Compass Diversified Reports Record Third Quarter 2022 Financial Results

Rhea-AI Summary

Compass Diversified (CODI) reported a 22% increase in net sales for Q3 2022, reaching $597.6 million, driven by strong performance in branded consumer and niche industrial segments. Operating income rose 16% to $48.7 million, while adjusted earnings increased 28% to $46.0 million. However, net income fell significantly to $2.6 million compared to $90.2 million in Q3 2021, due to a one-time gain last year. The company also raised its full-year outlook for adjusted EBITDA to $460-$470 million.

Positive

• Net sales increased 22% to $597.6 million.
• Branded consumer net sales surged 34% to $378.2 million.
• Operating income grew 16% to $48.7 million.
• Adjusted Earnings rose 28% to $46.0 million.
• Adjusted EBITDA increased 27% to $98.3 million.
• Increased 2022 outlook for Adjusted EBITDA to $460-$470 million.

Negative

• Net income decreased to $2.6 million from $90.2 million year-over-year.
• Higher interest expense due to acquisitions impacted income.

Net Sales Growth of 22% Drives Record Quarterly Results

Raises 2022 Outlook Given Continued Strong Performance

WESTPORT, Conn., Nov. 03, 2022 (GLOBE NEWSWIRE) -- Compass Diversified (NYSE: CODI) (“CODI” or the “Company”), an owner of leading middle market businesses, announced today its consolidated operating results for the three months ended September 30, 2022.

“Our third quarter results yet again demonstrate the quality of CODI’s subsidiary businesses, as we delivered another consecutive quarter of record financial performance,” said Elias Sabo, CEO of Compass Diversified. “Our subsidiaries on a combined basis continue to deliver excellent results despite inflationary pressures impacting consumer discretionary spending. End market demand for our core consumer products remains strong, and with many of our consumer businesses taking market share, we believe our businesses can outperform the general market and deliver strong financial results.”

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

• Net sales up 22% to $597.6 million, and up 15% on a pro forma basis.
• Branded consumer net sales up 34% to $378.2 million, and up 21% on a pro forma basis.
• Niche industrial net sales up 7% to $219.4 million.
• Operating income up 16% to $48.7 million.
• Net income down to $2.6 million vs. $90.2 million in the elevated year-ago period, primarily a result of the $72.7 million gain on the sale of Liberty Safe in August 2021.
• Adjusted Earnings, a non-GAAP financial measure, up 28% to $46.0 million.
• Adjusted EBITDA, a non-GAAP financial measure, up 27% to $98.3 million.
• Paid a third quarter 2022 cash distribution of $0.25 per share on CODI's common shares in October 2022.

Third Quarter 2022 Business Highlights

• Appointed Mr. Larry L. Enterline as Chairman of the Board of Directors effective July 2, 2022. Additionally, Ms. Teri R. Shaffer was appointed to the Board and designated as a member of the Board’s Audit Committee.
• On July 12, 2022, CODI completed the acquisition of PrimaLoft Technologies Holdings, Inc., the parent company of PrimaLoft, Inc. ("PrimaLoft"), a leading provider of branded, high-performance synthetic insulation and materials used primarily in outerwear and accessories.
• 5.11 Tactical subsidiary announced the opening of its 100^th retail store location, continuing the execution of expanding its retail footprint.
  

Third Quarter 2022 Financial Results

Net sales in the third quarter of 2022 were $597.6 million, up 22% compared to $488.2 million in the third 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 and PrimaLoft on January 1, 2021, net sales were up 15% compared to the prior year period.

Branded consumer net sales, pro forma for the Lugano and PrimaLoft acquisitions, increased 21% in the third quarter of 2022 to $380.5 million compared to $314.8 million in the third quarter of 2021. Niche industrial net sales increased 7% in the third quarter of 2022 to $219.4 million compared to $205.0 million in the third quarter of 2021.

Net income for the third quarter of 2022 decreased to $2.6 million compared to net income of $90.2 million in the third quarter of 2021. Income from continuing operations for the third quarter of 2022 decreased to $1.1 million compared to $18.7 million in the third quarter of 2021. The decreases in net income and income from continuing operations were a result of higher interest expense related to the funding of the acquisitions of PrimaLoft and Lugano and provisions for income tax primarily as a result of the reclassification of Advanced Circuits to continuing operations. Additionally, the Company’s net income in the year-ago period included a $72.7 million gain from the sale of Liberty Safe in August 2021. Operating income for the third quarter of 2022 increased 16% to $48.7 million compared to $41.9 million in the third quarter of 2021.

