Compass Diversified Holdings (CODI) reported earnings from continuing operations rose 41 percent as sales gained 25 percent. The parent of a number of businesses in the active lifestyle space raised its earnings guidance for the year.

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.

“CODI delivered outstanding first-quarter results, recording our fifth consecutive quarter of record financial performance that is enabling us to raise our 2022 outlook,” said Elias Sabo, CEO of Compass Diversified. “Despite supply chain challenges and a heightened inflationary environment, our operating teams delivered double-digit sales growth in both our branded consumer and niche industrial businesses. In addition, we produced the highest level of quarterly Adjusted EBITDA CODI has ever reported. As we look ahead at 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 deploying capital to drive long-term, sustainable value for our shareholders.”

First Quarter 2022 Financial Highlights vs. Same Year-Ago Quarter
(where applicable)

  • Net sales up 25 percent to $510.5 million;
  • Branded consumer net sales up 27 percent to $331.6 million, up 14 percent on a proforma basis;
  • Niche industrial net sales up 21 percent to $178.9 million;
  • Net income up 35 percent to $29.7 million;
  • Adjusted Earnings, a non-GAAP financial measure, up 38 percent to $36.0 million;
  • Income from continuing operations up 41 percent to $18.4 million;
  • Adjusted EBITDA, a non-GAAP financial measure, up 29 percent to $97.6 million; and
  • Paid a first quarter 2022 cash distribution of $0.25 per share on CODI’s common shares in April 2022.

First Quarter 2022 Business Highlights

  • Expanded board of directors to nine members with the appointment of Alex Bhathal, a business leader with more than 15 years of asset management experience and a track record of actively managing investments in sports, consumer products and real estate.
  • CODI subsidiary Altor Solutions acquired Foam Concepts, Inc., strengthening its position as a leading provider of packaging and componentry solutions.

First Quarter 2022 Financial Results
Net sales in the first quarter of 2022 were $510.5 million, up 25 percent compared to $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 strong growth from BOA, Marucci Sports and Altor Solutions. On a pro forma basis, assuming CODI had acquired Lugano on January 1, 2021, net sales were up 17 percent compared to the prior-year period.

Branded consumer pro forma net sales increased 14 percent in the first quarter of 2022 to $331.6 million compared to $290.4 million in the first quarter of 2021. Niche industrial net sales increased 21 percent in the first quarter of 2022 to $178.9 million compared to $147.6 million in the first quarter of 2021.

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

Adjusted Earnings for the first quarter of 2022 was $36.0 million, up 38 percent compared to $26.2 million in the first quarter of 2021. CODI’s weighted average number of shares outstanding for the quarter ended March 31, 2022, was 69.4 million and for the quarter ended March 31, 2021, was 64.9 million.

Income from continuing operations for the first quarter of 2022 was $18.4 million, up 40 percent compared to income from continuing operations of $13.1 million in the first quarter of 2021. The increase was primarily due to the strong performance across our branded consumer and niche industrial businesses on a combined basis.

Liquidity 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 percent Senior Notes due 2029 and $300 million outstanding in 5.000 percent Senior Notes due 2032.

The company has no significant debt maturities until 2029 and had net borrowing availability of $599 million on 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 shares. The cash distribution was paid on April 28, 2022, to all holders of record 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 percent Series A Preferred Shares (the “Series A Preferred Shares”). The distribution on the Series A Preferred Shares covers the period from, and including, January 30, 2022, up to, but excluding, April 30, 2022. The distribution for such period was payable on April 30, 2022, to all holders of record of Series A Preferred Shares as of April 15, 2022. The payment occurred on May 2, 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 covers the period from, and including, January 30, 2022, up to, but excluding, April 30, 2022. The distribution for such period was payable on April 30, 2022, to all holders of record of Series B Preferred Shares as of April 15, 2022. The payment occurred on May 2, 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 covers the period from, and including, January 30, 2022, up to, but excluding, April 30, 2022. The distribution for such period was payable on April 30, 2022, to all holders of record of Series C Preferred Shares as of April 15, 2022. The payment occurred on May 2, 2022, the next business day following the payment date.

CODI’s common and preferred cash distributions should generally constitute “qualified dividends” for U.S. federal income tax purposes to the extent paid from “earnings and profits” (as determined under U.S. federal income tax principles), provided that the requisite holding period is met. To the extent that the amount of the 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 basis in the shares, and thereafter be treated as capital gain from the sale or exchange of such shares. In addition, shareholders subject to tax rules regarding “unrelated business taxable income” (or UBTI) will no longer be allocated UBTI from the Trust allowing ownership by certain retirement accounts that previously created tax implications.

Increased 2022 Outlook
As a result of the strong financial performance in the first quarter, as well as the expectations for the remainder of 2022, the company is raising its guidance and expects its current subsidiaries, including Advanced Circuits, to produce consolidated Adjusted EBITDA the full calendar year of 2022 of between $410 million and $430 million. Previously, adjusted EBITDA was expected between $400 million and $420 million. This estimate is based on the summation of our expectations for our current subsidiaries in 2022, absent additional acquisitions or divestitures, and excludes corporate expenses such as interest expense, management fees and corporate overhead. In addition, the company expects to earn between $120 million and $135 million in Adjusted Earnings for the full year of 2022, excluding Advanced Circuits subsidiary results as this business has been classified as held for sale and is presented as discontinued operations.

Photo courtesy CODI/Marucci