Brand aggregator Compass Diversified (CODI) saw first quarter sales increase 11.0 percent to $375.4 million on a pro forma basis in its Consumer Brands segment, which includes the 5.11, Boa, Primaloft and Velocity Outdoor brands in the active lifestyle market, among other brands in other consumer markets, including The Honey Pot, which was acquired last year.
Consumer Branded Segment
“Last quarter, we touched specifically on two of our businesses, furthest up the supply chain, BOA and PrimaLoft, and how order patterns were normalizing as their respective channels cleared,” said company Partner and COO Pat Maciariello on a conference call with analysts. “At that point, it appeared that BOA was perhaps a bit more than a quarter ahead of PrimaLoft, incurring the inventory headwinds in their supply chains and returning to growth.”
Maciariello indicated that BOA grew both revenues and adjusted EBITDA in the mid teens in the first quarter. “In addition, bookings outpaced revenue growth, which supports our expectations of a strong 2024,” he said.
“At PrimaLoft, though revenue and adjusted EBITDA continued to decline in Q1 of 2024, we did see solid double-digit bookings growth in the quarter, which gives us increased confidence as we enter the second quarter.” the COO offered.
Maciariello said 5.11 was approximately flat in revenue and up slightly in adjusted EBITDA in the first quarter. “Strong [5.11] revenue growth in the professional channel offset both market related and self-induced challenges in our DTC channels,” he noted. “We have seen improvement in these areas subsequent to quarter-end, and we believe the 5.11 management team is taking the right actions and the company is on solid footing.”
“Despite our outperformance in the quarter continued elevated inflation, delayed rate cuts and heightened geopolitical risks, all combined to create a weakening macro-economic backdrop, which has negatively affected our industrial vertical.
Industrial segment net sales decreased 10 percent to $159.6 million compared to the first quarter of 2023.
“Across our three industrial businesses, we saw a slight decline in both revenues and adjusted EBITDA in Q1,” noted Partner & CEO Elias Sabo. “However, we remain confident in the positioning of these businesses and anticipate our industrial vertical could possibly see modest growth later this year.”
Consolidated net sales in the first quarter were $524.3 million, up 8 percent compared to $483.9 million in the first quarter of 2023. This was said to be driven by a 61 percent increase in Lugano net sales and the acquisition of The Honey Pot Co.
On a pro forma basis, assuming CODI had acquired The Honey Pot Co. on January 1, 2023, net sales were up 4 percent.
Operating income for the first quarter of 2024 was $38.6 million compared to $34.6 million in the first quarter of 2023. Operating income in the first quarter of 2024 reflected higher SG&A from the acquisition of The Honey Pot Co., as well as an $8.2 million non-cash impairment expense associated with Velocity Outdoor.
Income from continuing operations in the first quarter of 2024 increased 51 percent to $2.4 million compared to $1.6 million in the first quarter of 2023.
Net income in the first quarter of 2024 was $5.8 million compared to $109.6 million in the first quarter of 2023, reflecting the $98.0 million gain on the sale of Advanced Circuits in February 2023.
Adjusted Earnings for the first quarter of 2024 increased 73 percent to $34.3 million compared to $19.8 million a year ago. CODI’s weighted average number of shares outstanding in the first quarter of 2024 was 75.27 million compared to 72.18 million in the prior year first quarter.
Adjusted EBITDA in the first quarter of 2024 was $94.8 million, up 28 percent compared to $74.1 million in the first quarter of 2023. The increase was primarily due to strong results at Lugano. The Company no longer adds back management fees in its calculation of Adjusted EBITDA. Management fees incurred during the first quarter were $18.1 million.
“All-in-all, I am extremely pleased with our first quarter. This is our strategic repositioning in action. Despite a mixed economic environment, we delivered a strong first quarter,” concluded Sabo. “Both our results for the quarter and our outlook for the rest of the year demonstrate that owning and managing a diversified group of companies with a growing share of disruptive, high-growth businesses is the right strategy, and we believe positions our business for sustained outperformance.”
Sabo said they believe inventories are now more balanced across their Branded Consumer vertical, and they expect the headwind suffered in 2023 to turn into tailwinds for the remainder of the year.
“We also believe through company-led innovation, our industrial vertical could see another year of modest growth in 2024 and is positioned well for 2025,” Sabo continued. “Combining our first quarter performance with our forward momentum, we’re feeling bullish about the rest of the year. So we are raising our full year adjusted earnings outlook.”
Company CFO Ryan Faulkingham detailed that, as a result of the strong performance in the first quarter and the company’s expectations for the remainder of the year, CODI is raising its subsidiary adjusted EBITDA guidance by $10 million, but, with the sale of Crosman, it is reducing its guidance by a similar amount.
“Thus, our full year 2024 subsidiary adjusted EBITDA is consistent with what we provided on our last earnings call, of between $480 million and $520 million despite the sale of Crosman,” Faulkingham noted.
“The subsidiary adjusted EBITDA range for our Industrial vertical remains $125 million to $135 million,” he detailed. “The subsidiary adjusted EBITDA range for our Branded Consumer vertical remains $355 million and $385 million.”
CODI expects full year 2024 adjusted EBITDA to be between $390 million and $430 million. This range factors in an expected $86 million in corporate level overhead and management fees in 2024. This compares to $341 million in adjusted EBITDA in 2023.
With the pay-down of revolver debt outstanding of approximately $60 million, which includes proceeds from the sale of Crosman, CODI said it is increasing our full year 2024 adjusted earnings guidance range by $3 million and expect it to be between $148 million and $163 million.
“At the midpoint of this range and assuming the same share count at March 31, 2024 of 75.3 million shares, we expect to earn $2.07 in adjusted earnings per common share in 2024,” the CFO noted.
“A note for investors and analysts,” Faulkingham added, “the Crosman sale will not be recorded as discontinued operations, and thus we expect we will record a relatively small financial statement impact from the sale in the second quarter, we plan to offset any positive or negative impact from the sale in our adjusted earnings calculation in the second quarter and for the full year of 2024.”
Image courtesy Boa
