管理層發言
Good afternoon, and welcome to Compass Diversified's Third Quarter 2024 Conference Call. Today's call is being recorded. All lines have been placed on mute. At this time, I would like to turn the conference call over to Cody Slach of Gateway Group for introductions and the reading of the safe harbor statement. Mr. Slach, you may begin the conference.
Thank you, and welcome to Compass Diversified's third quarter 2024 conference call. Representing the company today are Elias Sabo, CODI's CEO; Stephen Keller, CODI's CFO; and Pat Maciariello, COO of Compass Group management. Before we begin, I would like to point out that the Q3 2024 press release, including the financial tables and non-GAAP financial measure reconciliations for subsidiary adjusted EBITDA and 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 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. Unless otherwise noted, references in these remarks to company-specific financial measures relate to the third quarter of 2024 and references to period-to-period increases or decreases in financial metrics are year-over-year. 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 conference 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. 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 risk 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 political and economic environment, disruption in the global supply chain, labor disruptions, inflation, risks associated with the company generally due to natural disasters or social, civil and political unrest and changing 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. Today, I am pleased to announce we delivered another strong quarter. In Q3, we saw our combined revenue grow double digits, and our adjusted EBITDA grew by over 25% versus the third quarter of 2023. In fact, our Q3 adjusted EBITDA of $114 million represents a new quarterly record for CODI and is a byproduct of our strong business model and our long-term value creation strategy. Based on performance to date, we are raising our full year guidance for 2024, and we believe we are well positioned into 2025. Before I hand it over to Pat and Stephen to provide more details about both our Q3 performance and our full year outlook, I wanted to take this opportunity to provide a little more color on both our strategy and our current operating environment. Despite ongoing economic and geopolitical uncertainty, the North American consumer, especially the more affluent consumer, appears to be holding up well.
We are encouraged by recent interest rate cuts and the continued slowing of inflation over the last several quarters. We think this supports a stable outlook for the economy. Obviously, geopolitical uncertainties driven by the U.S. election and conflicts in the Middle East and Russia create some incremental risk that we are monitoring and will manage as required. We believe that our diverse mix of businesses provides us with useful insights into the underlying market outlook. In order to better gauge both the economic outlook and the strength of our businesses, we have recently developed a proprietary indicator that we call the CODI Momentum Index. This index uses data from our subsidiaries, including the last 12 weeks of both bookings and sales to help us identify shifts in market sentiment. At the start of the year, we saw a momentum index of 1.02. And as of the end of last week, we had a momentum index of 1.04.
We believe this reading is consistent with a stable economic outlook for Q4 and into 2025. As I mentioned, our positive results this past quarter demonstrate the strength of our business model and our long-term strategy. Innovation and disruption are at the heart of CODI. And over the last few years, we have begun to codify our goal of owning and actively managing companies that demonstrate our innovative and disruptive spirit. These are high-growth middle market companies with a sustainable competitive advantage that are poised to gain share in attractive markets. Partnering with and empowering our subsidiary management teams to realize their vision is a key part of our value creation strategy. We don't just provide capital. We provide strategic and active support and a long-term orientation. We work with our management teams to ensure that our businesses have the right strategy, processes, and talent as they drive outsourced growth through innovation, superior execution, and a focus on the long term.
I am proud to note that just yesterday, we were awarded Inc. Magazine's Founder-Friendly Investor Award, a testament to our collaborative and bespoke approach to working with our businesses and management teams. Our collaboration with our businesses goes well beyond traditional value drivers. For example, the work of our internal audit team often happens outside the spotlight, but creates tremendous value. As you know, we typically acquire middle-market companies that have varying levels of financial processes and controls in place. Our internal audit team works very closely with our subsidiaries to systematically review and improve our subsidiaries' financial processes and controls, creating both better outcomes and more confidence. This positions our businesses to scale and ultimately drives exceptional value for all stakeholders. Consistent with our long-term strategy, in the third quarter, we raised more than $17 million of preferred stock capital.