Adjusted Earnings (see “Note Regarding Use of Non-GAAP Financial Measures” below) for the third quarter of 2022 increased 28% to $46.0 million compared to $35.8 million in the third quarter of 2021. CODI's weighted average number of shares outstanding for the quarter ended September 30, 2022, was 71.9 million and, for the quarter ended September 30, 2021, was 64.9 million.

Adjusted EBITDA (see "Note Regarding Use of Non-GAAP Financial Measures" below) in the third quarter of 2022 was $98.3 million, up 27% compared to $77.6 million in the third quarter of 2021. The increase was primarily due to the strong performance across the branded consumer and niche industrial businesses on a combined basis and the impact of the PrimaLoft and Lugano acquisitions. The Company no longer adds back management fees in its calculation of Adjusted EBITDA. Management fees incurred during the third quarter were $16.7 million.

Liquidity and Capital Resources

As of September 30, 2022, CODI had approximately $61.3 million in cash and cash equivalents, $113 million outstanding on its revolver, $397.5 million outstanding in term loans, $1.0 billion outstanding in 5.250% Senior Notes due 2029 and $300 million outstanding in 5.000% Senior Notes due 2032.

As of September 30, 2022, the Company had no significant debt maturities until 2027 and had net borrowing availability of approximately $485 million under its revolving credit facility.

Third Quarter 2022 Distributions

On October 4, 2022, CODI's Board of Directors (the “Board”) declared a third quarter distribution of $0.25 per share on the Company's common shares. The cash distribution was paid on October 27, 2022, to all holders of record of common shares as of October 20, 2022.

The Board also declared a quarterly cash distribution of $0.453125 per share on the Company’s 7.250% Series A Preferred Shares (the “Series A Preferred Shares”). The distribution on the Series A Preferred Shares covers the period from, and including, July 30, 2022, up to, but excluding, October 30, 2022. The distribution for such period was payable on October 30, 2022, to all holders of record of Series A Preferred Shares as of October 15, 2022. The payment occurred on October 31, 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% Series B Preferred Shares (the “Series B Preferred Shares”). The distribution on the Series B Preferred Shares covers the period from, and including, July 30, 2022, up to, but excluding, October 30, 2022. The distribution for such period was payable on October 30, 2022 to all holders of record of Series B Preferred Shares as of October 15, 2022. The payment occurred on October 31, 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% Series C Preferred Shares (the “Series C Preferred Shares”). The distribution on the Series C Preferred Shares covers the period from, and including, July 30, 2022, up to, but excluding, October 30, 2022. The distribution for such period was payable on October 30, 2022 to all holders of record of Series C Preferred Shares as of October 15, 2022. The payment occurred on October 31, 2022, the next business day following the payment date.

Increases 2022 Outlook

As a result of CODI’s strong financial performance in the third 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 to produce consolidated subsidiary Adjusted EBITDA for the full year 2022 of between $460 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 $7.5 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 $145 million and $155 million in Adjusted Earnings for the full year 2022.

Conference Call

Management will host a conference call on Thursday, November 3, 2022, at 5:00 p.m. ET to discuss the latest corporate developments and financial results. The dial-in number for callers in the U.S. is (888) 396-8049 and the dial-in number for international callers is (416) 764-8646. The Conference ID is 66435663. The conference call will also be available via a live listen-only webcast and can be accessed through the Investor Relations section of CODI's website. An online replay of the webcast will be available on the same website following the call. Please allow extra time prior to the call to visit the site and download any necessary software that may be needed to listen to the Internet broadcast. A replay of the call will be available through Thursday, November 10, 2022. To access the replay, please dial (877) 674-7070 in the U.S. and (416) 764-8692 outside the U.S.

