that and we look at market share, we believe, based on all the data and as you know, ours is based on manufacturing, not just pure end market, that we actually gained equal to a greater market share this year than we have in the last 4 years. So fundamentally, we feel like our position in the marketplace is in a better position than a year ago. Secondarily, if you look at the industries we compete in, you've already mentioned it as did Elias, that the largest markets have actually -- are starting to build a tailwind. That tailwind, of course, if you look at the cycling market, the set of dramatic increase at the entry level, which we will then take advantage of over time as those consumers trade up, that's a more performance product. The golf -- the number of golf rounds this year is up considerably even with a very tough second quarter. If you look at outdoor activity, very, very positive. So the -- if we look at the future possibility, we have been looking at these markets growing at less than 5% over the course of the next 5 years. If that tailwind manifests itself into long-term stickiness and of course, there's a lot of debate on how the consumer is going to behave post-COVID, but the net benefit will be no worse than where we were. So that's -- so in a sense we got, like everyone, hit very hard in the second quarter and the third and fourth quarters have beaten our expectations based on where we were in the market as well as the consumer coming back.

So the hypothesis that the tailwind to new entrants, some of those will migrate up to being advanced and using more bull products kind of at the upper echelon of the enthusiasts is kind of the hypotheses?

Yes. And cycling is probably the perfect example because you typically will have the second or third purchase being BOA. When they first come in, they might buy a lace, then they might buy a velcro solution. And then once they're in the game, that's why we had such a large share above $125. Typically, they will then convert into being a BOA user. And within the community, when they were in both their player. Of course, that's what we think as well.

Indeed. Okay. I think we've got time for a couple more. Could you touch on -- another investor asked, could you touch on the seasonality of the business? And if there is any significant seasonality?

Well, the seasonality of the business has moderated over the years. And specifically, when the business started, it was specifically snowboarding, which was very seasonal and subject to a lot of risk in the marketplace. As we moved into cycling, that became much more of a spring business. So we had essentially a fall on spring business in the context of growth as we built into segments like workwear, which were year round. And as we've now moved in the outdoor segments and to more general sport. because we look at the business mix by quarter, over the course of the last 10 years, every year, it moderates closer to a more consistent quarterly play. So I would -- we have many seasonal businesses but collectively become much more of a consistent business.

That's great. So probably 1 or 2 more. Just one comes in. And have you seen, and again, without being too specific, have you seen opportunities or have you been in touch with other Compass management teams about potential cross-selling opportunities?

Well, I'm not supposed to tell you yet. We've actually have had...

That's why I said, don't be -- I've giving you a soft call here.

Is this an internal discussion for holding us accountable? I've actually had the opportunity to speak to a number of the other CEOs of the subsidiaries. And we're in early discussions with a few of them of some possibilities, but I think it's fantastic. If we can -- as you know, we have to be agnostic from the collective brand partners. But of course, where there's opportunity within CODI, we're excited. So we think there are a couple there that could be interesting.

Okay. That's great. Well, that about does it for the questions. I want to tell you, again, everybody on the phone, thank you very much for the questions. They were great. That concludes our Q&A session with Shawn. And I'd now like to turn the call back to Ryan for our financial update.

