Compass Diversified Reports Third Quarter 2021 Financial Results

Source: Nasdaq GlobeNewswire / 28 Oct 2021 15:15:01 America/Chicago

Branded Consumer Performance Continues to Drive Strong Third Quarter Operating Results

Raises Full Year Guidance

WESTPORT, Conn., Oct. 28, 2021 (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, 2021.

Third Quarter 2021 Highlights

Reported net sales of $488.2 million;
Reported net income of $90.2 million;
Reported non-GAAP Adjusted EBITDA of $90.0 million;
Reported Cash Provided by Operating Activities of $37.7 million, and non-GAAP Cash Flow Available for Distribution and Reinvestment (“CAD’) of $42.5 million;
Completed the election to treat Compass Diversified Holdings as a corporation for U.S. federal income tax purposes, effective September 1, 2021 (the “Election”);
Completed the sale of Liberty Safe for an enterprise value of $147.5 million and recorded a gain on the sale of $72.7 million;
Closed on the acquisition of Lugano Diamonds and Jewelry, Inc. (“Lugano Diamonds”) for an enterprise value of $256 million;
Paid a cash distribution of $0.36 per share on CODI's common shares in October 2021;
Paid a special cash distribution of $0.88 per share on CODI’s common shares in September 2021 to partially cover the taxable income incurred by shareholders in connection with the Election; and
Declared quarterly cash distributions of $0.453125 per share on the Company's 7.250% Series A Preferred Shares, $0.4921875 per share on the Company's 7.875% Series B Preferred Shares, and $0.4921875 per share on the Company's 7.875% Series C Preferred Shares (the “Preferred Distributions”). The Preferred Distributions are payable on October 30, 2021. The payment will occur on November 1, 2021, the next business day following the payment date.

“CODI’s strong momentum continued in the third quarter as we generated outstanding results primarily due to heightened demand at our leading consumer brands,” said Elias Sabo, CEO of Compass Diversified. “With our permanent capital structure giving us flexibility through economic cycles, we have remained focused on building businesses for the future and supporting the brands we own. We are proud of our subsidiary teams, who have worked diligently to expertly navigate this current inflationary period by adeptly managing supply chains and prioritizing our customers, and believe they continue to be well positioned to grow.”

Mr. Sabo continued, “Recently, we announced a series of compelling transactions, including the strategic divestment of Liberty Safe in August 2021, the anticipated sale of Advanced Circuits, and the acquisition of luxury goods brand Lugano Diamonds. We also acquired Plymouth Foam and Lizard Skins as complementary add-ons to our strong Altor and Marucci subsidiaries, respectively. We continue to succeed at identifying, acquiring and investing in a diversified group of leading consumer and industrial businesses, which we believe will drive sustainable, long-term value for our shareholders.”

Operating Results

Net sales for the quarter ended September 30, 2021, was $488.2 million, as compared to $387.7 million for the quarter ended September 30, 2020.

Net income for the quarter ended September 30, 2021, was $90.2 million, as compared to $20.9 million for the quarter ended September 30, 2020. The increase in net income was primarily a result of the gain on the sale of Liberty Safe of $72.7 million.

Adjusted EBITDA (see “Note Regarding Use of Non-GAAP Financial Measures” below) for the quarter ended September 30, 2021, was $90.0 million, as compared to $67.6 million for the quarter ended September 30, 2020. The increase in Adjusted EBITDA for the third quarter of 2021, as compared to prior year period, was primarily a result of our 2020 acquisition of BOA, as well as strong performance by our branded consumer companies.

Liquidity and Capital Resources

For the quarter ended September 30, 2021, CODI reported Cash Provided by Operating Activities of $37.7 million, as compared to Cash Provided by Operating Activities of $24.5 million for the quarter ended September 30, 2020.

CODI reported CAD (see “Note Regarding Use of Non-GAAP Financial Measures” below) of $42.5 million for the quarter ended September 30, 2021, as compared to $43.5 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 $1.1 billion since going public in 2006.

CODI's weighted average number of shares outstanding for the quarter ended September 30, 2021 was 65.0 million, and for the quarter ended September 30, 2020 was 64.9 million.

