Compass Diversified (CODI) Earnings Call Transcript & Summary

Hello, and welcome to Compass Diversified Holdings 2021 Investor Day. My name is Elias Sabo. I'm CEO of CODI. With me today is Ryan Faulkingham, CFO of CODI; Pat Maciariello, COO of CODI; and Kurt Ainsworth, CEO of Marucci. We have about 2 hours set aside today to walk through our agenda. I'll give a quick introduction, hand the presentation over to Kurt to walk through Marucci. Kurt will then take Q&A on Marucci. Pat, Ryan and myself will then finish the CODI presentation. And before we end for the day, we'll take Q&A specific to CODI. Compass Diversified offers our investors a unique opportunity to own a collection of industry-leading middle-market businesses, operating in the consumer and industrial segments of the U.S. economy. Currently, we own 6 subsidiaries in our consumer vertical and 4 subsidiaries in our niche industrial vertical. We were founded in 1998. We became public in 2006. We've completed over that time, almost $7 billion in aggregate transactions. And on an LTM basis today, we generate $1.9 billion in revenue and $381 million in adjusted subsidiary EBITDA, producing a 20% adjusted subsidiary EBITDA margin. Now I highlight that because many of you have heard us say over the last few years that our goal has been to reach a 20% margin. Being able to achieve that with all of the headwinds that we have to margins in this year as we've emerged from pandemic is nothing short of remarkable. And I credit that to the quality of the subsidiaries that we own, their competitive position and the extraordinary execution by our subsidiary company management teams. Our strategy has been the same for 23 years, 16 of which has been as a public company. We are a patient deployer of capital. We partner with our management teams in order to increase value within our subsidiaries. And occasionally, we opportunistically divest our subsidiaries. Now an important differentiator for us versus a traditional public company is we outsource our management to Compass Group Management. We believe this creates a better alignment of economic incentives to our shareholders, but more important than that, it allows us to attract and retain the best talent available in the marketplace. And that has manifested in the returns that we're able to generate. As an investor that invested $1 in us when we came public in 2006, that is now worth more than $8. Comparatively, if you invested $1 in the Russell, that is worth less than $4 today. So we have more than doubled our benchmark over the 16-year history that we've been trading as a public company. One of the initiatives that we've talked to you about repeatedly over the last few years is our quest to lower our cost of capital. This slide here shows that as our debt cost of capital has come down, our share price has increased. Now that's pretty obvious and intuitive as we pay less for our debt, our earnings accrete and our share price grows higher. But what maybe less intuitive is how this has deepened the economic moat around our business and provided an additional competitive moat for us. As you're aware, our ability to buy businesses that we want to transact against, those that have the best competitive positions are in the industries with macro tailwinds, have good management teams and have the opportunity for future growth is predicated on us having a low cost -- lower cost of capital than our peers. And since we have been able to achieve a consistent reduction in our cost of capital, it's enabled us to buy businesses like Marucci, who you'll hear about from Kurt in a few minutes, BOA and most recently, Lugano. And with that, I'll turn it over to Pat so that he can introduce Kurt.

Thanks, Elias. It's really my pleasure to introduce Kurt Ainsworth today, the Co-Founder and CEO of Marucci Sports. Prior to co-founding Marucci, Kurt was a Major League Baseball player for San Francisco Giants and other teams. He played -- he pitched for a big time college program. And most impressively, he won a gold medal for the United States in the Olympics. Kurt is a tremendous leader and really the right person to lead Marucci at this time. Though we invested in Marucci in April of 2020, we've been following Kurt and the team for many years before that. And it's just really great to have him and welcome him here. Kurt?

Appreciate it. Well, thank you for those kind words, Pat. Thank you, Elias. I'm honored to be here today to tell our Marucci story and our plans for our future growth. The last 20 months as being a part of the Compass team has really been special, and we've been able to accomplish some things that would not have been possible otherwise. Over the next 25 minutes, I'm going to give an overview of where we started, how we got here, our place in the game, our future growth drivers and our newest brand addition. I will also share some videos throughout this presentation, and there are some other videos that will be on the micro site as well. Our Honor the Game platform is part of everything we do at Marucci. We are about hard work, hustle and no overnight success stories. This really -- this [indiscernible] craft started early when we first launched Marucci. We saw an opportunity in the market and that ultimately led to the building of our brand. That opportunity came about in the fact that when players would order 12 bats, our competitors at the time would only send 3 or 4 good bats to a player that they would use in the game. 4 or 5 of them would be used for batting practice and the rest, they would give away as souvenirs. So we saw an opportunity at Marucci to make sure every bat we sent a player was a gamer and ready to be used in the game. So when the first team started ordering and players and teams started ordering, they would order 12 bats and we would send them 2. We'd send 4. And the teams or the player would call and say, this is why we don't order from small companies because you didn't send me my bats. And really, we would stop the call immediately when we would just tell them, we didn't have enough good wood. We could have sent you 12 bats, but we didn't have enough good wood for 12 bats, so we sent you those 2. And that is really what built our brands to what it is today, is that we only send gamers, and we keep that same strategy today that every single bat is perfect when a player takes it out of the wrapper and they know when they use it, they can trust us. It's not just the marketing story that we started in a backyard shed. I could give you this long detailed history, but I'm going to leave it to this legendary storyteller. Please play the first video. [Presentation]

What a special video to have Larry King do the voiceover for our Marucci story. I mean every time I watch that video, still to this day, it brings back some great memories, even though we really don't spend that much time thinking about the past, we're thinking about where we are today. So as we look at this next slide, this is our first manifesto that was in our main office and made in the office hallway for many years. Every employee would walk by this as they came into the office every day, and our visitors throughout the campus would see this manifesto on our wall. This took us from a bat maker to a brand. Now our team has collectively created a new set of standards and our updated manifesto, vowing not to coast in first place and always to challenge the status quo. I'm not going to read this entire slide, but there are a few lines that are important that I would like to call out. We don't give others time to catch up. We widen the gap. Products that fuel the athletes who trust us when the lights are the brightest. Our goal is greatness and the journey to greatness never ends. These values guide our internal team and appeal to athletes who value craftsmanship and our obsession with overdelivering. Here's another short video where you can see and hear from some of our top athletes. Please play the next video. [Presentation]

You just heard from some of the best players in the world talking about our brand and the quality of our products. That is so humbling to hear and also so motivating to continue making the best products for the next generation of players. Here is a timeline on some of the top moments from 2008 to 2016, highlighted by the launch of our first aluminum bat in 2009, the passing of the iconic Louisville Slugger as the #1 bat in Major League Baseball in 2013, a spot that we still hold to this day. And the acquisition of Victus Sports in 2017, which gave our former athletes, that are now behind desks, a little healthy competition. The Victus acquisition really solidified our place as a wood bat powerhouse. Victus has that same passion and authenticity as Marucci, making it a perfect acquisition for our company. Victus does have a different platform as Marucci has honored the game, Victus has changed the game. We respected their hustle, which started in a New Jersey garage in 2012 as they were grinding out bats around the clock, literally, the 2 founders used to live in the factory and actually joined the local gym not to work out, but to have a place to shower. Much like Marucci, Victus challenges the norm and pushes the boundaries of creativity and wanting to be different. They needed our support to scale, and we liked their approach to the game. Sharing information on the wood bat process or collaborating on marketing campaigns has really brought -- helped to bring top talent to both brands. Victus has now grown beyond wood bats and is seeing tremendous growth in other categories. Here is a short video so you can get the vibe around the Victus brand. Please? [Presentation]

Such a good video. I should watch that every morning before I go to work. It'll get me fired up. So we've had some special milestones along the way with many of our players. We've had several Hall of Fame players use Marucci products or Victus products and now more to come, but especially with Albert Pujols from his 600 home runs, 3,000 career hits, he has now 679 career home runs. Some special moments in the game. When the world shut down in 2020, we were very fortunate to have been acquired by Compass, right in the middle of the pandemic, as we used that time in capital infusion to invest in product development, people, facilities, marketing and future planning. Honestly, without being acquired by Compass, we would be telling a much different story as the long-term investment vision from Compass really set us up for future success, already evidenced by our record year in 2021. 2021 has been a record year. Our sales were up over 70% versus 2020, and EBITDA is up over 100%. Even with the devastating flood that we had in May this year, where we had 18 inches of water in all 10 of our buildings. And we actually had the Compass team in town for a visit when that happened, so they got to see the devastation firsthand. What was really amazing and a testament to our team was that we were up and running, shipping and making bats in less than 3 days. And then 7 days later, we actually had our national sales meeting in Las Vegas, where we brought in some of our top accounts and our sales reps to teach them about our brand and promote our new product lines. In July, the Marucci World Series was a huge success, where we hosted 117 teams from 16 states. Our opening ceremony was at [ LSU ] Alex Box Stadium, and it was estimated to have over 6,000 people in attendance. And the event actually had a $5 million economic impact to the Greater Baton Rouge area. You kind of have to be there to feel the energy, but this short video will give you a glimpse [indiscernible][indiscernible] of our Marucci World Series. Please play the video. [Presentation]

