Compass Diversified (NYSE:CODI) used its third-quarter 2025 conference call to mark a return to regular reporting and to outline how the company is operating after completing the Lugano investigation, restating financials, and becoming current on its SEC filings.
CEO Elias Sabo said the company is back in compliance with reporting requirements under its credit facility and bond indentures and is “returning to a more normal operating cadence.” CFO Stephen Keller added that Lugano Holdings remains in reported results through November 16, 2025, when it entered Chapter 11 proceedings, and will be deconsolidated thereafter.
Leadership updates at the external manager
Later in the call, Sabo also recognized the retirement of James Bottiglieri from the CODI board at the end of last year, citing his contributions to the firm’s IPO and his long-standing guidance as a board member.
Operating performance: growth outside Lugano amid tariff and geopolitical volatility
Sabo characterized 2025 as a year of macro uncertainty, citing geopolitical risks and a “fluid tariff environment.” Excluding Lugano, he said subsidiaries delivered mid-single-digit growth in subsidiary-adjusted EBITDA through the first three quarters, consistent with expectations communicated at the start of the year.
In the consumer vertical, Sabo said year-to-date sales grew low single digits. He highlighted several business-specific developments:
- BOA: Continued penetration across applications including snow sports, cycling, workwear, and protective headwear.
- The Honey Pot: Described as one of the fastest-growing feminine care brands, with continued share gains and category growth, supported by new product launches and “better-for-you” positioning. Sabo said CODI believes the brand is generating strong double-digit EBITDA growth.
- 5.11: Sabo said the business adapted quickly to tariffs using supply chain actions and targeted pricing while continuing to invest selectively to broaden brand reach.
In the industrial vertical, Sabo said year-to-date sales rose mid-single digits, supported by Altor’s 2024 acquisition of Lifoam. He also discussed disruption in rare earth magnetics markets affecting Arnold, calling the volatility a short-term headwind in 2025 but also a long-term opportunity as customers seek a more geopolitically secure supply chain. Sabo noted Arnold is among a small number of U.S. producers of samarium cobalt magnets used in demanding aerospace and defense applications.
Sabo also highlighted Sterno, saying the business continues to deliver double-digit EBITDA growth, driven by core food service strength and operational efficiency initiatives, including sourcing and production optimization to navigate tariffs.
Financial results: Q3 loss, year-to-date sales growth, and one-time Lugano-related costs
Keller reported third-quarter net sales of $472.6 million, up 3.5% year-over-year, and a GAAP net loss of $87.2 million, which included Lugano-related investigation expenses and operations.
Because the call was the first public discussion of 2025 results, Keller focused on year-to-date performance through the first three quarters. He said consolidated net sales were $1.4 billion, up 8.6% from the prior year, or 6.1% excluding Lugano’s impact.
Additional year-to-date detail included:
- Consumer vertical sales: Up 3.1%, led by “very strong growth” at The Honey Pot and additional contribution from 5.11.
- BOA sales: Down slightly year-to-date due to a planned exit from a lower-value children’s business in China; Keller said BOA’s core business grew double digits excluding that segment.
- Industrial vertical sales: Up 10.5%, driven primarily by Altor’s acquisition of Lifoam, partially offset by headwinds at Arnold tied to rare earth supply chain disruptions.
- Subsidiary-adjusted EBITDA (excluding Lugano): $257 million, up 5.8% from 2024, driven by double-digit growth at The Honey Pot and Sterno and the Lifoam acquisition, partially offset by Arnold.
Keller said the year-to-date consolidated net loss was $215 million, including a $155 million loss at Lugano. Public company costs and corporate management fees were $99.5 million year-to-date, including more than $37 million of one-time costs tied to the Lugano investigation and restatement.
He said the company and board are working with the manager to recoup overpaid cash management fees from periods affected by Lugano as originally reported. Keller expects a “significant true-up” in the fourth quarter, producing a one-time non-cash benefit in CODI’s P&L and the recognition of a current asset to offset future cash management fees. CODI expects to fully recoup the overpaid fees by the end of 2026. On a normalized basis, Keller said management fee costs (non-cash) for next year could be assumed at about $55 million, including fees paid directly by subsidiaries and excluding Lugano; cash payments are expected to be lower due to the recoupment process.
Balance sheet, leverage priorities, and guidance update
On cash flow, Keller said CODI used $54 million of cash in operating activities year-to-date, primarily due to costs associated with Lugano’s operations and disposition. Capital expenditures totaled $34 million year-to-date, in line with the prior year. CODI ended the third quarter with $61.1 million in cash and cash equivalents and used less than $10 million on its revolving credit facility. Keller noted that a late-2025 credit agreement amendment restored access to the full $100 million revolver capacity.
Management repeatedly emphasized deleveraging as a top priority. Keller said CODI is focused on reducing leverage both organically and through strategic transactions, including potential opportunistic sales of one or more businesses. Under the amended credit agreement, the leverage covenant is relaxed through 2027, with milestone fees beginning June 30, 2026 if leverage is not below 4.5x, which Keller described as an incentive for faster deleveraging. Excluding deconsolidated Lugano results, Keller said year-end leverage is expected to be around 5.3x.
For full-year 2025, CODI tightened its expected subsidiary-adjusted EBITDA range (excluding Lugano) to $335 million to $355 million. The company plans to provide 2026 outlook on its fourth-quarter call.
In Q&A, Sabo said the company’s long-standing approach is that “everything is for sale at all times,” depending on valuation, while stressing it will not sell a premium asset at a “big discount.” He also discussed possible sale pathways, including IPOs (citing Fox Factory historically and noting CODI had previously filed for a 5.11 IPO but withdrew due to market conditions), as well as strategic and private equity sales processes typically run with investment banking partners.
Management attributed some quarterly growth variability to tariff-driven demand pull-forwards around “Liberation Day,” followed by a slowdown as consumers resisted additional inflation. Sabo said 5.11 has felt the impact most directly given production in Southeast Asia and the challenge of passing through price increases.
Regarding Arnold, Sabo said China’s export controls caused a roughly $6 million to $8 million EBITDA disruption, but that controls have loosened and normalization began in the fourth quarter. He said Arnold has backlog to work through and that supply chain security concerns among aerospace and defense customers could support higher growth over the next three to five years.
Finally, Sabo addressed free cash flow expectations in 2026, saying that with Lugano no longer in the portfolio and after elimination of the common dividend, CODI expects a meaningful change in cash generation. He said the company would expect, depending on working capital timing, to generate roughly $50 million to $100 million of free cash flow in 2026 after interest, preferred dividends, and capex.
Keller also addressed investor questions about insider share purchases, saying the insider trading window has remained closed given the cadence of filings and is expected to reopen after CODI files its 2025 Form 10-K and completes the annual audit, with any purchases subject to normal compliance procedures.
About Compass Diversified (NYSE:CODI)
Compass Diversified Holdings (NYSE:CODI) is a publicly traded private equity company headquartered in Bethesda, Maryland. The firm specializes in acquiring and managing middle-market businesses across a variety of industries, with a focus on driving operational performance and sustainable growth. As an externally managed entity, Compass Diversified leverages a disciplined investment approach to build a portfolio of market-leading companies that benefit from strategic oversight, capital support and shared best practices.
Compass Diversified’s investment activities span five core sectors: branded consumer, consumer services, differentiated industrial products, value-added distribution and business services.
