Compass Diversified (CODI) reported earnings nearly tripled in the fourth quarter as sales grew 27 percent.

CODI’s business holdings include 5.11, Boa Technology, Marucci Sports, and Velocity Outdoor in the active lifestyle space. Other businesses 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.

“Our momentum continued in the fourth quarter as CODI delivered a fourth consecutive quarter of record results and the best year-end results in our history,” said Elias Sabo, CEO of Compass Diversified. “Our consumer business again delivered solid results, driven by continued strong performance at our most recent acquisitions, and our niche industrial business experienced increased demand for their products during the fourth quarter. We continued to deploy capital into our existing subsidiaries in the fourth quarter acquiring Lizard Skins and Plymouth Foam as strategic add-ons to Marucci Sports and Altor Solutions, respectively, demonstrating our sustainable investing philosophy and continued commitment to deploying capital to enhance value at a subsidiary level.”

Sabo continued, “Looking ahead, we enter 2022 with a strong balance sheet, substantial liquidity and remain confident in our ability to generate long term shareholder value in the years ahead through the continued deployment of capital into accretive platform and add-on acquisitions and subsidiary growth opportunities.”

Fourth Quarter and Full Year 2021 Highlights

  • Reported net sales of $536.6 million for the fourth quarter 2021 and $1.842 billion for the full year 2021;
  • Reported a net income of $25.9 million for the fourth quarter 2021 and net income of $126.8 million for the full year 2021;
  • Reported Adjusted Earnings, a new non-GAAP financial measure, of $32.5 million for the fourth quarter of 2021 and $117.7 million for the full year of 2021;
  • Reported non-GAAP Adjusted EBITDA of $88.9 million for the fourth quarter 2021 and $327.3 million for the full year 2021;
  • Reported Cash Used in Operating Activities of $(13.1) million for the fourth quarter 2021 and Provided by Operating Activities of $134.1 million for the full year 2021, and non-GAAP Cash Flow Available for Distribution and Reinvestment (“CAD”) of $42.1 million for the fourth quarter 2021 and $177.4 million for the full year 2021;
  • Paid a fourth quarter 2021 cash distribution of $0.25 per share on CODI’s common shares in January 2022; and
  • Paid quarterly cash distributions of $0.453125 per share on the company’s 7.250 percent Series A Preferred Shares, $0.4921875 per share on the company’s 7.875 percent Series B Preferred Shares, and $0.4921875 per share on the company’s 7.875 percent Series C Preferred Shares payable on January 30, 2022.

Operating Results

Net sales for the quarter ended December 31, 2021 were $536.6 million, as compared to $421.6 million for the quarter ended December 31, 2020. Net sales were $1.842 billion for the year ended December 31, 2021, as compared to $1.360 billion for the year ended December 31, 2020.

Net income for the quarter ended December 31, 2021 was $25.9 million, as compared to net income of $8.8 million for the quarter ended December 31, 2020. For the year ended December 31, 2021, CODI reported a net income of $126.8 million compared to net income of $27.2 million for the year ended December 31, 2020.   The increase in net income for the year ended December 31, 2021 as compared to the prior year was primarily related to the gain on the sale of Liberty Safe.

Adjusted Earnings (see “Note Regarding Use of Non-GAAP Financial Measures” below) for the quarter ended December 31, 2021 was $32.5 million, as compared to $22.7 million for the quarter ended December 31, 2020. Adjusted Earnings for the year ended December 31, 2021 was $117.7 million, as compared to $55.0 million for the year ended December 31, 2020.   Adjusted EBITDA (see “Note Regarding Use of Non-GAAP Financial Measures” below) for the quarter ended December 31, 2021 was $88.9 million, as compared to $69.3 million for the quarter ended December 31, 2020. Adjusted EBITDA for the year ended December 31, 2021 was $327.3 million, as compared to $203.9 million for the year ended December 31, 2020.   The increase in Adjusted Earnings and Adjusted EBITDA for the fourth quarter and full-year 2021, as compared to prior year periods, was primarily a result of our 2020 acquisitions of BOA and Marucci, and our 2021 acquisition of Lugano Diamonds, as well as strong performance in the other branded consumer companies. In addition, the prior year’s results were negatively impacted by the effects of the COVID-19 pandemic.

