Good afternoon. And welcome to Compass Diversified’s Fourth Quarter and Full Year 2023 Conference Call. Today’s call is being recorded. All lines have been placed in mute. [Operator Instructions] At this time, I would like to turn the conference over to Cody Slach of Gateway Group for introductions and the reading of the Safe Harbor statement. Please go ahead, sir.

Thank you. And welcome to Compass Diversified’s fourth quarter and full year 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’d like to point out that the Q4 2023 press release, including the financial tables and non-GAAP financial measure reconciliations for subsidiary adjusted EBITDA, 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-K 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 in 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 2024 adjusted earnings, adjusted EBITDA, or subsidiary 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 the expectations related to the future performance of CODI and its subsidiaries, the impact and expected timing of acquisitions and divestitures, 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 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 risks factor discussion in the Form 10-K as filed with the SEC for the year ended December 31, 2023, 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 because 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. I am pleased to report a strong fourth quarter, capping off another exceptional year for CODI. Our results continue to demonstrate that owning premium businesses with defensible competitive moats can drive financial outperformance, even during periods of economic uncertainty. These results are highly intentional. In 2018, we embarked on a strategy to own and manage high-growth, innovative and disruptive businesses. This transformation is driving a significant tailwind for our business, as evidenced by our fourth quarter. Despite experiencing unique challenges in our business, 2023 marked our fifth straight year of subsidiary adjusted EBITDA growth. Our branded consumer businesses produced essentially flat pro forma subsidiary adjusted EBITDA results compared to prior year. On the other hand, our industrial businesses produced 18% annual growth in subsidiary adjusted EBITDA. Our diversification yet again led to a reduction of financial volatility, which we believe will be further reduced as we add more subsidiaries and enter into the healthcare vertical. In our branded consumer vertical, inventory destocking issues masked the underlying strength of most of the brands we own throughout 2023. Lugano once again delivered remarkable growth, producing 53% annual revenue growth and 65% adjusted EBITDA growth. As we have mentioned, Lugano has created a very innovative and disruptive business model within the high jewelry industry. We continue to fund capital investment to expand the company’s footprint and inventory position, realizing exceptionally strong returns on invested capital that is fueling the company’s rapid growth. In the fourth quarter, our branded consumer businesses experienced strong subsidiary adjusted EBITDA growth of 26% over prior year. As inventory destocking headwinds started to subside. You will remember the year -- the prior year’s fourth quarter started a major inventory destocking trend that lasted throughout 2023. We believe channel inventory will…

Thanks, Elias. As a reminder, throughout this presentation when we discuss pro forma results, it will be as if we owned PrimaLoft as of January 1, 2022. In addition, we have not included the HoneyPot in our 2023 results as it was acquired after year end. I am pleased to report on a very successful year for CODI in 2023, one in which we exited the year far stronger than we entered thanks to the quality and positioning of our businesses. On a consolidated basis for the year, revenue was approximately flat and pro forma subsidiary grew by 4.4%. As Elias mentioned, in the fourth quarter, on a consolidated basis, we saw a material acceleration as many of the headwinds facing our businesses over the last year began to abate. As a result, in the fourth quarter, revenue and subsidiary adjusted EBITDA growth exceeded our expectations, growing by 7% and 27.4% respectively. Both our industrial and branded consumer verticals had strong quarters, growing subsidiary adjusted EBITDA by 30.2% and 26.3% respectively. For the full year within our industrial vertical, revenues decreased by 5.1% and subsidiary adjusted EBITDA increased by 18.3% for 2022. In this quarter, we saw broad earning strength in our industrial businesses as positive revenue mix to higher margin products combined with lower input and shipping costs. In many cases, we passed on the benefits from lower cost to our customers, leading to the slight revenue decline. However, our industrial management teams continue to operate efficiently and drive solid margin growth. For the year, both Arnold and Altor grew adjusted EBITDA by over 20% and Sterno by over 11%. A continued return to travel and more pre-pandemic activities continues to have a positive impact on several areas of our industrial business, and we believe this trend will be…

