Hello and thank you for coming. I'm Pat Maciariello, I'm the Chief Operating Officer here at Compass, and we just wanted to welcome you in again, just to tell you how much we appreciate your support and being here. Before I get started and before I introduce Mike Joyce, I want to just say thank you to the Compass team, Coh and Kara and John Lynn who put this on. It was really fabulous, so thank you all. I also want to say thank you to each of our subsidiary management teams, who displayed their product with such professionalism and I'm humbled to be associated with them, so thank you. It's my honor to introduce Mike Joyce.
Mike, in 2012, after a 24-year career at Albany International, which culminated in being the President of the Applied Technology Group, Mike led the buyout from Albany International of PrimaLoft, through focusing relentlessly on innovation and sustainability and through tremendous drive, he and his management team more than doubled the business and then more than doubled it again. No pressure, Mike. Mike is a graduate from UMass Dartmouth and a graduate from the Advanced Management Program at Harvard Business School. Mike is on the advisory board of M&T Bank in the Capital Region and is also a member of the Outdoor Industry Association. Mike is becoming quickly a good friend and it's my honor again to introduce our partner, Mike Joyce.
Good afternoon, everyone. Pat, thank you for your introduction. I appreciate that. It's my great pleasure to be here today. I really enjoy talking about the PrimaLoft story and explaining our beginnings, the progress that we've made, as well as opportunities moving into the future.
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Sticky? That's not going to do it. Slide's not advancing. Here's what. Well, what am I doing now? Oh, the camera. Okay. I'm going to spend a few minutes, giving you an overlay of who we are. You've heard, in the quarterly meetings a little bit about the business, but really not deep enough. I'm going to go a little bit deeper about who we are, what our recent performance has been, and talk a little bit about where we see our growth opportunities going in the future. In the videos that you saw leading up to the present, dinner, or I should say lunch, we talked about advanced material technology. We make advanced material technology that's felt by the planet. What we mean by that is advanced materials are a core of what we do. It's the DNA.
It is how we started the business. It is how we innovate. It's how we differentiate ourselves to our brand partners in the industry. We're also a premium brand. It's an interesting combination. Not only do we have expertise in advanced materials, but we're also known as a premier brand within our industry. That's a pretty powerful combination. Our products can't be seen. They're inside garments. They're inside shoes. They're inside apparel. However, we wrap the body and we directly impact experience. Think of us as almost like Intel Inside. Maybe something closer to us in our industry would be a GORE-TEX, right? We directly impact experience. Our belief and our success is based on unleashing the full potential of people, products, and the planet. What we mean by that is people is the consumers, unleash their potential.
Products is the products we make. The planet is how we make those, make them in a responsible way. I'd argue that that's been a core to our growth in the last several years is really abiding by that belief. We have the capability as an advanced material technology company to go into the actual material itself and change the behavior of that material. We can go into the polymer of the material. If we change the behavior of the material, then we can change the behavior of the final product. You have tremendous leverage when you are able to do that. We have the capability and we've done it in the past. Good examples would be our aerogel technology that we use, aerogel particulates and we embed them into materials and it improves the thermal performance of the product.
Or our PrimaLoft biotechnology where we take biodegrading additives and embed them into materials so that now polyester can biodegrade in landfill and in seawater and in wastewater. Nobody's done that before. Relentlessly Responsible is, and you saw this in the lead-in video, our sustainable platform. It's how we think about how we make products. This involves products and technology and we build those products and technology, but we build them on a sustainable chassis. Think of it as an automotive assembly line where we take our technologies and our materials, but we use a sustainable chassis to build out these products. This involves not only what we make, the actual product we make, but it also involves how we make it. An example of what we make would be the PrimaLoft Bio material that biodegrades. That's what we make.
How we make it is an example of that is our P.U.R.E. technology platform where we've been able to modify our materials, change the way we make products, and reduce our carbon emissions by 70%. It's not just what we make it's also how you make it. That's been gaining a lot of traction in our market as well. We've been in business for 40 years, so we've been around a while. We have a long history of being first to market with new technology. That's the chosen path we've taken. There's nothing wrong with fast to follow, but that's never been what we were about. We're always trying to be the first to market.
It started going all the way back in 1983 when the Department of Defense, through the Special Operations Forces, approached the company with the project of eliminating down from their cold weather fighting uniforms. Up until that point, the military was using duck down and goose down in their cold weather fighting uniforms. It's a wonderful material. It has very high warmth, very lightweight, compressible, so you can pack it away. The problem with it is when it gets wet, as you all know, down collapses and it loses its thermal performance. Our project was to create a product that had the loft and the warmth and the weight and the compressibility of down, but maintain warmth when wet. In 1983, the company Patton did the PrimaLoft fiber, the first of its kind.
The typical fiber size that we use, to give you a reference, if you took a human hair and you spliced that 7x , one of those strands is about the size of our average fiber. Another way to look at it is it's half the diameter of cashmere. As you pull that one fiber out of your cashmere sweater, our material's half the size of that. It was never done before. We're first in market there. We still do a tremendous amount of U.S. military business, Special Operations Forces, to this day. Soon after, L.L.Bean got note of this new technology and in 1990 launched the Mountainlight Jacket. That was our first product that went into retail. They used that in an expedition over to Everest. Right at the end of the Cold War, they had a peace climb.
Some people might actually remember that. There was a peace climb to Mount Everest. L.L.Bean was the sponsor of that climb and all the climbers had PrimaLoft on their backs. That's about the same year Polo Ralph Lauren found our products. Ralph liked the thin silhouette, warm, thin, and great drape. Both L.L.Bean and Polo are our customers today, one of our top customers today. Really a 40-year history with those two companies. I won't pick out every single bullet here on this slide, but in 1997, we came out with the first recycled content product, using footwear. Nobody wanted it. Nobody asked for it. We had the ability to use recycled materials and be able to make super fine fibers out of this second-grade plastic.
We've been able to produce insulations used in footwear because we could do it and we knew it was the right thing to do. From there, the sustainable trends came many years later, but we were the first in market for that. More recently, we launched our PrimaLoft Bio in an insulation in 2018, first ever. In 2019, we moved that to fabrics. Now we make a PrimaLoft biodegradable fabric, first of its kind at that point. Just recently, in 2020, we partnered with Patagonia and we launched our PrimaLoft Pure. Pure stands for produced using reduced emissions. Again, that's how we make the product. We can reduce the carbon footprint of our products up to 70%. We started with it with Patagonia, an iconic sustainable brand, gave them a one-year exclusive.
Now it's through the industry and growing quite rapidly. Lastly, I'll just tell you that over the last 10 years, since 2012 and the leveraged buyout, we've accelerated new product launches tremendously. We do business with over 950 brands around the world, global brands. These are the most iconic brands in the world. No one customer is more than 6% of our revenue. That creates a very long revenue tail. That also creates stability in terms of your revenue line. We have a diverse list of customers globally and by segment. We do business with Patagonia, which is a technical apparel brand, all the way to a street, like more of a street brand like Vans, or a lifestyle brand like Lands' End, to a high-fashion brand like Moncler, a ski brand like Spyder, or a hiking brand, climbing brand like Black Diamond.
We have large retail customers like Adidas and Nike. We have the small regional player like a Schöffel in Germany. We play in a lot of places, and that again provides stability to our business. These leading brands prominently support and display our brand on garment, at retail, online. They have since the first beginning. They do that because we stand for performance and sustainability. We stand for best of the best. That allows them to charge a price premium, to encourage a high velocity of sell-through, and also attract new consumers to their brand. When they see the red logo, they know that means quality, and they get attracted to that brand. Typically, our tags that we use on the garment are permanently placed on that garment.
We have over 200 million tags that were placed in garments over the last several years. Now, the upper section, the blue jacket, that's a Maloja jacket, and that's typically a small sewn-in label on the inside of the jacket. We also have brands that put us on the outside of the jacket, and it's happening more. An example of that is Nike. Nike has a six-inch embroidered PrimaLoft logo on the sleeve of, excuse me, the sleeves of those jackets that are out there. Stone Island is a high-fashion technical brand who prints on every jacket exactly the contents and why they use PrimaLoft. Lululemon is in the bottom. That's a hang tag. Lululemon has created their own hang tag, and on that hang tag, Lululemon is not mentioned, just PrimaLoft, and they talk about our genesis in military.
One must ask, why would someone like Nike, who protects their brand as much as they do, want and encourage and come to us and ask if they could put a six -inch embroidered logo on the outside of their jacket? It's because we're delivering value to them, we are attracting new consumers, and we're raising their position in terms of performance. Those are the reasons why that happens. We historically have been, and we have a core competency in what I call B2B marketing. That's historically what we've done. We've associated ourselves with some of these large brands, and we've rode their coattails very effectively. We'll go with The North Face and PrimaLoft with The North Face or PrimaLoft with Patagonia, and it's a partnership marketing arrangement that's been very successful. In 2022, we decided we're going to pivot a bit.
