Compass Diversified (CODI) reported net sales rose 38.4 percent for the first quarter ended March 31, to $461.6 million, as compared to $333.4 million a year ago.

Net income for the quarter ended March 31, 2021 was $22.0 million, as compared to $4.9 million for the quarter ended March 31, 2020.

Adjusted EBITDA for the quarter ended March 31, 2021 was $88.0 million, as compared to $46.0 million for the quarter ended March 31, 2020. The increase in Adjusted EBITDA for the first quarter 2021, as compared to prior year periods, was primarily a result of our 2020 acquisitions of BOA and Marucci, as well as strong performance by our branded consumer companies.

CODI’s business holdings include 5.11, Liberty Safe, 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.

“CODI’s outstanding performance in the first quarter, highlighted by record CAD and strong cash flow growth, was driven by impressive results from our branded consumer businesses, as we increased revenue and earnings across all of our consumer subsidiaries,” said Elias Sabo, CEO, Compass Diversified. “Last year’s acquisitions of two rapidly growing businesses, Marucci and BOA, underscore our success capitalizing on periods of market dislocations and have served to offset typical first-quarter seasonality in our portfolio. We have once again increased our annual guidance and continue to take steps to further position our leading and diversified group of consumer and industrial businesses for long-term success.”

Sabo continued, “With our permanent capital structure, we will remain both disciplined and opportunistic in our capital deployment as we partner with, invest in, and grow leading middle-market businesses capable of performing through economic cycles. In addition, as part of our ongoing efforts to lower our cost of capital and unlock shareholder value, we are continuing to explore a potential tax reclassification where we may elect to be taxed as a corporation, rather than a partnership. We believe this important change would simplify our structure and enable a broader set of both institutional and retail shareholders to invest in CODI.”

Liquidity and Capital Resources
For the quarter ended March 31, 2021, CODI reported Cash Provided by Operating Activities of $36.4 million, as compared to Cash Provided by Operating Activities of $34.0 million for the quarter ended March 31, 2020.

CODI reported CAD of $46.2 million for the quarter ended March 31, 2021, as compared to $17.7 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 $1.0 billion since going public in 2006.

CODI’s weighted average number of shares outstanding for the quarter ended March 31, 2021 was 64.9 million, and for the quarter ended March 31, 2020 was 59.9 million.

As of March 31, 2021, CODI had approximately $63.2 million in cash and cash equivalents, $5 million outstanding on its revolver and $1.0 billion outstanding in 5.250 percent Senior Notes due 2029.

As of March 31, 2021, CODI had proceeds deposited with a trustee of $647.7 million and $600.0 million of the current portion of long-term debt. These balances relate to the redemption of the 8.000 percent Senior Notes due 2026 which occurred on April 1, 2021.

The company has no significant debt maturities until 2029 and had net borrowing availability of $593.7 million on March 31, 2021 under its revolving credit facility.

First Quarter 2021 Distributions
On April 1, 2021, CODI’s Board of Directors declared a first-quarter distribution of $0.36 per share on the company’s common shares. The cash distribution was paid on April 22, 2021 to all holders of record of common shares as of April 15, 2021. Since its IPO in 2006, CODI has paid a cumulative distribution of $20.7552 per common share.

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, January 30, 2021, up to, but excluding, April 30, 2021. The distribution for such period will be paid on April 30, 2021 to all holders of record of Series A Preferred Shares as of April 15, 2021.

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, January 30, 2021, up to, but excluding, April 30, 2021. The distribution for such period will be paid on April 30, 2021 to all holders of record of Series B Preferred Shares as of April 15, 2021.

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, January 30, 2021, up to, but excluding, April 30, 2021. The distribution for such period will be paid on April 30, 2021 to all holders of record of Series C Preferred Shares as of April 15, 2021.

Guidance Update
As a result of the strong financial performance in the first quarter and the company’s 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 $325 million and $345 million. This estimate is based on the summation of our expectations for our current subsidiaries in 2021, absent additional acquisitions or divestitures, and excludes corporate expenses such as interest expense, management fees and corporate overhead. In addition, our Payout Ratio, defined as our prior year’s annual distribution to common shareholders divided by our 2021 estimate for CAD, is anticipated to be between 60 percent and 70 percent.

In reporting fourth-quarter results, CODI said it expected to report consolidated Adjusted EBITDA in 2021 of between $305 million and $325 million.

Photo courtesy CODI/Boa Technology