Compass Diversified sees revenue increase 25% in first quarter

Compass Diversified Holdings (CODI) reported higher profit from continuing operations 41% while sales increased by 25%. The parent company of a number of active lifestyle companies has raised its profit forecast for the year.

CODI’s business holdings include 5.11, Boa Technology, Marucci Sports and Velocity Outdoor in the active lifestyle space. Other companies include Advanced Circuits, Arnold Magnetic Technologies, Ergobaby, Foam Fabricators, Lugano Diamonds and Sterno. Recent acquisitions include Marucci Sports in April 2020, BOA Technology in October 2020 and Lugano Diamonds & Jewelry in September 2021.

“CODI delivered exceptional first quarter results, recording our fifth consecutive quarter of record financial performance that lifts our outlook for 2022,” said Elias Sabo, CEO of Compass Diversified. “Despite supply chain challenges and a heightened inflationary environment, our operations teams delivered double-digit sales growth in our branded consumer and niche industrial businesses. Additionally, we produced the highest level quarterly Adjusted EBITDA record for CODI As we look ahead to the remainder of 2022, we are pleased with the performance of our businesses to date and remain confident in our team’s ability to continue to deploy capital to generate sustainable value long term for our shareholders.

First quarter 2022 financial highlights compared to the same quarter of the previous year
(if applicable)

  • Net sales up 25% to $510.5 million;
  • Net sales to branded consumers up 27% to $331.6 million, up 14% on a pro forma basis;
  • Niche Industrial Net Sales Up 21% to $178.9 Million;
  • Net income up 35% to $29.7 million;
  • adjusted earnings, a non-GAAP financial measure, up 38% to $36.0 million;
  • Revenue from continuing operations up 41% to $18.4 million;
  • Adjusted EBITDA, a non-GAAP financial measure, up 29% to $97.6 million; and
  • Paid a cash distribution of $0.25 per share in the first quarter of 2022 on CODI common stock in April 2022.

Q1 2022 Business Highlights

  • Board expanded to nine members with the appointment of Alex Bhathal, a business leader with over 15 years of asset management experience and a track record of actively managing investments in sports, consumption and real estate.
  • Altor Solutions, a subsidiary of CODI, has acquired Foam Concepts, Inc., strengthening its position as a leading supplier of packaging solutions and components.

First quarter 2022 financial results
Net sales in the first quarter of 2022 were $510.5 million, up 25% from $408.6 million in the first quarter of 2021. The increase was due to the company’s acquisition of Lugano Diamonds & Jewelry in September 2021, as well as the strong growth of BOA, Marucci Sports and Altor Solutions. On a pro forma basis, assuming CODI acquired Lugano on January 1, 2021, net sales increased by 17% compared to the prior year period.

Branded consumer pro forma net sales increased 14% in the first quarter of 2022 to $331.6 million from $290.4 million in the first quarter of 2021.

Net income for the first quarter of 2022 was $29.7 million, up 35% from net income of $22.0 million in the first quarter of 2021. This increase was primarily due to the strong performance of our branded consumer and niche industrial businesses on a combined basis. .

Adjusted earnings for the first quarter of 2022 were $36.0 million, up 38% from $26.2 million in the first quarter of 2021. CODI’s weighted average number of shares outstanding for the three months ended March 31, 2022 was 69.4 million and for the three months ended March 31, 2021, was 64.9 million.

Revenue from continuing operations for the first quarter of 2022 was $18.4 million, up 40% from revenue from continuing operations of $13.1 million in the first quarter of 2021. This increase is mainly due to the strong performance of our branded consumer and niche industrial businesses. on a combined basis.

Cash and capital resources
As of March 31, 2022, CODI had approximately $97.3 million in cash and cash equivalents, no borrowings outstanding on its revolver, $1.0 billion outstanding in 5.250% senior notes due 2029 and 300 million outstanding in 5,000% senior notes due 2032.

The company has no material debt maturities before 2029 and had net borrowing capacity of $599 million as of March 31, 2022, under its revolving credit facility.

First Quarter 2022 Distributions
On April 1, 2022, CODI’s Board of Directors (the “Board”) declared a first quarter distribution of $0.25 per share on the Company’s common stock. The cash distribution was paid on April 28, 2022 to all registered holders of common shares as of April 21, 2022.

The Board also declared a quarterly cash distribution of $0.453125 per share on the Company’s 7.250% Series A Preferred Shares (the “Series A Preferred Shares”). The distribution on the Series A preferred shares covers the period from January 30, 2022 inclusively to April 30, 2022 exclusively. The distribution for this period was payable on April 30, 2022 to all registered holders of Series A Preferred Shares as of April 15, 2022. Payment occurred on May 2, 2022, the business day following the payment date.

The Board also declared a quarterly cash distribution of $0.4921875 per share on the Company’s 7.875% Series B Preferred Shares (the “Series B Preferred Shares”). The distribution on the Series B Preferred Shares covers the period from January 30, 2022 inclusive to April 30, 2022 exclusively. The distribution for this period was payable on April 30, 2022 to all registered holders of Series B Preferred Shares as of April 15, 2022. Payment occurred on May 2, 2022, the business day following the payment date.

The Board also declared a quarterly cash distribution of $0.4921875 per share on the Company’s 7.875% Series C Preferred Shares (the “Series C Preferred Shares”). The distribution on the Series C preferred shares covers the period from January 30, 2022 inclusively to April 30, 2022 exclusively. The distribution for this period was payable on April 30, 2022 to all registered holders of Series C Preferred Shares as of April 15, 2022. Payment occurred on May 2, 2022, the business day following the payment date.

CODI’s Ordinary and Preferred Cash Distributions are generally expected to constitute “eligible dividends” for U.S. federal income tax purposes to the extent paid out of “profits and profits” (as determined under the principles U.S. federal income tax), provided the required holding period is met. To the extent that the amount of cash distributions exceeds earnings and profits, such distribution will first be treated as a non-taxable return of capital to the extent of the holder’s adjusted tax base in the shares, and then will be treated as a capital gain from the sale or exchange of those shares. In addition, shareholders subject to tax rules regarding “taxable income from an unrelated business” (or UBTI) will no longer be assigned UBTIs from the trust allowing ownership by certain retirement accounts that previously created tax implications. .

2022 outlook on the rise
Due to strong first quarter financial performance, as well as expectations for the remainder of 2022, the Company is raising its guidance and expects its current subsidiaries, including Advanced Circuits, to deliver consolidated Adjusted EBITDA for the full calendar year of 2022 between $410 million and $430 million. Previously, Adjusted EBITDA was expected between $400 million and $420 million. This estimate is based on the sum of our expectations for our current subsidiaries in 2022, assuming no additional acquisitions or divestitures, and excludes corporate expenses such as interest expense, management fees and general business costs. Additionally, the company expects to earn between $120 million and $135 million in adjusted earnings for the full year of 2022, excluding the results of the Advanced Circuits subsidiary, as that business has been classified as owned. for sale and is presented as discontinued operations.

Photo courtesy of CODI/Marucci