We plan to continue to raise capital through the issuance of preferred stock as we believe this lowers our long-term cost of capital while maximizing our financial flexibility. We also continue to focus on opportunities for capital deployment. Our goal is to be active but disciplined as we look for the type of companies we want to own and manage. While the M&A market remains somewhat muted, we continue to cultivate relationships with founders, entrepreneurs, bankers, and private equity companies in order to position us to buy great CODI-like companies at appropriate prices. We are confident that we can be the buyer of choice for innovative businesses that have strong business models and need long-term capital as well as strategic and active support to unlock value. In the meantime, we continue to invest in our subsidiaries. On October 1, Altor completed the acquisition of Lifoam. This addition accelerates Altor's long-term strategy, expands its capabilities, and we expect it will support faster growth as Altor partners with its customers to bring advanced cold chain packaging solutions to the market.
Each of our businesses continues to explore inorganic opportunities to drive long-term value creation, and we stand ready to support their growth. Lastly, on October 16, we announced a new $100 million repurchase program that authorizes us to opportunistically repurchase common shares throughout the balance of 2024 and beyond, subject to extension of the program by our Board. This program indicates that we do not believe our current share price reflects the intrinsic value of our business and it further indicates our confidence in CODI's strategic plan and our continued growth prospects. Our performance in the quarter was not an accident. It is the direct result of the execution of our strategy. I want to take a moment to thank the outstanding team here at CODI who worked tirelessly to bring our vision to life. I also want to thank our subsidiary management teams and employees for their hard work fostering innovation, driving exceptional results and exceeding expectations. With that, I will now turn the call over to Pat.
Thanks, Elias. To reiterate, it was another successful quarter and our business has continued to exceed our expectations. Over the last few quarters, our confidence in our companies has increased, and we believe we have the right approach in place to exceed our 2024 goals and set us up for a strong 2025. I will start with our branded consumer segment, where for the year-to-date period, pro forma revenues increased by 10.3% and pro forma adjusted EBITDA increased by 27% versus the prior year period. Our consumer vertical continues to surpass our expectations and growth is particularly strong in areas where we serve the most affluent customers. Lugano and BOA posted exceptional quarters, and PrimaLoft and the Honeypot company also performed very well. We believe growth will continue to be strong in each of these businesses, though at Honeypot, we believe there may be some lumpiness on a quarterly basis as we continue to invest in the brand to solidify its position in the market and drive long-term share growth.
Within our Industrial segment, on a year-to-date basis, revenues declined by 4% and adjusted EBITDA declined by 6.1%, respectively. The decline in the quarter was driven primarily by headwinds at Altor Solutions, which continues to face challenges at several of its cold chain distribution partners. We believe Altor is now offering a solution that can address the changing needs of the industry, and we believe that performance at Altor will stabilize and the company will return to growth in the midterm. In addition, we're very optimistic about the opportunities presented by Altor's recently completed acquisition of Lifoam. We're expecting approximately $7 million in integration costs over the next 5 to 6 quarters as the company extracts what we believe will be considerable synergies from the transaction. Arnold had another strong quarter, and we believe it will finish 2024 with solid performance.
Included in this quarter's results were approximately $900,000 of one-time move costs as the company transitioned its Illinois operations to a new state-of-the-art location to better facilitate growth. In Q4, we expect these costs to total approximately $7 million, excluding capital investments, as the company completes this strategic transition. For both Altor and Arnold, we intend to call out the specific one-time costs over the next several quarters to provide a better perspective of core business performance. Once again, we are very pleased with our performance this quarter, and we are excited to close out 2024 and continue to grow in 2025. I will now turn the call over to Stephen so he can provide more specifics about CODI's consolidated financial performance in the quarter and outlook for the full year.
Thank you, Pat. In the third quarter, we delivered consolidated net sales of $582.6 million, representing an increase of 11.8% over the prior year. Normalizing for the impact of acquisitions, our pro forma sales grew 6.6% in the quarter. As mentioned, growth in the quarter was primarily driven by branded consumer businesses with Lugano, BOA, PrimaLoft, and Honeypot all delivering double-digit growth. This growth was partially offset by the divestiture of Velocity's Crosman Airgun business as well as more modest growth in our industrial businesses. Our consolidated net income in the third quarter was $31.5 million, which compares favorably to a net loss of $3.8 million we recorded in Q3 of 2023. Adjusted EBITDA in the quarter was $114 million, representing a 28% increase over the same period in 2023. While our year-over-year performance benefited from the acquisition of Honeypot, growth in our adjusted EBITDA was primarily driven by strong operational performance across most of our subsidiaries, with Lugano, BOA, PrimaLoft, and Arnold all significantly expanding adjusted EBITDA margins in the quarter.