We're going to continue making those investments on B2B. We believe that we have the size and the scale to start moving direct to consumers. We've started this program where we're starting to talk to consumers about PrimaLoft, agnostic from the brand. We want to tell our story. We want them to understand who we are and what we stand for and create demand, consumer demand. They'll walk into the store and say, "Do you have a PrimaLoft jacket?" Similar to what they do now with GORE-TEX. Is that a Gore jacket? Is that a GORE-TEX jacket? That's the direction in which we're moving. We've been very pleased with the results.
To give you an example, just looking at this slide, we've got a lot of acknowledgment and validation that our technology is relevant from companies like Fast Company, where we were chosen as the, brands that matter in 2022. I'm particularly, pleased and happy about Popular Science. In 2020, we entered in a competition with Popular Science, we won the grand-winning position for our PrimaLoft P.U.R.E., which is our reduced emissions technology. We won first place against Abbott Laboratories, NVIDIA, Google, some of these most iconic, innovative consumer brands, PrimaLoft won best in class for that, for our PrimaLoft P.U.R.E. That gives me particular, pleasure in knowing that. That's kind of who we are, the markets we play in, the focus on innovation, performance, and sustainability and balance. Let me talk a little bit about the financial side.
I think the best way for me to really talk about shifting from product and markets to finance is to tell you why I decided to change my career at the age of 48 and lead a management buyout. That was because I was familiar with the company. It was part of the parent company that I would recognize brand. You don't find people, companies that have a prominent position in both. I thought that was very unique. We had a history of growth going all the way back to the beginning. We have a compelling business model, high gross margin, asset light, meaning we have 16 brand partners, factory partners that make products for us. We cluster those around where their garments are being manufactured, so we have efficiencies. That in itself drops my fixed cost basis. I have a low fixed cost.
I have, low CapEx requirements as a result of that. What's very unique about our business is that we have negative working capital. You can say, you scratch your head and say, "How do you get negative working capital?" Well, for the last 30 years, when we're doing business with these third-party manufacturers, we require prepayment. We get the money coming in, hits, wires in, and then we ship the goods, and we have terms off the back end. We have a really nice float, and we can generate negative working capital. The most important thing that allowed me to make the decision and sleep well at night was our free cash flow conversion was extraordinarily high. I like companies that generate lots of cash. I made a business decision.
I knew that the success of this company going forward was we need to introduce new product technology, we need to grow our revenue, and I need to be a good steward of the business model that I so admire. So if you look at what we've done with that, I think we've been successful. We've expanded the gross margin profile of our business through new product introduction, price that a premium. We've managed our cost very well. Because we have an asset light model, we're able to have a flexible supply chain. That helps us with redundancy, and it also helps us with, at times, price arbitrage opportunities. We've been able to expand the margins very nicely. We've balanced our growth with investment appropriately. If you look at our EBITDA return, it's over 40%.
We've made very nice progress there relative to our sales increase. Our free cash flow, that blip you see that went down, that's 2020. That's an anomaly, but we've been able to maintain very high free cash flow. We've been able to live up to that, those standards. Maybe shifting more in a forward-looking posture in terms of opportunities, we compete in a very large insulation market. We define that as apparel accessories embedding. We do not look at synthetic versus down. We look at both together because we have products that compete, can compete head-to-head with both. We've been winning share of market against both. Tremendously large addressable market. We're gaining share. Over the last several years, we've gained share almost three times that of the industry average. We've gained it against down. We've gained it against synthetics.
We continue to eat away at share based upon our focus on innovation, performance, and sustainability. We've recently deployed, our technologies into adjacent space. One might ask, "Well, why would you move your technology into adjacent space?" It's for this reason. The purpose of our company is to unleash the full potential of people, products, and the planet. We sit on technologies, let's say, like our biodegradation technology. We're sitting on this. We're using it for apparel. Why are we not utilizing it in other places? We elected to start, the tip of the spear is in the non-woven hygiene market that is clamoring for this type of technology. We just launched into this. We're making tremendous progress. We believe that using this technology as a licensing opportunity to create revenue flow is in the best interest of the company.
Again, it's very early in the process, but we're making some very strong progress there. I'll go back. There's one other point I wanted to make is consumer tailwinds. We're seeing more emphasis on health and wellness across the board. You know, health and wellness for our apparel customers is getting outdoors, enjoying nature, lowering your stress level by being in nature. It's really moving in that direction. In bed, in the bedding business, wellness is about quality of sleep. We're seeing an increasing expansion of that focus. Secondly, there is an increased participation in the outdoors. If there is a silver lining coming out of 2020, 2021, is that people got outdoors. They did, and most recreation, by the way, happens within 10 mi of one's home. You need goods, you need products, and you need technology and equipment to go and do that.
We're seeing a larger commitment to the outdoors. This is the next generation, and many believe that this is the new norm. That's good for our industry. Lastly, there's an increasing intensity to move towards sustainable solutions. Consumers want sustainable solutions. They want performance. They want quality, performance, styling. The next generation is looking for sustainable products, and they're willing to pay more for that. These are compelling tailwinds that bode very well for our company. With these favorable tailwinds, plus our leadership position in both product and brand, the considerable white space that we have in our addressable market, we have white space within current customers. We have white space with new customers that are coming on board every day.
We have tremendous opportunities in this adjacent space that is yet to be tapped in around non-wovens and hygiene. I believe that PrimaLoft is positioned to continue its exceptional growth for some time in the future because the markets are aligning with our purpose of people, product, and the planet. Now, the keys to success going forward is to continue focus on innovation. That's what got us where we are today. That's going to get us to where we need to be. Again, it's through the advanced material technology component, creating innovative, distinct products that lays on top of a sustainable chassis is what's going to get us going in the future. Expand our direct-to-consumer marketing that we've just started.
Expand that, increase it, start creating the stories for the consumers so that we create demand and they come in and they ask for our product outright. Lastly, continue leveraging the asset light model and the free cash flow profile that we've enjoyed over the years. Continue to manage that as we grow the top line. I'm going to end with a little bit of a brand video, and then after that, I can open it up for q uestions.
Okay? You know, I'm a big believer in the question of why, you know, why not? Why not try this? Why not try that? What's the limitation?
Thank you. Thank you for your time. I believe we might have maybe 10 or 15 minutes for Q&A if Kaz here or Kara might have the microphone. Great. Right here. Please jump in here. It's one over there. Hi.
Thanks very much. Could you talk a little bit about the white space with current customers and new customers in terms of, you know, when you have a customer, how often are you know, 100% of their needs, you know, versus 10% of their needs? Then, you know, you know, when you have over 950 customers, you know, how many are out there that you don't have? Thanks.
Yeah. We have several customers. We have over 90% of their business, for sure. Generally, there is white space in their pyramid of product. I'll give an example. Patagonia has everything from the highest-end product line all the way down to children's wear. Our products are premium priced.
We may not be as exposed to the children's wear where you get one year out of the garment and then it goes, and then the child, you know, grows out of it. We're, we have dominance in that best, the best of the best in the good, you know, good, better, best. That's where we play. There is space. As you drop down, you get more price sensitivity, right? There is space within each of those brands. There are brands like Helly Hansen. We have virtually everything. Lululemon. We have all of their insulative synthetic in, you know, insulated business. We're working on the down version of it now. There's space, you know, there's space within there. There are some brands that we don't have business, you know, or a large amount of business. Columbia could be one.
We have business there, but it's only in our Gold series, our best of the best. We're not necessarily penetrated down through. A little different business model on their part. They tend to innovate within their company and do it. Most others don't.
Okay. Thanks, Mike. At Carhartt or with Roth Capital, by the way. I noticed in the long-term share chart that you put out that if I do the calculation, you guys have like less than 3% market share in the category. Just curious if you could maybe spitball for us how, you know, how much share could you potentially gain over the next several years?
If we look at that 2025 number, you know, what percentage penetration would you be happy with over the next several years as we think about your opportunity to sort of penetrate the overall market, which is, which looks relatively large? Just one other part of this is if you look at the long-term chart of revenue growth, there are, it's not a straight line to the top. There are some stair steps and some down years. What's the commonality between the down years or the flat years for you? Is it just like an inventory desocking issue? How should we think about that?
Yeah. We try to focus on those things that are in our control, right? We really can't control inventory, brands inventory. There could be a myriad of reasons why one's inventory is high or low.
There could be a brand, could be a regional brand in Germany and there's no snow in the Alps, you know, inventory issues. It could be a ski brand during COVID when they shut down the ski resorts. We really don't focus on their inventory. What we try to focus in on are we winning and are we obtaining and are we retaining programs. I'll give an example. The Patagonia Nano Puff. We could have an up year or a down year, and that depends upon how they, you know, what their production planning schedule is, what color choices. There could be a color that didn't sell. There's ebbs and flows there. The key for our success is do not lose a SKU, do not lose a program because that inventory will usually flush through and come back the next year.
That's how we think about it. Those little ebbs and flows you see, those are probably inventory-related issues because we really don't, we haven't really lost too many programs. We usually gain and keep those programs. On the share market, if you look at our share market, really hard to get your arms around that, especially when you're trying to figure out volumes in Asia and volumes in Europe. Easier in North America because you usually have retail receipts that you can use. We have a pretty dominant share on the best and the better in the best categories across apparel and even bedding, you know, Serena & Lily and Boll & Branch and those types. As you start dropping into the pyramid of mass market, right, where the volume is, our share is weaker.