Liquidity and Capital Resources

For the quarter ended December 31, 2021, CODI reported Cash Used in Operating Activities of $(13.1) million, as compared to Cash Provided by Operating Activities of $35.8 million for the quarter ended December 31, 2020. The decline in cash provided by operating activities during the fourth quarter of 2021 as compared to the prior year was a result of an increase in working capital at certain subsidiaries, primarily in inventory, to satisfy near-term sales demand.

CODI reported CAD (see “Note Regarding Use of Non-GAAP Financial Measures” below) of $42.1 million for the quarter ended December 31, 2021, as compared to $36.0 million for the prior year’s comparable quarter.

CODI’s weighted average number of shares outstanding for the quarter ended December 31, 2021 was 66.6 million, and for the quarter ended December 31, 2020 was 64.9 million.

As of December 31, 2021, CODI had approximately $157.1 million in cash and cash equivalents, $0 million outstanding on its revolving credit facility, $1 billion outstanding in 5.25 percent Senior Notes due 2029 and $300 million outstanding in 5.00 percent Senior Notes due 2032.

The company has no significant debt maturities until 2029 and had net borrowing availability of approximately $600 million at December 31, 2021 under its revolving credit facility.

Fourth Quarter 2021 Distributions

On January 3, 2022, CODI’s Board of Directors (the “Board”) declared a fourth-quarter distribution of $0.25 per share on the company’s common shares. The cash distribution was paid on January 20, 2022 to all holders of record of common shares as of January 13, 2022. As previously announced and disclosed by CODI, the reduction in the fourth quarter common distribution is a result of the company’s tax reclassification which became effective on September 1, 2021 and the assumption of corporate tax liability.

The Board also declared a quarterly cash distribution of $0.453125 per share on the company’s 7.250 percent Series A Preferred Shares (the “Series A Preferred Shares”). The distribution on the Series A Preferred Shares covered the period from, and including, October 30, 2021, up to, but excluding, January 30, 2022. The distribution for such period was payable on January 30, 2022 to all holders of record of Series A Preferred Shares as of January 15, 2022. The payment occurred on January 31, 2022, the next 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 percent Series B Preferred Shares (the “Series B Preferred Shares”). The distribution on the Series B Preferred Shares covered the period from, and including, October 30, 2021, up to, but excluding, January 30, 2022. The distribution for such period was payable on January 30, 2022 to all holders of record of Series B Preferred Shares as of January 15, 2022. The payment occurred on January 31, 2022, the next 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 percent Series C Preferred Shares (the “Series C Preferred Shares”). The distribution on the Series C Preferred Shares covered the period from, and including, October 30, 2021, up to, but excluding, January 30, 2022. The distribution for such period was payable on January 30, 2022 to all holders of record of Series C Preferred Shares as of January 15, 2022. The payment occurred on January 31, 2022, the next business day following the payment date.

2022 Guidance

The company expects to produce consolidated Adjusted EBITDA in 2022 of between $400 million and $420 million. The Adjusted EBITDA estimate is based on the summation of our expectations for our current subsidiaries in 2022, including ACI, absent additional acquisitions or divestitures.   In addition, the company expects to produce Adjusted Earnings in 2022 of between $110 million and $125 million. The Adjusted Earnings estimate is based on the summation of our expectations for our current subsidiaries in 2022, excluding ACI, absent additional acquisitions or divestitures.  

5.11 Initial Public Offering Update
The company has decided to postpone its proposed initial public offering of 5.11 due to adverse market conditions.

Photo courtesy CODI/5.11