Good morning. And welcome to Compass Diversified Holdings' 2018 Second Quarter Conference Call. Today's call is being recorded. All lines have been placed on mute. [Operator Instructions] At this time, I would like to turn the conference over to Leon Berman of the IGB Group for introductions and the reading of the Safe Harbor statement. Please go ahead, sir.

Thank you, and welcome to Compass Diversified Holdings' second quarter 2018 conference call. Representing the company today are Elias Sabo, CODI'S CEO and a founding partner of Compass Group management and Ryan Faulkingham, CFO. Also joining us today are Dave Swanson and Pat Maciariello, partners of Compass Group management, who will review our subsidiaries performance. Before we begin, I would like to point out that the Q2 press release, including the financial tables and non-GAAP financial measure reconciliations, are available on the company's website at www.compassdiversifiedholdings.com. The company also filed its Form 10-Q with the SEC last night, which includes reconciliations of non-GAAP financial measures discussed on this call. Please note that references to EBITDA in the following discussions refer to adjusted EBITDA as reconciled to net income in the company's financial filings. The company does not provide a reconciliation of the ratio of its estimated cash flow available for distribution and reinvestment to its distribution. This is because certain significant information is not available without unreasonable efforts including but not limited to our company's future earnings, current taxes, capital expenditures and the distribution to be paid and approved quarterly by our Board of Directors. Throughout this call, we will refer to Compass Diversified Holdings as CODI or the company. Now allow me to read the following safe harbor statement. During this conference call, we will make certain forward-looking statement, including statements with regard to the future performance of CODI. Words such as believes, expects, projects and future or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements, and some of these factors are enumerated in the risk factor discussions in the Form 10-K as filed with the Securities and Exchange Commission for the year ended December 31, 2017, as well as in other SEC filings. In particular, the domestic and global economic environment has a significant impact on our subsidiary companies. Except as required by law, CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information future events or otherwise. At this time, I would like to turn the call over to Elias Sabo.

Good morning. Thank you all for your time and welcome to our second quarter earnings conference call. I'll begin by reviewing the highlights for the second quarter. We continue to build on our acquisitions successes in the first quarter by announcing two accretive add-on acquisitions for Clean Earth during the second quarter. The addition of ESMI Companies, a leading provider of remediation services across New Hampshire in New York and MKC Enterprises, a full service provider of boutique hazardous waste management services, will allow Clean Earth to grow its geographic presence further into New England in the Southeast US, while expanding the company's extensive service offering. As mentioned previously, during the second quarter we closed on a $1.5 billion debt financing, extending the maturity of credit facility and term loan, while adding a new unsecured bond to our capital structure. This financing strengthened our liquidity position and capital structure providing CODI added liquidity to pursue acquisition that build long-term shareholder value and support our ability to provide stable cash distribution. Ryan will provide a brief review of the financing later on the call. Now turning to our quarterly performance. Throughout the presentation when we refer to pro forma adjusted results, revenue and EBITDA for Crosman, Foam Fabricators and Rimports will be as if the businesses were acquired on January 1, 2017. Our second quarter results exceeded our expectation as our leading industrial and branded consumer businesses generated strong performance. Of note, we grew revenues at nine of subsidiaries with four of our subsidiaries generating double digit revenue growth for the quarter. We believe this quarter's performance highlights the benefit of CODI's business model. Despite our branded consumer businesses performing below expectations, consolidated pro forma adjusted EBITDA grew 5.4%, and cash flow available for distribution and reinvestment grew 19% from the…

Thanks Elias. On a pro-forma adjusted basis year-to-date revenues for our niche industrial businesses increased by 11.8% while EBITDA increased by 11.7% compared to the same period in 2017. Starting with Advanced Circuits, year-to-date revenue and EBITDA both increased 2.4% compared to the same period in 2017 in line with expectations Arnold Magnetics year-to-date revenue increased 14.5% and EBITDA increased 30.9% compared to the same period in 2017, exceeding our expectations. As many of you are aware in 2016 a new management team joined Arnold, under Dan Miller's leadership the business has made significant operational enhancements and is well position to experience future growth in the aerospace and defense end markets. We believe Arnold will continue to experience solid growth over the balance of 2018. Clean Earth year-to-date revenue increased 31.5% and EBITDA increased 51.2% compared to the same period in 2017, exceeding our expectations. Clean Earth strong growth is due to solid organic growth and the benefit from recent add-on acquisitions. Sterno Products year-to-date revenue increased 5.3% while EBITDA decreased 0.7% compared to the same period in 2017 in line with our expectations. During the first half of 2018, Sterno incurred integration costs associated with the Rimports acquisition which reduced our EBITDA. Sterno's margins have compressed modestly thus far in 2018 due to elevated chemical input costs relative to 2017. For the balance of 2018, we expect margin headwinds to moderate. Lastly Foam Fabricators year-to-date revenue increased 2.5% while EBITDA decreased 0.2% compared to the same period in 2017 in line with our expectations. I will now turn over the call to Pat to review our branded consumer subsidiaries year-to-date performance.