What our strategy is how do we move into the, some of the larger space below us without going too far? You'll never find us in Big Box. We're not going to be at Walmart. Nothing's wrong with Walmart, but we elect not to play there because we believe if we're in Walmart, then I'm going to lose Moncler on the top. Okay. You might find us in Costco, but we won't be in the Kirkland brand. We'll be in Eddie Bauer or we'll be in another well-positioned brand, but not in the Kirkland brand. We're very particular in how we want to kind of work that whole market, the pyramid.
Hi, this is Marc from William Blair. Just kind of a question on the whole competitive landscape.
I guess how would you segment it out and who are you competing with right now, or where are you competing right now? As you expand that out, what are you going to be competing with? Then just a tack-on question to that with the, you know, Nike ACG jacket. We saw that when PrimaLoft was acquired by CODI. How does that, you know, progress further into other brands? Because, you know, we've seen all the stuff on the outside with product experiences. Just curious about that.
Okay. Thank you. The first question was on the competitive landscape. On the, we are competing against generally generic synthetics. Okay. That's the plant down the street somewhere in China that's making products for the automobile industry or some more industrial applications. They have extra capacity and they make that available.
It's really the kind of the plant down the street kind of thing. We've been winning on that front because they don't have the sustainability profile that we have and they're not addressing the needs of the consumer and they're not innovating. They are being used in some of that lower-end market. On the downside, it's just generic down, right? Down is a byproduct of the meat consumption industry, right? It's the leftovers from the meat consumption industry. You have tremendous price volatility there. We've been winning against that. Good example is that Nike ACG lunar jacket is we're replacing down with our product. Our product is starting to look like down. It feels like down. It's warm like down. Now you have something that's readily available.
70% of the down in the world is produced in China. You don't have any geopolitical risk when you can use our products. We really think the biggest competitor is the unbranded. Within the branded world, I would probably argue it would be Finslet. They're probably the biggest branded player. Again, they play in a slightly different place in the pyramid. They're playing below our position in the pyramid. We do bump into them on occasion, but they're nothing that keeps me up at night. The other question was the external branding and what influenced, what's interesting is, the Nike adoption of ThermoPlume and their decision to put us on the outside, started with them looking into the fashion industry and seeing what we were doing at Ruffalo and Polo.
They saw what they were doing at Ruffalo and Polo and they called us and had us come in and start to talk to them about replacing down. That's how we got into the, we've always said Nike business, but not to this scale. We're not, and we haven't been able to get into the downside. Now we're into the downside. That allows this external lab, you know, labeling. We use that as leverage to go to the other brands and say, external brands. Tags on the outside, thermal embossing, thermal embossing on the inside. That's why you see a Black Diamond with all the information on the inside of the jacket. We love to have things on the outside. This is about location, location, right? I first want it on the outside.
If I can't get it on the outside, I want it on the back of the collar. If I can't get the back of the collar, I want it on the inside label. It's location, location. This lives with the garment for the useful life of a garment. Every time a consumer puts it on, they see our logo and it reminds them of why they purchased it. The Nike being on the outside, I think, is a big plus for us as we move forward. Have time for one more question. There's someone back here over the other side.
Sure. Yeah, there's two more.
On the sustainability front, you said, you know, 70% reduced carbon emissions. Is that a byproduct of the materials being recycled, or is that a byproduct of the manufacturing process? I mean, you have 16 different manufacturers.
Where are they located? How are you able to control their source of energy? And by the way, to that effect also, how do raw material prices, fluctuations impact you guys?
Okay. I'll start with raw material. We have not had a big impact on our raw materials for the reason that there's a couple of reasons that virgin materials fibers don't necessarily follow the oil price because it's a byproduct of oil. It's those bycomponents, the benzene, caprolactam, paraxylene. These derivatives are the things that really drive costs. It's not so much the cost of the oil. The big impact for us is over 80% of everything we make has recycled fiber in it. The recycled fiber skips the oil side. It's already made.
We're taking plastic bottles, we bring them in, we grind them down, we melt them down, and we extrude them into a secondary product. Our recycled prices have been extraordinarily stable over the last 10 years. That's a good thing. On the pure manufacturing, we have about, we have a cluster of, our model is the Coca-Cola model, which is wherever there's a Coca-Cola plant, there's usually a bottling plant close by. Our product is 95% air. We can't afford to ship air all around the world. We tend to cluster where those manufacturers are. That's right now. It's China, Vietnam, increasingly in Bangladesh. We have resources in Korea, resources in the U.S. for our military business that needs to be very compliant.
Now we have a growing need in Europe where the Europe is really starting to repatriate some of the manufacturing. That's kind of how we think about our footprint. The technology, it's a combination of the recycled materials that we use, how we modify those materials so that we can utilize more energy-efficient equipment. Then we use alternative energy sources to power that equipment. So it's a multi, excuse me, a multi-phased approach to it. It's just not product. It's not the material. It's a combination of the materials, modifying the recipes of our products, and then using alternative energy sources to be able to process it. As a result, we have independent studies of the consumption. You know, we're up to one product's up to 70% reduction. We guarantee 50%, 50%-70%.
We have that all documented, you know, independently. Okay. Kyle?
Yeah. You mentioned GORE-TEX a couple of times, I think, in your presentation. I think everyone's very familiar with GORE-TEX. It's almost like the Kleenex model, right? GORE-TEX essentially means waterproof. Like how big is GORE-TEX and is that kind of the model you envision following?
I think directionally, that's the model I want to move towards. Historically, they've done a great job branding themselves into the minds of the consumer. You know, when I entered into this industry, I mean GORE-TEX was guaranteed to keep you dry. Pretty simple, straightforward. They've done a good job with that. Yeah, directionally, that's really where we think that we should be going. Interestingly enough, they're really, they've abandoned some of that consumer.
If you think about, you know, when's the last time you saw a GORE-TEX ad? It's been decades, right? Yeah. But they've done such a good job early on. That just lingers through. We think that shifting from, we're going to continue to B2B because that's important, but we want to increase our investment in direct to consumers so we can start talking about our story about innovation, sustainability, in balance. With those tailwinds, the consumer tailwinds that I talk about, I think we're in a perfect time to be doing that. We have consumers coming in on occasion and asking for a PrimaLoft jacket. I mean, L.L.Bean's jacket they have out there is called the PrimaLoft Packaway. I mean, they literally use our name.
We're making progress, but it's going to take patient investment and some time to start getting that message across.
Got it. Thank you.
Great. Thank you.
Cody, is our presentation ready? Just click forward. Mike, I might need your help now.
Nope.
Sorry for the technical difficulties here. Can we see if Cody, can you get us back to the first page? While we're waiting, I'll say thank you, Mike. It's really refreshing when you have a company who can do what's right and also make a lot of money doing it. One of the reasons that we loved PrimaLoft when we saw this opportunity is because it aligns so closely with our values.
You know, I think you guys all know it's sort of been our, you know, kind of viewpoint that we can do what's right by, you know, our people and our planet. We can also make a lot of money while we're doing it. When we acquired PrimaLoft, you know, it really is aligned with the value set that we have at Compass. You know, thank you, Mike, for everything that you do and reducing, you know, our carbon footprint and for the environment and creating great products at the same time.
I'm Elias Sabo. I'm CEO of Compass. With me today is Ryan Faulkingham, our CFO, Pat Maciariello, Chief Operating Officer, and then a couple of new people that I'll introduce, Kurt Roth, who joined us in November as Head of Healthcare. Quick background on Kurt.
Kurt was an investment banker with Robert W. Baird for many years, we worked with him actually on the Fox Factory IPO. They were the lead bank on that. We became very close with Kurt during that process. He then went to Sotera Health and led their strategic department and consummated a number of acquisitions. The intersection of familiarity with Kurt, transaction experience, and operating experience made him an ideal candidate to be the person to run our healthcare group. Sitting to the right of Kurt and left on from you guys is Zoe Koskinas. Zoe joined us about a year ago. She moved from Australia in order to run our ESG program. Zoe previously worked for a U.K.-based company called Lendlease in their ESG effort and corporate sustainability missions. She'll talk about all the exciting things that we're doing in ESG in her section.
A couple of things just real quickly on who we are. As you know, we came public in 2006, our mission was to acquire middle market companies typically reserved for private equity investment using permanent capital with public shareholders. Over that 16-year period, you can see we've consummated over $7 billion of transactions. Today we have 11 businesses, seven within the consumer space, four in the industrial space, we generate just under a $500 million o f EBITDA. Real quickly on our history, we came public in 2006. At the time, we were very unique in terms of what our strategy was, in terms of the way that we organize ourselves and provide financing to the company. That created a lot of confusion in the financial markets. As a result, the cost of capital that we had was extraordinarily high.