Thank you, Pat. Moving to our consolidated financial results for the quarter ended December 31, 2023, I will limit my comments largely to the overall results for CODI since the individual subsidiary results are detailed in our Form 10-K that was filed with the SEC earlier today. As a reminder, our sale of Marucci occurred in the fourth quarter of 2023 and its results have been reclassified to discontinued operations for all periods. On a consolidated basis, revenue for the quarter ended December 31, 2023, was $567 million, up 7%, compared to $529.7 million for the prior year period. This increase was primarily a result of strong growth of Lugano and 5.11, partially offset by lower revenue at Sterno, Altor and Velocity. Consolidated net income for the fourth quarter was $139.4 million, compared to a net loss of $11.8 million in the prior year. The fourth quarter net income was primarily due to the gain on the sale of Marucci, partially offset by impairment expense recorded at PrimaLoft. Adjusted EBITDA in the fourth quarter was $94.8 million, up 35%, compared to $70 million in the prior year. The increase was due to strong growth of Lugano and 5.11, as well as an expansion in EBITDA margin at our industrial businesses. Included in adjusted EBITDA in the fourth quarters of 2023 and 2022 were management fees and corporate costs of $20.9 million and $20.8 million, respectively. Adjusted earnings for the fourth quarter were significantly above our expectations, coming in at $38.1 million. This was up significantly from $16.3 million in the prior year quarter and up 29% sequentially. Adjusted earnings was above our expectations due to strong performances at Lugano and 5.11 and by our industrial businesses. In addition, our adjusted earnings was positively impacted throughout 2023 by much lower taxes…

Thank you, Ryan. I would like to close by briefly providing an update on the M&A market and our strategic initiatives. In the fourth quarter, we not only saw an increase in deal activity, but also in the quality of businesses coming to market. Our competitors continue to struggle with leveraged buyout financing as a function of the current environment, specifically in consumer. We are seeing our cost of capital advantage significantly expand in this environment, which leads us to believe that now is a great time for us to be an acquirer. Our acquisition of the HoneyPot Company in February is a perfect example. Our competitors in the consumer market pulled back dramatically, just as their financing partners have, which is how we were able to get this deal done. For an on-trend company in the personal health and well-being space, we were able to transact at a multiple that was lower than the historic average. Today’s market reminds us of the financing market of 2020, when large uncertainties driven by COVID kept competition sidelined, yet our permanent capital structure allowed us to buy quality assets like Marucci and Boa. Today, we have a level of optimism that we haven’t had in years. We’re able to consummate M&A at more attractive valuations with better shareholder return prospects than in past years. On the ESG front, our focus continues to not only be about compliance, but ESG is integral to our mission, reflecting our commitment to transparency and responsible business practices. This focus is essential for our continued success and the creation of long-term value for our investors and stakeholders. We will release our first sustainability report in Q2, which we expect to include details of greenhouse gas emissions, human capital initiatives and governance practices. Additionally, we will continue to seek partnerships and acquisitions that align with our sustainability values, ensuring that our growth is both responsible and aligned with our long-term vision. Our most recent acquisition of the HoneyPot exemplifies the type of company that aligns with CODI’s strategic vision and objectives. To conclude, we continue to make great strides improving upon the quality of our subsidiaries as a whole. In addition, we remain steadfast in our efforts to identify and acquire similar disruptive businesses to further build upon our track record of delivering growth for our shareholders. I’d like to thank the entire CODI team for their tireless efforts in transitioning this business into a different and stronger company than we were six years ago. With that, Operator, please open the lines for Q&A.

Thank you. [Operator Instructions] Your first question comes from Larry Solow of CJS Securities. Your line is already open.

Great. Thanks. Good evening, guys. I guess the first question may be Elias. Just on the acquisition environment, it sounds like, as you expressed last month too, it’s gotten a lot better and it kind of fits right into your sweet spot. I’m just curious, with your leverage, it’s going to be, it sounds like, around 4 times during the first half of the year at least, what’s your ability to acquire larger size assets? Would you want to go up to 5 times plus? How do you look at that? Maybe you might entertain the idea of selling some of your smaller competitors?