As of September 30, 2021, CODI had approximately $70.2 million in cash and cash equivalents, $134.0 million outstanding on its revolver and $1.0 billion outstanding in 5.250% Senior Notes due 2029.

The Company has no significant debt maturities until 2026 and had net borrowing availability of $465.0 million on September 30, 2021 under its revolving credit facility.

Third Quarter 2021 Distributions

On October 5, 2021, CODI's Board of Directors (the “Board”) declared a third quarter distribution of $0.36 per share on the Company's common shares. The cash distribution was paid on October 22, 2021 to all holders of record of common shares as of October 15, 2021.

Additionally, CODI’s Board of Directors declared a Special Distribution of $0.88 per share on the Trust’s common shares paid on September 7, 2021 to all holders of record of Common Shares as of the close of business on August 31, 2021 which was intended to partially cover the taxable income incurred by those shareholders in connection with the Election.

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, 2021, up to, but excluding, October 30, 2021. The distribution for such period is payable on October 30, 2021 to all holders of record of Series A Preferred Shares as of October 15, 2021. The payment will occur on November 1, 2021, 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, 2021, up to, but excluding, October 30, 2021. The distribution for such period is payable on October 30, 2021 to all holders of record of Series B Preferred Shares as of October 15, 2021. The payment will occur on November 1, 2021, 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, 2021, up to, but excluding, October 30, 2021. The distribution for such period is payable on October 30, 2021 to all holders of record of Series C Preferred Shares as of October 15, 2021. The payment will occur on November 1, 2021, the next business day following the payment date.

Guidance Update

As a result of the strong financial performance in the first nine months of the year, as well as the Company’s expectations for the remainder of 2021, the Company expects its current subsidiaries to produce consolidated Adjusted EBITDA (see “Note Regarding Use of Non-GAAP Financial Measures” below) for the full calendar year of 2021 of between $380 million and $390 million pro forma for the sale of Liberty Safe and the acquisition of Lugano Diamonds. This estimate is based on the summation of our expectations for our current subsidiaries in 2021, absent additional acquisitions or divestitures, and excludes corporate expenses such as interest expense, management fees and corporate overhead. In addition, our Payout Ratio (see “Note Regarding Use of Non-GAAP Financial Measures” below), defined as our prior year's annual distribution to common shareholders, excluding the special distribution paid in September 2021 as a result of the tax reclassification, divided by our 2021 estimate for CAD, is anticipated to improve from the previous range and be better than 55%.

Conference Call

Management will host a conference call on Thursday, October 28, 2021 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 (844) 200-6205 and the dial-in number for international callers is +1 929 526 1599. The access code for all callers is 209658. A live webcast will also be available on the Company's website at https://www.compassdiversified.com.

A replay of the call will be available through November 4, 2021. To access the replay, please dial (929) 458-6194 in the U.S. and +44 204 525 0658 outside the U.S., and then enter the access code 702041.

Note Regarding Use of Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP measure used by the Company to assess its performance. We have reconciled Adjusted EBITDA to Net Income (Loss) on the attached schedules. We consider Net Income (Loss) to be the most directly comparable GAAP financial measure to Adjusted EBITDA. We believe that Adjusted EBITDA 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), Adjusted EBITDA is limited in that it does 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. This presentation also 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. We believe Adjusted EBITDA is also useful in measuring our ability to service debt and other payment obligations.

CAD is a non-GAAP measure used by the Company to assess its performance, as well as its ability to sustain quarterly distributions. We have reconciled CAD to Net Income (Loss) and Cash Flow Provided by Operating Activities on the attached schedules. We consider Net Income (Loss) and Cash Flow Provided by Operating Activities to be the most directly comparable GAAP financial measures to CAD.

CAD is calculated after taking into account all interest expense, cash taxes paid and maintenance capital expenditures, and includes the operating results of each of our businesses for the periods during which CODI owned them. We believe that CAD provides investors additional information to enable them to evaluate our performance and ability to make anticipated quarterly distributions.

Payout Ratio is a non-GAAP measure defined as our prior year's annual distribution to common shareholders divided by our CAD. We believe the Payout Ratio provides investors additional information to enable them to evaluate our performance and our ability to sustain quarterly distributions.

In reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K, we have not reconciled 2021 Adjusted EBITDA or 2021 Payout Ratio (which requires an estimate of 2021 CAD) to their comparable GAAP measure because we do not provide guidance on Net Income (Loss), Cash Flow Provided by Operating Activities 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.

None of Adjusted EBITDA, CAD nor Payout Ratio is 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”)

CODI owns and manages a diverse set of highly defensible North American middle market businesses. Each of its current subsidiaries is a leader in its niche market. For more information, visit compassdiversified.com.

Leveraging its permanent capital base, long-term disciplined approach and actionable expertise, CODI maintains 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.

Our ten majority-owned subsidiaries are engaged in the following lines of business:

The design and marketing of purpose-built technical apparel and gear serving a wide range of global customers (5.11);
The manufacture of quick-turn, small-run and production rigid printed circuit boards (Advanced Circuits);
The design and manufacture of custom packaging, insulation and componentry (Altor Solutions);
The manufacture of engineered magnetic solutions for a wide range of specialty applications and end-markets (Arnold Magnetic Technologies);
The design, engineering and marketing of dial based fit systems delivering a scientifically proven performance advantage for athletes (BOA Technology);
The design and marketing of wearable baby carriers, strollers and related products (Ergobaby);
The design, manufacture, and marketing of high-end, one-of-a-kind jewelry (Lugano Diamonds);
The design and manufacture of baseball and softball equipment and apparel (Marucci Sports);
The manufacture and marketing of portable food warming systems used in the foodservice industry, creative indoor and outdoor lighting, and home fragrance solutions for the consumer markets (Sterno); and
The design, manufacture and marketing of airguns, archery products, optics and related accessories (Velocity Outdoor).

Forward Looking Statements

This press release contains 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, financial condition and cash flows for the full year of 2021, our 2021 Total Adjusted EBITDA, 2021 Payout Ratio and 2021 CAD, our pending acquisitions and divestitures, and our ability to meet existing obligations and quarterly distributions as well as other statements with regard to the future performance of CODI and the impact of our change in tax classification. 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, its quarterly reports on Form 10-Q and in other filings made with the Securities and Exchange Commission (the “SEC”). Other factors that could cause actual results to differ materially include, but are not limited to, 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; the impact, in the near, medium and long-term, of the COVID-19 pandemic or social or political unrest on our business, results of operations, financial position, liquidity, cash flows or ability to make distributions; future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities); disruption in the global supply chain, labor shortages and high labor costs; our business prospects and the prospects of our portfolio companies; the impact of, and ability to successfully complete and integrate, investments that we make or expect to make; the dependence of our future success on the general economy and its impact on the industries in which we operate; the ability of our portfolio companies 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 portfolio companies; and other considerations that may be disclosed from time to time in CODI’s publicly disseminated documents and filings.

We may use words such as “anticipate,” “believe,” “expect,” “intend,” “will,” “should,” “may,” “seek,” “look,” and similar expressions to identify forward-looking statements. 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, current reports on Form 8-K, proxy statements and other filings with the SEC.

Investor Relations:
The IGB Group
Leon Berman
212-477-8438
lberman@igbir.com

Media Contact:
Joele Frank, Wilkinson Brimmer Katcher
Jon Keehner / Kate Thompson / Lyle Weston
212-355-4449

Compass Diversified Holdings
Consolidated Statements of Operations
(Unaudited)


	Three months ended September 30,						Nine months ended September 30,
(in thousands, except per share data)	2021			2020			2021			2020
Net sales	$	488,158		$	387,717		$	1,372,266		$	1,005,380
Cost of sales	296,027			242,045			818,307			635,763
Gross profit	192,131			145,672			553,959			369,617
Operating expenses:
Selling, general and administrative expense	118,818			90,785			337,815			252,448
Management fees	12,398			9,534			34,504			23,061
Amortization expense	19,056			15,222			56,502			43,506
Operating income	41,859			30,131			125,138			50,602
Other income (expense):
Interest expense, net	(13,855		)	(12,351		)	(42,607		)	(32,122		)
Amortization of debt issuance costs	(759		)	(660		)	(2,167		)	(1,795		)
Loss on debt extinguishment	—			—			(33,305		)	—
Other income (expense), net	1,031			(450		)	(1,906		)	(2,178		)
Net income before income taxes	28,276			16,670			45,153			14,507
Provision for income taxes	9,556			396			24,662			6,120
Income from continuing operations	18,720			16,274			20,491			8,387
Income (loss) from discontinued operations, net of income tax	(1,309		)	4,529			7,665			9,930
Gain on sale of discontinued operations	72,745			100			72,745			100
Net income	90,156			20,903			100,901			18,417
Less: Net income attributable to noncontrolling interest	2,201			1,395			7,915			3,377
Less: Net income (loss) from discontinued operations attributable to noncontrolling interest	(145		)	322			522			626
Net income attributable to Holdings	$	88,100		$	19,186		$	92,464		$	14,414

