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Compass Diversified Reports Third Quarter 2021 Financial Results

Oct 28, 2021

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  
       


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