Our team at Marucci really puts on the show for these young men and their families. And I can say that as a father who had 2 boys play in the event this past year. It really is a great event. And it's become a must-attend event for the top organizations in the country. And yes, it is still invite-only. So we have a 3-tiered approach to our business, from youth, to college, to Pro. The Pro business is the roots of our tree that we will always protect, while the youth segment is the largest sales opportunity. The base of our youth business are the enthusiasts, who we call the travel ball players. Many of those travel ball players belong to large team organizations across the country in which we have targeted and recruited with exclusive benefits and product offerings, much like the Marucci World Series. 22 of these large organizations have actually joined our newly created Franchise Club group, which is a multiyear commitment with product use requirements to help us get even more products on the field with some of the top players in the country. The college tier is made up of a smaller group of athletes. We have earned the trust of some of the top programs in the country, like LSU, Oklahoma, Baylor, Georgia Tech, Michigan State and many others. In 2022 alone, we will have over 2,400 custom fielding gloves on the college field, which will really help as we talk about our growth drivers a little bit later in the presentation. The performance of our bats may have gotten us in the door, but our service and custom products are what separates us from the competition. The tip of the spear is our Pro business. It may be the smaller subsefmillion of availabilityt of athletes, but it is the most visible. This slide is truly a testament to the quality of the products we have as Marucci or Victus have never paid a player to swing our bat. We've had 11 MVP award winners and added another one this past season with Bryce Harper as he swung Marucci -- both Marucci and Victus. We've had 7 World Series MVP award winners with Jorge Soler this past year winning the MVP, the #1 bat in the game with Marucci. The #2 bat in the game with Victus Sports as Victus passed -- also passed Louisville Slugger as the #2 bet in 2019. We've had 237 All-Star since 2009 and 7 Rookie of the Year award winners. But this slide may be my favorite. These numbers really speak for themselves as Marucci and Victus really dominated the 2021 post season in all major categories. When you look at hits at 231 from Marucci, 200 for Victus and then the next closest competitor is at 66 hits. Home runs, 38 for Marucci, 26 for Victus and the next closest competitor is at 9. And RBIs, 109 for Marucci, 97 for Victus and then 29 for the next closest competitor. That goes back to performing and delivering products when the lights are the brightest. Numbers like this is really what helps us to power our new growth opportunities and also solidify our core products. While we do have much more room to grow in our core product categories, we see 5 [ additional ] immediate growth opportunities. With number one, international expansion, starting with our efforts in Japan; two, fielding gloves; three, softball, which is really fast pitch in particular; four, apparel, both with on field with uniforms and lifestyle and fan gear and five, with our Clubhouse retail strategy. When talking about Japan, we recently opened our office in Japan as we see a big opportunity for growth there as the Japanese market is estimated to be about 70% the size of the U.S. market. While the bat market is actually smaller in Japan, the fielding glove market is larger. Our 3PL is secured, and we are launching websites for both Marucci and Victus in Q1 of 2022. In addition, the top 85 accounts have already been identified and under credit in terms of view for Q4 and Q1 business. Our patient approach to grow this market will pay off in years to come, when we expect bigger growth in 2023. Fielding gloves is a category that's been identified for many years, but we really needed a differentiating technology and a story to truly compete. Carpenter Trade, which Marucci purchased in 2019, gives us just that. We have been working on scaling Scott Carpenter's operation and his differentiating technology to go with our strategy of getting gloves on the hands of younger players so they can grow up in a Marucci glove. Our competitors have been around a long time, and there's been many generations using our competitor gloves. So we have to go younger to get the first globe on your hand being a Marucci. We feel like if we can do that, the second and third glove will be more likely to be a Marucci glove. Well, with the 2,400 custom college gloves, the fielding glove growth with our franchise club teams, the over 30 Major League players and over 70 professional players using our glove, and now going to distribution at retail, we're going to be making a much bigger splash in the fielding glove market in the very near future. An untapped market for Marucci is fast pitch. With the recent developments in our product offering, and performance, as you can see in this graph, as well as the addition of Haley Cruse, who is a multi-time All-American and Oregon and now a professional fast pitch player and the other team members we've added at Marucci, we are really giving these athletes what they need in order to succeed. Since we have announced Haley Cruse as a brand ambassador, she has already moved the needle and created some serious buzz around fast pitch and our female apparel. Haley was not just signed for fast pitch, Haley has become the face and the voice of our female brand of Marucci, as she is working with our apparel division as well. And speaking about apparel, our uniform business has grown each year and is now positioned for even bigger growth in both baseball and fast pitch. In addition to that on field apparel, we are launching many new lifestyle pieces to target the players to and from the field, and along with a fan gear for the parents, the family members and fans. We know this isn't going to be easy, but we are confident with our team, our materials and our distribution strategy of attacking our franchise club organizations first and foremost, and also using our Clubhouse retail experience. Our in-house custom operation has already seen a big uptick in custom gear and fan gear orders since the franchise glove agreements have been signed. And talking about Marucci Clubhouse. Marucci Clubhouse is an experiential retail location that is membership-based and allows for 24/7 access to batting cages. This is something that's really special to me. This goes back to Honor the Game. There's something about the special bond between a father and a son, a father and a daughter, a mother and a son, mother and daughter or just siblings where they can go in the cage and spend time together, playing the game they love and working to hone their craft. We currently have 11 locations on Marucci Clubhouse and we have more in development. This model has helped us create our own retail experience where we can control the product assortment, the messaging, the pricing and give a consistent brand experience for all of our brands and really most importantly, it's a place for everyone to come demo products. So as we discussed, widening the gap in that newest manifesto, this training -- this lab here is how we plan to do that, which will be a benefit to our core products as well as those growth areas I just covered. Our innovation and testing lab gives athletes a safe space to use metrics to their advantage, tailor a bat to their swing, walk across the street and change their bath or to a specific pitcher, and brings in the Baton Rouge where we have a home field advantage. Our strategic partnership with BPL has brought in already over 20 active Major League baseball players and over 30 Minor League players. BPL also works directly with several MLB teams, along with other individual players. We're collecting data on the best players in the game and translating that into quantifiable improvements to our bats, gloves, training programs and other products. You're going to be seeing a lot of this as we grow new product categories and as we start launching new products, we're going to be using this innovation and testing lab for all the things we do moving forward. Lizard Skins. We're so excited about our newest acquisition in Lizard Skins. It was in late October of this year. Lizard Skins was founded in 1993 and started in cycling and now has a global distribution in over 80 countries. Lizard Skins has expanded into baseball in 2012, and has really become the generic when referencing a grip in baseball. If you see a kid with a custom grip on their bat or you see a player at the Major League level, you always say, oh he has got a Lizard Skins grip. Lizard Skins had become the official group of MLB in 2016, and they have over 250 players using their grips in games. Lizard Skins entered hockey in 2017 and became the official grip of the NHL in 2019, and there's currently 45 NHL players using Lizard Skins grips. And as we're working through this transaction and getting to know the team at Lizard Skins, there's a couple of things that stood out. Number one, they talk about their competition being athletic tape. So you see with all the categories they're in, and you really think about this, the competition for Lizard Skins and their proprietary grip is athletic tape, and anything that uses athletic tape. And then the second one would be they tell the players don't change the way you grip, change the grip you use. And that's really important for hockey because a lot of guys have special ways they wrap their stick. And so in this case, it don't change the way you grip it, change the grip you use. The newest market, however, for Lizard Skins is gaming, and they've just entered that market in 2020. And besides the growth in those core categories of Lizard Skins, we think gaming may have the biggest upside. Once again, we are expecting double-digit growth with Lizard Skins for many years to come. As you can see with this chart, our revenue has grown each year other than 2020 due to the -- due to COVID and the pandemic, and we're projecting $112 million in revenue in 2021. And as you can see on the bottom left of the screen, each of those years represent some of the growth metrics there to where -- when we acquired Marucci back and you see a jump, the launch of the Cat 6 and then we're expecting going into '22, the launch of our new bat the [ Cat X ]. In summary, today with a strong history of growth, we are even more confident with the team and path forward with our passionate and authentic brands and access to capital from Compass to continue this double-digit growth trend for many years to come, and no reason why this brand can't be a $1 billion global brand in the future. Thank you. I think now we'll open it up to questions.

[Operator Instructions] Our first question comes from the line of Chris Kennedy.

Can you just talk about the Lizard Skins license with the MLB? And how Marucci can utilize that license?

Yes, sure. Thanks for the question. There are some rules around what we can and can't do with those licenses. But what we can do is Lizard Skins can promote the players in uniform. We still can't because we're not the official bat. So the Lizard Skins can't go out and produce a commercial or a poster or anything that has a Lizard Skins grip and a Marucci bat on it because we're not the official bat. But there are things that are out there, when it's out in social media, we can repost it. We can re-tweet it, we can like it when our players do create those posts. So we think there'll be some opportunities there. There are some details we have to work through. But we do think that it's going to be an uptake for both Marucci and for Victus, especially because Lizard Skins has the international license as well.

Fantastic. And then just another one in Japan. Can you kind of talk about what your position is with the brand there? Do you have a presence with professional baseball players there as well? And then what the opportunity is in Japan?

Yes, sure. No, it's another good question. So outside of Japanese brands, we are the #1 and #2 brands in Japan right now at the professional level. So it's very similar to how we started in the United States market is, we're starting at the top down in Japan. So we're getting a lot of adoption with players in the Japanese market at the professional level. And we feel like that is what's going to help us carry down to the youth just like it did in the American market -- in the U.S. market.