Yeah. Larry, I would say, and thank you for the question and good afternoon. I would say the acquisition market is better. I don’t know that I’d refer to it as a lot better. It’s clearly not…

Okay.

… 2021 when we were seeing deals kind of at a very high level and some good quality companies that were coming. But compared to 2022 and 2023, we often say it’s hard to fall off the floor. And I think 2023 sort of kind of represented the floor. So it’s clearly a pickup. And not only are we seeing…

Okay.

… a pickup in the number of deals, but we’re also seeing some quality companies come through as well. So that bodes well. Regarding your question, I think, right now we’re at 3.7 times leverage. It’s a little bit outside of our kind of leverage window. As Ryan mentioned…

Okay.

… in his commentary, it could float up a little bit. It’s not going to be a material floating up in the beginning of the first half of the year and then it will…

Okay.

… come down. It’s partly just the funding of inventory growth at Lugano. So we expect really strong…

Okay. Sounds like [inaudible]. Yeah. Yeah.

And so we expect really strong growth. So I would say, because of both the cash flow kind of generation power of the company, as well as the growth and the expected deleveraging back down into our financial policy target range, which goes to kind of 3.5 times at the high end, we still feel comfortable doing a deal. And yeah, we could push leverage up into the 4s kind of temporarily here at the beginning of the year. But then we expect it to fall kind of back down below that. Obviously, it’s dependent on size of deal, it’s dependent on multiple that we pay and so it’s a little hard to be precise until we have something kind of in our sight. I would tell you…

Okay.

… we will not take our leverage to 5 times. And so that’s off the table.

Okay.

But could it go over 4 times…

Okay.

… to consummate a deal the size of the HoneyPot or a little bigger? Absolutely. And given the confidence that we have in our earnings trajectory right now and the cash flow producing power of this business, we are absolutely comfortable with that and the fact that our deleveraging post and acquisition will bring us back in line to where we need to be.

I appreciate that call. And then just a second question, maybe two-part questions just on the inventory headwinds of 2023 and it feels like maybe those are certainly subsiding significantly, right? And you mentioned maybe even in terms to a tailwind in 2024. Can you just discuss sort of specifically, Boa and PrimaLoft, I think were the two bigger brands that were kind of impacted and sort of the underlying trends at both those businesses, maybe a little more color there. And the upside to guidance, perhaps that you mentioned, would that be kind of maybe if the inventory actually did turn into a tailwind?

Yeah. So I’m going to let Pat speak specifically to some of the trends we’re seeing at Boa and PrimaLoft…

Yeah.

… and how that headwind, which we think sort of turned neutral in Q4, it was no -- not a headwind or a tailwind, how that will…

Okay.

… hopefully build into 2024. But let me address the last part of that first, which is built into our guidance.

Yeah.

We have not built a tailwind from inventory and sell-in matching sell-through. We have not embedded that into our guidance. And that’s why if there’s one thing, I would say to take from this call is, it’s just too early.

Yeah.

We gave you three weeks ago a guidance range.

Yeah.

It would be too early for us to increase that right now and I think that would be irresponsible. However, if we were reissuing guidance today, we’d probably be more optimistic. And I think there are clear catalysts for kind of us to exceed the range here and it could be material. And one of those catalysts could be inventory changes starting to become a tailwind where sell-in just has to match sell-through. Forget the fact that there could be inventory building again at some point. We just want to get back to the point where inventories are no longer depleting, which has been sort of the…

Yeah.

… constant theme over 2023. So, there’s absolutely upside that is available for that. I would tell you that we were a little bit shell-shocked by kind of the depth of the inventory changes of 2023 and so we’ve been hesitant to build that in.

Yeah.

But we think that’s some nice upside that could exist as we go forward. And I’ll ask Pat to comment on your questions on both PrimaLoft and Boa.

Yeah. So, Boa is strengthening.

Okay.

And hey, Larry. It…

Hi.

And it’s tough to kind of tease out…

Okay.