Corporate costs and management fees were $22.7 million in the quarter. This represents an increase of greater than $2 million over the prior year and a sequential increase of $1.8 million from Q2 of 2024. This increase was driven primarily by one-time costs associated with our recent CFO transition. Excluding these nonrecurring costs, total corporate costs and management fees were down both year-over-year and sequentially. Adjusted earnings in the quarter were $48.7 million, which represents a 65% increase over Q3 of 2023. Turning to our cash flow. In the third quarter, we used $29 million of consolidated cash flow from operations. Our cash usage was primarily driven by the extraordinary growth of Lugano, where we used around $60 million in cash in the quarter to support this highly profitable, fast-growing business. Outside of Lugano, our other subsidiaries generated greater than $30 million in operating cash.
In terms of capital expenditures, we invested $15.6 million in the quarter, an increase of $5.7 million over the prior year period. The increase in capital investments was related to growth investments in our consumer businesses as well as the plant relocation in Arnold, which Pat discussed earlier. Our balance sheet is strong, and we ended the third quarter with $71.9 million in cash and greater than $480 million available on our revolver. Our total leverage ratio declined modestly to 3.68% in the quarter. It is important to note that subsequent to the end of the quarter, we deployed approximately $140 million of cash to close the Lifoam acquisition. Overall, we maintained substantial liquidity and have the ability to increase our borrowings by an additional $250 million. We believe we are well-positioned to both fund the growth of our subsidiaries as well as act on attractive acquisitions as they become available.
Turning to our full-year outlook. As Elias mentioned earlier, based on our strong Q3 performance and the momentum we see across our businesses, we are raising our full-year guidance. We now expect our consolidated pro forma subsidiary adjusted EBITDA to be between $510 million and $525 million. This is inclusive of Honeypot as if it was owned from January 1, 2024. The increase in our full-year guidance will primarily come from an increase in our branded consumer vertical, which we now expect to deliver adjusted EBITDA between $390 million and $400 million. Adjusted EBITDA for our industrial vertical is now expected to be between $120 million and $125 million for the full year. On a consolidated basis, we expect our adjusted EBITDA to be between $420 million and $435 million inclusive of corporate costs and management fees of around $90 million. Our full-year adjusted earnings are expected to be between $155 million and $165 million. Obviously, this outlook does not include the impact of any potential acquisitions or divestitures. With that, I will now turn the call back over to Elias.
Thank you, Stephen. Before turning it over to the Q&A portion of the call, I'd like to highlight that we will be hosting our Investor and Analyst Day in New York City on January 16, 2025; where we will be showcasing our diverse subsidiary businesses and we'll share more about our strategic positioning and our playbook for driving long-term shareholder returns. You can expect more details in the coming weeks, and I look forward to seeing all of you there. With that, operator, please open the lines for Q&A.
分析師問答
Your first question comes from Larry Solow from CJS Securities.
I guess, first question, just on the guidance, narrowed up and then raise a little bit as well. It looks like on the industrial piece, just tweaked upwards a little bit. I guess that's primarily for the Lifoam acquisition. And then on the branded side, is that mostly Lugano or any thoughts on that?
Yes, Larry, it's Elias. On the consumer side, it's a little bit broader than Lugano. I would say the guide includes BOA performing better than anticipated. Honeypot had a really strong third quarter. We do anticipate investing substantially in marketing in the fourth quarter, but it's still going to be expected to deliver year-over-year growth. PrimaLoft is turned and doing a little better than expectations. So it's broader than just Lugano and your point on industrial is correct. That is due to Lifoam.
