Good afternoon, and welcome to Compass Diversified's Third Quarter 2023 Conference call. Today's call is being recorded. All lines are placed on mute. [Operator Instructions]. At this time I would like to turn the conference over to Cody Slach of Gateway Group for introduction and the reading of the Safe Harbor statement. Please go ahead sir.

Thank you and welcome to Compass Diversified's Third Quarter 2023 Conference call. Representing the company today are Elias Sabo, CODI's CEO; Ryan Faulkingham, CODI's CFO; and Pat Maciariello, COO of Compass Group Management. Before we begin, I would like to point out that the Q3 2023 press release including the financial tables and non-GAAP financial measure reconciliations for adjusted EBITDA, adjusted earnings and pro forma net sales are available at the Investor Relations section on the company's website at compassdiversified.com. The company also filed its Form 10-Q with the SEC today after the market closed, which includes reconciliations of certain non-GAAP financial measures discussed on this call and is also available at the Investor Relations section of the company's website. Please note that references to EBITDA and the following discussions refer to adjusted EBITDA as reconciled to net income or loss from continuing operations in the company's financial filings. The company does not provide a reconciliation of its full year expected 2023 adjusted earnings, or adjusted EBITDA because certain significant reconciling information is not available without unreasonable efforts. Throughout this call, we will refer to Compass Diversified as CODI or the company. Now allow me to read the following Safe Harbor statement. During this call, we may make certain forward-looking statements, including statements with regard to expectations related to the sale of Marucci and the future performance of CODI and its subsidiaries, the impact and expected timing of acquisitions, and divestitures including the divestiture of Marucci and future operational plans, such as ESG initiatives. Words such as believes, expects, anticipates, plans, projects, should and future or similar expressions are intended to 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 discussion in the Form 10-K, as filed with the SEC for the year ended December 31, 2022, as well as in other SEC filings. In particular, the domestic and global economic environment, supply chain, labor disruptions, inflation and rising interest rates all may have a significant impact on CODI and 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 afternoon, everyone, and thanks for joining us today. Before I discuss our third quarter results, I would like to cover the press release we issued this afternoon announcing the agreement to divest Marucci Sports to Fox Factory Holding Company at an enterprise value of $572 million. CODI expects to realize a pre-tax gain on the sale of between $225 million to $245 million, and we expect the net proceeds will be used to pay down outstanding debt and for general corporate purposes. We are extremely proud of the growth Marucci has experienced under our ownership. And we feel fortunate to have been able to partner with their outstanding team. We acquired the business in April, 2020, based on our confidence in both Marucci's brand and management. Keep in mind, this was at a time when few transactions were being completed due to the pandemic, but our flexible capital structure and our commitment to seizing strong opportunities, even in times of economic uncertainty, allowed us to execute at a time when others weren't. Since then, the Marucci team has acted decisively, strengthening their brand and growing their core business. They have gained share in new markets like fielding gloves and softball. We have also expanded the Marucci product portfolio by acquiring lizard skins and Baum Bat. We are honored to have partnered in this success. Thank you to Kurt and the entire Marucci team for their contributions over the last several years. We wish them nothing but continued success. Now on to our third quarter. We are pleased to report remarkably strong third quarter results, which once again, exceeded our expectations and have us raising our full year outlook. Our consistently strong results reflect not only the diversification of our subsidiaries, but our ability to find excellent businesses that produce…

Thanks, Elias. Throughout this presentation, when we discuss pro forma results, it will be as if we owned Primaloft from January 1st, 2022. As Elias mentioned, performance in Q3 materially exceeded our expectations, and we experienced significant growth in both our consumer and niche industrial segments. Lugano continued to perform extremely well, driven by new salon openings, a strong management team, and a disruptive business model. Last quarter, we mentioned that we faced headwinds in several segments due to correcting inventory levels in the supply chain. These headwinds have eased in certain areas, but remain in others. Specifically, in Q3, though financial performance was muted at BOA, bookings turned positive. Primaloft, on the other hand, continued to seek to reduce demand as apparel makers remain cautious about consumer demand in 2024. Though a significant headwind to CODI's performance in 2023, we continue to expect these businesses to become a tailwind as the rate of inventory to stocking continues to decrease. Though it may not happen at the same time for Primaloft and BOA due to different industry dynamics, we are confident it will happen for both. Now, on to our subsidiary results, I'll begin with our niche industrial businesses. For the year-to-date period ending September 2023, revenues declined by 5.7%. However, adjusted EBITDA increased by 14.5% versus the same period last year. For the third quarter, adjusted EBITDA increased by 19%. On a combined basis, our industrial businesses expanded margins in the quarter significantly and consolidated adjusted EBITDA margins grew by over 400 basis points versus the prior year's quarter. Though adjusted EBITDA declined slightly for Arnold in the third quarter, for the year-to-date period, the company continued to show solid growth and revenue in adjusted EBITDA as they gained traction securing new projects across markets. Demand levels in the…