Our next question comes from the line of Matthew Koranda.

This is Michael Zabran on for Matt Koranda. Kurt, could you talk about the implications of an elongated MLB lockout? And how that might impact professional demand for Marucci? And also just how Marucci is positioned to side those potential impacts?

Yes. As I said in the -- it's the smallest subset, right? It's a really small category for us. It's the most visible. So I don't think it will really have an impact on our financials, but more importantly, what I do think it'll do, it could hurt is the impact of the game. I do think an extended lockout could hurt the game. And it really -- that's the one thing we don't want to do is we don't want to start getting down to the travel ball area. We don't want to get down into the high school area because I don't think we'll see a big hit at the Major League level, but I do hope they can work this thing out because just for the betterment of the game and the growth of the game, we need those guys playing.

Our next question comes from the line of Robert Dodd.

Could you talk about the product development cycle, if you will? I mean how long does it take you to bring a product with your -- I mean you've got extremely high standards for what you bring to market, et cetera. But if you would to add an incremental vertical. I mean, the obvious thing would be boots or cleats or whatever it's called, given that seems to be the one thing you don't do currently for baseball, hypothetically, how long would it take to actually develop that given your standards?

That's a good question. I would say we're very unique in our space. We don't have a set standard of time of how long it takes to produce a product. When it's ready and it gets our stamp of approval, we will launch the product. You're right in saying some categories, though, in thinking they'll take much longer than others, especially when it comes to certifying bodies. In Japan, it's taken much longer to get our products certified in Japan than it has here because it's such a new market for us. But there are other product categories with fielding gloves that we can launch much sooner and the product cycle is much shorter. But I agree, as we get into newer product categories, that is when the time could extend out to where it's a 12- to 18-month process.

I'm not showing any further questions at this time.

Kurt, we're getting one other question in from shareholders. And I think there was some interest in -- international growth looks great. You're going to go to Japan. What's after Japan? Are there other sort of demographics of the geographies that you would go after at Marucci and Victus?

Yes. I mean we're really hopeful that China can continue to grow. We think that the Chinese market in baseball has a chance to be the size of the Japanese market in the next 7 to 10 years. And we're really hoping to see that take off. But I can say we're also doing extraordinarily well in Korea right now. We are #1 and #2, again, of brands out -- U.S. brands in Korea at the professional level. So we're taking that same strategy in Korea that we have in Japan that we did in the United States. And so we're hoping to do that same thing in China. In Taiwan, we're actually doing very well in addition, but they're having a little bit of a crisis with China. So we are not real sure how Taiwan will play out here. But there's a lot of opportunities in international, but we think China is probably the biggest one in the future.

There's one other question I saw and it has to do with Lizard Skins. The shareholder was wondering there's a, I think, some big segment, it looks like of Lizard Skins is baseball related, and then there's another segment that's not baseball-related. From my perspective, it seems like there's some growth in the gaming and other stuff. But how do you manage that? It's kind of a different business for you than the baseball side. Can you just talk a little bit about that?

Yes, sure. I mean there's got -- there's a lot of trust in the team. We spend a lot of time with this team and their management team there is first class. And they definitely know those other categories, and they've been doing them for a long time. So we see that there's still a lot of growth there. But on the baseball side, we do feel like we'll make more of an immediate impact as we're learning the other parts of their business from cycling to ATVs, to hockey and even into gaming, which we're really excited about because our players are even calling us about the gaming groups now. All of our Major League players still like to play video games even at night. And so we can use these gaming for some creative deals with some of our players.