It shaped the way that we could approach the acquisition market. We generally bought companies that were good, stable businesses, but lacked a growth profile to them. Shifting to 2014, this was the first time that we were able to bring a more recognized national syndicate of banks and lower our cost of capital, bring term loans to our capitalization. In 2018, I became CEO of the business. You've heard us say this over and over. Our guiding light is to reduce our cost of capital. It is a competitive advantage that allows us to execute our strategy of buying great businesses with great growth profiles, but our capital costs had to align to enable that. It was the first time in 2018 that we entered into the unsecured bond market. We issued a $400 million bond, eight-year, 8% bond.
As we go forward, you'll see how we've gained a lot of trust and confidence in that market. In 2019, just real quickly, we were 10th year of an economic cycle. Strategically, we were trying to increase what our core growth rate is. We sold two of our companies for just under $1 billion. You see, the multiple was extraordinary, at about 19x EBITDA. Despite the fact that we had record amounts of liquidity and new capital in our capitalization, we consummated no new acquisitions because the market really favored divestitures over acquisitions at that time. That ended up serving us really well in 2020 as we were able to acquire both Marucci Sports and BOA Technologies.
You can see the first-year multiple that we paid for those businesses relative to where we divested the two companies prior to that. There was a huge multiple arbitrage that we were able to achieve. These were companies that we could acquire because of our financing that was secured when the market was so dislocated at the time of the pandemic and our competitors were largely out of the business. I've harped on this a lot, but I'll point this out again, especially given coming into 2023 with a really clouded outlook. During the pandemic, the breadth of diversity in our firm allowed us to achieve positive organic growth of 1%. Now, granted, that's not great growth, but it's also not negative.
Juxtaposed against the background of, you know, a pandemic that was raging globally, we're really proud of the ability of our company to sustain growth even in the most difficult of economic times. We continued to execute on the strategy. In 2021, we bought Lugano Diamonds. This has massively exceeded our expectations. Generally, you can't buy companies for 4.5x first-year EBITDA, that are growing north of 50%. This company continues to perform at that level. We divested Liberty Safe. Liberty had an amazing run during the pandemic, more than doubling EBITDA. We felt that was a great time to be able to capitalize that earnings stream for our shareholders and reinvest that into faster-growing assets. As we come into 2022, we acquired PrimaLoft, as you know.
Stepping back for one second in 2021, the success and the strength of our business allowed us to go back into the unsecured bond market, refinance the bonds that we had issued three years earlier, and the savings were really remarkable. We did a $1 billion bond tranche at 5.25%, eight -year tenure. Remember, that's down from 8%, eight-year tenure. We followed that up later in the year and did a $300 million tranche, which was a long-dated tenure. It doesn't mature until after 2030. That was at 5%. The important thing there is we opened up all of our secured capacity on the debt side, and that's what enabled us to buy PrimaLoft.
Today, in an era where markets are so dislocated, cost of financing is so high, if we had to enter the bond market in order to finance it probably would have been a high single-digit to double-digit rate that we would have paid. Instead, having all that secured capacity opened allowed us now to pay in that sort of 6%, 7% contacts on a floating rate. I think we all hope that comes down as the Fed stops, raising rates here, or hopefully will stop. You know, what has this done for our business? You can see here just a couple of highlights that I'll point out. We are growing at a very high rate in 2022. This is year-to-date September. We generated 16.5% top-line growth, 17% adjusted EBITDA growth.
The important thing there is you all realize that we're dealing with unprecedented levels of inflation. Supply chain problems have been acute. To be able to expand margins in a time where you're dealing with that is nothing short of remarkable. It's a testament to the companies that we own and the quality of the management teams that we have at each of those businesses. Mike touched on this about free cash flow. We love free cash flow. It allows us the liquidity to have a lot of options, either to redeploy back in new M&A, to do a buyback like we announced today, to pay down debt. We convert an incredible amount of our adjusted EBITDA into free cash flow.
On a 20% EBITDA margin, 18% is our operating cash flow margin, which we think is just exceptional, having that amount of, or that little amount of leakage. I want to take a couple of minutes. As we talk about going forward and achieving our plans, you know, what are the assets that are really driving the business and the transformation and increase in core growth rate? I'll start quickly with BOA, which we acquired in 2020. It's a company that has disruptive technology, significant IP, very low market share, you know, has been growing historically 30%. Because of its market share, and all of these companies have one thing in common, they address huge markets, and they all have relatively low market share with either disruptive products or disruptive service models. In the case of BOA and PrimaLoft, significant IP that protects that.
Lugano is growing >50%. Mike just talked about PrimaLoft. You know, it's a high IP disruptive business rooted in sustainability, growing >20%. As you know, with 5.11, this has been a business we've held since 2016 and has grown double-digits over our ownership period. Consolidated, what does this mean? This is 52% of our EBITDA where we have low market share, disruptive products or services in the market. These companies are collectively growing at strong double-digit rates and have a long-term expectation of being able to continue that growth. That's what gives us confidence that our core growth rate has been leveraged up as much as it has. Where are we going in 2023 and beyond? We have stated numerous times our goal is to get to $1 billion of EBITDA.
When we said that, we said we had a seven-year plan to do it. We're creeping up every year. Gets a year shorter. By 2028, how do we get to $1 billion? We anticipate that we will have a core growth rate of 8%- 10%. You see the numbers that we've been able to produce over the last three years. Now, if you take that and you run that on a similar core growth rate with where EBITDA is that produces over $700 million of EBITDA by 2028, it creates a gap of about $300 million, just less than $300 million. That gap is roughly $50 million of EBITDA per year. That is well within the ability of the company to achieve.
That was even before we added a healthcare vertical, which should significantly open up the aperture for the number of acquisition targets, that we have. What does the future state look like? We, you know, diversification continues to be a big item for us. It's in our company name. We think we will have over 15 companies by the time we get there. Average-sized company will be, you know, greater than $50 million. There are some benefits that this creates for shareholders. Ryan's going to talk about the increasing level of free cash flow and cash retention. We expect that number only to grow as we execute against this. We expect the rating agencies to continue to view favorably the execution against this strategy. We have said numerous times our goal is to become an investment-grade rated company.
That has more impact than just narrowly increasing earnings in the short term. It gives us such a competitive advantage for these types of assets, which typically are bought by small, middle-market private equity firms. We don't compete with the Blackstones and the KKRs of the world that have access to much cheaper financing. We're competing for these assets against smaller PE firms that, as we lower our cost of capital, it creates an economic moat around our business, and it allows us to buy the best businesses that are trading in the marketplace that year. I want to take a second to touch on what our financial targets are. This is the first time we've shown something like this. As you know, we've done a number of what I'll call restructuring.
I think that word gets a bad, you know, kind of, it's a bad word in some cases. We restructured our organization and our structure in order to become a C corporation for tax purposes. At the end of 2021, we came out with an adjusted earnings. The problem is, for all of you haven't seen that. You haven't seen how adjusted earnings grow. You only see what the organic growth of the EBITDA has. When we look at this, and, you know, a caveat here, in 2022, this is our midpoint of guidance, for that we issued at the end of Q3. Right now, you could look at this and say, is this guidance for 2023 that you're creating essentially flat guidance?
the answer is it's not official guidance, but we're probably not going to put something up here that we would likely change in three weeks when we do come out with our official guidance. It is very cloudy out there. All of the increases in monetary policy and rate have yet to be seen. We don't know how that's going to impact what the economy is globally. I would further say we are seeing active inventory destocking that's happening right now. That's going to put a near-term headwind on earnings and on our consumer companies as inventory comes out of the system. Ryan's going to highlight a little bit the inventory that we expect to monetize. We're doing the same thing to our vendors that vendor customers are doing to us right now.
It creates a very short-term headwind, but that's not something that we think, you know, is going to persist long-term. In fact, if anything, after we get by this, we would likely expect our long-term or our growth rate coming out probably to have tailwinds rather than the headwinds that it has right now. Assuming even if we had a 2023, you know, flat, which is sort of the best indication that we have right now with the viewpoint, starting in January, we expect 8%-10% adjusted EBITDA growth that produces $715 million of EBITDA. That gets leveraged up by 50% to 12%-15% adjusted earnings growth. The reason for that is our management fees and corporate overhead are mostly fixed, as are our financing costs.
Ryan will walk through again how much of our financing costs are fixed, but it is the overwhelming majority of it. That produces, you can see the, you know, kind of numbers of north of $250 million of adjusted earnings, out into 2023. What was not included in any of those slides was a recent announcement that we had of a divestiture of Advanced Circuits. This was our longest-held asset. I think it really signifies our model quite well. We bought this business in 2005, predated the IPO. It was one of the four companies that was part of the IPO in 2006. This was a phenomenal business for us. It was diversified in its customer base.
It produced incredible free cash flow, similar to Mike's business, had negative working capital for much of its period, very low CapEx, the company didn't have a great growth profile. This was a business that about a year ago, we entered into a sale transaction with a SPAC. That SPAC ended up not being able to get financing to close the transaction. We were able to pivot quickly and sell to a strategic that's owned by a private equity firm. The result for shareholders will be exceptional. It's a $220 million all-cash divestiture, which produces about $110 million-$110 million pretax gain. If you think about that means we doubled the enterprise value of the company. Along the way, we clipped, you know, a cash flow yield that was north of 20% a year.