Thank you, Pat. Moving to our consolidated financial results for the quarter ended September 30th, 2023, I will limit my comments largely to the overall results for CODI, since the individuals subsidiary results are detailed in our form 10-Q that was filed with the SEC earlier today. On a consolidated basis, revenue for the quarter ended September 30th, 2023, was $569.6 million down 1% compared to 575.8 million for the prior year period, this slight year over year decrease primarily reflects declines at velocity and therefore as a result of inventory de-stocking headwinds, partially offset by strong revenue growth at Lugano and Marucci. Consolidated net loss for the third quarter was $3.8 million compared to net income of $2.6 million in the prior year. The decrease was primarily due to impairment expense recorded at velocity outdoor of $32.6 million, partially offset by strong consolidated gross margin performance. Adjusted EBITDA in the third quarter was $103.9 million, up 13% compared to $91.9 million in the third quarter of 2022. The increase was due to an expansion in EBITDA margin at a consolidated level, as our industrial companies expanded margin significantly as Pat highlighted earlier. EBITDA margin expansion at our consumer businesses were primarily due to Lugano and Marucci. Adjusted earnings for the third quarter was significantly above our expectations at $41 million. This was down from $41.6 million in the prior year quarter, primarily due to increased interest expense, but up sequentially by over 15%. Adjusted earnings were above our expectations also due to the strong performance at Lugano and Marucci. Now onto our financial outlook. We are pleased to announce that we are raising our full year adjusted EBITDA and adjusted earnings guidance as a result of the strong performance in the third quarter. We are continuing to include Marucci…

Thank you, Ryan. I would like to close by briefly providing an update on the M&A market and our strategic initiatives. In terms of M&A, we have seen some green shoots emerge with a few higher quality deals being reviewed, but overall, markets are weak. Of course, the current economic backdrop suppresses M&A activity with rising borrowing costs and treasury yields hitting 20 year highs. The lack of visibility continues, and as we remain on the sidelines, we continue to strengthen our pipeline of targets for each of our verticals, including healthcare, and fully expect to capitalize once the broader market headwinds ease. In the realm of ESG, our steadfast objective has always been to create tangible social and environmental benefits that resonate with our core values while delivering robust financial returns for our stakeholders. Transparency and accountability have remained the cornerstones of our business ethos, driving us to invest in people, refine processes, and explore growth avenues that pave the way for transformative long-term changes within our companies. Throughout 2023, we have developed a systemic approach to ESG initiatives. We focused on climate action with a number of new programs aimed at waste reduction and emissions, both scopes one and two. We have made progress on social responsibility with diverse new hires, new programs designed to improve the wellbeing of our employees, and by strengthening partnerships with community organizations. We've recently developed our human rights and labor policy, and through sound corporate governance, we continue to uphold the highest standards of ethics, transparency, and accountability in order to safeguard our shareholders' interests. We are also collaborating with each of our subsidiaries so that they too can create their own ESG strategies that align with our vision. I extend my gratitude to our dedicated employees, shareholders, and all stakeholders who…

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

Great. Good afternoon, guys and congrats on the announced sale. It looks like 11.5 times trailing EBITDA, but I don't remember the credit I've been about what you have paid for it, but of course, you've run the business quite long since. So I guess the first question related in terms of reducing the debt, are there any restrictions or you'll be able to reduce sort of the, I guess, the very old piece first, right?

Yes, Larry, this is Ryan.

Yes.

Yes, sorry. There's no inability of us. We could pay our revolver back and our term loan, both are pre-payable.

Got it. Okay, great. And then just switching gears, Elias, you gave us a good kind of state of the union on the M&A environment. How about just in terms of, obviously, it feels like the consumer has certainly gotten a little bit better through the year and certainly, or not as worse as we thought it was going to be in the beginning of the year, and it looks like finally your inventory of the stocking might be starting to wane, but just kind of what's your assessment where you stand today from where we were in the beginning of the year in terms of your average consumer. I know you had kind of gotten a little bit more optimistic that a lot of your businesses, your consumers weren't being impacted by this, the flow that in the economy, but any kind of update on that, those thoughts would be great?