Shawn and Boa are certainly a tough act to follow, but next up on our agenda is a brief financial update. I will spend a few minutes discussing the financial position of our company and our liquidity as well as providing some additional color on our cost of capital and efforts on this important strategic and competitive advantage. On our third quarter earnings call and earlier today, we highlighted how our strong balance sheet has positioned CODI to execute on compelling acquisitions, closing on Marucci Sports and BOA this year. A quick review of our balance sheet as well as debt and equity capital is on Slide 22. This information is as of September 30, 2020, and and then pro forma for the BOA acquisition using estimates as we have not yet completed our accounting valuation. We funded the BOA transaction in October using cash on hand at CODI, a $300 million revolver draw and a minority cash rollover of approximately $60 million. And post this funding, our revolver availability was approximately $300 million, providing substantial liquidity. Our revolver is our primary source of acquisition capital, and we believe we have solid levels to continue to pursue both platform and add-on acquisitions. As a reminder, the cost of our revolver debt is L plus 200 basis points with no LIBOR floor. We can also upsize our revolver capacity by $250 million via an accordion feature, should we deem that prudent. As Elias noted earlier, our recent financing activity included accessing the capital markets in the second quarter to raise approximately $290 million of additional capital, consisting of approximately $88 million from the issuance of new common equity and $202 million from our senior unsecured notes offering. Today, we have $600 million in outstanding bonds. Our balance sheet was already strong, and this capital raise further strengthened it, providing CODI meaningful financial flexibility to execute on the BOA opportunity. Over the past few years, we have issued 3 series of preferred equity at a blended rate of approximately 7.7%. This nondilutive preferred equity capital has provided CODI access to a new investor base at an attractive rate. Moving to our leverage ratio history on Slide 23, as you saw on the last slide, pro forma for the BOA funding, our balance sheet remains strong, with our consolidated leverage ratio at approximately 3.2x. As a reminder, our financial policy has not changed, and we continue to believe the optimum leverage level for our business is approximately 3.5x. To the extent we climbed 2 or above 4x, we will seek to delever utilizing some combination of the following methods: one, organically, with continued strong subsidiary EBITDA performance in 2021, we believe we will have the ability to delever organically; two, by issuing additional preferred shares, if the market is conducive and the rate payable is below our threshold; three, opportunistically divesting subsidiary businesses; and finally, four, by issuing common equity. However, this would not be our top priority to delever in today's market. We are committed to managing our leverage levels and believe that in addition to prudently managing risk, it is equally important to provide us the capital to do deploy should we find acquisitions that meet our strict investment requirements. Moving now to our 2020 financial performance on Slide 24, I want to highlight the strength of our businesses through this past year and then share an update on guidance. Despite the challenges brought on by the pandemic, our financial performance has substantially exceeded our expectations. While our industrial companies, as a whole, generated lower earnings than we expected at the start of the year, our consumer companies outperformed, proving diversity is king in challenging economic times. In fact, our consumer companies, including Marucci's results from January 1, 2019, produced pro forma subsidiary adjusted EBITDA of $97.6 million year-to-date, exceeding the same period the prior year by approximately 18%. Our performance accelerated in the third quarter, during which, of our 9 subsidiaries, 6 showed growth over prior year. Our companies produced pro forma subsidiary adjusted EBITDA of $46.1 million, exceeding the same period of the prior year by approximately 42%. BOA, which we purchased in October, also had strong year-to-date performance. Now turning to guidance. Due to the pandemic, our outlook for the coming months continues to change every day, which means continued uncertainty and limited visibility. While shutdowns in certain areas of the economy could negatively impact our results more than we currently anticipate, we feel it's important to provide our shareholders and capital partners with some visibility into our expected performance. Please note that our guidance includes both Marucci and BOA as if there were acquired on January 1, 2020. On our third quarter earnings call, we forecasted $270 million to $280 million of consolidated pro forma adjusted subsidiary EBITDA and a payout ratio of 100% to 90%. Based on our results to date, we expect to achieve the high end of our outlook. The trends we experienced in the third quarter, which showed dramatic growth in our brand and consumer segment and challenges in our industrial segment have continued thus far in the fourth quarter. I'll now spend a few moments discussing one of our top priorities, our continued efforts to drive our cost of capital lower. We have made great progress over the years in accessing debt capital markets as a result of our cash flow diversification, conservative use of our balance sheet by being responsible stewards of capital and our overall strong operating performance. Slide 25 highlights our performance, lowering our cost of capital over our 14 years as a public company. We have always believed that our ability to raise debt at the consolidated CODI level as well as our aggregated cash flow diversity from now 10 leading businesses should provide us a substantially lower cost of debt capital than our private equity peers, who instead fund acquisitions at the entity level. With this structural advantage, we are able to access the bank loan, institutional loan and bond markets over the years, substantially lowering our weighted average cost of capital. To highlight this, if we were to fully fund our revolver for illustrative purposes, the blended cost of our debt capital would be 5.5%. We believe this is roughly 300 to 500 basis points lower than our competitors' cost of debt capital. We believe the issuance of our 8% senior notes in 2018 was a pivotal event in our firm's history. This flexible piece of long-dated debt capital aligns very well with our long-term investment thesis and will be an excellent source of capital for us in the future. Further, our recent years -- over recent years, we have been successful placing $315 million in preferred equity at attractive rates. Looking ahead to 2021, we will have an opportunity in May to call our existing bonds. And if current market levels continue, reprice at a lower rate, further lowering our cost of capital and providing cash interest savings for the remainder of 2021 and beyond. Notably, each 1% reduction in our bond interest rate on our existing $600 million of bonds outstanding is equivalent to $6 million of annualized cash savings. With that, we will shift to the Q&A portion of the presentation. We have aggregated pre-submitted questions as well as questions submitted since the start of today's presentation. And we will spend about 20 to -- 20, 25 minutes on these questions. Pat, Elias, you guys ready?

