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.
Robert Dodd: 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?
Elias Sabo: 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.
Robert Dodd: 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?
Pat Maciariello: 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.
Robert Dodd: Got it. Thank you.
Pat Maciariello: Thank you.
Operator: Your next question comes from the line of Matt Koranda from ROTH Capital. Your line is now open.
Unidentified Analyst: Hey guys, it’s Mike on from Matt. Can you hear me all right?
Elias Sabo: Absolutely.
Unidentified Analyst: 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?
Ryan Faulkingham: 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?
Unidentified Analyst: Absolutely. Thanks for that, Ryan.
Ryan Faulkingham: 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.
Unidentified Analyst: 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?
Ryan Faulkingham: 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.
