Compass Diversified (CODI) Earnings

Management highlights

### Leadership Transition - Current CEO Elias Sabo will retire at the end of calendar 2026, and current COO Zach Sawtelle will succeed him as CEO - The transition follows the completion of the most acute phase of post-Lugano remediation work, and Sabo will work closely with Sawtelle through the end of the year to ensure a smooth handoff Balance Sheet & Capital Structure Actions - Completed the sale of Sterno Food Service in May 2026 at an attractive valuation, and applied more than $280 million of sale proceeds to debt reduction - Total debt was reduced by nearly $300 million from year-end 2025 to $1.6 billion at quarter end; the covenant leverage ratio fell to 4.8x from 5.3x at the end of Q1 2026 - Post-quarter, the company amended its senior credit facility to extend all term loan and $54 million of revolving commitments to January 12, 2028, right-sizing the revolver to match expected liquidity needs - A settlement with Lugano's Unsecured Creditors Committee was reached to facilitate orderly liquidation of Lugano assets; the company expects to receive nearly $20 million in recovery by early fall 2026, which will be applied to further debt reduction Management Services Agreement Amendment - Following a board-led review that incorporated investor perspectives, the amended MSA will take effect January 1, 2027 - The base management fee is reduced from 2% to 1.25% of average adjusted net assets on the first $3 billion in assets, and 2027 base fees are capped at $30 million - Two new performance-linked awards (each equal to 12.5 basis points of average adjusted net assets) are added: one to increase manager ownership of Compass Diversified shares, and one tied directly to shareholder returns and operating performance - Even with full payout of both new awards, 2027 total fees are expected to be approximately $20 million lower than under the prior fee structure Core Strategic Priorities - Drive profitable growth across the existing subsidiary portfolio - Pursue attractive divestitures to realize intrinsic value and accelerate deleveraging - Continue reducing debt to reach target leverage levels - Once the balance sheet is sufficiently strengthened, efficiently return capital to shareholders to close the gap between the current share price and the company's estimated intrinsic value

Guidance

- The company maintains its prior fiscal 2026 total subsidiary adjusted EBITDA guidance range of $320 million to $365 million. This range includes the $9 million in adjusted EBITDA generated by Sterno Food Service prior to its sale, which was excluded from year-over-year quarterly comparative results. - The guidance has been updated to reflect a stronger branded consumer segment outlook and a softer industrial segment outlook: branded consumer adjusted EBITDA is now expected to be $235 million to $270 million, while industrial adjusted EBITDA is expected to be $85 million to $95 million. - Full year 2026 capital expenditure guidance is maintained at $30 million to $40 million. - Full year 2026 free cash flow is expected to be around $50 million after all operating and one-time payments, with no material change to prior guidance. - The guidance incorporates the pull-forward of customer orders at Boa and PrimaLoft, current operating challenges at Altor, and expected IEPA tariff refunds, and does not assume any additional acquisitions, divestitures, or significant changes to the current trade environment. - Management targets a long-term leverage ratio of 3.0x to 3.5x. Excluding future divestitures, the company expects to reach approximately 4.5x leverage organically by the end of fiscal 2026.

Segment performance

For the second quarter of fiscal 2026, continuing subsidiaries (excluding Lugano and the divested Sterno Food Service business) reported total net sales of approximately $411 million, which was roughly flat year-over-year. Total subsidiary adjusted EBITDA for continuing operations was approximately $92 million, a 12.6% increase year-over-year. Branded Consumer Segment: - Net sales increased 7.2% year-over-year - Adjusted EBITDA increased 24.2% year-over-year - Individual subsidiary performance: Boa grew adjusted EBITDA 27% with expanding gross margins; The Honey Pot grew adjusted EBITDA 32% on expanded distribution; PrimaLoft grew adjusted EBITDA 28% supported by strong Asian partner demand; 5.11 grew adjusted EBITDA 14% with 200+ basis points of margin expansion from disciplined promotion and tariff refunds; Rimports benefited from tariff refunds but absorbed Sterno divestiture separation costs, and expects lower large-customer volume to weigh on second half results. Industrial Segment: - Net sales declined 11.5% year-over-year - Adjusted EBITDA declined 12.8% year-over-year - Individual subsidiary performance: Arnold delivered a standout performance with adjusted EBITDA up nearly 50%, and maintains a strong backlog supported by demand for non-China sourced rare earth magnets and progress at its Thailand facility; Altor reported an adjusted EBITDA decline of roughly 50%, pressured by tariff disruption in white goods, softer vaccine demand for cold chain, higher input costs, increased competition, and underperformance in commercial execution. On a reported basis including Sterno Food Service's $2 million adjusted EBITDA through its May sale date, total subsidiary adjusted EBITDA was approximately $94 million. After $29 million in corporate expenses, total adjusted EBITDA was approximately $66 million.

Risks & headwinds

- The company's common stock continues to trade at a meaningful discount to its estimated intrinsic value, which is a core focus for management to resolve. - Ongoing professional fees related to Lugano's bankruptcy, investigation, and related litigation have kept corporate costs elevated, and D&O insurance recoveries have only offset a small portion of these cash outlays to date, with the timing and amount of future recoveries uncertain. - Altor's turnaround is expected to take 4 to 5 quarters of gradual improvement, with continued pressure from elevated raw material (oil) prices squeezing margins in the near term. - Rimports expects lower volume from a large customer to weigh on second half fiscal 2026 results. - Future additional recoveries from the Lugano liquidation process have uncertain timing and amounts, and management does not count on these recoveries in its base projections. - Forward-looking statements are subject to material risks that could cause actual results to differ materially from projected performance, with key risk factors detailed in the company's recent SEC filings.

Analyst Q&A

• Q: What are the long-term growth outlooks for the company's consumer and industrial segments? /

  A: Management expects the curated portfolio of high-quality consumer businesses to deliver long-term profitability growth in the high single-digit to double-digit range. Industrial businesses are expected to deliver long-term growth in the mid single-digit to high single-digit range.

• Q: As the company works to close the gap between share price and intrinsic value, is additional divestiture still the primary catalyst, or can operating improvement and deleveraging narrow the gap on their own? /

  A: Management remains highly committed to pursuing an additional attractive divestiture to accelerate the deleveraging process, and still views this as a critical step to close the valuation gap. While the company will continue to deliver operating improvements and organic deleveraging, additional asset monetization (full or partial) remains the most prudent path to close the gap given the current share price discount.

• Q: What target leverage ratio is management targeting, and when will the company start returning capital to shareholders? /

  A: Management's long-term target leverage ratio is 3.0x to 3.5x. The company expects to begin considering capital return to shareholders once leverage falls below 4.0x, with any capital return program focused on closing the gap between share price and intrinsic value.

• Q: What is the scale of potential future recoveries from the Lugano liquidation beyond the expected $20 million receivable by early fall? /

  A: The $20 million near-term recovery comes primarily from an inventory guarantee. An additional ~$20 million in potential recoveries from tax refunds is expected over the next couple of years, though timing is uncertain. Other smaller potential recoveries exist but are too uncertain to quantify; management operates under the assumption these will be zero, and any unexpected proceeds will be used immediately for debt reduction or capital return.