Note Regarding Use of Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted Earnings are non-GAAP measures used by the Company to assess its performance. We have reconciled Adjusted EBITDA to Income (Loss) from Continuing Operations and Adjusted Earnings to Net Income (Loss) on the attached schedules. We consider Income (Loss) from Continuing Operations to be the most directly comparable GAAP financial measure to Adjusted EBITDA and Net Income (Loss) to be the most directly comparable GAAP financial measure to Adjusted Earnings. We believe that Adjusted EBITDA and Adjusted Earnings provides useful information to investors and reflects important financial measures as it excludes the effects of items which reflect the impact of long-term investment decisions, rather than the performance of near-term operations. When compared to Net Income (Loss) and Income (Loss) from Continuing Operations, Adjusted Earnings and Adjusted EBITDA, respectively, are each limited in that they do not reflect the periodic costs of certain capital assets used in generating revenues of our businesses or the non-cash charges associated with impairments, as well as certain cash charges. The presentation of Adjusted EBITDA allows investors to view the performance of our businesses in a manner similar to the methods used by us and the management of our businesses, provides additional insight into our operating results and provides a measure for evaluating targeted businesses for acquisition. The presentation of Adjusted Earnings provides insight into our operating results and provides a measure for evaluating earnings from continuing operations available to common shareholders. We believe Adjusted EBITDA and Adjusted Earnings are also useful in measuring our ability to service debt and other payment obligations.

Pro forma net sales is defined as net sales including the historical net sales relating to the pre-acquisition periods of Lugano and PrimaLoft, assuming that the Company acquired Lugano and PrimaLoft on January 1, 2021. We have reconciled pro forma net sales to net sales, the most directly comparable GAAP financial measure, on the attached schedules. We believe that pro forma net sales is useful information for investors as it provides a better understanding of sales performance, and relative changes thereto, on a comparable basis. Pro forma net sales is not necessarily indicative of what the actual results would have been if the acquisition had in fact occurred on the date or for the periods indicated nor does it purport to project net sales for any future periods or as of any date.

In reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K, we have not reconciled 2022 Adjusted EBITDA or 2022 Adjusted Earnings to their comparable GAAP measure because we do not provide guidance on Net Income (Loss) from Continuing Operations or Net Income (Loss) or the applicable reconciling items as a result of the uncertainty regarding, and the potential variability of, these items. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results.

Adjusted EBITDA, Adjusted Earnings and pro forma net sales are not meant to be a substitute for GAAP measures and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.

About Compass Diversified (“CODI”)

Since its founding in 1998, CODI has consistently executed on its strategy of owning and managing a diverse set of highly defensible, middle-market businesses across the niche industrial, branded consumer and healthcare sectors. The Company leverages its permanent capital base, long-term disciplined approach, and actionable expertise to maintain controlling ownership interests in each of its subsidiaries, maximizing its ability to impact long-term cash flow generation and value creation. The Company provides both debt and equity capital for its subsidiaries, contributing to their financial and operating flexibility. CODI utilizes the cash flows generated by its subsidiaries to invest in the long-term growth of the Company and has consistently generated strong returns through its culture of transparency, alignment and accountability. For more information, please visit compassdiversified.com.

Forward Looking Statements

Certain statements in this press release may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements as to our future performance or liquidity, such as expectations regarding our results of operations and financial condition, our 2022 Adjusted EBITDA, our 2022 Adjusted Earnings, our pending acquisitions and divestitures, and other statements with regard to the future performance of CODI. We may use words such as “plans,” “anticipate,” “believe,” “expect,” “intend,” “will,” “should,” “may,” “seek,” “look,” and similar expressions to identify forward-looking statements. The forward-looking statements contained in this press release involve risks and uncertainties. Actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in CODI’s annual report on Form 10-K and its quarterly reports on Form 10-Q. Other factors that could cause actual results to differ materially include: changes in the economy, financial markets and political environment; risks associated with possible disruption in CODI’s operations or the economy generally due to terrorism, natural disasters, social, civil and political unrest or the COVID-19 pandemic; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities); general considerations associated with the COVID-19 pandemic and its impact on the markets in which we operate; disruption in the global supply chain, labor shortages and high labor costs; our business prospects and the prospects of our subsidiaries; the impact of, and ability to successfully complete and integrate, acquisitions that we may make; the ability to successfully complete divestitures when we’ve executed divestitures agreements; the dependence of our future success on the general economy and its impact on the industries in which we operate; the ability of our subsidiaries to achieve their objectives; the adequacy of our cash resources and working capital; the timing of cash flows, if any, from the operations of our subsidiaries; and other considerations that may be disclosed from time to time in CODI’s publicly disseminated documents and filings. Undue reliance should not be placed on such forward-looking statements as such statements speak only as of the date on which they are made. Although, except as required by law, CODI undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that CODI may make directly to you or through reports that it in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Investor Relations:	Media Contact:
irinquiry@compassdiversified.com	The IGB Group
	Leon Berman
Cody Slach	212.477.8438
Gateway Group	lberman@igbir.com
949.574.3860
CODI@gatewayir.com