Whenever you are.

All right. Great. First question we have comes from Mitchel Penn with Janney. What secular changes does CODI see coming out of the pandemic? And how will this impact your current strategic vision? Elias?

Sure. Well, thank you for the question, Mitchell, and good afternoon to you and our other investors who are on the call today. The pandemic has really created some major seismic shifts. We've been talking about this for the better part of the year since the pandemic hit. Clearly, the biggest of which is the use of technology really across everything. We're seeing it in retail and how that has become essential. But even beyond that, we're seeing technology and how it impacts our daily lives continue to just become a bigger and bigger part. So let me give you an example. Ryan talked about the ability for us to work from home, but still be able to execute. And so how that impacts companies and their interaction with employees going forward, is there as much office space that's needed? Is there more home office type of equipment that is needed going forward as that change continues to happen? So it really is more than just what we think of, okay, there's a lot of e-commerce that's occurring right now. And therefore, we need to understand how e-commerce capabilities are incorporated. It really has become much more pervasive into all aspects of our life. So I would say, Mitchell, understanding and for our part of our strategic vision, how technology can be included in and how we can enable the business or prospective business to be more technology-enabled, how industries are being impacted, some of which are being positively impacted from this, some of which are being negatively impacted from this. And some of those negatively impacted industries might not come back because there's fundamental changes that are occurring. So I would say the number one thing that we see is technology and its pervasiveness in both our personal and professional lives, and we need to make sure that companies that we look at or end companies that we own are adopting technology to ride through those changes that are happening.

Great. Thanks, Elias. Next question, I think, would be best for you, Elias, as well, it comes from an institutional investor. Could you provide insight into whether we see ourselves more likely to be in acquisition or divestiture mode over the next 2 years?

Yes. And thank you for the question, whoever submitted it. And it's one we do like to talk about pretty much on all of our calls. And as you know, we went from being very defensive in 2019 to being very acquisitive in 2020, and we now look at ourselves in 2020 -- coming into 2021. And as we're setting our strategic plan, I would say, we think we're probably more at a balanced level today. But before -- let me add some depth to the question. Strategically, and as we look out where we want to be, and Ryan really hit on sort of one of the driving forces that we think is a huge competitive advantage for us that really drives value up and down the capital structure is lowering our weighted average cost of capital. And as we think about our strategic plan, we think we need to be larger. We think that we are setting ourselves up to manage significantly more than what we do right now. We have 10 companies currently. We think we have the capacity to move that to 15 or north of that number. Clearly, diversity has shown how beneficial it is in this pandemic year. And I think we could probably draw the conclusion that greater diversity will be better to smooth out our financial results and any volatility would be there. So our goal is to create a larger portfolio. We also believe that our average company size should be larger. And as we think about our long-term strategic mandate, call it, 7 to 10 years from now, we think of ourselves moving from sort of a slightly under $300 million EBITDA business to north of $1 billion business. So in order to get there, obviously, we need to be investing in human capital, which you heard in my remarks that we are adding talent, and we will continue to add talent in the manager. It's one of the things that I think is underappreciated with an external management structure, the amount of investment that we can do regardless of the financial performance of CODI on a down year, even though we are going to be pretty solid this year. We were still able to make pretty significant investments in human capital. Now CODI is going to turn out, I think, to do much better than we had anticipated and as Ryan mentioned in his remarks. But nonetheless, we were able to add human capital to do that. So as we look out strategically and we say, we think we want more subsidiaries, we want those subsidiaries to be bigger, that would say, over the next decade, we are much more in an acquisitive mode than we are in a divestiture mode. Now there can be periods. And as you know, we typically will prune our portfolio. We do look at selective, opportunistic divestitures of business. And I think when you think of the M&A backdrop, as it stands today, we had a very accommodative market for us in 2020 because of our access to capital that allowed us to be very acquisitive. I would say, we're now starting to see credit markets more broadly open up, and some of those benefits that we had and competitive advantages that we had in 2020 are starting to narrow slightly as credit markets open and as M&A becomes more plentiful and a lot of the private equity peers that we're competing against are becoming more active. So I would say we think of ourselves as 2020 being more balanced. But over the course of the next kind of 5, 7, 10 years, we view ourselves as being acquisitive and putting all of the foundational elements in place with respect to human capital that's necessary to do that.