I really like the momentum index. I typically ask about it using those words, and now you've quantified it, which is interesting. My question is whether there was a downturn at some point this year. Has that number been trending upward over the last few weeks or the last couple of months? I'm just curious if there has been any movement between January 1 and now.
Yes, Larry, it's interesting because on the consumer side, it's held relatively stable throughout the year, which I think indicates what we were talking about the consumer, especially the more affluent consumer that we touch has held up remarkably well. We have seen a little bouncing around on the industrial. I would say there was a general trending down over the first 6 months of the year, 6, 7 months. Somehow miraculously in August and September, we saw that take almost a V-shaped turn back up. And then the industrial business has sort of weakened back a little bit. And so it's gyrated a little bit around. It did correlate to a lot of the better economic readings we saw over that time in late Q3. It has ticked down a little bit in October. So it feels like there was a little bit of momentum maybe around interest rate cuts, maybe that freed up some order flow that happened, especially on the industrial side of the economy. Now that feels like it's sort of rein back in a little bit.
I have a question related to one specific company, and then I'll hand it off to someone else. Regarding Lugano, which represents the peak of luxury and has demonstrated another outstanding quarter, I'm curious if you expect this trend to continue. Additionally, I'm wondering if there has been any reluctance or considerations regarding potential changes in capital gains tax and whether that might affect the business. Lastly, more generally, without delving into politics, do you think the upcoming election could have any effect on your overall operations? I'll stop there.
Larry, it's Pat. I will start with just a little bit more color on Lugano and then I'll let Elias handle the political question. But I think the growth at Lugano continues to be broad. We don't anticipate potential changes in capital expenditures to or excuse me, and cap gains tax rates to have an effect. It continues to be broad geographically. The number of transactions as well as the transaction side continues to increase. And we continue to grow geographically. We just announced and it is in several papers that we'll be opening on the Gold Coast in Chicago. We have a great location there that we're excited about, and that will be sort of the first quarter, maybe spring of next year, and we're considering other locations. And the new locations are doing well. I mean, we're having pretty good success internationally after opening our London salon. So, everything is kind of doing really well at Lugano and we are excited to continue to invest in the business. Elias, do you want to speak on the election results?
Yes. I don't know that we have any insight other than to say how different policies could affect us. As you know, selling consumer goods, we do import a lot of that product. Some of that product comes from Southeast Asia and some particularly out of China. If there are 10% to 60% tariffs that get enacted on all of our trade partners, clearly, that's going to create some level of disruption, Larry. There is no way that any company can absorb those kind of tariff increases. So my sense is this gets pushed through to additional pricing in the marketplace is inflationary and likely reduces consumption unless there's some tax decrease that can offset that increase in costs that are going to be pushed through. So I think that could be a potential that we are clearly looking at. But other than that, I don't think there's been a lot of talk about policies outside of potential tariffs that would have major impacts on our operating companies.
And the next question is from Matt Koranda from ROTH Capital.
Just wanted to start off with Lugano. Maybe any way to unpack the kind of the key drivers of growth there? I mean just continues to sort of defy expectations on the top line? And I have a question on the margins that I'll get to. But curious if maybe you could just parse out or help us understand qualitatively like existing salon growth versus what you're seeing from the new salons in terms of contribution? Anything to call out on like average order values that could be helping you there? Just kind of wanted to get a better sense of the drivers there.
All salons experienced year-over-year growth. I'm not going to detail the growth by individual salon or region, but our existing salons are performing really well. We are noticing an increase in our average transaction value, which is contributing significantly to our growth. We are also seeing an increase in the number of transactions each quarter. It’s a combination of factors. Unfortunately, I can't provide more depth than that. We believe that Lugano has a fundamentally different and disruptive business model, offering more value to consumers than any of our competitors, which is crucial across all demographics. We are building long-term relationships and encouraging customers to view jewelry as a store of wealth. Our growth stems from all these aspects. Our investments in inventory are vital, as having diamonds is necessary to sell diamonds, and we are seeing good returns on these investments. Overall, it's a combination of all these elements.
