Compass Diversified sales climb 19% in second quarter

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Compass Diversified Holdings released nand 19% sales growth in the second quarter generated record quarterly profits. The conglomerate raised its foutlook for the full year given the continued good performance and the acquisition of PrimaLoft.

“The The second quarter marks our sixth consecutive quarter of record financial performance, which is a testament to the strength of our management teams and the quality of the companies we own,” said Elias Sabo, CEO of Compass Diversified. “Despite significant macroeconomic challenges that dampened consumer discretionary spending, continued global supply chain constraints and inflationary concerns, CODI delivered 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 outlook for the full year. We believe we remain well positioned to generate continued value for our shareholders.”

Second quarter 2022 financial highlights compared to the same quarter of the previous year
(if applicable)

  • Net sales up 19% to $515.6 million, and up 13% on a pro forma basis;
  • Net sales to branded consumers up 21% to $326.5 million, and up 12% on a pro forma basis;
  • Industrial niche net sales up 16% to $189.1 million;
  • Operating profit up 38% to $50.3 million;
  • Profit from continuing operations up sharply to $26.5 million from $21.6 million;
  • Net income up sharply to $31.0 million from $11.3 million;
  • adjusted earnings, a non-GAAP financial measure, up 41% to $39.3 million;
  • Adjusted EBITDA, a non-GAAP financial measure, up 26% to $87.4 million; and
  • Paid a cash distribution of $0.25 per share in the second quarter of 2022 on CODI common stock in July 2022.

Second Quarter 2022 Business Highlights

  • Joined the Russell 2000 and 3000 indices, giving the company increased visibility in the public markets; and
  • Announcement of 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% from $431.5 million in the second quarter of 2021. This increase was due to the strong performance of its subsidiaries consumer and niche industrial brands. On a pro forma basis, assuming CODI acquired Lugano on January 1, 2021, net sales increased by 13% compared to the prior year period.

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

Net earnings for the second quarter of 2022 increased to $31.0 million from a net loss of $11.3 million in the second quarter of 2021. Earnings 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 cases were due to the strong performance of the branded consumer businesses and the niche industrial businesses in a combined basis. In addition, the second quarter of 2021 included a debt extinguishment loss of $33.3 million related to the repayment of CODI’s 8.000% Senior Notes due 2026 on April 1, 2021. Q2 2022 operating revenue increased $14.0 million to a record $50.3 million compared to $36.4 million in Q2 2021.

Adjusted earnings for the second quarter of 2022 were $39.3 million, up 41% from $27.9 million in the second quarter of 2021. The weighted average number of shares outstanding of CODI for the quarter ended June 30, 2022 was 70.2 million and, for the quarter to June 30, 2021, was 64.9 million.

Adjusted EBITDA in the second quarter of 2022 was $87.4 million, up 26% compared to $69.5 million in the second quarter of 2021. This increase was mainly due to the strong performance of the activities consumer brands and niche industrials on a combined basis. The company no longer adds management fees in its calculation of adjusted EBITDA. Management fees incurred during the second quarter were $14.9 million.

Cash 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% senior notes due 2029 and 300 million outstanding in 5,000% senior notes due 2032.

As of June 30, 2022, the company had no material debt maturities before 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 for a new term loan of $400 million with the last installment due in July 2027, in addition to a maximum aggregate amount of $600 million. dollars in revolving loans. The due date for all amounts outstanding under the revolving line of credit has also been extended to July 2027. The credit agreement also allows the company, prior to the due 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 stock. The cash distribution was paid on July 28, 2022 to all common shareholders of record as of July 21, 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 distribution on the Series A Preferred Shares covers the period from April 30, 2022 inclusive to July 30, 2022 exclusively. The distribution for this period was payable on July 30, 2022 to all registered holders of Series A Preferred Shares as of July 15, 2022. Payment occurred on August 1, 2022, the 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 distribution on the Series B preferred shares covers the period from April 30, 2022 inclusively until July 30, 2022 exclusively. The distribution for this period was payable on July 30, 2022 to all registered holders of Series B Preferred Shares as of July 15, 2022. Payment occurred on August 1, 2022, the 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 distribution on the Series C Preferred Shares covers the period from April 30, 2022 inclusive to July 30, 2022 exclusively. The distribution for this period was payable on July 30, 2022 to all registered holders of Series C Preferred Shares as of July 15, 2022. Payment occurred on August 1, 2022, the business day following the payment date.

Boosts 2022 outlook
Due to 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 full-year 2022 consolidated adjusted EBITDA of between $445 million and $470 million. This estimate is based on the sum of the company’s expectations for its current subsidiaries in 2022, in the absence of additional acquisitions or divestitures, includes a reduction in management fees paid to subsidiaries of approximately $8 million and excludes business expenses such as interest expense, management fees paid to CODI, and general business expenses. Additionally, the company expects to earn between $130 million and $145 million in adjusted earnings for the full year of 2022, including PrimaLoft and Advanced Circuits, due to the pending reclassification of Advanced Circuits into the business. continued 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 companies include Advanced Circuits, Arnold Magnetic Technologies, Ergobaby, Foam Fabricators, Lugano Diamonds and Sterno.

Photo courtesy of CODI/Primaloft

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