 

Compass Diversified Holdings
Condensed Consolidated Balance Sheets

	September 30, 2022			December 31, 2021
(in thousands)	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	61,252		$	160,733
Accounts receivable, net		326,266			277,710
Inventories, net		725,902			565,743
Prepaid expenses and other current assets		81,130			57,006
Total current assets		1,194,550			1,061,192
Property, plant and equipment, net		193,749			186,477
Goodwill		1,194,251			882,083
Intangible assets, net		1,096,020			872,690
Other non-current assets		162,727			141,819
Total assets	$	3,841,297		$	3,144,261
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	100,511		$	124,203
Accrued expenses		211,633			190,348
Due to related party		15,368			12,802
Current portion, long-term debt		10,000			—
Other current liabilities		39,378			34,269
Total current liabilities		376,890			361,622
Deferred income taxes		153,202			97,763
Long-term debt		1,784,365			1,284,826
Other non-current liabilities		134,857			115,520
Total liabilities		2,449,314			1,859,731
Stockholders' equity
Total stockholders' equity attributable to Holdings		1,171,565			1,111,816
Noncontrolling interest		220,418			172,714
Total stockholders' equity		1,391,983			1,284,530
Total liabilities and stockholders’ equity	$	3,841,297		$	3,144,261

Compass Diversified Holdings
Consolidated Statements of Operations
(Unaudited)

	Three months ended								Nine months ended
	September 30,								September 30,
(in thousands, except per share data)		2022				2021				2022				2021
Net sales	$	597,607			$	488,158			$	1,669,123			$	1,372,266
Cost of sales		358,291				296,027				996,210				818,307
Gross profit		239,316				192,131				672,913				553,959
Operating expenses:
Selling, general and administrative expense		148,700				118,818				403,428				337,815
Management fees		16,717				12,398				46,304				34,504
Amortization expense		25,152				19,056				67,191				56,502
Operating income		48,747				41,859				155,990				125,138
Other income (expense):
Interest expense, net		(22,799	)			(13,855	)			(57,737	)			(42,607	)
Amortization of debt issuance costs		(1,004	)			(759	)			(2,735	)			(2,167	)
Loss on debt extinguishment		(534	)			—				(534	)			(33,305	)
Other income (expense), net		(2,141	)			1,031				606				(1,906	)
Net income from continuing operations before income taxes		22,269				28,276				95,590				45,153
Provision for income taxes		21,163				9,556				39,201				24,662
Income from continuing operations		1,106				18,720				56,389				20,491
Income (loss) from discontinued operations, net of income tax		—				(1,309	)			—				7,665
Gain on sale of discontinued operations		1,479				72,745				6,893				72,745
Net income		2,585				90,156				63,282				100,901
Less: Net income from continuing operations attributable to noncontrolling interest		4,359				2,201				14,927				7,915
Less: Net income (loss) from discontinued operations attributable to noncontrolling interest		—				(145	)			—				522
Net income (loss) attributable to Holdings	$	(1,774	)		$	88,100			$	48,355			$	92,464
Amounts attributable to Holdings
Income (loss) from continuing operations		(3,253	)			16,519				41,462				12,576
Income (loss) from discontinued operations		—				(1,164	)			—				7,143
Gain on sale of discontinued operations, net of income tax		1,479				72,745				6,893				72,745
Net income (loss) attributable to Holdings	$	(1,774	)		$	88,100			$	48,355			$	92,464
Basic income (loss) per common share attributable to Holdings
Continuing operations	$	(0.23	)		$	(0.13	)		$	0.10			$	(0.46	)
Discontinued operations		0.02				1.10				0.10				1.23
	$	(0.21	)		$	0.97			$	0.20			$	0.77
Basic weighted average number of common shares outstanding		71,910				65,008				70,514				64,936
Cash distributions declared per Trust common share	$	0.25			$	1.24			$	0.75			$	1.96

Compass Diversified Holdings
Net Income (Loss) to Non-GAAP Adjusted Earnings and Non-GAAP Adjusted EBITDA
(Unaudited)