Thanks Dave. On a pro forma basis, year-to-date revenues for a branded consumer businesses increased 6.1%, while EBITDA decreased 17.7% compared to the same period in 2017. Beginning with Liberty Safe, year-to-date revenue decreased 7.8% and EBITDA decreased 9.8% compared to the same period in 2017 in line with expectations. Ergobaby year-to-date revenue decreased 7.6% and EBITDA decreased 30.8% compared to the same period in 2017, which was below our expectations. 2018 represents a challenging year for Ergobaby, though globally end market demand for Ergobaby products remains relatively strong. We have experienced significant marketplace disruptions that have caused our financial performance to suffer in 2018. First, we have experienced major headwinds due to a large international distributor significantly reducing inventory levels. It is our understanding that Ergo's market share and sell-throughs in this geography are solid but that due to distributor specific reasons, our partner has decided to materially reduce their inventory levels in 2018. In addition, the domestic market remains challenged due to a large customer bankruptcy at the end of 2017 and its subsequent store closures and inventory liquidation in the first half of 2018. Based on Ergobaby's lower than expected first half performance, we are now expecting 2018 full year EBITDA to be down as compared to 2017. Despite the near-term weakness in Ergobaby's results, we continue to be pleased with our investment in this company, and believe that 2019 will deliver improved financial performance as these transitory disruptions dissipate. Manitoba Harvest's year-to-date revenue increased 25.1% and EBITDA increased 7.8% compared to the same period in 2017, outperforming our expectations. As we have previously mentioned, our senior leadership team at Manitoba Harvest was enhanced in conjunction with building a domestic office in Minneapolis. Bill Chiasson with whom we work previously during his tenure of Interim CEO of…

Thank you, Pat. Today, I will discuss our consolidated financial results for the quarter ended June 30, 2018. I would limit my comments largely to the overall results for our company since the individual subsidiary results are detailed in our Form 10-Q that was filed with the SEC yesterday. On a consolidated basis, revenue for the quarter ended June 30th, 2018 was $429.8 million, up 39.8% compared to $307.4 million for the prior year period. This year-over-year increase reflects notable revenue growth at 5.11, Arnold Magnetics and Manitoba Harvest subsidiaries, as well as at Clean Earth due to organic growth and contributions from add-on acquisitions. It also reflects increased revenue contribution from Crosman and its acquisition of the commercial business of LaserMax. Sterno's acquisition of Rimports and our acquisition of Foam Fabricators in February. Net income for the quarter ended June 30th, 2018 was $0.5 million as compared to net loss of $2.7 million for the quarter ended June 30th, 2017. Cash flow available for distribution or reinvestment which we referred to as CAD for the quarter ended June 30th was $30.3 million compared to $25.5 million in the prior year period. Based on our 2018 earnings expectations for each of our subsidiaries and the recent accretive acquisitions we completed, including Foam Fabricators, Rim Ports, ESMI and MKC, we still expect CAD will meaningfully exceed our distribution for the full year 2018. Moving to our balance sheet. We had approximately $37.5 million in cash and cash equivalents. And net working capital of $406.2 million as of June 30th, 2018. We had $498.8 million outstanding on our term loan facility, and $92 million in outstanding borrowings under our revolving credit facility. As Elias mentioned, we have recently taken steps to further diversify our capital structure without diluting shareholders, while significantly enhancing…

Thank you. Ryan. During the second quarter, our diversified leading niche industrial and branded consumer businesses performed well, and we are encouraged by the positive momentum of our businesses as we progress through the second half of the year. Specifically during the quarter, we grew revenues at nine of our subsidiaries and generated solid cash flow. During the quarter, our team also continued to capitalize on compelling market opportunities, and we are pleased to have completed two accretive acquisitions during the quarter and four on a year-to-date basis. I would like to close by briefly discussing M&A activity and our forward growth strategy. Middle market deal flow continued to remain strong and steady in the second quarter, as debt capital with favorable terms combined with financial and strategic buyers seeking to deploy available equity capital continue to drive activity. Going forward, we will maintain an intense focus on executing our proven and disciplined investment strategy. We remain well-positioned to draw upon our strengths related to CODI's beneficial ownership and management attributes to pursue attractive platform acquisition, as well as add-on acquisitions to accelerate growth of our subsidiaries. By following this course and maintaining our disciplined approach to deploying capital, we will continue to provide shareholders with sizeable distributions and create long -term value. This concludes our opening remarks. And we'll be happy to take any questions you may have. Operator, please open the phone line.

[Operator Instructions] Our first question comes from Larry Solow from CJS Securities. Your line is now open.