Sure Larry. I would say if you went back to a year from today or at the beginning of the year, we are much more constructive and positive really across the board. Obviously, our industrial businesses have had a great year, a lot of that. I know there's some revenue headwind, but a big chunk of that is due to the declines in commodity costs and us sharing those with our customers. So I think you need to look through that because unit growth is still present and the companies are performing exceptionally well on a kind of earnings generation standpoint. We would expect that to continue. The big change from a year ago and from the beginning of the year is how we look at kind of our consumer businesses. And so, when you think about end consumer demand, it's held up better than I think anybody has anticipated over the course of the year. That's not just for us, that's just consumption broadly. And we see strong wage growth that's still out there and employment growth. And I think that's a great underpinning. Clearly, it's, kind of counter balancing some of the increased, kind of interest cost and monetary headwinds that we're all suffering from. But the consumer has broadly held up. For us, the big issue because a lot of our earnings are generated at the wholesale level where we're selling into, a retailer, even farther down in the case of a Primaloft or a BOA. We've -- the whole year been sounding the alarm bells that this inventory de-stocking is a headwind that, frankly, a year and a half ago we didn't anticipate. I don't think anybody really did. And it's sort of a generational type of thing. I mean, this is all the result of…

Awesome. And you gave a lot of detail, Lugano obviously really, really not going to cover up the ball, just on BOA, which obviously, one of your larger consumer brands and probably been taking the big impact from the de-stocking. Can you just speak to some of sort of the operating trends outside of that de-stocking? I know you had, I think in the beginning of the year, kind of projected or called out that you thought SKUs would be up over 10% by this fall compared to last fall. And for what it's worth, I have seen a lot more BOA and REI circular and whatnot. So it does seem to be, at least anecdotally, getting more into the U.S., but just any color on trends that we might not actually be seeing in the reported numbers would be great? Thanks.

Sure. I would just, this is Pat. Larry, how are you? I would just say, we touched on it that the headwinds and bookings are starting to not be as much headwinds anymore. And I touched on that specifically. We are continuing to grow SKUs and at every quarterly board meeting, I see solid growth in our SKUs. I don't have the exact numbers in front of me, but it's in that same realm, and as you look out to 2025 kind of project, and beyond 2024 projected SKUs are strong too. We mentioned Alpine. It's getting a really strong start. If you go in the, any of the ski outfitters and ski stores, I think they'll tell you the same thing. It's taking a significant chunk of demand there. And then there's other pockets. I mean, we have some strong momentum in some of our Asian businesses, and you've probably seen the Under Armour slip speed, which is being pushed very well, and is a really amazing shoe. I'm wearing them right now. So, there's a lot of other pockets of sort of success and growth there.

Great. Thanks, Pat. Appreciate it. Thanks for the color, guys.

Thank you, Larry.

Your next question comes from the line of Matt Koranda from ROTH Capital. Your line is now open. Your next question comes from Robert Dodd from Raymond James.

Hi, guys. Congrats on the call. On the leverage, I mean, to your point, you're for those three here, after Marucci, the Marucci sale, whatever exactly that is, you're likely at least down to the bottom end of your target range of three times, I think, maybe even slightly below that. Does that increase the likelihood of expanding more vigorously into the healthcare vertical in 2024, given you will have quite a lot of available capital at that stage by the standards of where you normally make large acquisitions, if that makes sense?

Robert, this is Elias, and thank you for the question. The answer is yes, if I want to be very specific. Clearly, we were being cautious as our leverage had been outside of the stated leverage range that we wanted to be in, and it just so happened to be at a time when M&A activity is at basically 20 year lows. So it wasn't that hard to be patient and disciplined during this time. Having capital available right now, and as you mentioned, being now well within our leverage targets is a really good opportunistic spot for us. And generally in conditions where it's murkiest, the outlook and kind of, you can't turn on CNBC or Bloomberg or any of the other financial outlets without hearing kind of what is going to be the economic outcome from all of this monetary tightening and how our consumer is going to hold up. And you can name the whole myriad of kind of issues and problems that everybody is looking at right now and how that's going to impact kind of the economy. And generally, that causes buyers to really tense up. We've found, historically, when we can be active in markets, because we have permanent capital, our capital is committed from our banks, as you know. And we have very -- a lot of flexibility. We've found that these are the most ideal times to be an aggressive acquirer. And so, it really works out quite well that we're opening up all this balance sheet capacity at a time when economic kind of murkiness is probably reaching its peak. And generally, that creates really good opportunities. To the extent we could deploy and acquire a healthcare company or two, that would be outstanding. And Kurt Roth, who runs our group, is sitting next to me right now on this call. And he's pursuing a number of different opportunities that are out there. We have a very robust pipeline. But it takes two to tango, as you know. And we need kind of sellers to be out there. But we have a list of companies that we're following that we think would be great targets within that space. And to the extent they come to market, which we're hearing is going to happen in 2024. I think we would love to be able now to more aggressively move into healthcare and start to get the benefits of a broader diversification strategy that we outlined to you guys a year and a half ago, when we initiated this vertical.