Thank you, Kurt. It's always a tough challenge to go after such a dynamic speaker and such a great company and present on CODI now. And I would like to point out the irony that a major league baseball pitcher is now running a bat company for everybody that's watching. So as you all know, we have talked a lot about what is our strategic vision for CODI and where do we see ourselves going. And as we have said over the past number of years, our goal in the next 5 to 7 years is to get to $1 billion of EBITDA. And so we wanted to come out and talk about, what do we think the benefits of that are? Why do we want this scale? And how has our journey to get there proven that scale is beneficial to us? So first and foremost, the diversification that we get in end markets in business cycles as we get larger with more subsidiaries continues to grow. That has the effect of dampening any type of financial volatility and creating more consistency in our results. Now this was never more evident than in 2020. During a once-in-a-century pandemic, we were able to produce positive growth in both revenue and EBITDA in the 10 companies that we own, largely attributable to having such diversification across our end markets. Second, we have a number of objectives when we acquire a business, and given our long-term investment horizon that we would like to achieve with our subsidiary companies. We obviously have a view towards investment in those companies, broadening out management teams, investing in processes, investing in systems and infrastructure. On top of that, we are a public company, and these are smaller middle-market companies that we're buying. We have financial reporting obligations that we need to comply with. We have Sarbanes-Oxley that we push down to our companies. And the newest initiative that you're going to hear us talk about today and has been talked about over the past year or so is our ESG focus. These initiatives work better with larger companies than they do with smaller companies. Third, you've heard Ryan and I talk about this ad nauseam, probably to the point that you don't want to hear us mention it anymore, but it is so impactful, we will again. Lowering our weighted average cost of capital is essential for us. It allows for our share price to increase. It allows for our competitive advantages to widen and our economic moat to deepen. And fourth, it helps the CODI brand continue to grow. And that creates more transactional opportunities that we're able to see in the marketplace. So how are we going to get there? What is our strategy to be able to get to this $1 billion goal that we've put out. We really have 3 pillars to that strategy. First, we've transformed the business and the subsidiary companies, and we've driven a much higher growth rate as a core growth rate within the portfolio. Second, how we allocate capital? As you know, we have been active in new platform acquisitions and investing in our subsidiary companies. And third, I'm going to talk about our decision to enter into a health care vertical, hopefully, in 2022 when we land a health care leader. So starting out with our business transformation. Before I get to the actual benefits of what happened over the last 3 years, I want to take a second and talk about what our acquisition and divestiture strategy is. And this goes right to the heart of it. When we acquire a company, we view that acquisition as a business we would own forever. The types of companies we're looking to buy are shaped as a result of that. We want companies with deep economic moats. We want macroeconomic tailwinds. We want really strong management teams. We want great forward growth outlooks. And those are the types of companies that we will continue to buy and have executed against in the last couple of years. Now when we think about divestitures, there are 2 reasons why we will divest a business. First, it could be that strategically, the company we're looking to divest no longer fits with our strategic mandate. Second, the company that we are going to divest has more opportunity with the buyer than it has with us. And as a result, we are able to yield a higher valuation by selling the business than what we would yield by holding the business on behalf of our shareholders. So I want to go through the transactions and the divestitures that we've had over the last couple of years and just hit on what category they fell it to. In the first 2 divestitures we had, Manitoba Harvest in 2019 and Clean Earth in 2019. Both of those were sold to strategic consolidators. Both of which had advantages for those businesses to be part of. In Manitoba Harvest's instance, it was the supply chain, it was the distribution network. In Clean Earth's case, it was access to additional waste streams and revenue synergies and infrastructure where there were duplicative costs that could be taken out. Both of those transactions yielded higher valuations because the buyer could reap these benefits and those valuations were accretive to value for our shareholders versus us continuing to hold the business. Now fast forward to this year, the divestiture of Liberty. It was sold to a private equity firm. It is a great business. It is a great business for us over the 11 years we held it and going forward. But Liberty Safe fell into the first category. It no longer matched the strategic mandate and goals of Compass Diversified Holdings. We have a goal that all of our companies need to be able to achieve a $50 million EBITDA size, and we didn't see Liberty as having the potential to be able to do that and there was a strategic dislocation that occurred as a result. Now having consummated those 3 divestitures, we then consummated 3 acquisitions. You just heard from Kurt about Marucci, the outstanding positioning of that business, the growth opportunities that, that company has and we've seen it in the first year. I mean, this is a business that's grown almost by 100% top line and 200% EBITDA in our first year of ownership. It is nothing short of remarkable. We acquired BOA in October of 2020. Equally as impressive results, 55% revenue growth, 90% EBITDA growth in our first year of ownership. And now most recently, in September of this year, we acquired Lugano. And I'm really proud of some of the initial impact that we're having with Lugano as we were able to bring 2 solid industry veterans to the Board of that company independent directors, which we view drive significant accountability, better governance and value creation to our subs. One director was the ex-CEO of Tiffany. The other is the current Vice Chairman of the Robb Report. So what is the net effect of these 6 transactions that happened over the course of the last 3 years? It has been a dramatic acceleration in the core growth rate of our company. Two of the 3 businesses we sold were GDP growers. All 3 of the businesses that we acquired are double-digit growers. And as a result of that transformation, the core growth rate has significantly advanced. The second pillar to achieving our $1 billion EBITDA goal, our capital allocation model. Now we've been doing this for 16 years as a public company and 23 years in total, and we have had no style drift. What we look for is the same. We continue to look for the same characteristics and execute the same strategy that we have with respect to capital allocation. We attempt to acquire 1 to 2 platform acquisitions a year. That is why I say we are a very patient deployer of capital. Typical size is anywhere from $200 million to $800 million in enterprise value that we're looking at in our businesses to acquire. Second, we invest in our subsidiaries. Since inception, we have invested almost $1 billion into our subsidiary companies through add-on capital and through growth CapEx. Those return on equity investments is significantly higher than other alternatives that we have. And when we find opportunities to put money in our subsidiaries, not only is it great for the subsidiary, our employee base, the communities that we operate in, I mean, it is a model of sustainable investing, but it's also exceptional for our shareholders. So what did those 2 pillars of capital allocation provide? In a perfect world as we see our portfolio going forward, we see 15 portfolio companies that average $70 million of EBITDA. Now third, entering into the health care vertical. And we get a lot of questions since we've announced this. Why enter into health care? And it seems pretty far flung from your niche industrial and your branded consumer niches that you're currently investing in. And that is a fair criticism to say that it is far flung. That's why we continue to maintain we will only start this vertical when we identify the right leader that has the right domain expertise and also as a cultural fit within our organization. But what are the dynamics that we look at within health care that are value accretive to our shareholders? While we talked already about the benefits of diversification, this clearly is an end market that will further diversify the business overall and reduce financial volatility. Health care has great macro tailwinds. We know demographic changes continue to favor health care consumption. And health care is an acyclical end market. Health care consumption is not predicated on economic activity, both positive or negative. So we think those factors massively benefit the portfolio, continue to reduce volatility and ultimately will lower our cost of capital and one of the things that you've heard about is our quest is to become an investment-grade rated company, and that further lowers our cost of capital. We think this advances that ball considerably. Now when you think about how we get to $1 billion of EBITDA, we like to look back over history and say, well, does history inform us as to whether we can get there or not. In 2011, we owned 8 subsidiaries and generated $133 million of EBITDA. Today, we own 10 subsidiaries and we've guided at the midpoint to $385 million in EBITDA. That's an 11.2% historical CAGR. Now from $385 million in '21, to $1 billion in '28, that requires a 14.5% CAGR to get there. So that's a slight acceleration from our 10-year rate that we've been able to achieve. But I would point everybody to the last 5 years where our CAGR has actually grown to 14%. So now we're only talking about a 50 basis point increase off of our 5-year average. And we think that is very doable. In fact, we believe we can exceed our time line goals because we now have the best talent pool, and we've been making significant investments in our human capital over the last couple of years. We have more access to monetary capital to go with that human capital and we have a lower cost to capital, and that should accelerate the growth rate off of what we've seen in the last few years. Before I turn the presentation over to Pat to walk through a subsidiary update, I want to talk about something that is really near and dear to my heart and is so woven into the philosophical values of Compass, and that is what our corporate values are. As we all know today, the letters ESG gets thrown around a lot. But this is something that goes right to how do you view yourself as a corporate citizen. And are you going to be a good corporate actor? So before I even get into some of the programs that we're putting in place to really advance the ESG ball, I want to talk about how we can both create opportunities for shareholder value creation while also adopting the things that are right by our companies and employees and all of our constituents. So I think about the backdrop of who we compete against. Principally private equity firms that are financing each of these individual smaller middle market companies on a stand-alone basis, generally bringing more leverage than the company should bear, and as a result, they are creating enormous financial risk for the employees, for the vendors, for the customers, for the communities in which they operate. Now what is asymmetric about that is the risk is borne by all of those constituents. But on the return side, it's only borne by the equity holders and the general partners who are going to participate in any of the equity growth. Our model is fundamentally different. We do not finance at the subsidiary level. We finance at the holding company level. We don't bring undue risk to all of those constituents who aren't getting access to any of the upside. And we think philosophically that fundamentally aligns with whether you call it ESG or being a good corporate actor or just what your value set is as a company going forward. And so it's a huge differentiator for us. Now how do our shareholders gain in what I just said? Well, we've already talked about having the lowest cost of capital. So we can do what is best by our shareholders by having a lower cost of capital and hence, earning a better equity return, using that lower WACC, while at the same time being a good corporate citizen and doing right by all of the constituents of our companies. So I want to talk a little bit about the greatest asset that we have in our firm, and this goes right to the S within the ESG letters, the social component. It is our human capital. It is by far the greatest asset that Compass Group Management has and that CODI is taking advantage of. When we went through the pandemic, we ended up operating in a completely virtual environment for most of 2020. And as we came into 2021, shutdowns were still throughout most of the country. And our employees operated virtually. I'm pleased to say that 2020 and 2021 in these pandemic years are arguably the best years in our history. So one would look at that and say, well, maybe you can be a completely virtual office going forward. You had the best execution in your company's history. You've driven incredible value. Heck, the stock price has more than doubled over the course of that 2-year period, not even counting the return of capital that we've given to investors. So maybe you should just be a virtual company and you don't need to have any in-person attendance. And we believe largely that could be true. But we also try to balance that against how do we create a sense of community? How do our employees absorb the culture? How do our employees interact with each other and be creative in their job and creating new opportunities? And so we are coming back as the pandemic eases into a hybrid approach. Now what I'm really happy with is we have adopted a new model, and we have gone through a very expensive and the manager incurs these costs in the structure that we have with our shareholders. But we are going through office remodel projects. We have just delivered an office in California. We would expect to deliver an office with similar amenities and benefits in Connecticut at the end of '22, the purpose of which is to create a different environment because millennials and the younger employees that we're trying to attract value different things today. They want to know that the business they're working for cares about them. It's not all about economics any longer. And so what do we create to demonstrate that? We put gyms in our new office. We have fully functioning commissaries in our office. We have physical therapy services in our offices. It's important for us to create this environment where our employees feel valued, where our employees know that we care about their health, their wellness, their mental and physical well-being. And the proof is always in the pudding, right? Where does the rubber meet the road? It's in what is your turnover rates? And the opposite of that is, what is your retention rate? What jumps out of me on this page is that we have had over the last 4 years, 95% retention of our employees at the manager. It's pretty much unheard of in any business to have that kind of retention. And that's what drives the performance, and that's how we're able to double the benchmark Russell in terms of performance since we've started our business 16 years ago as a public company. Now we recognize that we need to continue to enhance the social commitments, the governance commitments, the environmental stewardship of our business and to push that forward. In advancing that, I'd like to announce that we have hired Zoe Koskinas. She will be moving here from Australia in early January. For the past decade, in Australia and Europe, who is massively ahead of the United States in ESG efforts. She has been running programs for companies doing this. And her job will be to integrate and create investment policies and operating manuals that integrate ESG and weave it into the philosophical basis of what Compass is and also to work with our subsidiary companies, Kurt and the other 9 CEOs that we have in helping to create strategies for our subsidiaries to be better ESG participants as well. And so we can look at this as an investment because there is a true payback. This is better for recruiting. It's better ideas if we have more diversity within our workforce. The products are more appealing to consumers because consumers want companies that stand for something more than just making the absolute dollar. And we think that this is a huge initiative that benefits both our shareholders but also is aligned with where our corporate values are. Before I turn over the presentation to Pat to walk through our subsidiary update, I want to talk about governance. And governance has been at the heart of our business from the day we started it. We interchange the word governance and accountability all the time. And when investors say, what do you bring to your companies? We say all the time, it's accountability. And we work very closely with our management team so that their organizations are accountable up to us. And so historically, how have we used that to be accountable to our shareholders? Well, a majority of our directors have always been independent and purely accountable to our shareholders. We have always separated the role of the CEO and the Chairman. And we have today 19 independent directors who sit on our subsidiary company Boards. That averages basically 2 independent directors per subsidiary company. Now how are we going to advance that? Initially, we are already taking some steps. So we have hired Spencer Stuart, one of the top recruiting firms in the country to help us with a Board refresh process. Second, in our proxy that will be coming out this year, you will see an amendment to our organizational documents there we will request permission and this is very shareholder-friendly, obviously, that we will move from 3-year staggered Board terms to annual elections for all of our directors. And we think that this is continuing to push the ball forward on more accountability to our shareholders and better governance standards within the Compass framework. With that, I will turn it over to Pat to walk through our subsidiaries.