Great. Thank you, Elias. Next question, Pat. I think you're probably up next here. We received a few questions around Foam Fabricators announcement that is supporting the nationwide distribution of the upcoming COVID vaccine. Could you, Pat, please provide some color on the scale of Foam Fabricators participation in these efforts? And in addition, if you could answer, if there's any outsized CapEx requirements needed to satisfy?

Sure. Thanks, Ryan, and thanks for the question. So we are providing a big portion of the foam coolers needed in distribution for Operation Warp Speed. And as you know, some of the vaccines that are being produced are going through operation work speed. Others, most notably, I believe now the Pfizer vaccine, because of its specific requirements are not. So there will be -- it's our understanding that the Moderna drug is going through operation work speed. It's our understanding that the future Johnson & Johnson drug will go through that sort of distribution system, if you will, or the distribution system set up by that. And we have some -- we have pretty good exposure to that segment and those on that side. As far as scale goes, we're hesitant to kind of talk too broadly about it. Could it be sort of 8 figures over the next 6 to 9 months? Yes. Could it be a little bigger than that? Yes. Could it be a little smaller than that? Yes. We don't know. There's obviously a lot of unknowns sort of in the vaccine space. But it will be a good chunk, good tailwind for Foam Fabricators likely as we enter 2021. As far as the CapEx needs, most of the CapEx is that will require, we won't require any new plants. We have a broad distribution network in North America, and that's what attracted us to Foam Fabricators. We won't require any new plants. We'll require some tooling, some molds and cost -- those costs are being shared kind of through the supply chain, if you will. And so there's not an exorbitant. You won't see a big pop in sort of growth CapEx, for example, to affect this.

Okay. Great. Thanks, Pat. Next question, Elias, I think, is up for you, comes from an institutional investor. I'm looking to hear how management thinks about the valuation of its current holdings? What is the market misunderstanding?

Yes. And thank you to the investor that asked that question. We sometimes scratch our heads also depending on where our stock price is trading at and the disconnect. I think broadly, if we think about the market structure, it's clearly changed. And they're with the current policies -- monetary policies that exist. There's been a huge rush of capital towards high growth, generally unprofitable businesses and somewhat leaving behind value. And I think we generally get put in the value bucket when people think about us, notwithstanding the fact that we have really created a lot of great growth with our portfolio transformation going forward and just the execution of our model, where we're able to essentially buy low and sell high. I mean that's sort of the basic kind of business model that we're trying to enact, allows us to lever up our longer-term growth rate. So I think it's misunderstood in terms of the speed with which our portfolio is poised to grow here going forward. And I think the market is generally favoring those companies that have the highest growth rates, even without profit as discount rates clearly have come down, and therefore, you're willing to pay more for future earnings than you would otherwise with a higher interest rate structure. Now I'll also say a couple of things that I think more subtly are happening that the market may be misperceiving is we've had a clear shift in the portfolio. The sales that we consummated in 2019 and the acquisitions we've done in 2020, have created more consumer concentration and those businesses are generally growing much faster. So take 3 businesses, 2 of which we acquired this year, BOA, Marucci, 5.11, those represent almost $100 million of our EBITDA. So a pretty significant concentration. Those are all 3 really fast-growing businesses. And I think the market may not be appreciating where multiples are for companies of this ilk that can grow at this level. Broadly, even the market structure is favoring very rapid growth and maybe little profit or no profit businesses today. I think when you think about the private markets, where a lot of our companies ultimately will be traded. Some notably could be public, and we've mentioned 5.11 as a potential catalyst as a public offering at some point in the next couple of years for our share price, but most of our businesses trade in the private market. And I think there's an underappreciation right now of where private market multiples have risen, and that's a function of there's capital clearly in private equity buyers' hands and the borrowing costs that private equity buyers or anyone in the private market has access to as credit markets come back are historically at low levels. And that typically leads as confidence comes back, likely when the virus is under control, and the vaccine is fully distributed. We think that will push multiple significantly higher and create sort of a further disconnect in terms of kind of what the valuation and private markets are that is being understood in our current stock price. So our efforts clearly are to narrow any type of gap. And as we continue to execute in 2021, we have some ideas on ways to continue what we've been doing in 2020, but to further accelerate some opportunities that may narrow the gap as we go into 2021.