Got it. I appreciate that. Yes. And to your point, I mean, the timing, the acquisition of Marucci kind of is to exactly that point as well. On Lugano, it's been very successful. On the working capital question, though, the ROI has been very strong on the working capital investments as well. But is there a point at which the amount of work, the amount of working capital you've got allocated to Lugano and just the level of concentration that begins to be a concern. And is there a point at which you have to look at alternative finance, the only finance use business is off your own balance sheet. But is there a point at which that doesn't become ideal, given how much working capital that business can consume and utilize?

Yes. I mean, Robert, I think that's a great question and one that we think about all the time. It's not a 2024 or 2025 issue as we look out. But if this company continues with growth rates, which frankly are just torrid at this point, look, it could get to the point where its sheer size starts to kind of exceed what our diversification sort of efforts would look like. The company is going to continue at these growth rates. Clearly, we would be all ecstatic if it can continue at these growth rates. And given the return on invested capital we're enjoying, we would love to fund that. But your point is very well taken. And what we don't want to do is essentially be a proxy for any one company. And so, to the extent that its growth was starting to overwhelm us, that potential opportunity to kind of seek alternative financing and outside financing while still being part of the CODI portfolio clearly exists for us. I think in the near term, and I'm going to say in the near term over the next couple of years, even on some of the more bullish assumptions that we could make, we don't believe that we would kind of reach that point. But to the extent it was starting to get there, we would have and do have available to us kind of outside off of our balance sheet financing opportunities that we could pursue. But I do want to point that's a couple of years away. And that's if the company was continue to grow at this level, which is a really high bar that we would be asking.

Yes. I understand. Thank you for that. Last one, if I can turn. With the California, with the PFAS fabrics, have you done any testing with customers? Do customers notice any performance difference on the alternative fabrics versus the old ones? And frankly, if they did they care? Or do you think just not going to be an issue? Does anybody else selling legitimately into California is going to face the same issue?

Hey, Robert, this is Pat. Let me say it this way. We believe there's a case that certain customers will still want PFAS products. And so that creates demand, but also complexity. It's a good product. There's also a lot of uncertainty in the enforcement of this regulation. The enforcement agency, I don't believe, has been named yet. So there's uncertainty out there as to what's going to happen on 1/1/25. So I can't answer it broadly other than to say its seven states. So by definition, 43 other states, at least for now, will still allow PFAS. And I would assume some customers either on the consumer or law enforcement side in those states and internationally would want PFAS product.

Got it. Thank you.

Thank you.

Your next question comes from the line of Matt Koranda from ROTH Capital. Your line is now open.

Hey guys, it's Mike on from Matt. Can you hear me all right?

Absolutely.

Okay, great. Maybe just on the Marucci sale, can you just help us better understand what net proceeds from the transaction after taxes, after fees, and after the CGM incentive payment will look like? And what will this do to perform on that leverage?

Yes, sure. This is Ryan. So I think the best way to think about it is $572 million of gross proceeds. And then you could take the deluded ownership percentage and the minority shareholders would share in that. So post-minority shareholders, it's about $500 million. From there, we would have, and these numbers still would still need to be calculated, we would have our allocation interest payment as well as tax payment given our reclassification to a C-Corp. And that net's all down. Again, those numbers aren't finalized, but around $400 million of net proceeds, which we could use to pay off our debt. Is that helpful?

Absolutely. Thanks for that, Ryan.

And I think you might have heard earlier about leverage levels will be within our financial policy of three to three and a half times.