	Three months ended								Nine months ended
	September 30,								September 30,
(in thousands)		2022				2021				2022				2021
Net income	$	2,585			$	90,156			$	63,282			$	100,901
Gain on sale of discontinued operations		1,479				72,745				6,893				72,745
Income (loss) from discontinued operations, net of tax		—				(1,309	)			—				7,665
Income from continuing operations	$	1,106			$	18,720			$	56,389			$	20,491
Less: income from continuing operations attributable to noncontrolling interest		4,359				2,201				14,927				7,915
Net income (loss) attributable to Holdings - continuing operations	$	(3,253	)		$	16,519			$	41,462			$	12,576
Adjustments:
Distributions paid - Preferred Shares		(6,045	)			(6,045	)			(18,136	)			(18,136	)
Amortization expense - intangibles and inventory step up		26,241				19,056				72,092				56,502
Loss on debt extinguishment		534				—				534				33,305
Stock compensation		3,242				2,892				8,851				8,496
Acquisition expenses		5,902				1,866				6,118				2,176
Integration Services Fee		1,625				1,100				2,750				4,300
Held-for-sale tax impact - corporate		16,457				—				12,119				—
Other		1,287				460				4,116				(609	)
Adjusted Earnings	$	45,990			$	35,848			$	129,906			$	98,610
Plus (less):
Depreciation		11,284				10,372				32,589				28,896
Income taxes		21,163				9,556				39,201				24,662
Held-for-sale tax impact - corporate		(16,457	)			—				(12,119	)			—
Interest expense, net		22,799				13,855				57,737				42,607
Amortization of debt issuance		1,004				759				2,735				2,167
Noncontrolling interest		4,359				2,201				14,927				7,915
Preferred distributions		6,045				6,045				18,136				18,136
Other expense (income)		2,139				(1,032	)			(606	)			1,906
Adjusted EBITDA	$	98,326			$	77,604			$	282,506			$	224,899

Compass Diversified Holdings
Net Income (Loss) from Continuing Operations to Non-GAAP Consolidated Adjusted EBITDA Reconciliation
Three months ended September 30, 2022
(Unaudited)

		Corporate					5.11		BOA				Ergo				Lugano			Marucci Sports				PrimaLoft				Velocity Outdoor			ACI			Altor Solutions			Arnold			Sterno				Consolidated
Income (loss) from continuing operations		$	(29,950	)		$	5,905		$	8,935			$	(759	)		$	8,095		$	4,230			$	(8,492	)		$	4,679		$	2,426		$	2,765		$	3,475		$	(203	)		$	1,106
Adjusted for:
Provision (benefit) for income taxes			16,457				1,906			1,776				(410	)			1,166			1,609				(3,570	)			1,416			671			805			537			(1,200	)			21,163
Interest expense, net			22,725				2			(7	)			—				3			3				(4	)			70			—			—			7			—				22,799
Intercompany interest			(28,762	)			3,503			1,808				1,737				3,263			1,812				3,251				2,997			1,621			2,821			1,402			4,547				—
Loss on debt extinguishment			534				—			—				—				—			—				—				—			—			—			—			—				534
Depreciation and amortization expense			285				5,766			5,577				2,033				3,083			2,504				4,194				3,420			538			4,124			1,936			5,069				38,529
EBITDA			(18,711	)			17,082			18,089				2,601				15,610			10,158				(4,621	)			12,582			5,256			10,515			7,357			8,213				84,131
Other (income) expense			(73	)			709			403				—				—			(1	)			260				971			224			110			—			(463	)			2,140
Non-controlling shareholder compensation			—				381			621				362				356			537				—				240			124			375			13			232				3,241
Acquisition expenses			—				—			—				—				—			—				5,680				222			—			—			—			—				5,902
Integration services fee			—				—			—				—				562			—				1,063				—			—			—			—			—				1,625
Other			—				—			—				—				—			—				—				—			853			—			—			434				1,287
Adjusted EBITDA		$	(18,784	)		$	18,172		$	19,113			$	2,963			$	16,528		$	10,694			$	2,382			$	14,015		$	6,457		$	11,000		$	7,370		$	8,416			$	98,326

Compass Diversified Holdings
Net Income (Loss) from Continuing Operations to Non-GAAP Consolidated Adjusted EBITDA Reconciliation
Three months ended September 30, 2021
(Unaudited)