Thanks, Elias. I wanted to just start by pointing out what we look for in businesses when we try to partner with them. And therefore, what we have as a result in our existing businesses. Each of our businesses possess significant barriers to entry, and each have deep competitive moats. They drive these advantages though in different ways based on what vertical they're in. For example, our branded consumer businesses are characterized by aspirational brands that have significant customer enthusiasm. They often have very high Net Promoter Scores -- excuse me, and customers typically view them as a great representation of their lifestyle. These businesses also have a degree of recession resistance as when customers are faced with tough choices in tough times, they often put off other purchases to purchase brands that represent them better, and we believe those are our brands. On our niche industrial side, we look for businesses that have significant market share in their categories and all of our businesses do. They are often the low-cost producers because of that scale as well. And importantly, they clearly produce a significant amount of cash as it relates to EBITDA. We are drawn to companies that have low maintenance CapEx that efficiently manage working capital and that often have tax assets. Lastly, and you'll see this in the next slide as well, we've been fortunate to find companies with industry-leading management teams, and we'll continue to seek those out. I wanted to just take a minute to touch on the global headwinds we faced and our businesses faced in 2021 as well as mention and call out just the exceptional execution by each of our subsidiary companies management teams. We couldn't be prouder. In 2021, each of our businesses, like most businesses nationally, faced some combination of rapid inflation, incredibly tight labor supply, supplier vendor shutdowns and massive shipping disruptions. Specific problems faced by our companies like those faced by Kurt would almost make your head spin. Yet in the face of these, our businesses grew revenue by over 25%, EBITDA by over 41%, and expanded EBITDA margins collectively by over 200 basis points. We could not be prouder of the execution of our management team partners and feel so very fortunate to have each of them. Turning now to Lugano Diamonds, our most recent acquisition and to talk a little bit more about why we think this business is so special. Lugano, as a reminder, is a designer, manufacturer and marketer of ultra-high end, one-of-a-kind jewelry. Lugano's business model, however, is different than typical jewelers, and we believe disruptive. Many high-end jewelers are hesitant to take substantial inventory on their books and rely on intermediaries to provide many of the items in their stores. Lugano is different. Lugano purchases rare and unique stones and holds them in inventory, giving their customers many choices. They also have in-house design and manufacturing capabilities unlike many traditional jewelry retailers. We then sell our goods in our jewelry to our customers through -- in a bespoke manner, through our salons, at different events, at their home or place of work. And we believe that all of this disintermediation allows us to provide significant additional value to our customers. Now this requires that we invest in inventory. Obviously. The inventory, though at Lugano is different than inventory in a traditional business or honestly in other of our businesses. And that is made up of diamonds and fine jewelries, right -- and fine jewels. So this inventory as a result is characterized by relatively liquid markets is expected actually to increase in value over time. As a matter of fact, our research indicates that over the last decade, diamond prices have increased by over 4% per year. In addition, at Lugano stones that are in slow-moving goods occasionally can be repurposed and put in new pieces and new designs. So all this is saying, we're going to be investing in inventory at Lugano, but we believe the investments in inventory at Lugano are different, safer and more prudent than significant investments in a variety of other businesses as you may be familiar with. We think Lugano is a great fit for CODI, and we think it's poised to benefit greatly from the advantages that CODI provides to its subsidiaries. We also believe that it's the right company for the season. As all of you know, central banks are continuing to print money left and right. Inflation is rampant. Household wealth is at an all-time high. People are looking for goods that are stores of value, that are going to hold their worth, and we believe these products will, and we believe the art and the artistic jewelry that Lugano provides, provides that option to their customers. Over the coming years, we will be making higher returns -- high-return investments in both inventory to better serve our customers and in new salons. We believe this is a special company with strong leadership that can grow significantly in value for CODI shareholders, and we're happy to own it. With that, I'll turn the call over to Ryan.

Thank you, Pat. Good afternoon, everybody. So before I get into the financial review, I would like to take a moment to highlight the success of the reclassification this past year. It was a herculean effort by a number of individuals. And if we were live today, I could point those people out in the crowd, but I can't do that today. But it's -- the finance team, the tax team, the legal team and a number of our third-party providers did just a phenomenal job. And when we set on that strategy, we were confident in what the benefits would bestow to CODI. And what we can say is, early on in the process it's certainly exceeded our expectations. We've all seen it in the stock price. We've seen really strong uptick in volume. And we're easy to own now. CODI stock is easier to own. We have a number of new significant shareholders, a number of large shareholders in our top 15. We're super proud of. We're happy to have them a part of the family. We appreciate their support, and we look forward to working on their behalf. So just quickly, what I'll touch on. I'll touch on the performance year-to-date, both revenue and EBITDA. I'll hit on our guidance. I'll again hit on the efforts to lower our weighted average cost of capital, continued strategy of ours. And then finally, I'll tie both of those into this new concept of this retention of cash within the CODI system that I think will be exciting. One housekeeping item just to mention, I know a number of you are looking forward to our future financial metrics we plan to come out with publicly. We're not quite ready yet. These would, of course, replace CAD. We're waiting -- we're making sure these are appropriate. We're making sure they're useful. And we anticipate as part of our fourth quarter earnings rolling that out. Okay. So on to financial performance. Both revenue and EBITDA, these are pro forma as if we bought Lugano, BOA and Marucci on the first of 2020. On the right side is our year-to-date performance, pro forma revenue. You've seen these numbers up 25% consolidated. You can see the breakout between niche industrial at north of 13% on the EBITDA side, 10% for niche industrial and then both revenue and EBITDA, just an outstanding performance on the branded consumer side. For the third quarter, on the left-hand side of this slide, a slight deceleration in growth rates. Now that was to be expected. Last year, third quarter of 2020, we saw a rebound in the economy. We emerged from the pandemic closures in the second quarter and really had a good third quarter last year. So then we still, with this group of companies, we're able to exceed that, and we're really proud of that. Elias highlighted earlier, there's an acceleration in the growth rate of the company, and here's the evidence that this is occurring. So just on to the guidance. This guidance is consistent with the third quarter. You'll recall, as part of the third quarter guidance, we raised it. And our expectations now for pro forma adjusted subsidiary EBITDA is $380 million to $390 million. And that midpoint of $385 million represents a 31.5% increase over last year, just an outstanding result. Now, of course, last year was a pandemic year. We all recognize that. So I think it's important to look at 2019 and compare. So with the same group of 10 companies we own today, on a pro forma basis, if we looked at 2020 over 2019, those businesses organically grew 2%, which is just an outstanding job in the face of the fact that for months the economy felt like it was completely and utterly closed. So if we look at the 31.5% for '21 over '20, what does that mean from a 2-year CAGR standpoint, that math is roughly 15%. So there is -- this is certainly -- that 15% growth rate is certainly indicative of what this group of companies can achieve. But as we think about what is the long-term growth rate of this group of companies, I think 3 years ago, if we were sitting here, we would have said mid-single digits. But with this acceleration today in these new groups of companies we own, we feel like the growth rate is now high single digits for these group of companies, and we're very proud of that. So more on the reduction and the relentless pursuit of lowering our weighted average cost of capital. And this is really such an important part of the business. Elias hit on this earlier, that bottom-driven -- I mean lowering our weighted average cost of capital, cements our competitive advantage and will continue to drive shareholder returns. So what has our progress been over the past 3 years? I'd like to reflect on that, and that's in the middle of the slide. So back in early 2018, you recall, we closed on Outdoor solutions at the time it was called Foam Fabricators. We also did a very accretive and sizable add-on acquisition to Sterno [indiscernible] imports. On the heels of both of those transactions, we issued our first $400 million bond, due 2026, at 8%. It was a phenomenal outcome for the business. It was the first time we'd entered that bond market, and we were thrilled to have access to that source of capital. And what we believed and still believe is that, that long-term tenor of debt at 8 years, really aligned well with our investment thesis, that long-term investment horizon, the desire to build businesses for the long term, as Kurt highlighted earlier, that's our goal with Marucci. So subsequent to that, we then did 2 more preferred equity issuances, which at the time lowered our weighted average cost of capital. And then on the heels of the Marucci acquisition, we then did a $200 million tack-on in the depths of the COVID pandemic, which we're really proud of that execution in May of 2020. Fast forward to earlier this year, we did a full refinance of our entire debt package. And we redeemed the old bonds. We reissued new bonds due 2029, and that was $1 billion at 5.25%. So within 3 years, we were able to bring the cost of our bonds from 8% down to 5.25%, which is an extraordinary reduction in our cost of capital. And then later this year in September, as you all know, we completed the reclassification of our tax structure and we believe that will further lower our cost of capital for both debt and equity as we make CODI easier to access as a common stock. And then really as a capstone just last month, we issued a 10-year -- long 10-year bond due January 2032 for $300 million, and that was on the heels of the Lugano transaction at 5%. Again, a tremendous outcome for the business as we build and drive shareholder returns. So as we think about over the last 10 years, what has that done to our cost of capital? December 2011, 8.8. At that time, we had tenure on that debt of 5.5 years and it cost us 4% to issue that debt. Today, we've taken the cost of debt capital, which by the way, includes the preferreds in this math, down almost 40% and to 5.44%, yet the tenure has been extended 4 years to 9.5 years and there was no OID on this issuance. So really extraordinary outcome. Important to note, too, is the percentage of equity historically at 73% has migrated down to 58%. So the obvious questionnaire across this page is, is the entity more risky? And the answer to that is no. We have had a consistent financial policy over this entire time line of a leverage policy of 3x to 3.5x. That has not changed. And if we look at ourselves today, we've got almost 3x more EBITDA. We've got 10 companies. We've got more diversity. So we feel, in fact, the financial risk profile of the entity has come down during this time period. So this is a really exciting slide. We've talked about the acceleration of the core growth rate of earnings. We've talked about our progress over the last 3 years in lowering our cost of capital. This may be the first time some shareholders have seen this. And there's a reconciliation in the appendix for those that want to know how we got to these numbers. But what this slide represents is what is the retained cash after all expenses, all CapEx, all preferred distributions and all common distributions, but preworking capital in order to provide comparability. And that number is over $50 million year-to-date September '21. And that's a great, great number. If we think about prorating that, just mathematically for the rest of the year, that number is $70 million. And then as we think about 2022, what will drive further retained cash? You're all aware, and we've publicly stated this before, we are bringing our distribution down from $1.44 to $1 as a result of the tax reclassification we did that starts January of next year, but that saves the entity $30 million and allows us to retain $30 million more additional dollars in cash. So if we just mathematically prorate the year to get to 70 and add in 30 for next year just on the common distribution reduction, that's $100 million of retained cash in the entity. And why is that so significant, look comparatively to the prior years, barely broke even in 2020. And I can tell you, all the years prior to 2019 have been negative. So there's been a real shift in the business. And it's due to the quality of the companies we own, the increase of the core growth rate, lowering of the WACC, this is what it's creating for the business, and it's why we believe fundamentally CODI is at an inflection point, and the future has not been brighter. I mean, we've talked about our capital access is strong. CODI is easier to own. We've got an accelerating core growth rate. We're bringing our WACC down, we're retaining cash at epic levels, and it's really driving a real bright future for shareholders, all our constituencies and all our employees. We're certainly thrilled with the progress. We appreciate all of your support from all of our constituents on this journey. So those are our prepared remarks, and we'd love to open it up now to our Q&A.