… what part of that is model count, what part of that is an easing of pressure -- model count growth, what part of that is an easing of these headwinds that we talked about and what part of it is just really strong execution by the management team. Clearly, there’s aspects of each and I can’t point you to kind of percentages, but I can tell you that collectively, those are each having, each driving kind of bookings to be better than we saw on a year ago basis, right? So, at PrimaLoft, I’d say the language from customers is clearly that these headwinds are easing. The language from customers is clearly that, we’re going to have a more stable, solid 2024. However, many of the brands are willing to chase the season, if you will and not sort of order in advance. So there’s just a little bit of a lag, but that’s how I differentiate kind of those two, if that makes sense. It feels like the easing at Boa is a little bit ahead of the easing at PrimaLoft.

I appreciate the color. Thanks, guys.

Thank you, Larry.

Your next question comes from Matt Koranda of ROTH MKM. Your line is already open.

Hi, Matt.

Hey, guys. It’s Mike Zabran on for Matt. Maybe just starting with the 2024 guide, I need to cut the industrial segment adjusted EBITDA to get to the midpoint of $140 million. I guess just based on recent underperformance relative to our expectations, I wanted to cut out of Sterno. But at the same time, we are facing two straight years of negative growth there. So, I guess just, are we still expecting low-to-mid single-digit growth in the industrial segment for 2024? And maybe just give a bit more color on where we’re seeing headwinds in the industrial segment and which, I guess, business we expect to be the heaviest drag in 2024?

Yeah. So, I’ll let maybe Pat touch on kind of the industrial drivers. But I think you might be off on your numbers. So, industrial for full year produced adjusted EBITDA of $128.6 million. So, the midpoint of our guidance that we provided implies kind of a 1%, 2% growth as we think about 2024. I think we’d all agree that’s a little bit conservative. As you mentioned, there’s not a lot to cut here, right? Altor is performing well. Arnold is performing well. Same with Sterno. So, I think we feel like there’s upside to that midpoint. But, Pat, do you want to provide any other kind of color on the industrial trends that you think will benefit 2024?

Yeah. I just don’t know about the underperformance of Sterno. I’m not seeing that. I mean, by our count and what we published, we grew sort of 11% to 12% there. And I don’t see -- I guess I can’t answer your question because I don’t agree with the basis of your question, if that makes sense, respectfully.

Yeah. No. Sorry. I just meant underperformance relative to our numbers that we had in our model, but totally understand where you’re coming from. Maybe just anything stimulating growth in 2024 and kind of, yeah, just where we expect the growth in industrial to come from in 2024?

Yeah. So let me just give kind of a high level here. So we grew mid-teens on a consolidated basis in 2023 over 2022. That is far in excess of our core growth rate in industrials. And so, I think, we’re all a little hesitant to get over our skis right now and say that, you can back up an extraordinary year where you sort of triple your core growth rate and have not some payback that could happen from that. A lot of that is due to margin expansion that occurred in 2023 as a result of commodity price deflation and as we’ve been saying, we’ve passed a lot of that commodity deflation to our customers, which is why revenues were down slightly, but EBITDA grew so rapidly. So, our industrial businesses performed exceedingly well in 2023 and they entered 2024 with really healthy backlogs. Now, that said, I think, we’re a little cautious, which is why we only guided to sort of kind of 1%, 2% growth here. And that’s -- it’s not really based on what we’re seeing in numbers manifest right now. It’s much more based on the fact that, we came off of a really extraordinary year. We don’t know if that we’ll get paid back some in 2024. But frankly, there’s really no reason to expect that the company is not going to grow back at it or the industrial group isn’t going to grow at its kind of normal longer term rate of mid-single-digit. I would say, as Ryan mentioned, it is being conservative and we think that’s just kind of prudent given the macro outlook right now. I mean, remember, there are global tensions and wars that are happening kind of in Europe. And so, you just have to be cognizant of kind of those threats that are out there and we want to make sure that we are guiding appropriately. But I would say some upside exists to our guidance numbers. Specifically, Arnold is doing really well. Sterno, as Pat said, kind of grew double digits year-over-year. It’s we have decent expectations for them to grow again. And Altor is performing really well and we have an exceptional management team there. So, there’s, like, no real, like, issues that I could point to in any one of the companies other than to say, again, when you’ve tripled sort of your core growth rate in a year, you’re a little hesitant to go too far out on your skis in the following year. But there’s no reason we should underperform our core growth rate of mid-single digits this year.