This will absolutely be a great investment for us, but yet was not consistent with our strategic outlook to have a slightly faster growth profile with our company. We've already talked about how do we drive value. We think that we are a low double-digit EPS grower consistently based on the long-term growth rate that we have, core growth rate in the company. On top of that, we pay a 5% yield. Being able to achieve double-digit growth is not by reinvesting all of our capital. We give some of that capital back through a $1 per share dividend on an annual basis. We think there's opportunities to improve upon that. That's what our model is set up to do. How do we do it? Well, M&A transactions. We can buy companies, sell companies. We just, and since 2018, we've acquired four businesses.
We now will have divested four when Advanced Circuits closes. These numbers do not reflect Advanced Circuits, but we have averaged a multiple of about 16 times on the companies that we've sold. We've acquired companies at half the multiple going forward. That's a huge arbitrage that allows our earnings growth to accelerate in a stair-step manner, when we're able to achieve that. Now, one of the things we hear from shareholders all the time, when you sell a business, your earnings are going to go down. You're right, temporarily they will. We probably can't achieve a high enough multiple, even in the rate environment that we're in today that's higher, to be able to pay down debt and get our earnings to grow in that period. I want to be very clear here, this is a temporary blip in earnings.
Our history has shown that we can take that capital. We can redeploy it at a much more accretive rate for our shareholders. Temporary reduction in earnings power is followed by a big step up in our earnings power when we redeploy that capital. We will continue to focus on lowering our cost of capital. As I said earlier, it's not just to get a current earnings increase in the year that we do it, but it's about creating the sustainable competitive advantage that allows us to continue to buy A-plus businesses and really the best businesses that are trading in the sectors that we operate in any given year. I think we've proven that over the last couple of years, you know, a BOA, for example, a PrimaLoft, these are clearly the best-in-class companies that are coming out in their respective years.
Finally, I'll hit on the buyback that we announced today. We have gone to great lengths to explain that our goal is to get to $1 billion of EBITDA and that that is going to take capital in order for us to achieve that. You would look at this and say, well, it seems inconsistent that you're actually going to return capital through a share buyback if your goal is to get to $1 billion of EBITDA and you need capital to do that. It's 100% true. However, when I looked today and our team assembles and said, can we find M&A opportunities that are better than what we can redeploy for our shareholders by buying our shares back? The answer is no. Our stock came down by 40% in 2022, and yet we produced record earnings in 2022.
We had 17% growth. We beat and raised in every single quarter, our stock due to macro-led turbulence fell dramatically. I think in order to create the most value for our shareholders, we may temporarily need to deviate from the long-term strategic plan and repurchase shares because it's such a great opportunity on all your behalf to accrete value. We run this business with a long-term view. If we have to make short-term sacrifices in the near term that create the most value for shareholders, we're committed to doing that. I'll now hand it over to Pat who will walk through the state of the M&A market.
Thanks, Elias. I'm going to give a brief overview of the current state of the M&A market as we see it.
For many of you, it will kind of seem like the master of the obvious here in that deal volume has come down significantly this year. Anytime there's increased uncertainty, anytime there's increased rates, inflation, slower growth, all those things impact the deal market. We've seen the deal market come down quite significantly. Deals are taking longer. Investment committees feel very little pressure to put money to work on sellers' timelines. Deals are often dragging out. That's leading to this. It's similar to, kind of similar to what you're seeing in the housing market in some ways in that there's often a bid-ask spread, and that bid-ask spread is widening. Despite that, these slides would say, and I think they're accurate, that enterprise values over EBITDA have gone up. Why is that?
Well, the reason is, inferior companies tend not to sell at times like this. Good companies can always sell. PrimaLoft can always sell. We were lucky to buy PrimaLoft this year. A lot of companies, poorer quality businesses either won't sell, and will decide not to launch a process, or they will have a stalled process. For those deals that report, those don't get picked up in here. That's why you see the reported deal multiples increasing. Again, it's on light volume. You know, some would say, you know, when there's a few deals again in the housing market, you know, have we had real price discovery? We're not sure if there's real price discovery here yet. What do we see? What have we seen in the forward, in the forward years?
2022 saw a lot of transactions that really weren't relevant to CODI. There was tons of minority deals done. There was tons of secondary deals done, and limited partner sales. I think Blackstone announced the closure of a $22 billion secondary fund today. That's very in vogue. There were also deep strategic transactions with massive amounts of synergies, which we participated in somewhat, but not fully. All of this led to, really those sort of blocking and tackling deals, the BOAs, the PrimaLoft, the Luganos, you know, that are perfect for Compass not being out there, in abundance. We've had to sort of search and continue to search for that needle in the haystack. What we didn't see was the avalanche of restructuring and lender-driven deals, that we've seen in prior downturns.
We just haven't seen that yet. We're starting to see banks sort of push a little bit, and we're starting to see a couple transactions that are lender-driven, but we have, you know, kind of good businesses, bad business, bad balance sheets type businesses. We haven't seen it as much, as in previous cycles yet. Doesn't mean we're not going to see it this year. I think that's kind of as we get into this year, what the market needs to really resume in the back half of 2023 and to really resume deal volume is just some semblance of consistency and some semblance of stability. Everybody talks about what's the Fed terminal rate, but we need the Fed to figure out what their terminal rate is so that banks and the syndicated loan market can reopen up.
We don't necessarily need fast growth. We could have a slight recession. Our prediction is that if either of these happen, absent a major economic event, that we will see an increased, an uptick in deal activity really in the back half. Talking to intermediaries, there's no, you know, avalanche of books that have been written and processes that are willing to be started, and they're just waiting. It's not quite like that, but it's percolating. There's deals percolating, and there's investment banks talking to companies, and there's people on Compass's team, bird-dogging numerous deals, that may be coming to market 3, 6, 12, 18, 24 months from now. We're starting to see that. Again, with some sort of consistency, with some stability, we do see an uptick in the back half of 2023, again, absent a sort of major macro event.
I would just say that either way, you know, with whether we're in a recessionary economy or whether we're back to a moderate growth economy, CODI remains disciplined. We remain, you know, we continue to turn over every rock and look under every stone for that next great deal, for that next PrimaLoft. We will continue to work hard on our shareholders' behalf. With that, I'll give it over to Ryan. Kurt, excuse me, Kurt.
All right. Well, it's fantastic to be here. I can't tell you how excited I am to be a part of Compass. I realized I started back in November, but it already really feels like home. I've known, as Elias alluded to, I've known the team for over 10 years. I have such high regard for what Compass has built. It's just a phenomenal track record of success.
Not only that, it's a reputation for integrity in the marketplace. It's something that the team and I are super proud of. My experience with Compass over the years is that in the dealmaking business, when Compass says they're going to do something, they do it. They find a way to get deals done and get to a yes on transactions that they're excited about. From a cultural standpoint, it's a great fit for me and the way I like to do business. Elias mentioned to you, I spent 20-something years in investment banking. Most recently, the last seven years, I was with Sotera Health, the head of corporate development and M&A. What I want to highlight for you is, why are we excited about healthcare? Why did the team choose healthcare as a vertical?
What do I see over the next few years in terms of opportunities? I think number one, we would highlight healthcare has tremendous growth, especially in the United States. As many of you are well aware, their expectation is for continued healthcare expenditure of over 5% through 2030, and will be as much as 20% of GDP. There are significant tailwinds within healthcare. I will go through those, quickly here in the next couple of minutes. One is, as we're all aware of, some of these are quite very much apparent, is the aging demographic, the growing population within the U.S., and around the world, but also the aging demographics and the need for increased levels of care. We see significant growth trends both within pharmaceutical categories and the medical device categories.
I will spend a little bit of time talking about those subsectors and my specific interest levels in those categories. The other trend that we're seeing, and it's part and parcel, is just an absolute explosion of innovation and R&D spending. A lot of this is driven by large molecule biologics and just a new phase, a new wave of therapies that are coming to market, solving a variety of chronic and rare disease. What we're finding ourselves in the healthcare market is that, frankly, there's just not enough capacity to meet demand. Businesses within the U.S., middle market businesses within the U.S., with strong analytical lab capability, strong biopharma processing capability, these are hugely in demand. We will talk a little bit about the contract nature of those businesses and why we think those are attractive models for CODI.
In addition, I don't think this gets enough attention is just a very much evolving regulatory space within healthcare. It is becoming incredibly challenging to operate a business in the healthcare market and continues to be more so every year. You need a just a whole host of outside consultants to walk your business through the development cycle of new drugs and new medical devices. A very significantly sized contract research organization, contract development organizations have sprung up to help service this innovation, accelerate the innovation. Really, a lot of the brainpower within the industry has moved from OEMs into the contract space. Let's touch on a couple of things, just the level set. The investment criteria for the healthcare category will be consistent with Compass, across consumer and industrial.