[Operator Instructions] Our first question comes from the line of Chris Kennedy.

Elias, there's been a lot of corporate activity this year. Can you just talk about the amount of M&A flow that Compass is seeing following the reclassification?

Yes. I might ask Pat, because Pat is a little closer to that.

Sure. We saw a great deal of activity and flow, I would say, in the first 9 to 10 months of the year. It slowed now as is typical in the fourth quarter. I would say the chatter for Q1 deals though is at almost record levels, and we already have some businesses in mind that we'll be actively pursuing in Q1.

Okay. Great. And then Elias, can you just talk a little bit more about the strategy for the health care vertical? I understand you're waiting to hire someone for that, but just talk about CODI's entrance in that? And what areas within health care you're most focused in on?

Sure, Chris. Thanks for the question and listening in today. As I said, health care is an important initiative for us to be able to enter into that for all the benefits we talked about. I think in terms of the type of companies, the profiles are going to look very similar to our industrial and consumer businesses in that these businesses need to have well-defined economic moats around them. They have to do something that has competitive differentiation. They have to have market share leadership. The markets have to be large and continuing to expand. So those core tenets that we look for in all of our businesses, that applies to every industry, every vertical, whether it's existing or ones in the future and identified within health care. I think in particular, what we'll look for within the health care vertical are the niches that are more service related and that have less exposure to government reimbursement because we don't want to have a single point of risk where our earnings profile could change dramatically. Clearly, we are looking for cash flow positive businesses, so that takes us pretty far outside of the realm of drug development and discovery or medical tech and that part of the science, part of the health care equation, but there are a lot of service aspects within health care. And those markets are very fragmented. And so I think what this will be characterized by is probably a lot of buy-and-build type of strategies that exist within the health care space.

Our next question comes from the line of Matthew Koranda.

Mike Zabran on for Matt. Could you guys just speak to how much of the $1 billion in EBITDA comes from growth in existing sets of businesses versus inorganic acquisitions? And just sort of how much capital do you think you need to deploy in order to get to that inorganic contribution?

Yes. And so Michael, it's really a function of the growth rate, right, and the amount of time. And so a little bit, you're kind of moving around 2 different data points. Over 7 years, clearly, if you expect kind of a high single-digit growth rate, that's almost a doubling of EBITDA, right? It's kind of the rule of 7 and 10. If you thought we were growing at 10%, which we've guided to high single digits, so albeit a little bit less than that. So I would say, if you think about the company that has $385 million of EBITDA, we're probably not quite over 7 years doubling to get there. So maybe that gets you to something that looks like kind of $700 million-ish of EBITDA based on kind of the current core growth. And then the other $300 million has to come from inorganic opportunities, principally acquisitions of new platform companies and acquisitions of add-ons.

Our next question comes from the line of Robert Dodd.

Two unrelated questions, if I can. First, I appreciate the color you gave on your ESG focus, particularly, you gave details on the S and the G. Can you give us anything related to maybe the environmental impact target? Do you have hurdles or targets there? I mean, obviously, on the niche industrial side, you've got a phone business, which some of that's recyclable. Some of that's biodegradable, but do you have targets for impact on that side? And then I could ask the same on the consumer with, say, Lugano, any targets about how much recycled gold to use, for example? Any incremental color you can give on the E part of that ESG focus?

Yes, Robert, I'll let Pat give some specific examples of things that we're doing on the environmental side within our companies, because it is a pretty big focus area, and it goes from maybe speaking of Everlove or ERGObaby and what we're doing with these. But I would just say, in general, one of the reasons we're really happy to have Zoe coming aboard is this is what her role is to define what those targets are. And it has to be what is achievable and what can we absorb, right? I mean we are a smaller company, and we have middle market businesses. And so we don't have the scale and the resources of a Microsoft to become completely carbon neutral within a really short period of time. But that doesn't mean that our goal isn't to advance the ball with every one of these companies and have a lesser environmental impact on a consolidated basis year in and year out and being able to drive that down. So I can't give you specific targets right now, Robert, on that. I think that will be something that when we talk next year, and we have Zoe onboard for a year and she started to create some of those targets, we'll be able to speak more to it. I can tell you this is something that is a huge focus area. We report on it every quarter to our Board of Directors. We have a steering committee with executive management within the organization that will oversee this. And our goal is clearly to reduce the environmental impact that we have, but establishment of those specific goals has not been created yet, and we think it would be putting the cart in front of the horse by doing that before we have kind of our leader in this program coming aboard, but that will be something that she will focus on pretty quickly. I do think though that Pat can touch on a couple of specific things we've done in companies that go to being in a better environmental steward because even in advance of her coming, these are things that we felt passionate about and think are good for the business. And Pat, maybe you can just highlight a couple of things.

Sure. I mean, first, Kurt sitting here. Kurt made a large investment in machinery to reduce the dust at a lot of our wood processing -- in a lot of our wood processing plants, and it had a large environmental impact. We talked about ERGObaby and the Everlove products. The Everlove product is basically taking a used or previously loved ERGObaby, refurbishing it and making sure it's ready for reuse. And then us at ERGObaby reselling that. And we have incentives for people to send in their products and for us to then resell them, if you will. So we've had tremendous success of that in the U.S., and we've actually moved the product over -- or the service over to Europe as well. A couple of other points I'd touch on. You saw that we created the first biodegradable foam product or form EPS product Altor, that was one. And we are continuing to work with different substrates to get closer and get to that potential curbside recyclable standard. So we're working on that at Foam Fabricators. And lastly, I'll touch on just more on the sustainability side. We do adhere to the Kimberley Process for responsible sourcing at Lugano. And we've actually joined now since Compass has partnered with Lugano, the Responsible Jewellery Society, which puts in place a number of protocols and structures to make sure that you are certain you are sourcing responsibly. So those are just a few of the things. Again, it's company by company, and there's a lot of activities happening at every company.

Got it. Got it. I appreciate all that color. One more, if I can, a totally different topic. On the health care side, I mean, to your point, acyclical businesses, huge part of the economy, et cetera, are really, really attractive area to extend into. Of course, everybody else thinks that, too, including your private equity competitors. Are the multiples and the acquisition multiples in that segment, should we expect them to rise given all those characteristics that the same reasons it looks attractive to you are the same reasons that tends to put up multiples for acquisitions in that segment?

Yes. And that's a great question, Robert. And 100%, we should expect to pay higher multiples for these businesses because we're not unique in identifying these trends. And as you said, whether it's kind of private equity competitors or other strategics or SPACs, everybody that competes with us for these type of assets, sees the same type of characteristics. And as a result, is willing -- there's more demand for those assets, a limited number of supply. And so it goes back to macroeconomic theory, that pushes up pricing. Now that being said, one of the reasons why we think now is the right time to enter that market is because our cost of capital has dropped so rapidly. And so I would have told you 3 years ago with our WACC, we wouldn't have been able to enter the health care market, and buy companies that have defined barriers and have good macro growth characteristics, because those businesses would have traded for multiples that frankly would have been dilutive for too long of a period for us to approach that. So now our cost of capital reduction allows us to enter in and buy these higher-quality companies in this vertical. And that's really why now is the time for us to enter into that vertical. Now I'll just say stepping back more broadly from health care, look, we all know that multiples have risen dramatically. And there's been an explosion of capital as we talk about this, I think on maybe every one of our earnings calls. Central banks continue to print money. You've got historically low borrowing rates. You've got capital that moves out the risk curve. And so private equity coffers are filled with capital. SPACs have a lot of capital. Public companies are flushed with capital. That creates a dynamic where multiples are really robust right now. So I think we just have to understand that we are in an environment where acquisition multiples are going to be high. But I would also point back to when we acquired Marucci, this was a business that was being acquired at kind of a low teens multiple of 2019 earnings. BOA was acquired at a mid-teens multiple. If we're right with the defensibility of the business, with the disruptive nature of the business and what it can do in its market, then we're a little bit less sensitive as to the historical multiple, and we're more sensitive to what is the future growth and how underwritable is that growth, and what was the kind of return on capital that's being invested and comparing that to our weighted average cost of capital. So I would say, yes, health care multiples are elevated, but so are good quality consumer multiples are elevated, and frankly, industrial businesses that are probably more GDP growth companies have elevated multiples as well. And so naturally, what that's done is it's pushed us away from some of the industrial businesses because as we see multiples really rise and yet they don't have demonstrably better growth trends. Well, that doesn't seem like it's a wise deployment of capital for our shareholders. So it sort of pushes us towards industries, consumer for right now, eventually health care where the math actually works a lot better when you're paying an elevated multiple. But I do want to go back and say, the drop in our weighted average cost of capital is what enables us to pay these higher multiples, have these higher-quality companies have more predictable growth. And we think that is very value accretive, notwithstanding that the multiple is rising at the time of acquisition.