Okay. Thanks, Elias. Next question, I'll take, comes from Chris Kennedy from William Blair. I've received this question as well from others. Could you provide your updated views on maintaining the partnership structure versus converting to C-corp? So I'll take that question. Thanks, Chris. As we've mentioned in previous discussions, on this topic, we continue to gather information and data over the past number of quarters to help inform us and our Board while we discover this process. We've had the benefit of, frankly, of seeing a few conversions over the past couple years, and they've gone reasonably well. I mean we've seen a solid pickup in their ownership levels, strong volume, some share price gains. However, I'd like to remind everyone that these conversions we've seen, they're different business models. They have different income streams, different tax circumstances than ours. So I'm fond of saying no conversion is alike. And as we've mentioned before, we're -- we've been waiting for certainty around tax legislation post the election outcome. I think we're certainly closer to that. A substantial component of the analysis is what is the system-wide tax burden for a given structure. And it's a -- this whole process, it's a complex process. There's many factors from tax law, legal structure, corporate law, the capital markets impact, distribution policy, ratings impact, certainly cost of capital, many others. And the fundamental question for us is, does the cost of capital benefit we would potentially receive and that we've seen benefit some of the other conversions, does that offset the potential for additional system-wide tax increase, if any. So -- and Chris, I know it sounds like a somewhat similar responses in prior discussions, but I want to assure you and other investors that we are moving on this discovery in the learning process. So I certainly appreciate the question. Next question, I think, Pat, might be best for you with respect to CODI's consumer companies, this comes from an institutional investor. Has there been any material shift in the seasonality expectations in 2021 as a result of the pandemic?

Oh, man, that is a good question. If we start with -- let's start with probably the most obvious one that's had some seasonal shifts and that would be Marucci. With baseball season moving up back with the launch of the CAT9 this year, we had -- for example, we had a big [Technical Difficulty] this year that because of the launch -- because of our semiannual launch, we launch every 2 years or biannual, I guess. The sort of Q3 next year might not be or will not be as big of a chunk of revenue and EBITDA for the consolidated year-over-year. People are excited about getting back to team sports, and we have good backlog. We're excited about Q1. So it could even be a bigger percentage of the revenue for the year than usual. So that's kind of what we see specifically there. As it relates to 5.11, as 5.11 becomes more of a consumer business and gross to consumer business, obviously, that will weight more towards Q4. And then at Ergobaby, Ergobaby had a tougher back half than front half this year as -- and we touched on this, as a lot of our distributors are longer lead orders 3, 4 months even more, they placed their orders in advance to us. And those international distributors had the pandemic and shutdowns -- related shutdowns kind of worked their way through the economy in different ways and then there were different delays. So hopefully, Ergobaby will get back to more of a normal cadence next year as well. I hope that answers the question a little bit or somewhat.

Yes. I think it did. Thank you, Pat. Next question, Elias, I think would be best for you comes from CJS, our analyst, Larry Solow. Management has been aligned with shareholders, including waiving the management fee and insider buying. This does not go unnoticed and is appreciated by shareholders. Thank you, Larry. I did notice some recent form filing -- Form 4 filings, excuse me, from The Kattegat Trust, the original sponsor who owns approximately 13% of your shares. Was there any particular reason for them selling some shares?

