Compass Diversified (CODI) reported net revenues increased 7.9 percent in the third quarter ended September 30 to $418.9 million, as compared to $388.3 million a year ago.
CODI’s business holdings include 5.11, Liberty Safe, Marucci Sports, Velocity Outdoor in the active lifestyle space, Advanced Circuits, Arnold Magnetic Technologies, Ergobaby, Foam Fabricators, and Sterno.
Net income for the quarter ended September 30, 2020 was $20.9 million, as compared to a net loss of $26.5 million for the quarter ended September 30, 2019. CODI recorded a $33.4 million impairment at its Velocity Outdoor subsidiary during the quarter ended September 30, 2019.
Adjusted EBITDA for the quarter ended September 30, 2020 was $73.9 million, as compared to $63.8 million for the quarter ended September 30, 2019.
“The competitive advantage gained through our permanent capital structure has never been more apparent,” said Elias Sabo, CEO of Compass Diversified. “CODI’s strong performance in the third quarter is a testament to our differentiated model and the outperformance of our branded consumer businesses. Our team continues to execute on our acquisition strategy amid heightened uncertainty, and we are pleased to have completed the acquisition of another growing and aspirational brand, BOA Technology. As we continue to transform our portfolio, BOA joins a strong lineup of branded consumer business, including Marucci, 5.11, Velocity Outdoor, and Liberty Safe. As a whole, our branded consumer businesses exceeded expectations again this quarter, benefiting from ongoing consumer demand in outdoor categories.”
Sabo continued, “CODI’s unique model has proven resilient and, looking ahead, we are poised to continue creating long-term shareholder value by executing on our strategy and returning substantial capital with our $1.44 per common share annual distribution. We are pleased to have achieved an important milestone in the third quarter, as our cumulative distributions increased to more than $20 per share, representing our strong track record of paying consistent and sizeable distributions since CODI’s IPO in May of 2006.”
Sabo concluded, “As we approach year-end, we remain incredibly proud of all that our team has accomplished in managing the uncertainty of the pandemic. We have positioned our diverse set of subsidiary companies for continued long-term success and we are eager to build upon this momentum in the quarters and years to come.”
Liquidity and Capital Resources
For the quarter ended September 30, 2020, CODI reported cash provided by operating activities of $24.5 million, as compared to cash provided by operating activities of $22.9 million for the quarter ended September 30, 2019.
CODI reported CAD of $43.5 million for the quarter ended September 30, 2020, as compared to $30.2 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 September 30, 2020 was 64.9 million, and for the quarter ended September 30, 2019 was 59.9 million.
As of September 30, 2020, CODI had approximately $176.8 million in cash and cash equivalents, $600 million outstanding in 8.00 percent Senior Notes due 2026 and no outstanding borrowings under its revolving credit facility.
The company has no significant debt maturities until 2026 and had net borrowing availability of $599 million at September 30, 2020 under its revolving credit facility.
Subsequent to the end of the quarter, CODI completed the acquisition of BOA for a total purchase price of $454 million (excluding working capital and certain other adjustments upon closing, and transaction costs). CODI funded the acquisition of BOA with cash on hand and a $300 million draw on its revolving credit facility. BOA’s minority shareholders invested $61.5mm for an 18% noncontrolling interest in the equity of BOA.
For the third quarter of 2020, Compass Group Management LLC (“CGM”) volunteered to waive the management fee on cash balances held at CODI as of September 30, 2020. This followed CGM’s waiver of 50 percent of its management fee calculated as of June 30, 2020, which produced cash savings of approximately $5.2 million.
The company estimates its full-year 2020 consolidated subsidiary Adjusted EBITDA, before deducting corporate expense, and including Marucci and BOA as if they were acquired January 1, 2020, will be between $270 million and $280 million. In addition, the company estimates its full-year 2020 Payout Ratio, defined as our prior year’s annual distribution to common shareholders divided by our 2020 full-year estimate for CAD, will be between 90 percent and 100 percent.
The company believes that it currently has adequate liquidity and capital resources to meet its existing obligations and quarterly distributions to its shareholders if approved by the Board of Directors over the next twelve months. The ultimate impact of COVID-19 on the company’s business is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are highly uncertain and cannot be accurately predicted at this time. As detailed in our Form 10-Q for the period ending September 30, 2020, the company’s results of operations, financial condition, and cash flow could be impacted more dramatically than currently anticipated and as a result, the company’s liquidity and capital resources could become more constrained than expected.
Logo courtesy CODI