Our next question comes from the line of Derek Hewett.

So how much dry powder do you guys have to do deals with the existing capital structure at this point? And really, I'm looking for it on a pro forma basis, so that would include the kind of the private placement and then also pro forma for the Advanced Circuits sale?

Sure. So happy to touch on that, Derek. Nice to hear from you. So first on revolver availability, as you know, that's our dry powder. Coming out of this most recent bond deal, we did that $300 million on the heels of the Lugano transaction and those 2 add-ons, we did Lizard Skins and Plymouth Foam. We had a little over $300 million drawn on the revolver. So we took what was drawn on the revolver and moved it out on this 10-year bond at 5%, which we think was a phenomenal transaction. So that really freed up virtually all of our revolver after that transaction. So today, we have that full $600 million of availability. We also have the ability to upsize that revolver by $250 million. So we feel like the revolver's in a great place from a liquidity standpoint and provides us plenty of dry powder in the near term. As you know, the Advanced Circuits deal we announced recently, that sale transaction is not expected to close until 2022. So those numbers are -- the business will receive, at closing should the transaction close, $240 million of cash. We'll also receive $70 million at closing of that SPAC stock. So those proceeds will be $310 million. That cash then, in theory, would come right on their balance sheet if we haven't done a deal between now and then. So we'll have plenty of capital on the revolver. We'll then be -- have a little over $200 million-ish of available cash after management and minority interest and debt repayment, et cetera.

And maybe, Ryan, if you don't mind mentioning the ATM and the proceeds and obviously getting liquidity so that we can transact against opportunities as they come up, as Derek is asking.

Yes, absolutely. So Derek, as you're aware, on the heels of the reclassification, we put in place an at-the-market common equity platform. That's been running in the background through September 30. As you know, in our filings, we raised about $18 million on that product. That is ongoing. That continues. We think it's a great way to raise equity capital. It's efficient. It's at a great cost at only 1.75%, and we can also dictate the prices that we sell at. So we think it's a great way to raise equity capital, but that is additional availability and proceeds that will come in over time as we sell upon that program. So we feel like the liquidity position we're in is really, really strong today.

Yes. And Derek, if I can just follow up. Michael asked a question earlier about how much of our growth towards $1 billion can come from organic core growth in the portfolio and how much needs to come from inorganic. And that number kind of as a swag and it depends on growth clearly in the portfolio looks like something like $300 million of EBITDA. Obviously, we're going to need equity capital to fulfill that component of it, because what we have said all along, it is not our goal to drive higher financial risk through to our shareholders. We want to maintain the same financial risk profile that we have today, while still accomplishing that goal. And so the ATM program is an incredibly effective manner in which we can raise equity proceeds to fill that inorganic hole that we're going to need to buy companies to get to that target level. Now I want to point back to 2020, because I think it speaks to why do we have a program like this running and why do we want to always keep the liquidity on our balance sheet. We bought the 2 -- like arguably the 2 best businesses we've ever owned. I mean, there's been others that are great, but Marucci, and Kurt just gave you a description of that, and BOA, they're just fantastic businesses. That was enabled because we had liquidity at the time, and we were able to move really quickly. And so I would convey to our shareholders that, yes, is there some dilution that comes with the ATM? Of course, there's going to be more shares outstanding, but it's providing us the capital to be able to go and execute against these targets. And when we find the next Marucci or we find the next BOA or the next Lugano, and we will, look, we found 3 of those in the last 2 years, we need availability to be able to go and close on that. And so I think the ATM as being a really positive value driver for the business. It's efficient, it's low cost, it's nonmarket disruptive, and it provides the availability for us to act quickly against a great target and kind of bring another subsidiary company into our holding company structure.

Okay. And then 1 other technical issue. And I know you're limited in terms of what you can say. But if the 5.11 IPO proceeds would that intercompany financing, would that be redeemed immediately upon 5.11 completing an IPO?

Yes, Derek, that's correct. The first proceeds we would receive would be to repay that intercompany debt liability, and that would go away and allow them to go out and pursue their own credit facility.

Okay. Understood. And then just circling back on health care. Would you talk a little bit about kind of scaling that health care vertical initiatives after acquiring that first subsidiary potentially next year? Would kind of new CODI platform acquisitions kind of be focused more on health care at that point and maybe add-ons would be the focus for the consumer and industrial verticals? Or how do you think about scaling that platform once you get the first deal done?

Sure. And so Derek, just to level set, I think when we talk about getting the vertical up and running, I'm not sure that it would be feasible next year to consummate the first acquisition. I think our goal, just so we're all clear, is that we will have onboarded a leader by the end of 2022. And so it's probably more likely that in '23, that vertical actually gets populated with its first investment or 2. In terms of -- really, it's capital allocation, right, across the 3 different verticals. We do not believe the addition of a health care vertical, it creates any scarcity of capital that doesn't allow us to invest in new platforms, either on the consumer or on the niche industrial side. In fact, we have a really big team of investment professionals and operating executives who work at the manager in their role and their domain expertise is within consumer and niche industrial. And so we're clearly going to want to continue to take advantage of that human capital that we've been making investments in over the years, and those investments have been accelerating in the recent last couple of years. Now on top of that, when we bring in a health care leader, it's our view that initially, in order for the transaction process that we have well established at Compass and some of the way that we like to complete these deals, it is better to take and draw from resources we have internally that are very adept at the transactional side but may not have the domain expertise. Eventually, after we get our first platform company done, we will start to specifically hire human capital to build out that vertical underneath our leader, and that will become a self-contained unit. But I would not, right now, look at capital as being scarce, where allocating to the health care vertical takes away from either of our other verticals. In fact, we sit in really a very enviable position today where capital is plentiful and the scarcity is on deal opportunities. But the scarcity really goes to deal opportunities. So we don't think that the creation of this vertical and starting to invest in new platforms in this vertical in any way, shape or form will take away from our ability to invest in new platforms in either of our existing verticals.

This does conclude the question-and-answer session from the phone lines. I'd like to hand the program back to the company.

Okay. There we go. I think I'll try to facilitate some questions and answers. And in fact, Kurt, we've got a few more on route that I'd like to hit on first, and then we'll touch on 1 or 2 that we've gotten from investors on CODI. So first, it's interesting, you've got 2 brands, Marucci and Victus. And the question really is, how are they differentiated in the marketplace? How do you handle having 2 powerful brands that both Major League baseball players, many baseball players are using on a daily basis?

Yes, it's tough in certain instances. But for the general market out there, they don't even realize that we own Victus. The Marucci owns Victus. A lot out it. Some players do realize that, but we do have separate sales reps in the club out that deal with players. And then when we go to the general public, when we put it in retail stores, there's a different price point between Victus and Marucci. And we've kind of created this new culture at Victus, and we've kept them separately where we could have bought Victus and moved it to Baton Rouge and kind of intertwine it together, but we wanted them to have that life. We wanted Victus to have their own life, their own brand. And I think keeping them separate in Pennsylvania has been the right decision so far. Now their wood bats are manufactured there in Pennsylvania, and that culture that they have amongst their team is in Pennsylvania. But a lot of their other products, a lot of the product team that we have at Marucci, we worked together with them from Baton Rouge the other product lines that they have. But we'd like to keep them separated enough to keep those brands differentiated in the market when we do give our presentations. It's actually kind of funny. We joke internally that the Marucci team shows up in suits, college shirts, shirts tucked in, and the Victus team shows up in T-shirts, hat backwards and flip flops. And so there is a little bit of a different culture between the 2 groups, and we like that. We like the competition between the 2 groups, and we want to keep them as separated as much as possible because it does give us the chance to have different price points on the retail shelf. It does give us a chance to have different price points at the Major League level, and they are different bats. We challenge each other to make each bat better. We're always constantly saying our bat is better than yours, your bat is better -- kind of back and forth between the 2 groups, and it's been awesome to watch. The product teams go head-to-head with each other, and it's really been the rising tides and both of us have gotten better. But now we're looking forward to integrating Lizard Skins into both groups and how we're going to add that on to both companies.

Fantastic Great. The next question talks about revenue mix. Obviously, the business has been built on bats and there's been the slow development of new products, including gloves, apparel. Can you talk a little bit about today's product mix, very rough numbers? And then as you expand internationally, right, in the question here is U.S. versus international today, obviously, little international. But obviously, you'll go -- my guess is to market first with bat. So maybe how does that overtime shift the product mix today and then as you expand internationally?

Yes. I mean, as you said, we're heavy bets right now. Wood bats are probably, I don't know, anywhere from probably 12%, 14% of our overall revenue for wood between the 2 companies. And then really your aluminum composite is a large majority of the rest. And while we're looking at that, there is still room to grow in that category, but the biggest growth areas those ones that I highlighted earlier, fielding gloves. We're barely scratching the surface with that. I mean we're probably less than 3 million in fielding gloves this year with a long way to go in fielding gloves. Apparel, we did quite a bit of apparel, believe it or not, on field. We're probably in, I'd say, 8 figures in apparel now. But now next year, it's going to be growing quite a bit more with not just the on-field uniforms, but that lifestyle piece that we're seeing a huge uptick. And really, with the stuff that we're doing as a brand and all the success we're having, we're getting more placements with other products, bags, batting helmets, we're starting batting gloves. Actually, batting gloves has become a monster category where I think we exceeded $6 million in batting gloves this year in sales already. So that is another one that's growing quite a bit. But we see a real big opportunity in some of those other categories we laid out, and of course, the retail strategy, having the stores at the club house where we can go in and get Marucci products, Victus products and Lizard Skin products all right there with your own captive audience to really help grow those other categories.

