Codi narrows 2026 adjusted EBITDA outlook to $330M-$355M while targeting further deleveraging

• "Our subsidiaries delivered another strong quarter despite continued macroeconomic uncertainty." (CEO & Director Elias Sabo) "Based on our year-to-date results and current expectations for the remainder of the year, we are tightening our 2026 guidance range." (CEO & Director Sabo) "As this is my final earnings call as CEO" and "I have complete confidence in Zach, Stephen, and the CODI team to build on our progress and deliver long-term value for our shareholders." (CEO & Director Sabo)
• "Subsidiary adjusted EBITDA grew double digits, led by our consumer businesses, where adjusted EBITDA increased 28%." (Partner & COO Zachary Sawtelle) "Cash generation supported further deleveraging, bringing our covenant leverage ratio down to approximately 4.5x." (Partner & COO Sawtelle) "Our priorities remain clear: drive profitable growth, generate cash flow for debt reduction, and pursue value-maximizing divestitures." (Partner & COO Sawtelle)
• "The Honey Pot delivered another outstanding quarter with adjusted EBITDA more than doubling year-over-year, up 124%." (Partner & COO Sawtelle) "While The Honey Pot benefited from tariff refunds in the quarter, its results were driven primarily by strong underlying business performance." (Partner & COO Sawtelle)
• "Both BOA and Primaloft outperformed in Q3, delivering 22% and 28% adjusted EBITDA growth, respectively." (Partner & COO Sawtelle) "It is important to note that some of the quarter's strength reflected the timing of customers' orders." (Partner & COO Sawtelle)
• "Third quarter adjusted EBITDA declined just under 2%, reflecting softness in the DTC channel" at 5.11, and "we are also reducing our reliance on discount-driven sales." (Partner & COO Sawtelle) "Full-price product sales increased approximately 10 percentage points compared with the prior year." (Partner & COO Sawtelle)
• "Arnold more than doubled adjusted EBITDA" and "backlog is increasing" alongside "continued supply chain constraints." (Partner & COO Sawtelle) On Altor, "weakness in life sciences and industrial, together with higher input costs, continue to weigh on results" and "performance remains below where it needs to be." (Partner & COO Sawtelle)
• "For the third quarter, GAAP net sales were $423 million" and "income from continuing operations was $23 million." (Executive VP & CFO Stephen Keller) "Basic earnings per share was $0.06, which includes an income tax benefit of $20.1 million related to Lugano recovery." (Executive VP & CFO Keller)

Outlook

• "We are narrowing our 2026 subsidiary adjusted EBITDA guidance to between $330 million and $355 million." (Executive VP & CFO Keller) "We now expect adjusted EBITDA of $260 million to $270 million for our Branded Consumer businesses and $80 million to $85 million for our Industrial businesses." (Executive VP & CFO Keller)
• "This reflects modestly higher expectations for Branded Consumer, offset by lower expectations for Industrial." (Executive VP & CFO Keller) "Our updated guidance reflects strong year-to-date performance, tempered by a modest pull forward of demand in certain businesses, and the increasing macroeconomic uncertainty." (Executive VP & CFO Keller)
• Versus Q2, management moved from "maintaining our fiscal 2026 total subsidiary adjusted EBITDA outlook of $320 million to $365 million" to "narrowing" the range to "$330 million and $355 million." (Executive VP & CFO Keller, Q2 vs. Q3 transcripts)

Financial Results

• "For the third quarter, GAAP net sales were $423 million compared with $473 million in the prior year period." (Executive VP & CFO Keller) "Income from continuing operations was $23 million compared with a loss of $87 million last year." (Executive VP & CFO Keller)
• On a comparable basis, "net sales were up approximately 0.8% versus the prior year, with branded consumer net sales increasing by 4% and industrial net sales declining 5%." (Executive VP & CFO Keller) "Subsidiary adjusted EBITDA was approximately $90 million, an increase of 12.9%." (Executive VP & CFO Keller)
• "We generated approximately $52 million of operating cash flow in the third quarter" and "capital expenditures were $6.6 million in the quarter." (Executive VP & CFO Keller) "We ended the quarter with $127 million of cash and near full availability on our revolver." (Executive VP & CFO Keller)
• Lugano update: "In September, the court approved Lugano's liquidation plan, and we received nearly $30 million in proceeds, which we applied to our term loan." (Executive VP & CFO Keller) "Beyond receiving future recoveries from the trust, whose timing remains uncertain, our involvement in Lugano's bankruptcy is complete." (Executive VP & CFO Keller)