Hey, good morning. Thanks, good morning, guys. Looks like obviously industrial had a really strong performance a little bit offset by the consumer. Have you changed; I know you did mention a little bit less on a consumer size for the full-year outlook on a consolidated basis. Do you still expect the CAD to still hold that 70% -80% payout ratios that you had sort of targeted for the full year?

Yes. Larry, we still by not mentioning it we just continue to maintain our thoughts within that range as we communicated on prior calls. The contribution will be a little bit different, a little stronger from industrial, a little weaker from consumer. But again we think that's one of the benefits of the model is while one grew for a company or two may under perform kind of as a portfolio kind of helps reduce a lot of the variability.

It looks like some of the weakness on the consumer sides a little bit transitory too hopefully. So you can improve some of that over time. On Clean Earth particularly which -- one of your leading industrial businesses obviously had a very good quarter. And you mentioned of course that the add-on acquisitions which have helped but your organic growth book very impressive. Were there any contributions from dredging this quarter or was it still just that -- is that still -- do you see any turnaround there or is it just the other pieces performing well?

Yes, Larry, this is Dave. I'd say it's really the other pieces and it's pretty broad-based across the Soya facilities and the hazardous facilities. And as you mentioned the recent add-on acquisitions and also the older add-on acquisitions seasoning. So I'm still not much contribution from dredge on the year-over-year basis, but pretty much everything else.

Okay. Dave, I got you. On Sterno, I know you guys mentioned it was sort of in line with your expectations. It was a little bit below mine. [Technical Difficulty]

Ryan you want me to take that.

Yes. Will you answer that?

So I would say no material changes on Sterno. I mean we don't get into really the integration costs other than to say I think the EBITDA growth would have been positive had they been excluded. But it was a strong quarter. We're happy with our acquisitions. We're happy with our acquisition of Rimports and we are relatively confident in the back half of the year.

Go ahead, sorry, guys.

Just some color there from our financial filings there are a number of expenses that all of our companies that in theory we could add back because a lot of them are non recurring. However, we've always taken a very conservative approach with what is adjusted EBITDA and what can constitute and add back. So we'd like to think that our numbers are pretty clean. But there are always a number of costs such as what Sterno incurred that are baked in our numbers appropriately.

Okay and just lastly on 5.11 tactical, obviously, the revenue performance has been rather positive excluding the DTC sales there but is it --obviously you had a few quarters in a row year-over-year [Indiscernible] ERP expenses and then obviously the warehouse moving. Are all that stuff behind us now in terms of the increased cost and temporary labor and all that other stuff that you needed to the last couple quarters and hopefully could we get a little bit cleaner of performance on the bottom line going forward. Is that a good expectation for 5.11?

Yes. I mean I think there's --when you go through a couple things like this there's --it's like an earthquake. And then there are some aftershocks. We think we're getting through the aftershocks but I cannot promise that there won't be a little bit of reverberation in the next quarter. But we think we're working our way through them.

Thank you. Our next question comes from Kyle Joseph. Your line is now active.

Good morning, guys. Thanks very much for taking my questions. I just wanted to dig into the consumer companies and specifically Ergo. I know there are a couple different headwinds on the business right now, but if you could give us a sense for at least when we should see comps start to ease in that business. And then also for some of the other consumer businesses call it Liberty and 5.11 that have been impacted by retailer bankruptcies, give us a sense on comp easing there as well.

Yes. I'll ask Pat to specifically talk about Ergo and then Kyle I'll give an overview of consolidated stuff.

Sure. So I mean we say here, I think we say that in 2018, we don't think that 2018 will hit 2017 levels as far as EBITDA. I'd say it's our hope and belief that the back half of 2018 will be better than the front half of 2018. And then we would be looking for positive growth year-over-year starting in 2019.

Yes. In terms of Kyle the broader consumer segment, there has been as you mentioned some consumer bankruptcies and just general headwinds that we've been experiencing is there, I think we've talked about this probably now for a year or even greater this transition from brick-and-mortar to e-commerce, and the effect that it has throughout the supply chain. That's continuing and that's not going to stop and obviously you need to adjust to that. It had some temporary issues. There are some things though in our financials that is more transitory as Larry had mentioned in its question earlier. Both Ergo and 5.11 really suffered from things that are more transitory. Ergo kind of 2018 will be more of a transitory year, and we expect 2019 to become a growth year again for that business. 5.11, we actually looked at starting in Q3 and the back half of the year being a stronger have been compared to 2017 on an operating income basis. So some of this will be specific to each of the individual businesses. I would say, we believe the first half headwinds in the consumer business were stronger than what they'll be in the second half. And so we think that there'll be gradual improvement in our consumer businesses, and as we look out into kind of not only the back half of 2018 but into 2019, we think these businesses will be set up for pretty good performance. And I would say as I look across these companies, each one of them continues to check all the boxes for what we like in a subsidiary. They are the leading brands in the industries that they occupy. They have great margins. They produce great cash flow. They've got great management team. So they really check the box on everything that we're looking for, and we're pleased with each of these companies. And we think that performance will kind of revert back to more normalized growth rates instead of the declines that we've had kind of as we get through this year and clearly into 2019 and beyond.

