Compass Diversified (CODI) raised its earnings for the year due to a better-than-expected first-quarter performance.  Sales on an adjusted basis in its branded consumer segment, which includes BOA, 5.11 and Primaloft, were up 2 percent in the quarter.

“The strength and durability of our diversified subsidiaries were especially apparent in the first quarter,” said Elias Sabo, CEO of Compass Diversified. “The fact that we were able to grow sales on a consolidated basis amidst the backdrop of broad and unique macroeconomic challenges is an extraordinary result for CODI. This certainly proves our thesis that our high-quality, premium brands can still take market share in difficult economic environments.”

Sabo continued: “While our Q1 performance was outstanding, we cannot ignore market headwinds that continue to cloud our near-term outlook, such as inventory destocking trends at retail and rapidly changing monetary policy. But quarters like this give us confidence that CODI’s diversified subsidiaries are setup to drive strong long-term financial results, translating into meaningful shareholder value creation.”

First Quarter 2023 Financial Summary vs. Same Year-Ago Period (where applicable)

  • Net sales are up 6 percent and 1 percent on a pro forma basis to $542.2 million;
  • Branded consumer pro forma net sales up 2 percent to $365.6 million;
  • Niche industrial net sales were down 1 percent to $176.6 million;
  • Net income of $109.6 million vs. $29.7 million, primarily due to the $98.0 million gain on the sale of Advanced Circuits in February 2023;
  • Income from continuing operations of $13.0 million vs. $18.4 million;
  • Adjusted Earnings, a non-GAAP financial measure, was $33.2 million vs. $36.0 million;
  • Adjusted EBITDA, a non-GAAP financial measure, was up 11 percent to $91.9 million; and
  • Paid a first quarter 2023 cash distribution of $0.25 per share on CODI’s common shares in April 2023.

CODI’s branded consumer businesses include 5.11, Boa Technology, Ergobaby, Lugano Diamonds, Marucci Sports, Primaloft, and Velocity Outdoor. Its niche industrial businesses include Advanced Circuits, Arnold Magnetic Technologies and Sterno.

Recent Business Highlights

  • On January 19, 2023, CODI hosted an Investor Day in New York City, showcasing its consumer businesses and its newest acquisition, PrimaLoft.
  • On January 19, 2023, CODI announced its first $50 million share repurchase program through December 31, 2023.
  • On February 15, 2023, CODI announced it closed on the sale of Advanced Circuits for an enterprise value of $220 million. CODI realized an after-tax gain on the sale of Advanced Circuits of $98 million.
  • On March 28, 2023, CODI nominated Nancy B. Mahon as a director candidate for election at the company’s 2023 Annual Meeting of Shareholders to be held on May 25, 2023.
  • On April 4, 2023, subsequent to quarter-end, Marucci Sports, a subsidiary of CODI and designer and manufacturer of baseball and fastpitch equipment and apparel, announced the acquisition of Baum Enterprises LLC, a designer and manufacturer of composite wood bats.

First Quarter 2023 Financial Results

  • Net sales in the first quarter of 2023 were $542.2 million, up 6 percent compared to $510.5 million in the first quarter of 2022. The increase was primarily due to the company’s acquisition of PrimaLoft in July 2022. On a pro forma basis, assuming CODI had acquired PrimaLoft on January 1, 2022, net sales were up 1 percent in the first quarter of 2023.
  • Branded consumer net sales, pro forma for the PrimaLoft acquisition, increased 2 percent in the first quarter of 2023 to $365.6 million compared to the first quarter of 2022. Niche industrial net sales decreased 1 percent in the first quarter of 2023 to $176.6 million compared to the first quarter of 2022.
  • Net income in the first quarter of 2023 was $109.6 million compared to $29.7 million in the first quarter of 2022 due to the $98.0 million gain on the sale of Advanced Circuits in February 2023. Net income from continuing operations in the first quarter of 2023 was $13.0 million compared to $18.4 million in the first quarter of 2022. The decrease was primarily attributable to higher interest expenses in the first quarter of 2023. Operating income for the first quarter of 2023 was $48.9 million compared to $44.6 million in the first quarter of 2022 due to the higher net sales.
  • Adjusted Earnings for the first quarter of 2023 were $33.2 million compared to $36.0 million a year ago. The decrease was a result of financing costs for the acquisition of PrimaLoft in July 2022. CODI’s weighted average number of shares outstanding in the first quarter of 2023 was 72.2 million compared to 69.4 million in the prior year first quarter.
  • Adjusted EBITDA in the first quarter of 2023 was $91.9 million, up 11 percent compared to $83.2 million in the first quarter of 2022. The increase was primarily due to the acquisition of PrimaLoft. The company no longer adds back management fees in its calculation of Adjusted EBITDA. Management fees incurred during the first quarter of 2023 were $16.4 million.

Liquidity and Capital Resources

  • As of March 31, 2023, CODI had approximately $53.7 million in cash and cash equivalents, $8.0 million outstanding on its revolver, $392.5 million outstanding in term loans, $1.0 billion outstanding in 5.250 percent Senior Notes due 2029, and $300.0 million outstanding in 5.000 percent Senior Notes due 2032.
  • As of March 31, 2023, the company had no significant debt maturities until 2029 and had net borrowing availability of approximately $590 million under its revolving credit facility.

First Quarter 2023 Distributions
On April 3, 2023, 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 27, 2023, to all holders of record of common shares as of April 20, 2023.

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 of the Series A Preferred Shares covers the period from, and including, January 30, 2023, up to, but excluding, April 30, 2023. The distribution for such period was payable on April 30, 2023, to all holders of record of Series A Preferred Shares as of April 15, 2023.

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, 2023, up to, but excluding, April 30, 2023. The distribution for such period was payable on April 30, 2023, to all holders of record of Series B Preferred Shares as of April 15, 2023.

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, 2023, up to, but excluding, April 30, 2023. The distribution for such period was payable on April 30, 2023, to all holders of record of Series C Preferred Shares as of April 15, 2023.

2023 Outlook
As a result of CODI’s strong financial performance in the first quarter, the company is raising its Adjusted EBITDA outlook. For the full year 2023, CODI now expects consolidated subsidiary Adjusted EBITDA of between $430 million and $460 million. This estimate is based on the summation of the company’s expectations for its current subsidiaries in 2023 and is absent additional acquisitions or divestitures, and excludes corporate expenses such as interest expense, management fees paid by CODI and corporate overhead. In addition, the company is raising its Adjusted Earnings outlook. For the full year 2023, CODI now expects to earn between $110 million and $135 million in Adjusted Earnings for the full year 2023.

Previously, adjusted EBITDA was projected in the range of $420 million and $460 million and Adjusted Earnings was expected to range between $105 million and $135 million.

Photo courtesy BOA