Yes. Thank you, Larry, for the question. And I'm glad that -- thank you for the acknowledgment on management. We clearly want to align with our shareholders. And frankly, we think this is one of the best opportunities where we can put our money. So we don't think of this as an obligation of us as management. As investors, we think CODI is an excellent opportunity for us to put our own personal money notwithstanding the fact that it concentrates a lot of our own net worth, and we highlighted that the manager had acquired $4 million. I know Pat and Ryan and other team members are also actively acquiring. And you can see Pat's Form 4 filings, which he does periodically by buying more. I just note, these are all after-tax dollars because as you guys know, we don't have restricted share, unit offerings and/or issuances to management, and we don't have other forms of dilutive compensation to our executive management team at CODI. Instead, we get paid, obviously, more like traditional private equity firms. But what that requires is that we pay taxes on all those dollars and then reinvest those back into share ownership of CODI, which we're happy to do. And we would view going forward as continuing to be a great opportunity for us or at least I can speak personally for me to do that. In terms of The Kattegat Trust, they've been a sponsor for us since we went public in 2006, and they established us. And I would say we look at the ownership that they have as sort of the core holdings, and those core holdings are the ones that they've had for now 14-plus years. And then opportunistically, they decided to buy a few shares, not a lot, but a small amount of shares in 2020 as the pandemic hit and really royal markets, and I think they had some extra liquidity and CODI was extraordinarily cheap if we look back when the stock kind of fell in April and -- March, April when the whole markets were coming down. And so they made an opportunistic purchase. They've now divested 100,000 shares of that opportunistic purchase. We're made aware of that. They had never intended to hold those shares as part of their core holding. But what I would say is the core holding, which represents 99% of the shares that they own coming into this year or more -- 100%, I guess, coming into the year. They have never said that there's any interest in selling that. They haven't notified me. And clearly, as they're our largest shareholder, I would expect them, too. So they remain really happy with us. They remain a great large shareholder for us. And I would anticipate that with their core holdings, they continue to remain a great long-term shareholder for us going forward and as we continue to execute and build value for them and all of our other shareholders.

Okay. Thanks, Elias. We're a little over 20 minutes on questions. I do want to make sure everybody is early to their next meeting on the hour. So I'm going to keep it to 2 more questions, Elias. I think they're both for you. First one comes from the ROTH team, Gustavo on behalf of Matt Koranda. Just curious what's driving our guidance higher -- to the higher end of the range, he asks some kind of recovery in industrial portfolio or consumer branded shortages and bottlenecks alleviating?

Yes. So thanks, Gus, for the question. We're really pleased with the financial results that we've posted for the year. And as we put out our guidance in the third quarter, clearly, we always want to be a little bit conservative when we think about it. We've had the benefit of getting our October results in, which, frankly, were significantly ahead of what our expectations were, I think of all 10 subsidiaries that we have, our companies are just executing at a really high level. And I could go team by team, but I don't want to take too much time mentioning every one of our management teams. But I will tell you our companies are just really -- our management -- subsidiary management teams are just doing extraordinary work. And we have companies, many of which are benefiting from certain trends. And so we know our consumer businesses have benefited from some of the outdoor trends. You heard Shawn talk about some of the impact on their end markets that they're seeing, cycling, golfing, right, where there's more rounds being played despite Q2 being dramatically lower. We all know cycling is continuing to grow. So some of the end markets where the outdoor focus of our portfolio has been are doing really well. And we expect them to do really well, not only in the fourth quarter but into 2021 as well. So we are seeing a continuation of a lot of the same trends that we saw in the third quarter. Now we posted extraordinary Q4 -- Q3 results in our consumer business. And so I think that's hard to replicate when you're talking about plus 40% growth year-on-year. But as we go into Q4, there are some bottlenecks that will constrain some of the growth, but our teams are working really hard to figure out ingenuitive ways to get around those bottlenecks. On the industrial side, we haven't really seen much of a change. And so if you look at the business, the industrial business has been running down, and this is going to be within a few points sort of down 20% consolidated year-over-year since the start of the pandemic, and that's been pretty consistent in Q2 and Q3. I would expect that to continue into Q4 and frankly, end of the first couple of months into 2021, as we get through some of these more difficult comps and as we continue to have the pandemic and the virus kind of in our daily lives right now. So I think that the industrial business, the outlook starts to pick up as we get into Q2 of next year and beyond. And then there should be real nice tailwinds that are in that business. So I think it is more of the same trends that we've seen. And I would say our consumer businesses likely are going to drive us towards the upper end of the range, as Ryan highlighted, due to a lot of really extraordinary work that those teams are doing.

Thanks, Elias. And our last question comes from -- well, last question we have time for, will come from Derek Hewett of BofA, our analyst there. Given our longer-term goals of $1 billion EBITDA company from approximately $300 million today, can this be accomplished with the 2 existing industry verticals? And if not, what other industries are the most compelling to us?