Q&A

• Cristopher Kennedy, William Blair: "what you're seeing in the higher interest rates?" Zachary Sawtelle: "we've seen the market become increasingly uncertain... since the Q2 call" and "we are committed to pursuing a value-maximizing divestiture... Everything is certainly on the table." (Partner & COO Sawtelle)
• Cristopher Kennedy, William Blair: "reiterate what you're expecting?" Stephen Keller: "we're still kind of thinking of like about $70 million of excess cash that we can then use to pay down debt." (Executive VP & CFO Keller)
• Michael Legg, Ladenburg Thalmann: "How much was the tariff refund across the whole portfolio?" Stephen Keller: "It was a little around $7 million" and "we took the opportunity to use some of that $7 million to reinvest... to help drive long-term growth." (Executive VP & CFO Keller)
• Lawrence Solow, CJS Securities: asked if confidence changed as "clouds have only gotten thicker." Zachary Sawtelle: "we still feel pretty good" and cited that products are "highly differentiated" with "exposure to a more affluent audience," while noting "a little pressure... in 5.11... in the DTC channel." (Partner & COO Sawtelle)
• Lawrence Solow, CJS Securities: pressed on divestiture timing. Zachary Sawtelle: "I wouldn't feel comfortable time bounding" and "we won't sacrifice value for expediency." (Partner & COO Sawtelle)
• Timothy D'Agostino, B. Riley: asked about "$127 million" cash and debt paydown capacity. Stephen Keller: "we got $30 million the day before the quarter ended, and we paid down the debt at the 1st of October" and "you will see us generate significant cash and use it to pay down our senior debt." (Executive VP & CFO Keller)
• Heli Sheth, Raymond James: asked about post-election shifts. Zachary Sawtelle: "No change in our expectations." (Partner & COO Sawtelle)

Sentiment Analysis

• Analysts: slightly negative/pressing, emphasizing macro uncertainty and timing, including "uncertain M&A environment," cash availability, and whether divestitures can occur "in the next few months." (William Blair, CJS, B. Riley, Raymond James)
• Management: neutral to slightly positive, pointing to performance and caution on timing, including "Q3 was a strong quarter" and "we won't sacrifice shareholder value for a short-term catalyst." (Partner & COO Sawtelle)
• Versus Q2, the Q3 dialogue leaned more toward macro drivers (rates, oil, inflation, elections) and process lengthening, with management stating divestiture processes are "becoming more so elongated in this uncertain environment." (Partner & COO Sawtelle)

Quarter-over-quarter Comparison

• Leadership transition advanced from Q2 "Zach will succeed me" (CEO & Director Sabo) to Q3 "my final earnings call as CEO." (CEO & Director Sabo)
• Guidance language shifted from Q2 "maintaining" the outlook to Q3 "tightening" and "narrowing" the range, with Industrial expectations reduced to "$80 million to $85 million" from "$85 million to $95 million" in Q2. (Executive VP & CFO Keller)
• Leverage commentary moved from Q2 "covenant leverage ratio was 4.8x" to Q3 "approximately 4.5x." (Executive VP & CFO Keller; Partner & COO Sawtelle)
• Analyst focus rotated from Q2’s corporate cost structure and Altor turnaround milestones toward Q3’s M&A-market conditions, tariff refund size, and cash positioning. (Q2 vs. Q3 Q&A)

Risks and Concerns

• "Some of the quarter's strength reflected the timing of customers' orders." (Partner & COO Sawtelle) "Near-term expectations remain subdued as a large customer reduces its reliance on Rimports as its supplier." (Partner & COO Sawtelle)
• "Weakness in life sciences and industrial, together with higher input costs, continue to weigh on results" at Altor, and "that will take several quarters." (Partner & COO Sawtelle)
• "Increasing macroeconomic uncertainty" and no assumed "significant change in the current trade environment" were embedded in the company’s outlook framing. (Executive VP & CFO Keller)

Final Takeaway

Elias Sabo framed Q3 as his final earnings call as CEO while the company tightened 2026 subsidiary adjusted EBITDA guidance to $330 million-$355 million, citing strong year-to-date results alongside order-timing pull-forward and rising macro uncertainty. Management emphasized continued deleveraging progress, the pursuit of value-maximizing divestitures without “time bounding,” and operational divergence across the portfolio, with outsized growth at The Honey Pot and Arnold contrasted against ongoing Altor pressures and a cautious posture on the M&A backdrop.

Read the full Earnings Call Transcript

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