Got it. That's helpful. Thank you, Ryan. Moving to 5.11, maybe just speak to the progress and the status of the retail build-out strategy. I know we're still spending CapEx there. And where do we stand cleaning up the inventory? It's been a drag on margins in the prior quarters. And lastly, just any call-outs on the mix or purchasing behavior of prosumers versus everyday consumers?

Yes, sure. Let's see. On retail, I'd say we're, given the current retail environment, we're slowing our store rollout. And we're going to come up with a plan, a more limited plan for 2024. I would say, though, that our e-com continues to be a growth, continues to grow. And so let's not say in retail continues to grow. So it's not to say that DTC is not going to be a driver of growth. It just may be a little bit less investment in 2024. And you'll see that in our CapEx numbers holistically when we provide those for 2024. On inventory, we think we're managing it well. I've learned a long ago, never to say never, as far as inventory goes, and if you need to take further actions. But we believe we're managing it well. I would, in a lot of cases, we can sell slow-moving inventory through our DTC channel, which obviously has higher margins, obviously maximizes the chance that you don't have to take any markdown. So never say never. And there's a lot of stuff out like PFAS that we just talked about, but we're going to try hard to manage inventory appropriately. And then the last question is on the prosumer, anecdotally, I have heard of the conflict in the Middle East driving pockets of orders here or orders there. I haven't broken that out, and I haven't seen that broken out in the professional business specifically. But I would say our professional business has been a driver of growth, was a driver of growth in Q3, and we believe will continue to be a driver of growth in Q4. And really speaks to our diversified model and the strength of that within 511 specifically.

Got it. That makes sense. Last one for me. It's just, preliminarily, how are we thinking about top-line growth in 2024? Maybe just speak to which brands might be leading the way and why, and then which brands a couple group of brands could be potentially more constrained based on today's environment?

Yes. So, Mike, we don't give sort of top-line growth targets. We typically give EBITDA growth. And as you know, with 10, I guess, now going down to nine subsidiaries that can vary and margins are a lot different. And so we focus a little bit less on top-line, and we've always focused on kind of EBITDA and adjusted earnings as the right metrics. As I said earlier and to start the call, holistically, we feel that Q3 was a turning point for us, and that there's accelerating results in Q4 and 2024 should be a really good year for us. And I would say if you think about what we've said historically our core growth, we expect to be high single digit possibly low double digit. We're going to be call it half of that this year. Is it possible next year we have enough growth to make up for kind of coming in underneath it so that over the two-year period together, we get back to our core growth? It's absolutely possible. Now, I'm going to ask everyone not to take that as a kind of early guidance, but I'm saying that is a possibility given what we're seeing right now in trending. If you want to get a little bit more granular, I would say we look at our industrial vertical, which has had a phenomenal year in 2023 is likely slowing the pace of growth in '24, but still having good growth as that's not a double digit growth kind of vertical We've never thought of it as that. So I think that probably reverts back to something that is more normalized, which is kind of a mid-single-digit growth. And then within the consumer business, I think as you look across it clearly we have big…

Very helpful. So that's all from me, guys. Thank you.

Thank you.

Thank you.

Our next question comes from the line of Chris Kennedy from William Blair. Your line is now open.

Good afternoon. Thanks for taking the question. Can you talk about the wide range of guidance for the fourth quarter? What brings you to the upper end of the range and what brings you to the lower end, some of the puts and takes?

Yes, sure. Chris, I'll take that and Elias you can add some color. Certainly, we've highlighted, as part of our script, the expectations for adjusted EBITDA. We think it'll be midpoint of that guidance implies greater than 10% growth. So that's obviously very positive. We feel certainly good about that. Adjusted earnings can be interesting as you get into the fourth quarter specifically around taxes, which is probably a broken record on behalf of Compass. But taxes can be challenging for 10 different subsidiaries having different tax situations that can impact fourth quarter specifically. So just maintaining a little bit of conservatism there. If you run those numbers, that midpoint of adjusted earnings implies some growth over last year, but not as much as adjusted EBITDA. And we certainly could get there if taxes turn out to be less than we anticipated.