Got it. Makes sense. Thank you for clarifying, Elias. Switching to the consumer side, at 5.11, given we’re pausing store growth strategy this year, maybe just speak to where we’re planning to deploy that capital at 5.11 and just help us level set growth expectations for 2024?

Sure. So, first, kind of going backwards, outside -- we believe we will have another year of growth probably similar to this year outside of what we alluded to earlier that there might be some charges for the PFAS transition, right? So, we think we will have a growth level that’s consistent with prior year’s growth in 2024, if that makes sense. As far as where we’re reallocating, I mean, we’re trying to be best in class sort of in the DTC sector. So, we’re trying to get better at customer service. Everybody’s always trying to get better at customer service, but we’re really trying to provide best-in-class experience to our customers online as well and drive that online business, if that makes sense. Secondarily, we’re seeing, we mentioned some of the geopolitical tensions. Well, that drives our professional growth as well and we’re seeing strong growth in professional and we believe we’ll continue to see strong growth in professional.

Got it. That’s all from me, guys. Thank you.

Thank you.

Your next question comes from Kyle Joseph of Jefferies. Your line is already open.

Hey. Good afternoon, guys. Thanks for taking my questions. Ryan, obviously, the portfolio has evolved over the past couple of years, but can you just kind of refresh this? I think you touched on this in your commentary, but on the seasonality in terms of adjusted earnings?

Yeah. So seasonality adjusted earnings, it’s -- I think if you look back at prior years, it’s pretty representative. I mean, similar to what we said on cash flow is, the first quarter is generally, first quarter and second quarter are kind of generally slightly weaker than the third quarter and fourth quarter because a lot of our businesses have momentum to close out the year, whether it be…

Yeah.

… the outdoor season or the holiday season, et cetera. So, no one business in particular. Lugano, obviously, is a pretty significant percentage of our business now. That business doesn’t have a tremendous amount of seasonality given the fact that there’s events or anniversaries or birthdays, et cetera, all year, but they do tend to have a little bit more in the fourth quarter around the holiday season. People generally, I guess, become gift giving around that. So, outside of that, I’d say, again, kind of, if I were modeling, I’d say roughly 60% back half, 40% front half is how I would think about it.

Got it. Helpful. And then in terms of adjusted earnings guidance, I think you talked about on a dollar per share basis being relatively flat year-over-year. The headwinds there, just a higher share count and the tax rate, I think you mentioned or anything else we should be thinking about, because you guys did model for…

So…

You guys did a really strong EBITDA growth?

Yeah. So, Kyle, I mean, last year, it’s always tough to compare adjusted earnings when you have discontinued operations, right? So, last year, we pulled out ACI and Marucci, right? So, that lowers our adjusted earnings. So, the way I would think about it is we had guided on the third quarter earnings call adjusted earnings between $130 million, $140 million, roughly. I think if we had owned Marucci the whole fourth quarter, we certainly would have beat that guidance. But we see this year being up slightly to 2023. So, I think there is growth in adjusted earnings. I think that the challenge that we have with respect to adjusted earnings is Lugano. Because Lugano’s growth carries with it less leverage of adjusted earnings because you’ve got -- it’s a taxpayer, number one. And number two, it’s got a pretty high non-controlling interest shareholder, right? The management team owns north of 40% of the business. So that creates a pretty high level of non-controlling interest that lowers adjusted earnings. So, we’re going to have, as you -- as we’ve indicated, pretty substantial subsidiary adjusted EBITDA growth year-over-year. But not as high of adjusted earnings growth given that most of our growth would be Lugano.

