Compass Diversified (CODI) reported significant improvement in earnings in the third quarter due to a gain on its sale of Liberty Safe. Earnings, excluding the gain, grew about a third due to the 2020 acquisition of BOA and performance by its branded consumer companies.

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, and Sterno.

Third Quarter 2021 Highlights

  • Reported net sales of $488.2 million;
  • Reported net income of $90.2 million;
  • Reported non-GAAP Adjusted EBITDA of $90.0 million;
  • Reported cash provided by operating activities of $37.7 million and non-GAAP cash flow available for distribution and reinvestment (“CAD’) of $42.5 million;
  • Completed the election to treat Compass Diversified Holdings as a corporation for U.S. federal income tax purposes, effective September 1, 2021 (the “Election”);
  • Completed the sale of Liberty Safe for an enterprise value of $147.5 million and recorded a gain on the sale of $72.7 million;
  • Closed on the acquisition of Lugano Diamonds and Jewelry, Inc. for an enterprise value of $256 million;
  • Paid a cash distribution of $0.36 per share on CODI’s common shares in October 2021;
  • Paid a special cash distribution of $0.88 per share on CODI’s common shares in September 2021 to partially cover the taxable income incurred by shareholders in connection with the Election; and
  • Declared 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 (the “Preferred Distributions”). The Preferred Distributions are payable on October 30, 2021. The payment will occur on November 1, 2021, the next business day following the payment date.

“CODI’s strong momentum continued in the third quarter as we generated outstanding results primarily due to heightened demand at our leading consumer brands,” said Elias Sabo, CEO, Compass Diversified. “With our permanent capital structure giving us flexibility through economic cycles, we have remained focused on building businesses for the future and supporting the brands we own. We are proud of our subsidiary teams, who have worked diligently to expertly navigate this current inflationary period by adeptly managing supply chains and prioritizing our customers, and believe they continue to be well-positioned to grow.”

Sabo continued, “Recently, we announced a series of compelling transactions, including the strategic divestment of Liberty Safe in August 2021, the anticipated sale of Advanced Circuits, and the acquisition of luxury goods brand Lugano Diamonds. We also acquired Plymouth Foam and Lizard Skins as complimentary add-ons to our strong Altor and Marucci subsidiaries, respectively. We continue to succeed at identifying, acquiring and investing in a diversified group of leading consumer and industrial businesses, which we believe will drive sustainable, long-term value for our shareholders.”

Operating Results

  • Net sales for the quarter ended September 30, 2021, were $488.2 million, as compared to $387.7 million for the quarter ended September 30, 2020;
  • Net income for the quarter ended September 30, 2021, was $90.2 million, as compared to $20.9 million for the quarter ended September 30, 2020. The increase in net income was primarily a result of the gain on the sale of Liberty Safe of $72.7 million; and
  • Adjusted EBITDA for the quarter ended September 30, 2021, was $90.0 million, as compared to $67.6 million for the quarter ended September 30, 2020. The increase in Adjusted EBITDA for the third quarter of 2021, as compared to prior-year period, was primarily a result of our 2020 acquisition of BOA, as well as strong performance by its branded consumer companies.

Liquidity and Capital Resources
For the quarter ended September 30, 2021, CODI reported Cash Provided by Operating Activities of $37.7 million, as compared to Cash Provided by Operating Activities of $24.5 million for the quarter ended September 30, 2020.

CODI reported CAD of $42.5 million for the quarter ended September 30, 2021, as compared to $43.5 million for the prior year’s comparable quarter. CODI’s CAD is calculated after taking into account all interest expenses, cash taxes paid preferred distributions and maintenance capital expenditures and includes the operating results of each of our businesses for the periods during which CODI owned them. However, CAD excludes the gains from monetizing interests in CODI’s subsidiaries, which have totaled over $1.1 billion since going public in 2006.

CODI’s weighted average number of shares outstanding for the quarter ended September 30, 2021 was 65.0 million, and for the quarter ended September 30, 2020 was 64.9 million.

As of September 30, 2021, CODI had approximately $70.2 million in cash and cash equivalents, $134.0 million outstanding on its revolver and $1.0 billion outstanding in 5.250 percent Senior Notes due 2029.

The company has no significant debt maturities until 2026 and had net borrowing availability of $465.0 million on September 30, 2021 under its revolving credit facility.

Third Quarter 2021 Distributions
On October 5, 2021, CODI’s Board of Directors declared a third-quarter distribution of $0.36 per share on the company’s common shares. The cash distribution was paid on October 22, 2021 to all holders of record of common shares as of October 15, 2021.

Additionally, CODI’s Board of Directors declared a Special Distribution of $0.88 per share on the Trust’s common shares paid on September 7, 2021 to all holders of record of Common Shares as of the close of business on August 31, 2021 which was intended to partially cover the taxable income incurred by those shareholders in connection with the Election.

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 distribution on the Series A Preferred Shares covers the period from, and including, July 30, 2021, up to, but excluding, October 30, 2021. The distribution for such period is payable on October 30, 2021 to all holders of record of Series A Preferred Shares as of October 15, 2021. The payment will occur on November 1, 2021, 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 distribution on the Series B Preferred Shares covers the period from, and including, July 30, 2021, up to, but excluding, October 30, 2021. The distribution for such period is payable on October 30, 2021 to all holders of record of Series B Preferred Shares as of October 15, 2021. The payment will occur on November 1, 2021, 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 distribution on the Series C Preferred Shares covers the period from, and including, July 30, 2021, up to, but excluding, October 30, 2021. The distribution for such period is payable on October 30, 2021 to all holders of record of Series C Preferred Shares as of October 15, 2021. The payment will occur on November 1, 2021, the next business day following the payment date.

Guidance Update
As a result of its financial performance in the first nine months of 2021 and its expectations for the remainder of 2021, the company expects its current subsidiaries to produce consolidated adjusted EBITDA for the full calendar year of 2021 of between $380 million and $390 million proforma for the sale of Liberty Safe and the acquisition of Lugano Diamonds.