Our expectation is that the company would be headquartered in North America, that it have, that it'd be a leader within its subsector, that it have a defensible market position, that have a strong management team north of $20 million in EBITDA. We have a strong preference for asset-light, high-free cash flow business models. What we will not be doing, just to really highlight, we will not be doing biotech. We will not be doing pre-revenue or pre-EBITDA businesses. This is important. We are not interested in businesses that are dependent upon healthcare reimbursement. Specifically, the sectors that I've been trafficking in over the last seven years, and where I've seen where the deals have been done and understand the banker and private equity relationships in the marketplace are the following. Number 1 is pharma services, contract outsource pharma services. Number 2, outsource medical device services.
Number three, what I call outsource provider services. The first two have something in common that I think is really interesting is the customer base for your outsourced pharma and medical device services is the OEM market. Your customer are large pharmaceutical as well as biotech companies. It's large medical device as well as small and up-and-coming medical device companies. They have a strong preference for a partner within their innovation value creation chain that can move, on an accelerated basis, can accelerate their innovation cycle that has a high degree of quality, job done right the first time, understands the regulatory environment and all the hurdles that are within the regulatory environment with the FDA and other regulatory bodies around the world. They have less of a price sensitivity.
If you can deliver on the first couple items that I listed, the price is going to be a secondary or even third consideration. We're looking for businesses where on the contract basis, as a % of cost of goods sold on a per unit basis, it's going to be less than 5%. There is going to be an interesting opportunity there for not only to drive volume, but also to drive price if you're delivering on the promise. Those I would highlight those two for, again, medical device and pharmaceutical. On my right, the outsource provider services, when I say provider, I mean healthcare at the point of care, hospital and other point of care. I'm thinking about logistical plays for the hospital.
Think about a Cintas, but it's a middle market version of that, and potentially more technically relevant, might be involved in sterilization, could be involved in labs within the hospitals, could be involved in other logistical plays within the hospital. There's interesting ideas I have there that specifically I'm out there looking at. I would just highlight a couple of things in closing. I do think that this particular market segment, these subsectors, they present a highly fragmented space with a lot of middle market targets with north of $20 million in EBITDA. I do believe I will be able to find, and we're already looking at a number of very attractive opportunities. The challenge will be is that these are benefiting from secular growth trends that are independent from whatever's happening in the broader economy. That's fantastic. It also attracts a lot of interest.
There's a lot of interest from other private equity firms as well as strategics. I'm very aware that if we're to find an A-plus asset in these subsectors, we're going to have to work very, very hard. That's my challenge. That's the oppor tunity for us in 2023. With that, I'll hand it over.
Cool. It's great to be here today. Thank you for having me. As the head of the ESG, I've been in sustainability for the last 10 years. I've been fortunate enough to work across Australia and the U.K. My most previous company was considered a global leader in their space. I bring a lot of experience and I've been part of the evolution of sustainability, I suppose, across different regions. That's been interesting in itself. Now it's interesting to bring it all together in the U.S. landscape.
For the purposes of this presentation, I'm going to use ESG and sustainability as if they mean the same thing. Let's talk about sustainability for a second. It's really gone from being the kid that gets picked last in the soccer team to really starting to being picked first and kicking some goals. The most recent growth of sustainability really shows how important economic, social, environmental factors are in considering and critically analyzing risk and value for a business. This has made sustainability a key business strategy for us. Through my experience at multinational companies, the most common questions I hear from investors, and hopefully you have these yourselves because I'm here to answer them today, is, "Do you have a framework? What are your goals? What are the practices in place to report and measure? What's the governance structure?
Then, of course, where does accountability ultimately lie?" Let's take a second to really look at our drivers and our why. We know that we have a responsibility to play an important role in driving a more sustainable future. When we sat down as a team and a company and we looked at the companies that we like to buy in, we thought, "Well, what are our drivers?" Our drivers are really about creating long-term value. It's about protecting our acquisitions against ESG risk. It's being able to capture the ESG upside by identifying these areas of potential for our companies and ourselves. What does that ultimately mean? It means that the ESG factors that we have deemed material to our businesses are viewed as long-term drivers of value.
Really fortunate that Mike was able to give a great presentation and really hone in on the fact that we're really challenging the conventional notion that you either make money or you do good. We are now being able to see and we can prove that you can do good, do good business, make money, and do good for people and planet. In my opinion, I'm not sure what's not to like about that. I'm going to rewind a little bit to exactly a year ago in this exact meeting, and Elias alluded to two initiatives as to why I was also being brought on into the newly created role of head of ESG. Those two initiatives were to develop CODI's ESG practices and leverage those learnings to help our subsidiary companies.
I'm excited to announce that if you go onto our website, we've just publicly released our corporate citizenship statement that will really go into detail on the progress that we've made over the last 12 months. The next steps then is that right now we're going through a bit of a gap analysis and really trying to identify all the different frameworks that exist, as well as the rating agencies and the questionnaires that they provide to us. This is really important because there's no standardized approach, and it's all different.
What that means for us is that we want to make sure the metrics that we're creating, we want to put them and overlay them on the different frameworks and the different questionnaires and make sure we're really assessing what ones are important to us, what ones matter to us now, and what ones are going to matter five years from now. I'm here to show you our ESG framework because that's one of the questions I promised to answer today, but I wanted to give you a little look behind the curtain in terms of how we designed that framework. The way that we designed our ESG framework is particularly effective, especially in volatile markets and conditions that we're seeing today as corporations.
What makes it effective is that we've applied a more holistic and adoptable approach in terms of our investment thesis. It sets the parameters for our leaders at our companies to adapt to this ESG framework. It allows for the subsidiaries to be flexible. It aligns with our culture of creating long-term value. It helps us manage risk quickly and capitalize on the opportunities. Most of all, it's dynamic, and it really encourages engagement. Here is the star of the show, and this is our ESG framework. Our ESG framework is built on two key pillars that you can see here and supported by eight priority areas. These priority areas are the material factors that we consider to really influence not only CODI, but our subsidiary companies. Of course, that's underpinned by sound governance practices.
Without the G and without the governance, you really don't have the E or the S. That's why it's very foundational to us. When we sat down and we thought about what are we really trying to drive here, what are the outcomes? We thought, well, future thinking for our people and our planet is really important to us because if we're not thinking about the future and we're not thinking about people or planet, then without those things, you have no business, and then we don't exist. When we think about how do we really execute on future thinking about people and planet, it's with trusted partners. We can't do that alone. It's with our important key stakeholders, and that's our employees, our investors, our business partners who choose to partner with us, and of course, our community partners.
To recap a little bit, you've seen our one framework. You see that it has two ambitious pillars. You see that we've got eight material focus areas. From those focus areas, we've created 10 core metrics and 10 minimum standards that CODI will report on and all of their subsidiaries will also report on. We've just procured an ESG system that will be able to capture this information. Our goal is in within the next 12 months, hopefully we could start to report on our sustainability progress with hard data and numbers. The next steps from that is we'll be collecting our baseline data, and then we'll start to set time-bound goals or targets for ourselves. We'll want to make these goals challenging because that's what the world needs.
We also want to make sure that these goals that we set for ourselves make good business sense and that we're able to execute on them. Another question that I had on the previous slide was what's our governance structure? You can see that there's oversight through the board, and our CEO reports into the board. Our CEO also sits on the ESG committee, and the ESG committee reports into the CEO. I have myself in the middle there because my role, it's really important to understand what's coming from the bottom up and what's coming from the top down, and that they're speaking to each other, they're able to engage, and we're able to make decisions quickly, and I can be that conduit.
I'm also responsible for making sure that our subsidiaries are able to integrate and to adapt to what we're trying to achieve as a whole portfolio together. Of course, that's underpinned by the core metrics and standards that I alluded to, and then being able to collect that data in a centralized way. As I mentioned before, sustainability is really a business strategy. Over the last 12 months, I've really seen our business transition. I've really seen us being able to integrate it as part of our business. We've really been able to move from risk mitigation to value creation. We recognize that none of our businesses are slowing down, so we're not slowing down. If we're not slowing down, then in my role, looking at sustainability and ESG, what am I here to do for the business?
I'm here to help the business attract and retain the best talent. I make sure that we're stewards of our consumers, our partners, whether they choose to partner with us, with our brands. I'm here to protect profitability and support revenue generation. I'm going to circle back now and see how well I did in answering your questions. You've seen our framework. You know that we're developing goals and working on them. You know that we have a system in place to start to measure, track, and report. You've seen our governance structure, and you know that accountability is a shared responsibility. You know that ESG is a shared responsibility, and accountability goes across our businesses. With that, I'm going to hand it over to Ryan to bring it home.
Thanks Zoe, I fully recognize how long have you been sitting. We t hank you for your patience and the time. We obviously had an aggressive agenda today, but there was a lot of really good information to get across to you all today. I've only got a couple of slides here. Be relatively quick, and we'll open it up to Q&A. First, I'd like to leave this up the whole time, but I can't. It's really strong performance this year. Left side is the quarter. Right side is year-to-date, but just strong pro forma revenue growth up to $1.7 billion, up 15%. The pro forma adjusted EBITDA growth for the year also really outstanding, $359 million, 16%. 11 companies operating really well year-to-date, September.