Yeah. But Kyle, just to point out…

Yeah. That make sense. Okay.

… your, you could -- yeah, just to point out, the tax rate differential is a significant drag coming into 2024. We had a roughly 7% of adjusted EBITDA -- subsidiary adjusted EBITDA and we’re modeling in 10% now. So, if you take that 300 basis points on $500 million, it’s $15 million, it’s $0.20 a share. So, if you’re at $223 million versus $203 million, and that’s just having a same tax rate, the adjusted earnings growth per share or an adjusted earnings would be commensurate to the adjusted EBITDA growth. And what Ryan has said is also true, when Lugano carries higher growth, it comes with lower adjusted EPS growth because of the minority interest in capital investment. But I just want to be like very clear here that, if the tax rate is to stay the same, we would expect to get some leverage on adjusted earnings and adjusted EPS from our adjusted subsidiary EBITDA.

I got it. No. That’s very helpful. That makes it all make sense. Appreciate it, guys. Thanks for taking my questions.

Thank you.

Thanks, Kyle.

Your next question comes from Marc Feldman of William Blair. Your line is already open.

Hey, guys. Thanks for taking the questions here. So, just a question with some of the recent management changes. I know you’ve had changes at 5.11 and PrimaLoft. Can you just talk to any major changes and strategies at both of those companies or priorities, with PrimaLoft, obviously, there’s a lot of interest in expanding into newer verticals and new products. So, just any update you can provide?

Sure. I mean, at PrimaLoft, it’s a couple of things. It’s stayed the course. It’s got a great business, a great IP. I think we probably would like to invest in brand at PrimaLoft a little bit more and bring forth a little bit more of what PrimaLoft provides to the end user and Anne Cavassa’s experience there is very strong and so we’re excited to have her. At 5.11, Troy Brown, who of very high positions at Zumiez for many years, along with many other businesses like that and relevant businesses, is really, we believe a very strong at operational excellence and he’ll be working with Francisco Morales there as Francisco understands brand and product development and will stay on as Executive Chairman. And Troy, we just believe is very strong at driving operational efficiencies and at delivering for the end customer in a DTC environment and we think that combination will really yield tremendous benefits.

Got it. Appreciate that. And then, I guess, one other question as it relates to the consumer brands, you talked about 5.11 and Boa inventory destocking. But I guess, one other subsidiary that would be impacted would be Velocity. So, if you could just talk about trends there and anything else that you’re foreseeing and then, any changes and strategies with that business going forward?

Yeah. It’s a tough, I mean, it’s two or three businesses. But in the -- archery is -- in the archery side, we’ve seen some of that same destocking and/or some inventory reduction levels that have hit the business. I’d say we’re excited about the new products that we’re coming out with this year in archery and we think it will be really, they’ll be well received later in the year by customers. On the sort of more Crossman side, it just continues to have slightly weaker or weaker POS than we would hope, really driven by a lot of buying kind of during the pandemic era and so a lack of replenishment really needed. So, we’re working every day to right the course there. But that’s also one of the benefits of having a diversified business of 10 companies, right? And so, but we’re, we continue to be focused and working every day there.

Great. Thanks for taking my questions.

Your next question comes from Robert Dodd of Raymond James. Your line is already open.

Hi, guys. On back -- almost back to Larry’s question, on the leverage question, I mean, when would it be realistic for you to be entering the healthcare vertical? I mean, you said you’d be willing to take up leverage a little bit, but healthcare businesses do tend to go for pretty high multiples. I mean, next-gen, which is probably a different scale than you’re looking at and we went for 30 times EBITDA. So, with that dynamic, if the leverage did go up to the mid-4s, would you be then out of the acquisition market for maybe a couple of years to grow EBITDA to get leveraged down into your 3, 3.5 target range or what’s the thought there on making acquisition now potentially reducing your ability to take incremental opportunities, unless you make a sale, obviously, but that’s a different, that’s a question?