Right. You talked about -- I know also about the opportunity of gloves and the time it will take to really build a big business there because you've got gloves on professionals that, right, they don't really want to change their glove because they've had it forever. So how are you thinking about that going forward?

Yes, that's tough. I mean we have some competitors who are against it, they have been around for generations, right? So we have to go younger. And that is really our strategy. We have to go younger. And then we're also at the top with those pro players and then kind of meeting between with the college tier and then those franchise club teams and the high schools. So really, we really have to go young, and I think we're starting to get that placement out of retail. So I really am excited about some of these kids are using a Marucci glove for the first time. And now when they grow up, they're going to say they've used Marucci their entire career. Whereas kids are now going up now, their dad and their grandpa all used the same glove. And that's a tough challenge when you get to some of these players because they love our products, they love our gloves, but it's just hard for them to make that switch because they're so comfortable with that product they had, had. And I think we're now starting to make some inroads with that with those 2,400 custom fielding gloves on the college level. That is your next player that's going into the minor leagues and pro ball. So we're really attacking that. And then with social media. I think our team has done a great job of promoting those custom products that we put out on social media from Instagram to Twitter and all the things that we're doing out there. I think you're starting to get a lot of people talking about our fielding gloves.

I was just going to say, I think it interesting, I mean, you're actually changing the technology in the gloves. Maybe you can touch on CMOD as an example or something like that, just so people see you're not just replicating old technology.

Yes. No, we don't want to just put a glove out there because we want to put a glove out there. And this carpenter trade technology, the CMOD technology really form fits to the players' hands. And so that's what we're going to use the innovation lab that we have, the testing lab and this carpenter technology to create gloves that actually make them a better player. Because historically, everybody says it fits like a glove. Well, fielding gloves don't actually fit your hand very good. It's a one size fits all in the stall, you put your hand and you tighten your wrist, and that's really the only thing you can do your hand moves around. Well, with this technology in gloves, it's actually formfitting and it fits to your hand. And so being able to bring that down, obviously, at -- the full custom glove is going to be really expensive. But we're starting to bring that down all the way to the youth market with certain parts of that CMOD technology. And that's what we've been trying to work on all these. That's why it's taken a couple of years to get it to market because it stuff is really hard to do. And so now going down to the youth level and getting rid of the thumb pulls and getting rid of the pinky pulls, that is a baseball player and as a parent as a coach, you know how terrible that is to watch your kid where it gets pulled out of the glove and they can't get it back in. Yes. So it's really hard. So what we've done is we brought some of that down to the kids where it actually fits their hand. And we're going to be able to test on pro players to show that if it's lighter and it fits your hand, you're going to be able to perform better in the field. So imagine that out fielder that runs with a lighter glove that fits his hand better and the one that tipped off his glove, now we can show that they could catch that ball. The infielder that has the quick reaction or the pitcher, if the glove is lighter and it fits your hand, you're going to be able to get to those balls. And I think that's what we want to bring to the table is that innovation and not doing this product just because another very similar product's out there in the market. We want to be different in everything we want to do -- everything we do. And we say it from the beginning, we challenge the status quo. We're not making a glove just because that's how it's been made for years. Why? We always ask a question why, why are we doing it that way? That doesn't seem to make sense. Let's make a glove that actually fits the player and give them what they want and what they need to be successful.

Fantastic. So we're going to move on to CODI specific questions. Interestingly, the first one, and I'll summarize it, has to do with inflationary pressure. So maybe we'll start with Marucci, and maybe Pat, we can hit on -- you can come up with another company or 2 that -- and how we're handling it. But obviously, Kurt, you guys are facing inflationary pressures. And how are you guys managing that today as we enter the fourth quarter and even next year?

Yes, it's been a challenge, right? And I think a lot of our -- if we have any sort of margin shrinkage at all, a lot of it is intentional for us right now. We're gaining market share by air shipping our product in to get on shelves when our competitors really haven't been delivering. And so we are seeing some inflationary issues with some salaries and wages going up. That was something we had to deal with at the end of this year. But I will say that one of the things we did to offset some of these issues is the vertical integration of buying our wood mills and buying our timber company has really protected our wood business on the Marucci side. And we're really trying to expand there because the wood market in general, the products and the wood have gone up about 40% cost of wood this year. So that's one of the things we're dealing with. But I think our team has done a really nice job of working together to air ship as much as we can and also to hold more inventory. I think that's the biggest thing we're going to be doing is holding more inventory going into next year and mid next year. And of course, we're going to be raising prices, but doing it in the right way.

So I mean broader picture, right, it goes back to where we talked about market positions. And we try to buy companies that don't have to be -- and this is a term [indiscernible] I came up with it, its somewhat funny, given one of our successful investments was in suspension, but don't be the shock absorber in the system. So don't be the one who, when times are tough, has your margins compress significantly. And the market share in the brands of our businesses allow our companies, for the most part, to not be the shock absorbers in the system through when there is inflationary pressures, if that makes sense. We are not -- I mean, there will be certain times when we do not pass through prices. It's a very high bar and a strategic decision to make that goes all the way up to Elias and I when we make that decision to not pass through those prices if that makes sense. So again, it goes back to the types of businesses we have and really the effectiveness of the management teams we've been lucky to work with.

Great. Elias, probably the next question is for you. There's been certainly some secular changes as a result of the pandemic. So the question is, how has this impacted our current strategic vision?

Yes. So clearly, the pandemic has impacted everybody and how business is just transacted right now. And we see the continued use of technology and how that enables more efficiency being probably the biggest trend that comes out of the pandemic. A couple of examples. Ryan, we just got done doing a conference, and we did it over Zoom. Historically, we would have traveled to Florida, done a couple of day conference, traveled back, really inefficient, costly, you do it in a much more efficient manner. I don't think that we're going to go back to the old ways of doing that. At the same time, in the manner that we've adapted to a hybrid workforce, that's what people want today. So they want more freedom to pursue on their time when they work and when they are going to perform in their leisure activities. That probably means there's more rounds of golf that are played on a weekly basis because someone might go out and golf from 9 until noon and then work from 1 until 10. And it just enables people to be able to have more consumption of their primary hobbies and activities. And that's what we're seeing in a shift with our consumer businesses, right? BOA, which participates across a wide range of different end markets from cycling to hiking and golf and all of those, those categories are all growing rapidly, U SPORTS and baseball participation. There's just more consumption because people are able to fit that into their lifestyle. So I would say we view this -- the digital transformation that's happened and the integration of technology into our daily lives into the way that we are going to kind of work and live and consume products, that was probably an acceleration of a trend that was developing anyway over the next decade, and we took a decade's worth of trend line and we brought it back into 2 years. And so I think we have to be very cognizant of that. Whenever we acquire a company, are we trying to go against the trend, right? I gave an example of kind of it jokingly, but look, we're building health and wellness into our own offices. And you've got trends towards home gyms and office gyms and Pelotons and Tonal and all these things. I think we'd probably be hesitant to be entering into the physical kind of gym space given that, that feels like a trend that is going against us. So I give that as one example, but it really is much more about kind of how have these trends impacted people's behaviors and lifestyles and do we think that it was -- there's a reversion coming back. In some cases, maybe there are. So we got to be careful that it's not pandemic-induced expansion in earnings and revenue and opportunity that's going to fall back and it is more of a truly systemic change that's occurred and kind of working within and trying to find those companies that play to how that transformation has happened throughout the pandemic.

Fantastic. I think that concludes the Q&A. We don't have any other questions. So I'll turn it back to Elias here for some closing remarks.

Yes. So just in summary. As Ryan said at the end of his presentation and as you've heard throughout, we believe over the last couple of years, there have been so many accomplishments along our strategic initiatives now on cost of capital, on the transformation of the portfolio and the core growth rate, access to capital that we have, the investment that we've made into human capital, and the continued timing grade that our people are getting and how they're being able to perform in the firm. Those are the ingredients that are going to create future success. And I believe we truly are at an inflection point and that, it just continues to advance forward. And so I couldn't be more excited at where we sit today with everything that's happened. Obviously, the cash retention, the ability to reinvest that back in our business to accelerate our growth. I mean, these are really some important aspects. They have largely happened well before on a lot of these initiatives, what we thought was achievable from a couple of years ago, and it sets us up great for future success. And so we hope you, as shareholders, are as excited as we are about the future. We think it's never been brighter than where we are now. We thank you for being partners with us, providing us with capital, giving us your trust with your capital to go out and kind of manage that on your behalf in these companies. And we will continue to be a good steward of your capital going forward. And every day we wake up, we understand it's our privilege and not our right to be able to manage that money on your behalf. And we will do what is in your best interest constantly to continue to advance and create shareholder value. I'll finish up by saying we are really hoping that we could do this in person. We love when we're able to see everybody, say hi, talk to you all. But this year, with the pandemic continuing, it was a little bit difficult to do that. We hope next year that conditions continue to ease and that we'll see you all live in person when we host our 2022 Investor Day. So thank you all again and look forward to seeing you all in person next year.