Yes. Derek, that's a great question. And as part of our strategic plan, what I didn't mention is we are always evaluating what parts of the market are we investing into? What parts of the economy are growing? And frankly, where are multiples going to be and returns on capital investment going to be conducive for us to be able to put money to work? The consumer part of the business, it's a great business. It's going to be here forever. Consumer spending represents 70% roughly of U.S. GDP. So there's a huge market for us to be able to operate there. I think the niche industrial business, we have a lot of domain expertise. It isn't as rich with targets, frankly, because it represents a much smaller part of the economy, but I think we do find periodically fantastic businesses. I go to an Advanced Circuits, it's a company we've owned for almost 15 years now. And even though the overall industry may not be an industry that is very attractive, this company is just one of the most exceptional businesses that operate in its industry, frankly, that we've probably ever seen, from a cash flow generation, from stability of its earnings. So those type of opportunities are going to continue to come around. I would tell you that the expertise that we have in our business today is consumer and industrial focus. Now I think as you look out and you say we want to triple roughly the size of this business over the next decade, it does require us to think more broadly, and we have been noodling on where are other areas of the economy that are growing really rapidly that we would be able to start investing in, and I think, for example, health care is likely a big and growing part of the economy. Clearly, we all know fintech is a big part. IT, as I said earlier. But then you got to start to segment against those and say, where can there be actionable opportunities, we can't invest in a technology company that is really disruptive that loses $1 billion of free cash flow a year but is growing at 100% revenue growth, that doesn't work in our model. And we're clearly not venture capitalist. So we have to think about what are the right verticals that have long-term secular growth where prices that can be paid would be rational. And frankly, where we don't increase volatility within our portfolio, but rather we act to serve to further reduce our volatility. So those discussions are ongoing. We are thinking about it. Well, probably the biggest limiting factor in doing that is we would want to bring in human capital around any new effort that we had because we don't want to go in and not have the domain expertise in a new vertical that would be required to be able to invest from the moment of launch of a new vertical and earn the types of returns and not make the mistakes that one would necessarily make, if they don't have a lot of experience in it. So it is going to be somewhat limited by the ability for us to bring in new human capital that could lead efforts in other vertical areas for us and building out teams. But that's something, again, I pointed to our commitment to investing in human capital. We're investing in human capital to grow the base business with the addition of our MD and business development as well as our 2 new hires that are coming to us in 2021, will continue to make those investments. And as we codify some thoughts and find individuals that could potentially be over new verticals, I think that could be exciting growth areas for us that do deliver some other benefits and smoothing volatility and getting into some of the sweet spots of growth in the economy. So it's absolutely kind of under the consideration set, but it would be nothing I would point to for 2021, given some of the limitations and human capital being one of the main ones that we would need to overcome.

Fantastic. Well, that was obviously a great collection of questions, robust discussions. So thank you to the analysts and institutional investors. I know, Elias, you have some closing thoughts you'd like to give us?

Sure. Thank you, Ryan. Well, as you've heard throughout the day, we are very pleased with what we have accomplished over the past year and hope that you are as excited as we are about the future. Our capital allocation strategy, unique permanent capital structure, active management style and diverse group of subsidiaries have positioned us not only to weather the storm brought on by COVID-19 but to also proactively execute on our growth strategy during a time of volatility. As we look towards 2021, we continue to have the balance sheet strength to support our companies as they operate in these highly unusual times. Our subsidiaries are leaders in their respective industries and are poised to gain additional market share in the months and years to come. We will continue to seek both platform and add-on acquisitions as we believe that there are compelling opportunities for us to generate long-term shareholder value during market dislocations like what we are currently experiencing. Looking ahead, we are intensely focused on executing our proven and disciplined acquisition strategy, improving the operating performance of our companies, opportunistically divesting, enhancing our commitment to ESG initiatives across our portfolio and creating long-term shareholder value. I know it's a busy time for everyone, and we promised to keep this to around 2 hours. But before we sign off, I want to thank you all again for joining us today. We appreciate your continued interest in CODI. I hope you learned something today from the presentations and also got a sense of the dedication and excitement that we have within CODI and across our subsidiaries. We are steadily building a shareholder base that understands our story, differentiated approach and competitive advantages, and we remain firmly committed to taking a long-term perspective in building our business through strategic investments in people, processes and infrastructure. It is an honor for me to work with CODI's talented and dedicated employees, subsidiary company management teams and their workforces as well as our Board of Directors and a privilege for us to share our success with all of you. While we could not be more pleased with the company's tremendous success during 2020 and over the past 2 decades, we are most excited about what lies ahead. Thank you, again. Enjoy the rest of your day. Next year, we hope to see you all in person.

Thanks, everyone.