Yes, and Chris, I'll just follow up to say kind of the range that we give. Obviously, we're one third of the quarter through right now and we have decent visibility on where revenues came out in October. I think I also mentioned earlier in the call, based on what we saw in October, it would lead us to be more bullish, not more pessimistic, and probably lead us to be more at the high end of the range, not the low end, because it was a very positive October that we saw sort of across the board. But that being said, as you know, there's two very important months and as holiday season approaches, it becomes really meaningful. The number one determinant that can swing our earnings within that range is frankly how Lugano does. And we know it's a large kind of business within our portfolio. It is also one that doesn't have a backlog and it's benefited by being the end distributor of the product throughout the year and not having inventory of these stocking headlines, but it also has the shortest visibility because every day we wake up and we look at what the sales were from the day before to figure out how the company is doing. And so it gives the level of uncertainty obviously because we don't have that backlog. Outside of that, I think most of our other businesses either work on backlogs and of some varying length that give us a little bit more confidence. But I think within that range, the high end of the range or exceeding the high end will be predicated on performance at Lugano and what we've seen over the last, over really the course of this year, but even over the last month in October and before that, frankly gives us a lot of confidence that they're going to perform like they have been throughout the year. And so we feel really good about the guidance range and hopefully being able to do what we've done all year, which is give a guidance range and then come in and be able to exceed it and kind of raise guidance, although since it's the fourth quarter, the last part of that isn't applicable. But I think we want to provide something that we feel very certain about and then hopefully be able to over deliver on expectations.

Yes, thank you for that. Very helpful. And then just a follow-up on Primaloft. I think you talked about softer demand there. Can you just give us a reminder on kind of the visibility of that business and when we should start to see bookings improve or whatnot?

Yes, so we're starting to book now for fall, winter of 2024 for the most part. And so that's where I was saying that a lot of the brands are cautious. If you read, I won't name the names, but if you read some of the big brands' discussions, they're cautious about what the first half of 2024 is going to look like. That obviously flows through to how they order. And so our hope is that what we're going to do is see later orders and kind of see that order book build later over time, but we're just not there yet in the fall, winter, 24 booking cycle.

Got it. Thanks for taking the questions.

Thank you, Chris.

[Operator Instructions] Your next question comes from the line of Barry Haimes from Sage Asset Management. Your line is now open.

Thanks so much. Congrats on the quarter. I had two questions. One is getting back to the inventory de-stocked, primarily in consumer. If next year you got to a point where selling and sell-through matched, what sort of range of incremental revenues would you get next year? Or is that another way? How much were revenues per this year by the fact that selling was less than sell-through? And then my second question is, on Lugano, realizing that each location is a little different, could you give us just sort of a rough range to stand up a new location between CapEx and working capital? What kind of range per location we're talking about? Thank you.

Sure. And thank you for the question. So in terms of kind of inventory de-stocking, it's impossible to tell because we don't get from our consumers exactly what their sell-through is and what their sell-in is. I can tell you anecdotally, for Primaloft, for example, one of their customers we talked to, as Pat said, we don't name names of customers, but we talked to a person who's handling the general management of that product, and they said, yes, we expect to be up double digits with it, and we talked to the purchasing department, and they said, yes, your sales are going to be down 20%, your orders. So that would kind of correlate to call it a 30% plus or minus inventory contraction that is kind of net cost of inventory contraction to our revenues this year. I think probably I would say between 20% and 40% seems about right. I give you one other anecdotal piece of evidence. One of our own companies, which is farther up the supply chain, we asked our CEO what our purchase orders right now relative to what they would normally be to the factory, and believe it or not, they're down about 50%. And so I think it's going to vary by company and to further the point of how long do you think until we're reverting back to normal orders to our factory, and the response was we'll probably be back to open to normal by mid next year. So that means orders will start getting to those factories 90 to 120 days in advance. So in this particular company, we're probably looking at year end when we start to open up orders to a more normalized basis. So I think it's impossible to tell. I would be absolutely stunned if the impact was less than 20%. And I can tell you it's not more than 50%, but I think 20% to maybe 30% is probably if you ask for a gut instinct and a swag feels like the right number. In terms of Lugano, I'll let Pat answer that.

I mean, there's a broad range based on the store. It can be from four to 10 million or plus of CapEx based on the store. And then inventory is at least the high end of that is what we stock it with and probably a little more.

So I think if you're modeling it, I would say $15 million to $20 million of total investment that goes into the business between CapEx and inventory. And then we stand these things up and look, we expect to get very high returns on invested capital 30%, 40% types of return on that.

Great. Thank you so much. Appreciate it.

Thank you.

There are no further questions at this time. I would now like to turn the conference back over to Mr. Elias. Sir?

Thank you, operator. As always, I'd like to thank everyone again for joining us on today's call and for your continued interest in CODI. Thank you for your support.

This concludes Compass Diversified's conference call. Thank you and have a great day.