Yes. Okay. Now that's fair. It sounds like balanced growth there. That's great. And then just on the incremental margins, I think historically, you guys have spoken to $1 of growth gets you $0.30-plus of incremental margin on the EBITDA line at Lugano. Maybe this quarter was quite a bit in excess of that. I'm just curious if there was anything unique about the third quarter that drove the profitability there at Lugano or anything else to call out so we can understand sort of the incremental margins on a go-forward basis?
Yes. I mean as we grow and as we get more scale and as we add more capabilities and more talent and management, we're clearly buying at least as effectively, if not more effectively, number one. And number two, I'm not sure if this quarter. I would not want to take this quarter's margin to sort of straight line them over the next 4 quarters, right? This could have been slightly higher than average, not materially, but slightly higher than we'd expect going forward. And I will just point out Q4, we think, is going to be a great quarter. There are marketing events as well in Q4, but we think we'll grow well beyond any increase in costs.
I have a broader question. I've asked it in various ways before, but Elias, could you share your thoughts on the M&A landscape and the current deal flow? Also, Stephen, it seems the balance sheet might have less capacity in the near term for a large acquisition given the Lifoam purchase and the intention to allocate some funds towards the $100 million buyback. Could you discuss how we balance the desire to expand our portfolio with the fact that the stock appears quite undervalued right now?
Yes. So Matt, could you remind me of your first question? Then I'll provide my thoughts.
Was just the first question was just M&A landscape and deal flow.
Yes. Regarding the balance sheet, deal flow has been relatively low for a couple of years now. I know we may sound repetitive, but as we mentioned in our script, we want to be active while also maintaining discipline about the types of companies we pursue, similar to those we've acquired post-COVID, such as BOA, PrimaLoft, and Lugano. These are innovative businesses with strong growth rates and notable IP protection. Unfortunately, those companies have not been trading in the marketplace, and we’re exploring all options, reaching out directly to entrepreneurs. The current rate environment and tight policies have contributed to the decline in deal flow. There’s also concerns about a potential recession, although many are now becoming more comfortable with the idea of a soft or no landing, which has weakened the M&A market. The upcoming presidential election has further stalled M&A activity, but we anticipate more transactions will emerge after the election, assuming a peaceful outcome and power transition.
We’ve heard that bank pitch activity is very strong, which could lead to increased activity in 2025. Nonetheless, we will remain disciplined regarding the types of companies we consider for acquisition, as acting on an opportunity that doesn't align with our strategic goals could lead to greater opportunity costs. Currently, we maintain leverage below 4x, slightly higher than our maximum target of 3.5x, but it is not significantly outside that range. Over the past several years, our portfolio has shifted from low growth, roughly in line with GDP, to now experiencing high single-digit to low double-digit growth. This positions us for natural deleveraging, depending on Lugano's growth rate and any capital requirements affecting our balance sheet. We are now generating well over $100 million in retained cash annually, which can support either buybacks, M&A opportunities, or capital investments into Lugano.
The growth of the business contributes to deleveraging since the denominator in our leverage ratio is increasing. We anticipate this trend to continue not just in Q4 but into 2025 as well. Given these factors, we are comfortable with our current leverage, which represents the strongest position the company has ever experienced concerning growth and cash flow. Regarding our capacity relative to our full revolver commitment, I am confident in discussing with our financing partners that there is available capital in various market segments, including term loans. We currently have a Term Loan A outstanding, and the Term Loan B market is also accessible. We have significant secured lending capacity and the means to increase liquidity. We're also open to entering the bond market, where we continue to perform well above our rating, so we feel very positive about our balance sheet and the capacity we hold.
And next question coming from the line of Matthew Howlett from Jefferies.
Could you talk about just the VoIP and supply chain impact on various portfolio companies? And when that might sort of unwind and become a tailwind just in terms of the destocking trends that we've seen?
Sure. This is Pat. I'm not sure when it will become a positive factor. I will say that sometimes having too much momentum from the current position can lead to overstocking at retail, which could cause problems later. Overall, we believe we are at a balanced state. We don't think we are overbuilding or depleting supply in the channel. Generally, we feel we are producing in a way that aligns with consumer demand.