	Corporate					5.11			BOA			Ergo				Lugano		Marucci Sports				Velocity Outdoor				ACI			Altor Solutions				Arnold				Sterno				Consolidated
Income (loss) from continuing operations	$	(10,553	)		$	5,223			$	4,256		$	(531	)		$	681	$	2,235			$	8,568			$	3,821		$	2,594			$	2,245			$	181			$	18,720
Adjusted for:
Provision (benefit) for income taxes		—				1,830				700			329				304		631				2,334				1,093			1,336				1,058				(58	)			9,557
Interest expense, net		13,813				1				—			—				—		1				35				—			—				5				—				13,855
Intercompany interest		(17,717	)			2,960				1,958			441				548		697				1,902				1,792			1,657				1,313				4,449				—
Depreciation and amortization		243				5,868				5,149			2,050				70		2,155				3,161				557			3,206				2,005				5,722				30,186
EBITDA		(14,214	)			15,882				12,063			2,289				1,603		5,719				16,000				7,263			8,793				6,626				10,294				72,318
Other (income) expense		(433	)			(2	)			110			—				22		(11	)			(2	)			55			(267	)			(51	)			(453	)			(1,032	)
Non-controlling shareholder compensation		—				639				572			434				—		275				253				124			257				8				330				2,892
Acquisition expenses		39				—				—			—				1,827		—				—				—			—				—				—				1,866
Integration services fees		—				—				1,100			—				—		—				—				—			—				—				—				1,100
Other		187				273				—			—				—		—				—				—			—				—				—				460
Adjusted EBITDA(1)	$	(14,421	)		$	16,792			$	13,845		$	2,723			$	3,452	$	5,983			$	16,251			$	7,442		$	8,783			$	6,583			$	10,171			$	77,604

⁽¹⁾ As a result of the sale of Liberty Safe in August 2021, Adjusted EBITDA for the three months ended September 30, 2021 does not include $0.2 million in Adjusted EBITDA from Liberty.

Compass Diversified Holdings
Net Income (Loss) from Continuing Operations to Non-GAAP Consolidated Adjusted EBITDA Reconciliation
Nine months ended September 30, 2022
(Unaudited)

	Corporate					5.11		BOA				Ergo				Lugano			Marucci Sports				PrimaLoft				Velocity Outdoor			ACI			Altor Solutions			Arnold			Sterno				Consolidated
Income (loss) from continuing operations	$	(51,431	)		$	15,540		$	37,122			$	(634	)		$	21,871		$	8,374			$	(8,492	)		$	7,826		$	9,510		$	7,149		$	7,217		$	2,337			$	56,389
Adjusted for:
Provision (benefit) for income taxes		12,119				4,999			6,819				432				5,863			2,821				(3,570	)			2,372			2,600			2,907			2,768			(929	)			39,201
Interest expense, net		57,559				12			(19	)			2				12			13				(4	)			142			—			—			20			—				57,737
Intercompany interest		(71,727	)			9,501			5,634				4,000				7,841			4,649				3,251				6,987			4,851			7,844			3,947			13,222				—
Loss on debt extinguishment		534				—			—				—				—			—				—				—			—			—			—			—				534
Depreciation and amortization expense		862				16,804			16,345				6,061				8,385			9,558				4,194				9,981			1,634			12,254			6,065			15,272				107,415
EBITDA		(52,084	)			46,856			65,901				9,861				43,972			25,415				(4,621	)			27,308			18,595			30,154			20,017			29,902				261,276
Other (income) expense		(73	)			93			498				4				2			(1,829	)			260				1,154			251			219			—			(1,185	)			(606	)
Non-controlling shareholder compensation		—				1,210			1,889				1,154				800			1,089				—				742			372			910			38			647				8,851
Acquisition expenses		—				—			—				—				—			—				5,680				222			—			216			—			—				6,118
Integration services fee		—				—			—				—				1,688			—				1,063				—			—			—			—			—				2,751
Other		—				—			—				250				—			1,802				—				—			853			—			—			1,211				4,116
Adjusted EBITDA	$	(52,157	)		$	48,159		$	68,288			$	11,269			$	46,462		$	26,477			$	2,382			$	29,426		$	20,071		$	31,499		$	20,055		$	30,575			$	282,506

Compass Diversified Holdings
Net Income (Loss) from Continuing Operations to Non-GAAP Consolidated Adjusted EBITDA Reconciliation
Nine months ended September 30, 2021
(Unaudited)

