Compass Diversified (CODI) reported sales grew 46.1 percent in the second quarter ended June 30.

Second Quarter 2021 Highlights

  • Reported net sales of $487.4 million;
  • Reported net loss of $11.3 million;
  • Reported non-GAAP Adjusted EBITDA of $94.2 million;
  • Reported cash provided by operating activities of $73.0 million and non-GAAP cash flow available for distribution and reinvestment (“CAD”) of $46.6 million;
  • Paid a second-quarter 2021 cash distribution of $0.36 per share on CODI’s common shares in July 2021;
  • 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 July 30, 2021; and
  • Subsequent to the end of the quarter, entered into a definitive agreement to sell Liberty Safe for $147.5 million.

“We are pleased to have delivered our second consecutive quarter of record operating results and have once again raised our 2021 annual guidance,” said Elias Sabo, CEO, Compass Diversified. “Our performance is a testament to the ongoing strength in our branded consumer businesses, the incredible execution of our subsidiary management teams and our team’s success identifying, acquiring and investing in a diverse portfolio of high-quality companies. The anticipated sale of our Liberty Safe subsidiary underscores the benefits of our differentiated model for unlocking significant value for shareholders.”

Sabo continued, “Our permanent capital structure enables us to remain both disciplined and opportunistic in evaluating opportunities within and outside of our portfolio of leading middle-market businesses. This flexible approach has benefited CODI over the last few years in particular, and we believe will continue to differentiate us in the second half of 2021 and beyond.”

“During the quarter we also continued the process to potentially allow CODI to be taxed as a corporation, rather than a partnership. If approved by our shareholders during our special meeting on August 3rd, we believe this change would present a significant opportunity to expand CODI’s shareholder base, further lower our cost of capital and provide greater long-term value for shareholders,” Sabo said.

Operating Results
Net sales for the quarter ended June 30, 2021 were $487.4 million as compared to $333.6 million for the quarter ended June 30, 2020.

Net loss for the quarter ended June 30, 2021 were $11.3 million as compared to loss of $7.4 million for the quarter ended June 30, 2020. CODI recorded a loss on debt extinguishment during the quarter of $33.3 million in connection with the debt refinancing transaction completed on April 1, 2021.

Adjusted EBITDA for the quarter ended June 30, 2021 was $94.2 million as compared to $49.5 million for the quarter ended June 30, 2020. The increase in Adjusted EBITDA for the second quarter of 2021, as compared to the prior-year period, was primarily a result of CODI’s 2020 acquisitions of BOA and Marucci and a strong performance by the company’s branded consumer companies.

Liquidity And Capital Resources
For the quarter ended June 30, 2021, CODI reported cash provided by operating activities of $73.0 million, as compared to cash provided by operating activities of $54.3 million for the quarter ended June 30, 2020.

CODI reported CAD of $46.6 million for the quarter ended June 30, 2021, as compared to $13.5 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 its 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 June 30, 2021 was 64.9 million,and for the quarter ended June 30, 2020 was 62.8 million.

As of June 30, 2021, CODI had approximately $110.2 million in cash and cash equivalents, no outstanding borrowings on its revolver and $1.0 billion outstanding in 5.250 percent senior notes due 2029.

The company has no significant debt maturities until 2029 and had net borrowing availability of approximately $600 million on June 30, 2021 under its revolving credit facility.

Second Quarter 2021 Distributions
On July 2, 2021, CODI’s Board of Directors (the “Board”) declared a second-quarter distribution of $0.36 per share on the company’s common shares. The cash distribution was paid on July 22, 2021 to all holders of record of common shares as of July 15, 2021. Since its IPO in 2006, CODI has paid a cumulative distribution of $21.1152 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, April 30, 2021, up to, but excluding, July 30, 2021. The distribution for such period will be paid on July 30, 2021 to all holders of record of Series A Preferred Shares as of July 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, April 30, 2021, up to, but excluding, July 30, 2021. The distribution for such period will be paid on July 30, 2021 to all holders of record of Series B Preferred Shares as of July 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, April 30, 2021, up to, but excluding, July 30, 2021. The distribution for such period will be paid on July 30, 2021 to all holders of record of Series C Preferred Shares as of July 15, 2021.

Guidance Update
As a result of the strong financial performance in the first six months of the year and the company’s expectations for the remainder of 2021, it expects its current subsidiaries to produce consolidated adjusted EBITDA for the full calendar year of 2021 of between $350 million and $370 million. This estimate is based on the summation of CODI’s expectations for its current subsidiaries in 2021, absent additional acquisitions or divestitures and excludes corporate expenses such as interest expense, management fees and corporate overhead. Excluding Liberty Safe, in anticipation of its sale, CODI expects to produce consolidated subsidiary Adjusted EBITDA for the full calendar year of 2021 of between $325 million and $345 million. In addition, CODI’s payout ratio, defined as its prior year’s annual distribution to common shareholders divided by the company’s 2021 estimate for CAD, is anticipated to be between 65 percent and 55 percent.

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.

Photo courtesy CODI/Boa Technology