Basic income (loss) per common share attributable to Holdings
Continuing operations	$	(0.13	)	$	0.02		$	(0.46	)	$	(0.46	)
Discontinued operations	1.10			0.06			1.23			0.13
	$	0.97		$	0.08		$	0.77		$	(0.33	)

Basic weighted average number of common shares outstanding	65,008			64,900			64,936			62,556

Cash distributions declared per Trust common share	$	1.24		$	0.36		$	1.96		$	1.08

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

	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2021		2020		2021		2020

Net Sales	$	488,158	$	387,717	$	1,372,266	$	1,005,380
Acquisitions ⁽¹⁾	18,676		41,024		71,058		145,757
Pro Forma Net Sales	$	506,834	$	428,741	$	1,443,324	$	1,151,137

(1) Acquisitions reflects the net sales for BOA, Lugano, and Marucci Sports and BOA on a pro forma basis as if we had acquired these businesses on January 1, 2020.

Compass Diversified Holdings
Subsidiary Net Sales
(unaudited)

	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2021		2020		2021		2020

Branded Consumer
5.11	$	111,099	$	98,406	$	321,009	$	281,822
BOA ⁽¹⁾	39,496		26,141		120,033		77,173
Ergobaby	19,816		19,478		69,100		59,171
Lugano ⁽¹⁾	29,499		14,883		81,881		46,084
Marucci Sports ⁽¹⁾	25,040		19,551		86,328		47,307
Velocity Outdoor	76,901		70,629		205,891		148,240
Total Branded Consumer	$	301,851	$	249,088	$	884,242	$	659,797

Niche Industrial
Advanced Circuits	$	23,182	$	22,771	$	67,209	$	67,423
Altor Solutions	44,122		36,526		122,582		89,338
Arnold Magnetics	36,852		22,619		101,893		76,447
Sterno	100,827		97,737		267,398		258,132
Total Niche Industrial	$	204,983	$	179,653	$	559,082	$	491,340

Total Subsidiary Net Sales	$	506,834	$	428,741	$	1,443,324	$	1,151,137

(1) Net sales for BOA, Lugano and Marucci Sports are pro forma as if we had acquired these businesses on January 1, 2020.

Compass Diversified Holdings
Net Income to Adjusted EBITDA and Cash Flow Available for Distribution and Reinvestment
(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2021			2020			2021			2020
Net income	$	90,156		$	20,903		$	100,901		$	18,417
Income (loss) from discontinued operations	(1,309		)	4,529			7,665			9,930
Gain on sale of discontinued operations	72,745			100			72,745			100
Income from continuing operations	$	18,720		$	16,274		$	20,491		$	8,387
Provision for income taxes	9,556			396			24,662			6,120
Income from continuing operations before income taxes	$	28,276		$	16,670		$	45,153		$	14,507
Other expense, net	(1,031		)	450			1,906			2,178
Amortization of debt issuance costs	759			660			2,167			1,795
Loss on debt extinguishment	—			—			33,305			—
Interest expense, net	13,855			12,351			42,607			32,122
Operating income	$	41,859		$	30,131		$	125,138		$	50,602
Adjusted For:
Depreciation	10,371			8,378			28,896			24,459
Amortization	19,056			16,602			56,502			47,886
Noncontrolling shareholder compensation	2,893			2,164			8,496			6,094
Acquisition expenses	1,866			273			2,176			2,315
Integration services fees	1,100			500			4,300			500
Management fees	12,398			9,534			34,504			23,061
Other	459			(1		)	(609		)	597
Adjusted EBITDA	$	90,002		$	67,581		$	259,403		$	155,514
Interest at Corporate, net of unused fee ⁽¹⁾	(13,391		)	(12,015		)	(41,483		)	(31,113		)
Management fees	(12,398		)	(9,534		)	(34,504		)	(23,061		)
Capital expenditures (maintenance)	(8,062		)	(3,683		)	(18,926		)	(9,928		)
Current tax expense (cash taxes) ⁽²⁾	(8,684		)	2,182			(22,074		)	(9,474		)
Preferred share distributions	(6,045		)	(6,046		)	(18,136		)	(17,633		)
Discontinued operations	2,035			4,802			11,790			10,743
Miscellaneous items	(968		)	174			(759		)	(395		)
Cash Flow Available for Distribution and Reinvestment ("CAD")	$	42,489		$	43,461		$	135,311		$	74,653