And then could you just talk about how you're thinking about the dividend at this point? Obviously, leverage has been fairly consistent, and you're out earning it by a large margin, but just how you're thinking about dividend payments going forward?
Yes. As we've said publicly in the past, our Board makes our decision on the dividend. We paid a dividend since coming public every quarter that we've been public, and that is the current position of the company is that we are a dividend payer, and we will be, unless there is some change in strategic plan, which is not being considered right now.
The next question coming from the line of Robert Dodd from Raymond James.
Going back to the M&A landscape, I would like to ask about your optimism regarding potential deals in the market over the next 12 months. While I understand that activity has been muted and pipelines are still developing, do you believe conditions will be favorable for finding the types of deals you seek? Entering an auction for a highly competitive healthcare company may not align with your typical approach. What is your outlook on the market's potential to facilitate suitable opportunities over a longer timeframe?
We're feeling very hopeful right now. We believe the M&A markets, which have been quiet for a couple of years, can't remain that way indefinitely. Eventually, people will need to make decisions. Entrepreneurs will engage in estate planning and tax planning, and private equity funds will face circumstances that drive them to exit for financial realizations. This situation could prompt sellers to re-enter the market. There's been a strong hesitation because no one wants to risk putting a top-tier asset on the market only to face challenges with pricing. This has led to a stagnant seller market. The recent decline in interest rates, particularly the initial 50 basis point reduction, is a positive sign. If the Federal Reserve continues to ease monetary policy, it will benefit these assets. We're already observing a resurgence in lending and leverage multiples in the marketplace. All these factors give us a lot of hope that the next year will see a significant rebound, and we should be able to pursue transactions for the type of companies we aim to acquire.
I need to ask the necessary question about store openings for next year. Do you have any preliminary information? It takes time to open new locations, so if you plan to have one open by the middle of next year, you must already have a site selected. Can you share any details on how many stores you expect to open next year? Do you anticipate opening a second international location? London seems to be performing well, but even without international expansion, do you see further opportunities to grow your customer base?
The Board of Lugano has not yet reviewed the strategic plan for 2025. However, we are always exploring opportunities, and we are currently evaluating several locations, including international options. There is definitely potential for growth as we have identified many attractive markets where the Lugano model would fit. Unless something unforeseen occurs, we expect to open additional stores next year, possibly around two if I had to make an estimate.
And the next question coming from the line of Jonathan from TD Cowen.
This is Jonathan standing in for Lance. I have one question. With the decrease in rates and what appears to be a strong quarter along with the raised guidance, how are you approaching the balance between share buybacks, potential acquisitions, and managing your debt? How do you prioritize these, and does that prioritization shift based on market conditions?
Yes, Jonathan, this is Elias. Our capital allocation is adaptable. We aim to retain capital to advance our strategic plan. As we've mentioned repeatedly, a key objective in our plan is to reach $1 billion in EBITDA. We believe the size and diversity of our subsidiaries and end markets help us lower our cost of capital. This goal is our guiding principle. We prioritize using internally generated capital and any funds raised in the market for acquisitions that support our strategic vision. However, we must also consider the stock price. If our assessment of intrinsic value diverges significantly from the stock price, we need to take action, such as implementing share buybacks to create a buffer. We see a better risk-adjusted return from buybacks compared to our current strategic investments. While this may not provide a definitive answer, our priority remains our strategic plan. At current price levels, we are open to buybacks to support the share price, as we believe it offers a good return on the capital used.
I also want to highlight that we raised $17 million in preferred capital during the third quarter and have raised additional capital in the fourth quarter. While we won't disclose the exact amount until later, we plan to keep utilizing this equity capital, which may be invested in Lugano or potentially used for share buybacks, as funds are interchangeable based on where we see the best returns. Currently, we view investment in Lugano as highly attractive due to exceptional returns. The preferred capital can facilitate buybacks, support acquisition efforts, or aid in general debt reduction. We anticipate incoming capital and plan to pursue various divestiture opportunities as we continue to make progress on our strategic plan.
Thank you. There are no further questions at this time. I would now like to turn the conference call 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.
Ladies and gentlemen, this concludes Compass Diversified conference call. Thank you, and have a great day.