Yeah. Robert, I would say, one, we’re not paying 30 times EBITDA for a business. So, that’s off the table. I think that the businesses we’re looking at are trading at a premium to where the kind of innovative and disruptive consumers’ businesses are trading right now, call it, if those are in the 12 times, 13 times, 14 times range, good, innovative healthcare businesses that have real good kind of moats around them, are probably a 20% premium to that, just to give kind of a some type of kind of baseline. So, I think, if we were to do a deal today in healthcare, it’s going to bring us temporarily probably to kind of mid-4s maybe or depending on the size of the deal, again, it’s -- we’d have to figure out how big the company is. If it’s a $50 million EBITDA company, it’s going to bring the leverage up more than if it’s a $20 million or $30 million EBITDA company and so a little bit of that is fluid. I will tell you that, we have been, over the last few years, opportunistically divesting some businesses. That’s not going to stop. And so, part of our commentary in our script is we are trying to move away from businesses that grow in line with their industry. And look, we own some great businesses that grew in line with their industry and we still have some in our portfolio. And a lot of times, they’re really niche businesses, they’re niche kind of industries that they’re in, they’re market share leaders, probably great good cash flow. But we’ve really moved to want to own companies more like Boa and PrimaLoft and Lugano and Marucci, which we had a huge kind of transaction and sale on recently. So,…

That’s very helpful. Thank you. I appreciate all that color. Now, flipping it the other way, if I can, companies have been almost, to put air quotes around, too successful. I mean, Lugano, I mean, it looks on the back of the envelope for me, it looks like it could be as much as a third of consolidated subsidiaries next year, because it’s been so successful. At what point does it get too big, right? It’s very successful, it’s not growing in line with its industry, it’s massively outgrowing that. But at what point does it become too much or is there just no line at which it’s too much of a share of subsidiaries that are -- that it becomes a concern for you that you don’t have the counter cyclicality, if it’s dominating everything and you enjoy the company?

Yeah. And it’s a great question, Robert. I mean, clearly, the D and CODI, and we keep talking about the benefits of diversification, start to slow down and we don’t really have those benefits, to the extent that one of our companies starts representing too large of a component of our overall earnings. It’s a valid question. And Lugano’s growth rate and sort of what Moti and Idit have built there, it is just truly phenomenal. It’s honestly one of the businesses that I’ve just never seen anything like it. I don’t think there’s many businesses that are as good as this company that are out there. And so on the one hand you kind of don’t want to let go. I think kind of rule number one in portfolio management theory, and we’re not stock traders, so this doesn’t really apply, but you kind of ride your winners and you get out your losers. It’s -- kind of that rule applies here a little bit. This is a business that, look, it’s got a massive TAM. It’s got huge market potential and opportunity. It’s got a visionary founder and leadership team and we have the capital to support its growth needs. So that argues for holding it and continuing to let that growth benefit our shareholders. On the other hand, there is a point where it becomes too big and it sort of overwhelms the system and so that’s something that we’re on the lookout for. I think if it becomes a third of our EBITDA, like you referenced, we’re going to have a really good year this year, because you’re talking about a business that’s going to generate kind of growth rates similar to 2023 and I promise you that is not built into our guidance at all. I think if we’re getting there, it probably is something where if we’re looking at the end of 2024 and saying this company represents a third of EBITDA and it’s still growing at double the growth rate or triple the growth rate of our overall company, then we’re probably considering different options for financing the business and I think there are a plethora of opportunities where we could continue to kind of participate in the growth and -- but not have it be all funded by us. So that will be explored sort of depending on how 2024 develops, but this is a really high-class problem for us to have, and your point is a good one, and I would tell you this is a -- this is not a company that we look at and say we want this to represent 50% of our EBITDA. So, if it continues to grow at historical growth rates, it’s going to be a really great 2024 and we’re going to evaluate kind of what that means going forward and how we would want to think about financing in that context the business as it goes forward.

Got it. Got it. Thank you, and yeah, it’s just been a really tremendous success, so it is a high-class company. Thanks.

Thank you.

Thank you, Operator.

There are no…

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.

Thank you. This concludes Compass Diversified’s conference call. Thank you and have a great day. You may now disconnect.