In going back a couple of years, I thought it'd be important to show our subsidiary adjusted EBITDA on a pro forma basis. All the companies that we've recently acquired brought back to the January 1st of 2020. As Elias highlighted earlier, our 2022 is midpoint of the guidance that we provided in the third quarter, it shows north of 50% growth in adjusted EBITDA over those two years. Also importantly is that earnings leverage, Elias was highlighting earlier, where we're seeing that adjusted earnings leverage up its growth rate relative to adjusted EBITDA because of some of those fixed costs he highlighted. Next is to touch on our strong balance sheet. Just as a refresher for some of you here, as part of the PrimaLoft transaction, we amended our credit agreement.
Along with that amendment, we issued a brand new $400 million Term Loan A, which was the first time we were in the A market. We also funded $100 million of that transaction on our revolver. It's a $1 billion facility, $600 million is a revolver, $400 million our Term Loan A. Importantly, that's all secured debt. All of that comes at a price of SOFR + 200. Elias hit on the middle section here, which is the highlights of our bond refinancing that we did. It's been just phenomenal rates for us, 5.25%, 5% fixed rates. They're both fixed. We've got 70% of our debt capital fixed at a blended 5.2%, which I think is when you think about shareholder returns with debt pricing that low, you can create them pretty well. What we've also created here on our balance sheet is substantial duration.
Our secured debt, which is our revolver and our Term Loan A, are due 2027. The two bonds are due 2029 and 2032. We sit in a really, really strong position with respect to duration. Finally, Elias highlighted this earlier, the strategic decisions we made on the bonds that we did in 2021 was to move what is secured capital when we fund a deal on our revolver out to the unsecured markets, got duration. Importantly, it freed up our entire secured capacity. That was important in 2022. When the bond markets stepped back, they were not attractive to fund deals. We had secured capacity. We were able to move. Even after financing the full PrimaLoft purchase price, we're only at 1.1x secured. We've got a covenant of 3.5.
We still have secured capacity to fund future acquisitions. This retained cash Elias highlighted also, but it's a concept we introduced last investor day. It's really been a fundamental shift in the business. Retained cash is an appendix in the back for those that are interested in how to get to it. It's essentially cash flow provided by operating activities. We remove the working capital impact. We then deduct all capital expenditures, all preferred distributions, all common distributions, what's left over. You can see in 2019, it was negative. I can tell you every year before that, it was also negative. It's been a fundamental shift in our business to be able to retain cash flow, pre-working capital, because of the shift that we've done with a group of companies we own. Higher growth, still phenomenal free cash flow, solid operating margins.
Why is this important? Well, with this capital, we can support our companies. We had to do that last year because we had volatility because of the markets. There was destocking of inventory through a lot of our consumer companies where if you think about a company like BOA as an example, if their product is at Foot Locker as an example, they've had too much inventory because of the inflow of inventory. Reebok, who's supplying to Foot Locker, they had too much inventory. That destocking that's occurring through the system is affecting a few of our consumer businesses. What they've had is an accumulation of inventory. That's working capital use. What we know is that it's good working capital and that that will come back to us.
Being able to support our companies during that time was critical as part of their strategic efforts to continue to build their business. Of course, the other benefit being with future retained cash, we can organically delever our balance sheet. I think it's important to note here too, just quickly, year-to-date, 2022 September already exceeds last year from a retained cash standpoint. As we move this last slide here. You've seen this before, but it's really about our ability to maintain our leverage levels. Today, we're at 3.9, and that's above our financial policy, which is 3 to 3.5. We've been there before. We've had leverage at this level before. The question is, have we managed it? How have we opportunistically brought our leverage down? That's through opportunistic divestitures from time to time.
In the past, we've issued some preferreds, Series A, B, and C. We've also issued some common, most recently on the ATM that we have outstanding. We've been able to manage our leverage levels. As we sit here moving into 2023, we're all comfortable with our leverage levels because we've got, number one, the Advanced Circuits sale that we mentioned that should close the next couple of weeks. Number two is the retained cash that we expect next year. I think a rough estimate of that is $80 million-$100 million of retained cash next year, pre-working capital. Number three is that working capital that we've supported our businesses with in 2022 for the inventory, destocking, and some of the supply chain disruptions, that's going to cash convert soon. We expect it to cash convert in 2023.
We think about year-to-date working capital build, we've had about a third to Lugano, and that's a unique opportunity to fund inventory. The more inventory they have, the more sales they have. That process continues. Another third has been to support 16% adjusted EBITDA growth. They need working capital to support that growth. The last third is excess. I think we've got kind of $60 million-$70 million excess working capital at 9/30 that we'd expect over the next 6-12 months to cash convert. Feel good that our leverage is going to come down organically in 2023, and that'll position us to opportunistically look to find some great businesses in late 2023. As Pat highlighted, that should come back, we hope, later this year. Of course, the healthcare opportunities that Kurt's working on.
We'll be in a good position to grow our business. With that, thank you very much for spending this much time with us. We're going to open it up to CODI-specific Q&A, I'm sure maybe another PrimaLoft question could float in, and that's, I think, okay. We'll try to keep this to 10 minutes. We know you all have tight schedules. Thank you.
Hi, Hit. Actually, two questions here. One is, you have a lot of ability to reinvest in companies you already own because you've got some good growth businesses. I'm just curious, if you kind of look at ROIC and look at a starting-off acquisition versus a fill-in versus internal CapEx, is the return profile much different across those three? Second question I had is, 5.11, at one point, you were thinking IPO, and then, of course, the markets changed. Is that still in the thinking at some point? If so, what are the conditions under which you'd kind of get serious on that again? Thanks.
First, in terms of capital allocation amongst numerous opportunities internally, the most return or highest return opportunities typically exist in CapEx opportunities, funding growth initiatives within our existing business portfolio. Today, if we're ranking them, we then find the best next opportunity on add-ons. In some cases, depending on the synergies, add-ons can be more creative than even internal capital. It really depends on the net price that you pay post-synergy. Typically, the return on new platforms, depending on its growth rate, what its costs are, would fall just below that, but significantly above what our weighted average cost of capital is. On your second question on 5.11, we had filed to take that company public in 2021. By the time we were cleared by the SEC, it was in November when the markets had already started to crater for IPOs.
We had always said, this is opportunistic for our shareholders. We believe that the value in the companies, intrinsically, if you just summed up the parts, is dramatically greater than our share price. Taking 5.11 public would be able to get a mark out there. We expected to own the vast majority of that company, and there was probably only going to be 20%-ish or so that traded publicly. It was going to be a majority-owned asset that had a public mark out there that would give another source of liquidity for us if we chose to use it. The fundamentals of 5.11 remain extraordinary, and we don't feel pressure to want to transact against that company. We have about 100 stores against a TAM of, call it, 400-ish. We're only a quarter into our development of stores.
Our e-com continues to grow rapidly. This business is shifting quickly from what was a professional business when we acquired it. Rough math, 90% professional, 10% consumer. Today, it's north of 50% consumer. If you shift that forward over the next few years, given the differential in growth rates, it probably looks like a 60%, 70%, or more consumer business. That is fundamentally accretive to the multiple because consumer lifestyle businesses trade at a much higher level than professional businesses. Their growth profiles are higher. With that as backdrop, I would say there is no pressure for us to do something with 5.11. We are happy allowing that company to continue to grow and accrete value 100% or whatever, minus the minority interest we have there to our shareholders. However, if markets were to recover, this company is capable of being a public company.
It has the management talent to be public. It has the growth profile to be public. It has investment opportunities that allow it to be public. It has the systems and logistical capabilities to be public. The only thing that's holding that company back from being public is the capital markets being so dislocated at this point. I believe there will be a time when capital markets return to normalcy, probably as Pat said, when the Fed hits its terminal rate and indicates that it's on pause or going in the other direction. That will likely, as markets recover, will dictate whether we think this is the right time to achieve a public offering with that company or not.
I would tell you, it is likely a public company at some point in the future because it has been positioned, and we have made the investment that will allow it to be a public company. Frankly, if you have a longer duration under which you can achieve an exit for a company, we think the public markets are the most lucrative way for our shareholders to be able to do that, albeit it's in a staged approach to get liquidity rather than a sale transaction that would get liquidity all at once.
Thanks, Larry Solow, CJS. Thanks for the day. Good day. A lot of swag. We all like that. Just a couple of questions, just to follow up on the share repurchase. I know it's been I think this is the first repurchase you mentioned, I think, since you guys have been public. It's somewhat on the modest side, but just curious, what's different now? Is it just that the disparity between the price and the intrinsic value is that great, or is there other reasons for you putting one in place today?
Yeah, no, Larry, thank you for the question, and good seeing you. It's simply what you just said. The disparity between intrinsic value and the share price has become so wide that it's hard for us to transact against M&A opportunities. We have available liquidity. As Ryan said, we've tied up $60 million-ish in inventory to get through the supply chain disruptions that we will get back. That will fund the repurchase that we've announced. We have retained cash, and we have the sale of ACI. We have significant liquidity that's coming that will not impinge our ability to strategically invest in our companies for growth, do add-on acquisitions, invest in our healthcare subsidiary. The intrinsic value is just and the value of the shares have just widened to such a level that it's impossible for us to ignore that.