Got it, that's really helpful, thank you. And then shifting over to the market deal environment. At this point, we've had some rate increases. Are you starting to see any impacts on pricing or multiples in the middle market as a result of rate increases at this point?

So not yet. The market remains incredibly floppy and prices remain elevated. I would say just the combination of --it really has to do I think more today, Kyle, with the amount of available capital that's out there. So if you look at the -- this is publish data, private equity funds in the amount of overhang which I think today stands at north of a $ 1trillion, and that's across all asset classes. So that includes real estate and venture capital and so it's not directly attributable, but that number is historic high. And if you think about some of the effects that tax change has had in terms of strategic being able to [Indiscernible] cash and then just in general kind of a more bullish view that people have on the economy. That's a recipe for a lot of demand for assets. And so what we continue to see is some of the more attractive, larger platform size acquisition fetching multiples that are well in excess of historical norms. Now that being said, and as we've proven throughout this year, we can still find some attractive opportunities with add-on companies for the 10 portfolio companies that we have. And so as we've kind of mentioned at our Investor Day and continue to mention, we're always open for the great new platform acquisition that can be purchased at a price that beats our weighted average cost of capital. I think that is increasingly difficult to do today, but we do see a numerous opportunities to continue to do add-on acquisition. And we think in this environment that's a great way to continue to grow our grow shareholder value.

That's great color. Thank you. And then last one from me given headlines and what not we've seen about tariffs recently. Just from a high level if you could talk about any companies you have that may have a high level of exposure there. And also highlight some that may be more insulated.

Yes. So probably the two companies that have the most exposure would be Liberty Safe and Crosman given the amount of steel that is consumed in both of those products. And I would say that both companies are kind of taking these action steps that you would anticipate when you get such a dramatic rise and including kind of price increases where applicable to offset some of that. So those would be the two biggest companies that suffer from that. Outside of that the other eight companies really have kind of minimal impact from any of the tariff activity. And just broadly, I would say there are not any companies that we can look at and say right now are broadly gaining from the tariff activities. And we would continue to say that is to the extent that this causes global economic conditions to decline. Obviously, that's a negative for everybody. But in specific kind of price increases would affect those two companies.

We have a question from Steven Martin from Slater Capital. Your line is now open.

Hi. I've had this conversation with you guys privately a number of times. Despite the growth you've achieved in the performance of the company, the stock prices basically gone nowhere and the dividend has stayed constant and so what are you going to do or what are your plans to address that either raise the dividend, pay specials, or buy back shares instead of investing in new businesses.

Yes. So thank you for the question, Steven. And I would say it's important for us that the share price does reflect kind of the underlying value of the businesses. Sometimes that can be a greater discount. Other times its less .Our goal is always first and foremost to operate our businesses, make good investments on behalf of our shareholders, and generate great returns. And I think if we do that, we've always believed over time the share price should kind of reflect the activities. I would say couple of things just to think about number one. The distribution is meaningful here, and so kind of it's been anywhere from kind of 8% to mid 9% depending on the price, where the stock has been. So that's made up a meaningful component of total return. And when you're distributing out that much of your cash flow, clearly, it's going to impact some of the capital appreciation on the stock. Now that being said, we also believe that a lot of the activities that we're doing should warrant a higher valuation in the shares. And so our goal is to go out and tell the story as much as possible, try to attract new shareholders into our capital structure. And into our shares and with continued performance of our subsidiaries, we've guided for the first time that we believe our coverage on from our cash flow compared to our distribution will be as strong as it's been in kind of as long as I can remember. And so going out and continuing to tell that story to reinforce it. We think should have positive effects on the share price. I think to the extent over time that doesn't happen and we'll have to reevaluate, and I would just say that everything is on the table in terms of what it will take to create positive, all-in returns for our shareholders including kind of the actions that you suggest.

All right. Well, I would just suggest that you revisit this -- you visit this issue sooner rather than later because you've done a whole bunch of an accretive acquisitions over the last 12 months. And if the market isn't willing to recognize it then I think it behooves you instead of growing the business more to pay your shareholders better. Thanks.

Yes, understood.

Thank you. I'm not showing any further questions. I would now like to turn the call back to Elias Sabo for closing remarks.

I would like to thank everyone again for joining us on today's call. And for your continued interest in CODI. We look forward to sharing our progress with you in the future.

Thank you, ladies and gentlemen. This concludes the call. Everyone have a great day.