	Corporate					5.11			BOA			Ergo			Lugano			Marucci Sports			Velocity Outdoor				ACI			Altor Solutions				Arnold				Sterno				Consolidated
Income (loss) from continuing operations	$	(64,717	)		$	14,318			$	16,908		$	3,071		$	681		$	9,485		$	19,157				10,366		$	5,892			$	3,839			$	1,491			$	20,491
Adjusted for:
Provision (benefit) for income taxes		—				4,857				2,165			1,357			304			2,920			5,381				2,547			2,867				2,062				202				24,662
Interest expense, net		42,464				8				—			—			—			5			125				—			—				5				—				42,607
Intercompany interest		(53,234	)			8,743				6,320			1,514			548			1,890			5,586				5,484			5,075				4,128				13,946				—
Loss on debt extinguishment		33,305				—				—			—			—			—			—				—			—				—				—				33,305
Depreciation and amortization		642				16,762				15,033			6,377			70			6,377			9,489				1,658			9,022				5,822				16,313				87,565
EBITDA		(41,540	)			44,688				40,426			12,319			1,603			20,677			39,738				20,055			22,856				15,856				31,952				208,630
Other (income) expense		(286	)			(302	)			190			—			22			881			2,611				123			(399	)			(51	)			(883	)			1,906
Non-controlling shareholder compensation		—				1,926				1,655			1,241			—			826			777				372			770				16				913				8,496
Acquisition expenses		39				—				—			—			1,827			—			—				—			—				310				—				2,176
Integration services fees		—				—				3,300			—			—			1,000			—				—			—				—				—				4,300
Other		1,085				273				—			—			—						(2,300	)			—			—				—				333				(609	)
Adjusted EBITDA(1)	$	(40,702	)		$	46,585			$	45,571		$	13,560		$	3,452		$	23,384		$	40,826			$	20,550		$	23,227			$	16,131			$	32,315			$	224,899

⁽¹⁾ As a result of the sale of Liberty Safe in August 2021, Adjusted EBITDA for the nine months ended September 30, 2021 does not include $12.7 million in Adjusted EBITDA from Liberty.

Compass Diversified Holdings
Non-GAAP Adjusted EBITDA
(Unaudited)

		Three months ended September 30,								Nine months ended September 30,
(in thousands)			2022				2021				2022				2021
Branded Consumer
5.11		$	18,172			$	16,792			$	48,159			$	46,585
BOA			19,113				13,845				68,288				45,571
Ergobaby			2,963				2,723				11,269				13,560
Lugano(1)			16,528				3,452				46,462				3,452
Marucci Sports			10,694				5,983				26,477				23,384
PrimaLoft(2)			2,382				—				2,382				—
Velocity Outdoor			14,015				16,251				29,426				40,826
Total Branded Consumer		$	83,867			$	59,046			$	232,463			$	173,378
Niche Industrial
Advanced Circuits		$	6,457			$	7,442			$	20,071			$	20,550
Altor Solutions			11,000				8,783				31,499				23,227
Arnold Magnetics			7,370				6,583				20,055				16,131
Sterno			8,416				10,171				30,575				32,315
Total Niche Industrial		$	33,243			$	32,979			$	102,200			$	92,223
Corporate expense			(18,784	)			(14,421	)			(52,157	)			(40,702	)
Total Adjusted EBITDA		$	98,326			$	77,604			$	282,506			$	224,899

(1	)		The above results for Lugano do not include management's estimate of Adjusted EBITDA, before the Company's ownership, of $5.5 million and $24.1 million, respectively, for the three and nine months ended September 30, 2021. Lugano was acquired on September 3, 2021.
(2	)		The above results for PrimaLoft do not include management's estimate of Adjusted EBITDA, before the Company's ownership, of $1.4 million and $24.8 million, respectively, for the three and nine months ended September 30, 2022, and $4.2 million and $20.1 million, respectively, for the three and nine months ended September 30, 2021. PrimaLoft was acquired on July 12, 2022.

Compass Diversified Holdings
Net Sales to Pro Forma Net Sales Reconciliation
(unaudited)

		Three months ended September 30,						Nine months ended September 30,
(in thousands)			2022			2021			2022			2021
Net Sales		$	597,607		$	488,158		$	1,669,123		$	1,372,266
Acquisitions (1)			2,319			31,581			55,185			123,446
Pro Forma Net Sales		$	599,926		$	519,739		$	1,724,308		$	1,495,712

⁽¹⁾ Acquisitions reflects the net sales for Lugano and PrimaLoft on a pro forma basis as if the Company had acquired these businesses on January 1, 2021.

