Compass Diversified Holdings reported net sales growth of 19 percent in the second quarter drove record quarterly earnings. The conglomerate raised its full-year outlook given the continued strong performance and PrimaLoft acquisition.

“The second quarter marks our sixth consecutive quarter of record financial performance, which is a continued testament to the strength of our management teams and quality of the companies we own,” said Elias Sabo, CEO of Compass Diversified. “Despite the significant macroeconomic challenges that have curbed consumer discretionary spending, ongoing global supply chain constraints, and inflationary concerns, CODI reported another quarter of double-digit sales and earnings growth. Based on our strong performance and our current view of the economy, we are raising our full-year outlook. We believe we remain well-positioned to drive continued value for our shareholders.”

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

  • Net sales up 19 percent to $515.6 million, and up 13 percent on a pro forma basis;
  • Branded consumer net sales up 21 percent to $326.5 million, and up 12 percent on a pro forma basis;
  • Niche industrial net sales up 16 percent to $189.1 million;
  • Operating income up 38 percent to $50.3 million;
  • Income from continuing operations up considerably to $26.5 million versus $21.6 million;
  • Net income up considerably to $31.0 million versus $11.3 million;
  • Adjusted Earnings, a non-GAAP financial measure, up 41 percent to $39.3 million;
  • Adjusted EBITDA, a non-GAAP financial measure, up 26 percent to $87.4 million; and
  • Paid a second quarter 2022 cash distribution of $0.25 per share on CODI’s common shares in July 2022.

Second Quarter 2022 Business Highlights

  • Joined the Russell 2000 and 3000 Indexes, providing the company with increased visibility in the public markets; and
  • Announced the acquisition of PrimaLoft Technologies Holdings, Inc., the parent company of PrimaLoft, Inc. on July 12, 2022.

Second Quarter 2022 Financial Results
Net sales in the second quarter of 2022 were $515.6 million, up 19 percent compared to $431.5 million in the second quarter of 2021. The increase was due to strong performance at its branded consumer and niche industrial subsidiaries. On a pro forma basis, assuming CODI had acquired Lugano on January 1, 2021, net sales were up 13 percent compared to the prior year period.

Branded consumer net sales increased 21 percent in the second quarter of 2022 to $326.5 million. On a pro forma basis, assuming CODI had acquired Lugano on January 1, 2021, branded consumer net sales were up 12 percent compared to the prior year period. Niche industrial net sales increased 16 percent in the second quarter of 2022 to $189.1 million compared to $162.5 million in the second quarter of 2021.

Net income for the second quarter of 2022 increased to $31.0 million compared to a net loss of $11.3 million in the second quarter of 2021. Income from continuing operations for the second quarter of 2022 increased to $26.5 million compared to a loss from continuing operations of $21.6 million in the second quarter of 2021. The increases in both were due to the strong performance across the branded consumer and niche industrial businesses on a combined basis. In addition, the second quarter of 2021 included a loss on debt extinguishment of $33.3 million in connection with the redemption of CODI’s 8.000 percent Senior Notes due 2026 on April 1, 2021. Operating income for the second quarter of 2022 increased $14.0 million to a record $50.3 million compared to $36.4 million in the second quarter of 2021.

Adjusted Earnings for the second quarter of 2022 was $39.3 million, up 41 percent compared to $27.9 million in the second quarter of 2021. CODI’s weighted average number of shares outstanding for the quarter ended June 30, 2022, was 70.2 million and, for the quarter ended June 30, 2021, was 64.9 million.

Adjusted EBITDA in the second quarter of 2022 was $87.4 million, up 26 percent compared to $69.5 million in the second quarter of 2021. The increase was primarily due to the strong performance across the branded consumer and niche industrial businesses on a combined basis. The company no longer adds back management fees in its calculation of Adjusted EBITDA. Management fees incurred during the second quarter were $14.9 million.

Liquidity and Capital Resources
As of June 30, 2022, CODI had approximately $102.7 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.

As of June 30, 2022, the company had no significant debt maturities until 2029 and had net borrowing availability of $597.7 million under its revolving credit facility.

On July 12, 2022, the company amended and restated its credit agreement, which now provides a new $400 million term loan with the final installment payment due July 2027, in addition to a maximum aggregate amount of $600 million in revolving loans. The due date of all amounts outstanding under the revolving line of credit has also been extended to July 2027. The credit agreement also permits the company, prior to the maturity date, to increase the revolving loan commitment and/or obtain additional term loans in an aggregate amount of up to $250 million, subject to certain restrictions and conditions.

Second Quarter 2022 Distributions
On July 1, 2022, CODI’s Board of Directors declared a second-quarter distribution of $0.25 per share on the company’s common shares. The cash distribution was paid on July 28, 2022, to all holders of record of common shares as of July 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 distribution on the Series A Preferred Shares covers the period from, and including, April 30, 2022, up to, but excluding, July 30, 2022. The distribution for such period was payable on July 30, 2022, to all holders of record of Series A Preferred Shares as of July 15, 2022. The payment occurred on August 1, 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 distribution on the Series B Preferred Shares covers the period from, and including, April 30, 2022, up to, but excluding, July 30, 2022. The distribution for such period was payable on July 30, 2022, to all holders of record of Series B Preferred Shares as of July 15, 2022. The payment occurred on August 1, 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 distribution on the Series C Preferred Shares covers the period from, and including, April 30, 2022, up to, but excluding, July 30, 2022. The distribution for such period was payable on July 30, 2022, to all holders of record of Series C Preferred Shares as of July 15, 2022. The payment occurred on August 1, 2022, the next business day following the payment date.

Increases 2022 Outlook
As a result of CODI’s strong financial performance in the second quarter, its expectations for the remainder of 2022 and its current view of the economy, the company is raising its outlook. CODI expects its current subsidiaries, including PrimaLoft, to produce consolidated subsidiary Adjusted EBITDA for the full year 2022 of between $445 million and $470 million. This estimate is based on the summation of the company’s expectations for its current subsidiaries in 2022, absent additional acquisitions or divestitures, includes a reduction for management fees paid at the subsidiaries of approximately $8 million and excludes corporate expenses such as interest expense, management fees paid at CODI and corporate overhead. In addition, the company expects to earn between $130 million and $145 million in Adjusted Earnings for the full year 2022, including PrimaLoft, and Advanced Circuits as a result of the expectation of reclassifying Advanced Circuits to continuing operations during the third quarter.

Compass Diversified’s holdings include 5.11, Boa Technology, Marucci Sports, Primaloft, and Velocity Outdoor in the active lifestyle space. Other businesses include Advanced Circuits, Arnold Magnetic Technologies, Ergobaby, Foam Fabricators, Lugano Diamonds, and Sterno.

Photo courtesy CODI/Primaloft