(1	)	Interest expense at Corporate reflects consolidated interest expense less non-cash components such as the amortization of our bond premium.

(2	)	Current tax expense is calculated by deducting the change in deferred tax from the statement of cash flows from the income tax provision on the statement of operations.

Compass Diversified Holdings
Consolidated EBITDA
Nine months ended September 30, 2021
(Unaudited)

	Corporate			5.11			BOA		Ergo		Lugano		Marucci Sports		Velocity Outdoor			ACI		Altor Solutions			Arnold			Sterno			Consolidated
Net income ⁽¹⁾	$	8,028		$	14,318		$	16,908	$	3,071	$	681	$	9,485	$	19,157		$	10,366	$	5,892		$	3,839		$	1,491		$	93,236
Adjusted for:
Provision 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	31,205			44,688			40,426		12,319		1,603		20,677		39,738			20,055		22,856			15,856			31,952			281,375
Gain on sale of business	(72,745		)	—			—		—		—		—		—			—		—			—			—			(72,745		)
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 fee	—			—			3,300		—		—		1,000		—			—		—			—			—			4,300
Other	1,085			273			—		—		—		—		(2,300		)	—		—			—			333			(609		)
Management fees	30,133			750			750		375		58		375		375			375		563			375			375			34,504
Adjusted EBITDA	$	(10,569	)	$	47,335		$	46,321	$	13,935	$	3,510	$	23,759	$	41,201		$	20,925	$	23,790		$	16,506		$	32,690		$	259,403

⁽¹⁾Net income does not include income from discontinued operations for the nine months ended September 30, 2021.

Compass Diversified Holdings
Consolidated EBITDA
Nine months ended September 30, 2020
(Unaudited)

	Corporate			5.11			Ergo		Marucci Sports			Velocity Outdoor		ACI		Altor Solutions			Arnold			Sterno		Consolidated
Net income (loss) ⁽¹⁾	$	(13,346	)	$	5,515		$	1,837	(5,344		)	$	4,245	$	10,980	$	4,188		$	(1,719	)	$	2,131	$	8,487
Adjusted for:
Provision (benefit) for income taxes	—			(55		)	2,265		(2,351		)	1,386		2,878		1,891			(56		)	162		6,120
Interest expense, net	31,971			43			—		6			102		—		—			—			—		32,122
Intercompany interest	(48,681		)	10,770			1,818		1,194			6,945		4,176		5,290			4,300			14,188		—
Depreciation and amortization	530			16,033			6,152		8,031			9,651		1,980		9,473			5,040			17,251		74,141
EBITDA	(29,526		)	32,306			12,072		1,536			22,329		20,014		20,842			7,565			33,732		120,870
Gain on sale of business	(100		)	—			—		—			—		—		—			—			—		(100		)
Other (income) expense	3			1,398			—		(46		)	1,048		126		(438		)	(1		)	86		2,176
Non-controlling shareholder compensation	—			1,870			748		361			1,287		372		771			34			651		6,094
Acquisition expenses	—			—			—		2,042			—		—		273			—			—		2,315
Integration services fees	—			—			—		500			—		—		—			—			—		500
Other	—			—			598		—			—		—		—			—			—		598
Management fees	19,651			750			375		222			375		375		563			375			375		23,061
Adjusted EBITDA⁽²⁾	$	(9,972	)	$	36,324		$	13,793	$	4,615		$	25,039	$	20,887	$	22,011		$	7,973		$	34,844	$	155,514

⁽¹⁾Net income (loss) does not include income from discontinued operations for the nine months ended September 30, 2020.

