Compass Diversified Q4 Earnings Call Highlights

27 Feb 2026, 21:14 by Teresa Graham · The Cerbat Gem

Compass Diversified (NYSE:CODI) executives emphasized a renewed focus on stabilizing operations, reducing leverage, and rebuilding investor confidence as they reviewed fiscal 2025 fourth-quarter results and outlined expectations for 2026. Chief Executive Officer Elias Sabo repeatedly described 2025 as a difficult year for the company, but argued that performance at the remaining subsidiaries demonstrated resilience after the issues surrounding Lugano.

Management frames 2025 as a reset year

Sabo said 2025 was “painful” and “humbling,” but maintained that CODI’s operating model remains intact. He noted that, excluding Lugano, the company generated mid-single-digit revenue growth in 2025 and achieved operating leverage that contributed to high-single-digit growth in subsidiary adjusted EBITDA. He added that CODI’s consumer businesses grew adjusted EBITDA despite a challenging consumer backdrop, while industrial results were modestly higher for the year as acquisition-driven gains at Altor were offset by disruptions at Arnold tied to rare earth export restrictions from China.

Looking forward, Sabo said CODI expects subsidiary adjusted EBITDA growth in the mid-single digits in 2026, supported by its “diversified collection of businesses.” He outlined a multi-step capital allocation framework:

Near-term priority: reduce leverage through organic cash generation and divestitures.
Medium-term: work to close what management views as a gap between CODI’s share price and intrinsic value; share repurchases could be considered if conditions support it.
Longer-term: “reignite” the acquisition-driven model when capital markets allow.

Divestitures move to the forefront of the deleveraging plan

A significant portion of the call centered on CODI’s efforts to sell one or more subsidiaries to accelerate deleveraging. Sabo said the company has initiated multiple sale processes and is “actively engaged with qualified counterparties and advisors,” adding that mid-market sale processes typically take about six months end-to-end, though that timeline does not necessarily start “from today” because CODI is already “well into multiple processes.”

In the Q&A, Sabo said the company was limited in marketing assets until its restatement work was completed in early January, though it was able to do preparatory work in advance. He characterized buyer interest as “really strong,” saying CODI owns “highly marketable” companies that typically attract both strategic and financial buyers.

When asked about M&A market conditions, Sabo described the environment as “lukewarm” but not inactive, citing available capital for quality assets and noting that falling rates can support valuations. At the same time, he pointed to tariff and geopolitical uncertainty as factors that can increase buyer caution, particularly for consumer and industrial businesses tied to broader economic activity.

Fourth-quarter and full-year results reflect Lugano impact; CODI highlights ex-Lugano metrics

Chief Financial Officer Stephen Keller reminded listeners that CODI’s reported GAAP results include Lugano through Nov. 16, 2025, when the subsidiary entered Chapter 11 bankruptcy. For the fourth quarter, Keller reported GAAP net revenue of $468.6 million, down 5.1% year over year, primarily due to Lugano’s impact and deconsolidation. The company posted a GAAP net loss of $78.8 million in the quarter, which included more than $25 million of one-time Lugano investigation and restatement costs.

For the full year, Keller said net revenues were $1.9 billion, up 4.8%, and GAAP net loss was $293.7 million, including approximately $60 million in investigation and restatement-related expenses.

Excluding Lugano, CODI reported full-year non-GAAP results that management said better reflect the business going forward. Keller said:

Net sales: $1.8 billion, up 3.9%.
Branded consumer net sales: up 3.7%.
Industrial net sales: up 4.1%, with acquisition-related growth at Altor offset by trade disruption at Arnold.
Subsidiary adjusted EBITDA (excluding Lugano): $345.8 million, up 8.8% (consumer up 13.8%; industrial up 1.1%).

Keller said public company costs and corporate management fees totaled $91.1 million in 2025 and included two non-recurring items: investment/restatement costs and a $36.2 million credit recorded in the fourth quarter related to excess management fees previously paid to CGM in connection with Lugano.

Balance sheet, leverage, and cash actions

CODI ended the year with $68 million in cash and cash equivalents and about $96 million available on its revolver, according to Keller. Leverage for debt covenant purposes was approximately 5.47x at year-end, which Keller said was “slightly higher than anticipated.” Both Keller and Sabo said reducing leverage is the company’s top financial priority.

Management highlighted a January sale-leaseback transaction for some Altor facilities that freed more than $11 million in cash, which was used to pay down senior debt. CODI also reported 2025 capital expenditures of $44.3 million, down $12 million from the prior year, with Keller attributing the reduction primarily to the absence of Lugano-related investments.

In response to a question about leverage targets, management said it is targeting 3.0x to 3.5x leverage over the long term. By the end of 2026, management said it expects to be around 4.0x, and indicated that reaching that level would require a deleveraging event such as an asset sale; absent a transaction, management suggested leverage could be closer to roughly 4.5x, depending in part on the timing of potential recoveries related to Lugano.

2026 outlook: wider range reflects macro and tariff uncertainty

Keller provided 2026 guidance for subsidiary adjusted EBITDA of $345 million to $395 million, including consumer adjusted EBITDA of $220 million to $260 million and industrial adjusted EBITDA of $125 million to $135 million. He said the range is wider than in prior years due to uncertainty in the macro environment. For modeling purposes, CODI expects 2026 capital expenditures of $30 million to $40 million and cash management fees of $25 million to $30 million. Management said the outlook excludes potential acquisitions or divestitures and does not assume any significant positive or negative impact from the evolving trade environment.

During the Q&A, Sabo tied the wider guidance range to both tariff-driven uncertainty and the broader economy, adding that tariffs have weighed on consumer spending and that the company has observed pricing up but units down in recent retail data. He also said no refunds were assumed in guidance related to tariffs that were struck down by the Supreme Court.

On subsidiary-level commentary, Sabo cited BOA Fit System visibility tied to medal counts at the 2026 Winter Games, strong consumer metrics and distribution gains at The Honey Pot, and a year-end backlog at Arnold that was more than 40% higher than the prior year. He also noted that China had reinstated export restrictions ahead of bilateral talks with the U.S., which could drive near-term disruption at Arnold but underscores the strategic importance of non-China supply; management said Arnold is ramping its Thailand facility, with initial production underway.

In industrial, executives said Arnold could see near-term “noise” early in 2026 but suggested the back half of the year could show stronger growth if supply improves. Keller said CODI is more cautious on Altor given vaccine-related headwinds and tariff-driven softness in appliance purchases, though he said the business remains positioned for the long term and management expects stabilization in 2026.

Asked about 5.11, Sabo said the professional side remains a steady growth business driven by government and municipal spending, while the consumer side has faced price sensitivity after inflation and tariffs pressured apparel. He added that the company has offset some gross margin pressure through SG&A reductions enabled by AI productivity initiatives.

Separately, Sabo addressed a leadership change at PrimaLoft, saying the business has been “flattish” since acquisition and had worked through channel inventory. He said CODI brought in a new leader, Eric Weis, who previously held a senior role at BOA, describing the move as an opportunity to accelerate growth.

Management closed by reiterating that the company is pursuing operational execution, strong cash conversion, and leverage reduction “organically and inorganically,” with urgency and discipline after what Sabo called “the hardest year in CODI’s history.”

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.