Compass Diversified Holdings
Subsidiary Pro Forma Net Sales
(unaudited)

		Three months ended September 30,						Nine months ended September 30,
(in thousands)			2022			2021			2022			2021
Branded Consumer
5.11		$	126,537		$	111,099		$	350,608		$	321,009
BOA			50,019			39,496			166,215			120,033
Ergobaby			21,540			19,816			68,256			69,100
Lugano(1)			51,145			29,498			137,229			81,881
Marucci Sports			42,753			25,040			122,481			86,328
PrimaLoft(1)			13,031			12,906			65,897			52,388
Velocity Outdoor			75,482			76,901			180,774			205,891
Total Branded Consumer		$	380,507		$	314,756		$	1,091,460		$	936,630
Niche Industrial
Advanced Circuits		$	21,788		$	23,182		$	67,194		$	67,209
Altor Solutions			69,618			44,122			199,590			122,582
Arnold Magnetics			39,377			36,852			116,319			101,893
Sterno			88,636			100,827			249,745			267,398
Total Niche Industrial		$	219,419		$	204,983		$	632,848		$	559,082
Total Subsidiary Net Sales		$	599,926		$	519,739		$	1,724,308		$	1,495,712

⁽¹⁾ Net sales for Lugano and PrimaLoft are pro forma as if the Company had acquired these businesses on January 1, 2021. Historical net sales for Lugano prior to acquisition on September 3, 2021 were $18.7 million and $71.2 million, respectively, for the three and nine months ended September 30, 2021. Historical net sales for PrimaLoft prior to acquisition on July 12, 2022 were $2.3 million and $55.2 million, respectively, for the three and nine months ended September 30, 2022, and $12.9 million and $52.4 million, respectively, for the three and nine months ended September 30, 2021.

Compass Diversified Holdings
Condensed Consolidated Cash Flows
(unaudited)

	Three months ended September 30,								Nine months ended September 30,
(in thousands)		2022				2021				2022				2021
Net cash provided by (used in) operating activities	$	(4,585	)		$	37,714			$	(39,923	)		$	147,148
Net cash used in investing activities		(576,713	)			(149,733	)			(598,951	)			(202,429	)
Net cash provided by financing activities		538,531				72,195				542,128				54,872
Foreign currency impact on cash		(1,603	)			(104	)			(2,735	)			(96	)
Net decrease in cash and cash equivalents		(44,370	)			(39,928	)			(99,481	)			(505	)
Cash and cash equivalents - beginning of the period		105,622				110,167				160,733				70,744
Cash and cash equivalents - end of the period	$	61,252			$	70,239			$	61,252			$	70,239

Compass Diversified Holding
Selected Financial Data - Cash Flows
(unaudited)
		Three months ended September 30,								Nine months ended September 30,
(in thousands)			2022				2021				2022				2021
Changes in operating assets and liabilities		$	(63,998	)		$	(11,566	)		$	(223,164	)		$	(14,720	)
Purchases of property and equipment		$	(15,086	)		$	(11,423	)		$	(39,683	)		$	(28,001	)
Distributions paid - common shares		$	(17,931	)		$	(80,476	)		$	(52,794	)		$	(127,204	)
Distributions paid - preferred shares		$	(6,045	)		$	(6,045	)		$	(18,136	)		$	(18,136	)

 

FAQ

What were Compass Diversified's Q3 2022 financial highlights?

In Q3 2022, Compass Diversified reported net sales of $597.6 million, a 22% increase from the previous year, with an adjusted EBITDA of $98.3 million.

How did Compass Diversified's net income change in Q3 2022?

Net income for Q3 2022 fell to $2.6 million from $90.2 million in the same quarter of 2021.

What is the updated outlook for Compass Diversified in 2022?

Compass Diversified has raised its outlook for full-year 2022 adjusted EBITDA to between $460 million and $470 million.

What factors contributed to Compass Diversified's sales growth in Q3 2022?

The sales growth was driven by robust performance in branded consumer products and niche industrial sectors, reflecting strong market demand.

What cash distribution did Compass Diversified declare for Q3 2022?

A cash distribution of $0.25 per share was declared for Q3 2022, payable on October 27, 2022.