⁽²⁾As a result of the sale of Liberty Safe in August 2021, Adjusted EBITDA for the nine months ended September 30, 2020 does not include $13.9 million in Adjusted EBITDA from Liberty.

Compass Diversified Holdings
Adjusted EBITDA
(unaudited)

	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2021			2020			2021			2020

Branded Consumer
5.11	$	17,043		$	14,945		$	47,335		$	36,324
BOA ⁽¹⁾	14,095			—			46,321			—
Ergobaby	2,848			4,856			13,935			13,793
Lugano ⁽²⁾	3,510			—			3,510			—
Marucci Sports ⁽³⁾	6,108			5,442			23,759			4,615
Velocity Outdoor	16,376			14,549			41,201			25,039
Total Branded Consumer	$	59,980		$	39,792		$	176,061		$	79,771

Niche Industrial
Advanced Circuits	$	7,567		$	7,052		$	20,925		$	20,887
Altor Solutions	8,972			8,780			23,790			22,011
Arnold Magnetics	6,708			1,319			16,506			7,973
Sterno	10,296			13,673			32,690			34,844
Total Niche Industrial	$	33,543		$	30,824		$	93,911		$	85,715
Corporate expense ⁽⁴⁾	(3,520		)	(3,035		)	(10,569		)	(9,972		)
Total Adjusted EBITDA	$	90,002		$	67,581		$	259,403		$	155,514

(1	)	The above results for BOA do not include management's estimate of Adjusted EBITDA, before our ownership, of $8.4 million and $24.5 million, respectively, for the three and nine months ended September 30, 2020. BOA was acquired on October 16, 2020.

(2	)	The above results for Lugano do not include management's estimate of Adjusted EBITDA, before our ownership, of $5.5 million and $24.1 million, respectively, for the three and nine months ended September 30, 2021, and $4.6 million and $14.0 million, respectively, for the three and nine months ended September 30, 2020. Lugano was acquired on September 3, 2021.

(3	)	The above results for Marucci Sports do not include management's estimate of Adjusted EBITDA, before our ownership, of $3.9 million for the nine months ended September 30, 2020. Marucci Sports was acquired on April 20, 2020.

(4	)	Please refer to the recently filed Form 10-Q for a reconciliation of our Corporate expense to Net Income.

Compass Diversified Holdings
Summarized Statement of Cash Flows
(unaudited)


	Nine months ended September 30,
(in thousands)	2021			2020
Net cash provided by operating activities	$	147,148		$	112,872
Net cash used in investing activities	(202,429		)	(236,502		)
Net cash provided by financing activities	54,872			200,395
Effect of foreign currency on cash	(96		)	(260		)
Net (decrease) increase in cash and cash equivalents	(505		)	76,505
Cash and cash equivalents — beginning of period	70,744			100,314
Cash and cash equivalents — end of period	$	70,239		$	176,819

Compass Diversified Holdings
Consolidated Table of Cash Flow Available for Distribution and Reinvestment
(unaudited)

	Three months ended September 30,						Nine months ended September 30,
(in thousands)	2021			2020			2021			2020
Net income	$	90,156		$	20,903		$	100,901		$	18,417
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	29,595			25,392			86,474			73,578
Gain on sale of business	(72,745		)	(100		)	(72,745		)	(100		)
Amortization of debt issuance costs and premium	759			577			2,084			1,656
Loss on debt extinguishment	—			—			33,305			—
Noncontrolling stockholder charges	2,895			2,171			8,513			6,116
Provision for reserves	1,083			1,855			4,609			4,374
Other	(1,489		)	621			541			1,776
Deferred taxes	541			2,581			2,256			(3,352		)
Changes in operating assets and liabilities	(13,081		)	(29,458		)	(18,790		)	10,407
Net cash provided by operating activities	37,714			24,542			147,148			112,872
Plus:
Unused fee on revolving credit facility	464			420			1,207			1,148
Successful acquisition costs	1,866			273			2,176			2,315
Integration services fee ⁽¹⁾	1,100			500			4,300			500
Changes in operating assets and liabilities	13,081			29,458			18,790			—
Other ⁽³⁾	2,415			—			—			—
Less:
Maintenance capital expenditures ⁽²⁾	8,106			3,829			19,063			10,366
Changes in operating assets and liabilities	—			—			—			10,407
Preferred share distributions	6,045			6,046			18,136			17,633
Other ⁽³⁾	—			1,857			1,111			3,776
CAD	$	42,489		$	43,461		$	135,311		$	74,653