As a management team, we collectively believe that the best thing we can do to accrete value right now for our shareholders in the near term is to acquire back those shares given that gap between intrinsic value and the share price.
Great. Just quickly on your acquisition strategy, with interest rates obviously much higher than they've been for the last 10 years, how does that come into play in your strategy? Do you have a higher hurdle? Do you just build that in? What are your thoughts on that? Leverage is a little bit high for you guys today. How does that all come into your thought process?
Yeah, this actually goes back to your first question. We hear from shareholders about our share price. Because of the business model and because cost of capital is so important to us, having a reasonable share price is critical for us to be able to execute against these better targets that are out there. Having a share price that's this weak makes it very difficult to wrap your mind around it because our cost of capital has gone higher. Now, the debt cost of capital has clearly gone higher. One of the things that Ryan highlighted is because we left so much secured capacity open, we can still finance businesses at very attractive rates and wait to term that out when the markets heal. It's a better environment to do that. From a theoretical standpoint, prices should come down.
Higher rates, just like they are in the marketplace, lending rates are higher. The discount rate that we have to benchmark our equity returns against is higher. We should have all collectively in the private market to higher cost of capital, and prices should come down. What you heard from Pat is there's very little price discovery. We can't tell you that's the case. There is a significant amount of overhang that remains in the private equity markets with capital that had been raised and not deployed. When you go a year without having a lot of M&A volume, one of the disadvantages of private equity that is an advantage for us is that shrank by 20% because these are typically five-year investment windows. That shrank by 20% the amount of time you have to deploy that capital.
That creates a little bit more pressure and a little more feeding frenzy type atmosphere by which when markets start to recover, private equity investors really pile in high. We can't tell you today, Larry, where pricing is because discovery is so limited right now. Theoretically, it should come down. What I will go back and continue to highlight is, first off, if other competitors are doing unwise transactions, then we would prefer to just sit stable and not deploy capital because we're not going to deploy capital for the sake of doing it if it can't create value. We, however, have a sustained competitive advantage in our cost of capital.
If we can't pencil out the math using our cost of capital, even with the bonds trading off, even with our stock trading off, that should still be cheaper than where all of our peers are in the private market because of the underlying financing structure. We have far less risk as a holding company financing it than any bank would have by specifically financing any one of our individual assets. It's impossible to know where people will price assets and whether they will have positive returns, accounting for the risk and the spread to the discount rate that they should. Unless they're doing something unwise for their limited partners and shareholders, we will maintain a competitive advantage on our cost of capital. What that really implies is that if costs stay this high on capital, prices should come down.
Hey, Matt Koranda to Roth Capital again. I'd express my thanks again as well for holding the day. It's been really helpful. A lot of good detail in the deck. The sale of ACI, I was curious if it sort of expresses an implicit view on the business cycle. You guys have been very good in prior years at sort of timing sales with the business cycle. What types of macro scenarios are you guys factoring into the 2023 outlook when you look at the adjusted EBITDA subsidiary sort of flat relative to 2022? Can you maybe just speak to the puts and takes around the overall macro overlay that you have and then how you built in the consumer and the industrial business outlooks underneath that?
Sure. With respect to ACI, as you know, we had a contract to sell that business to a SPAC, and it was very opportunistic in terms of the price. I would say the broader picture on ACI is we held that business since we came public. It was very mature in our portfolio. Strategically, it no longer had the growth profile that some of the other assets have. We have been repositioning this company. One of the primary purposes of today's presentation is to hopefully start to educate the marketplace that the core growth rate of this business is dramatically higher. We would hope the multiple that one is willing to pay for our company is much higher than it was five years ago when we didn't have the growth that we had.
I don't think I would look into the ACI divestiture as any read into the economy and divesting at the absolute kind of right time. In 2019, we had a read that we were 10 years into an economic cycle, and being a divestor was the right thing for our shareholders. I don't know I have that same read today because it's a little bit more cloudy, but I won't read into that. Now that goes to your second question is, what are we overlaying from macro conditions into sort of this, what I won't call guidance, but the numbers we put out there that will hopefully turn into guidance here in a couple of weeks? One thing we know we're dealing with right now is an inventory destocking globally that is hitting all businesses.
In the same way that Ryan had mentioned, we're going to monetize $60 million. Well, somebody above us as a customer is monetizing their working capital too. We've experienced that in the fourth quarter. It was embedded into the guidance. What we saw is that consumer spending, where we are going direct to consumer, principally in Lugano and in 5.11, is remaining really strong and is stronger than what you would anticipate. Now, there's month-to-month variations. December, obviously, retail sales were weak. They were stronger in October. Some of that could just be timing of purchases by consumers. In general, we see end-market demand for our consumer products being very strong. I think what we're experiencing right now is really more on the inventory destocking side. We think that's a kind of duration of a six to nine month.
That sort of started in the fourth quarter, probably as a first-half phenomenon that is going to provide a stiff headwind for earnings. That's incorporated in. I would say we have more positive outlook into the back half of 2023. It isn't just because we want to have more time to achieve that. It's because what we see in inventory destocking that's going to cause headwinds in the near part of 2023. In terms of the macro outlook, we're expecting a global recession to hit in 2023. That's embedded in the numbers.
If we're coming down to 0% growth from a compounded annual growth rate of 14% over the last three years, that's anticipating some negative economic conditions that are putting that kind of drag because we don't think that our portfolio is reaching a level where it's maturing and that growth should be slowing on its own. In fact, to the contrary, that's why we highlighted the four businesses that represent over half of our EBITDA. They have very low market share and huge opportunities. There's nothing to suggest that our growth rate should have dropped by 14 percentage points coming into 2023 other than a combination of inventory destocking followed by a global economic recession that is, at this point, anticipated to be soft.
If we go into a hard landing and the economy globally really recesses hard, then I think all of us are going to have to probably reassess at that point. Right now, we are anticipating negative GDP reads into our numbers.
Thank you. Bruce Martin from Stifel. Just a question. The business you just sold, and I think the one you sold before that, were both in the industrial area. The multiple you're getting is about the multiple where the stock trades. The industrial business is growing it half the multiple the other business, and I guess it's a little more than a third of the EBITDA now, I think. Should we look at that and say over the next five years, yeah, you shouldn't be shocked to see the industrial businesses continue to get sold at these multiples?
We'll continue to invest in the kind of businesses we saw outside, plus the healthcare, which ultimately, theoretically, should force the market to look at the company totally differently and give you a multiple that's more in line with the growth of the consumer businesses and not the industrial businesses, even though the whole business is sort of being valued at the industrial businesses.
Bruce, it's a great question. The punchline is yes. I'll now fill it in a little bit and go back. Just for clarification, the business we sold before was Liberty Safe. That was in our consumer business. Its growth profile was much more akin to one of our industrial companies. The multiple one could expect to achieve on a sale would be very similar to industrial. We could kind of think of that as a consumer industrial business more so than a straight consumer business. Even going back to 2019, of the two companies we sold, one had de minimis EBITDA, a few million dollars, Manitoba Harvest. The other one had North of $40 million. That was industrial.
If you looked at it on a weighted average basis, 80% of what we've sold over the last kind of five years has been industrial. We are holding on to our consumer businesses. That's part of the levering up of the growth rate is shedding assets that don't have good growth profiles. I can't tell you definitively that we won't acquire another industrial asset or that we will sell down the rest of our industrial assets in the next couple of years. We still have domain expertise in industrial. It's a segment that we will selectively look in. I think if Pat was talking about it, he would say it's just harder to find North American headquartered businesses in the industrial space that trade for multiples that we can wrap our minds around and also have growth characteristics.
If you want to buy something that touches sort of the entire electrification of mobility, well, the problem is those things, maybe they do have decent growth, but those things are trading at incredible multiples. You have SPACs that are out there buying these things at infinite multiples of EBITDA and crazy multiples of revenue, or at least they were. It's been very difficult for us to wrap our minds around industrial opportunities being a good investment. If I were taking and venturing a guess, I would think our portfolio five years from now is principally consumer and healthcare, and industrial probably would represent less than 10%, probably far less. We would expect, by the way, that in the future acquisitions and what Kurt will be working on in healthcare would be at least neutral to potentially accretive to our growth profile.
We expect these to be double-digit growers and have sustainable outlooks for double-digit growth.
Great. Thanks, Elias. We have time for one more question.
All right. Well, thank you all for attending. I know it was a long time. I hope by seeing the quality of the speakers that were up here today, it's really representative of the talent that we have in. It's really humbling to represent a group as talented as who's sitting here today and the team that we have back at Compass. From all of us, from our board to the management to all of our subsidiary companies, we thank you all. You're the reason that we get up and come in and do this every day. We will continue to execute on our strategy and do everything within our power to create returns that are adequate for the level of risk that you take. Thank you.