Distribution paid in April 2021/ 2020	$	—		$	—		$	23,364		$	21,564
Distribution paid in July 2021/ 2020	—			—			23,364			23,364
Distribution paid in October 2021/ 2020 ⁽⁴⁾	23,742			23,364			23,742			23,364
	$	23,742		$	23,364		$	70,470		$	68,292

⁽¹⁾Represents fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership, payable quarterly.

⁽²⁾ Represents maintenance capital expenditures that were funded from operating cash flow, net of proceeds from the sale of property, plant and equipment, and excludes growth capital expenditures of approximately $3.2 million and $4.1 million, respectively, for the three months ended September 30, 2021 and 2020, and $10.1 million and $9.7 million, respectively, for the nine months ended September 30, 2021 and 2020.

⁽³⁾ Represents the effect on earnings of reserves for inventory and accounts receivable.

⁽⁴⁾ The Company paid a special distribution of $57.1 million to Trust common shareholders of record on August 31, 2021 related to the tax reclassification of the Trust.

Compass Diversified Holdings
Maintenance Capital Expenditures
(unaudited)

	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2021		2020		2021		2020
Branded Consumer
5.11	$	1,032	$	113	$	1,900	$	897
BOA	242		—		835		—
Ergobaby	—		250		—		374
Liberty ⁽¹⁾	43		146		137		438
Lugano	32		—		32		—
Marucci Sports	2,292		169		4,096		220
Velocity Outdoor	1,059		1,070		3,146		2,743
Total Branded Consumer	$	4,700	$	1,748	$	10,146	$	4,672

Niche Industrial
Advanced Circuits	$	112	$	261	$	594	$	354
Altor Solutions	859		543		2,112		1,518
Arnold Magnetics	1,996		1,131		4,217		2,761
Sterno Group	439		146		1,994		1,061
Total Niche Industrial	$	3,406	$	2,081	$	8,917	$	5,694

Total maintenance capital expenditures	$	8,106	$	3,829	$	19,063	$	10,366

⁽¹⁾ Through the date of sale, August 2, 2021.

Compass Diversified Holdings
Condensed Consolidated Balance Sheets


	September 30, 2021		December 31, 2020
(in thousands)	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	70,239	$	66,402
Accounts receivable, net	258,941		213,695
Inventories	486,596		353,967
Prepaid expenses and other current assets	48,585		40,798
Current assets of discontinued operations	—		33,505
Total current assets	864,361		708,367
Property, plant and equipment, net	169,507		163,118
Goodwill and intangible assets, net	1,692,543		1,567,320
Other non-current assets	113,882		105,840
Non-current assets of discontinued operations	—		53,873
Total assets	$	2,840,293	$	2,598,518

Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued expenses	$	298,081	$	241,392
Due to related party	11,771		10,137
Other current liabilities	33,976		27,956
Current liabilities of discontinued operations	—		15,230
Total current liabilities	343,828		294,715
Deferred income taxes	84,613		81,726
Long-term debt	1,122,721		899,460
Other non-current liabilities	90,415		91,334
Non-current liabilities of discontinued operations	—		11,135
Total liabilities	1,641,577		1,378,370
Stockholders' equity
Total stockholders' equity attributable to Holdings	1,039,900		1,100,024
Noncontrolling interest	158,816		116,288
Noncontrolling interest of discontinued operations	—		3,836
Total stockholders' equity	1,198,716		1,220,148
Total liabilities and stockholders’ equity	$	2,840,293	$	2,598,518

Compass Diversified Reports Third Quarter 2021 Financial Results

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