pass Diversified LLC(US:CODI)2024-07-31 20:15PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Presents unaudited condensed consolidated financial statements for Compass Diversified Holdings as of June 30, 2024, with notes Condensed Consolidated Financial Statements Condensed consolidated financial statements show increased assets, a net loss for H1 2024, and cash used in operations Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $3,858,194 | $3,816,981 | | Cash and cash equivalents | $68,370 | $450,477 | | Goodwill | $1,003,685 | $901,428 | | Total Liabilities | $2,389,442 | $2,297,600 | | Long-term debt | $1,712,084 | $1,661,879 | | Total Stockholders' Equity | $1,468,752 | $1,519,381 | Condensed Consolidated Statement of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues | $542,595 | $486,889 | $1,066,885 | $970,822 | | Gross Profit | $259,114 | $216,641 | $500,941 | $421,705 | | Operating Income | $61,343 | $42,113 | $99,919 | $76,670 | | Net Income (Loss) | ($13,723) | $17,123 | ($7,942) | $126,724 | | Net Income (Loss) Attributable to Holdings | ($19,529) | $13,606 | ($21,177) | $119,003 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Cash from Operating Activities | ($48,383) | $37,239 | | Cash from Investing Activities | ($336,073) | $117,829 | | Acquisitions, net of cash acquired | ($379,524) | $0 | | Proceeds from sale of businesses | $64,828 | $105,123 | | Cash from Financing Activities | $3,366 | ($149,619) | | Net (Decrease) Increase in Cash | ($382,107) | $6,083 | Notes to Condensed Consolidated Financial Statements Notes detail significant corporate actions, including acquisitions, dispositions, segment performance, goodwill impairment, and debt - On January 31, 2024, the company acquired The Honey Pot Co. (THP) for a total preliminary purchase price of approximately $376.8 million, funded with cash on hand. The acquisition added a feminine care brand to the company's branded consumer portfolio313233 - On April 30, 2024, Velocity Outdoor sold its Crosman airgun division for an enterprise value of approximately $63 million, resulting in a recorded loss of $24.6 million for the quarter ended June 30, 202447 - The company performed its annual goodwill impairment test as of March 31, 2024, which resulted in an impairment charge of $8.2 million for the Velocity reporting unit. This followed a $31.6 million impairment for Velocity and a $57.8 million impairment for PrimaLoft in 20237781 Total Debt Outstanding (in thousands) | Debt Instrument | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | 2029 Senior Notes (5.25%) | $1,000,000 | $1,000,000 | | 2032 Senior Notes (5.00%) | $300,000 | $300,000 | | 2022 Term Loan | $380,000 | $385,000 | | 2022 Revolving Credit Facility | $54,000 | $0 | | Less: Unamortized debt issuance costs | ($11,916) | ($13,121) | | Total Debt | $1,722,084 | $1,671,879 | - The company declared and paid quarterly cash distributions of $0.25 per common share for each quarter in 2023 and the first two quarters of 2024123 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses Q2 2024 revenue growth, gross margin improvement, and liquidity, highlighting impacts from acquisitions, divestitures, and impairments Overview and Business Outlook The company operates ten businesses across branded consumer and industrial sectors, with a new healthcare focus, outlining 2024 growth and acquisition strategies - The company operates ten businesses categorized into Branded Consumer and Industrial groups, and recently announced a new strategic focus on the healthcare vertical153154 - Recent significant events include the acquisition of The Honey Pot Co. on January 31, 2024, for an enterprise value of $380 million, and the sale of Velocity Outdoor's Crosman division on April 30, 2024, for approximately $63 million172173 - The business outlook for 2024 prioritizes sales growth through new products and distribution, driving free cash flow, managing pricing amidst inflation, gaining market share, and pursuing strategic acquisitions171 Results of Operations - Consolidated Consolidated net revenues increased 11.4% in Q2 2024 to $542.6 million, with improved gross margin, but a net loss due to divestiture losses and impairment charges Consolidated Results of Operations (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenues | $542,595 | $486,889 | 11.4% | | Gross Profit | $259,114 | $216,641 | 19.6% | | Operating Income | $61,343 | $42,113 | 45.7% | | Net (Loss) from Continuing Ops | ($13,723) | $10,051 | NM | - The increase in Q2 2024 gross profit margin to 47.8% from 44.5% in Q2 2023 was driven by a sales mix shift towards higher-margin businesses, particularly Lugano181 - A loss of $24.6 million was recorded in Q2 2024 from the sale of Velocity Outdoor's Crosman division187 - For the first six months of 2024, the company recorded an $8.2 million goodwill impairment expense related to the Velocity reporting unit197 Results of Operations - Business Segments Q2 2024 saw strong growth in Branded Consumer segments like Lugano and BOA, boosted by The Honey Pot Co., offsetting declines in Velocity Outdoor and some Industrial businesses Q2 2024 vs Q2 2023 Net Sales Change by Segment | Segment | Q2 2024 Net Sales (M) | Q2 2023 Net Sales (M) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Branded Consumer | | | | | 5.11 | $123.2 | $126.0 | (2.2)% | | BOA | $54.2 | $38.1 | 42.1% | | Ergobaby | $28.6 | $26.1 | 9.2% | | Lugano | $99.4 | $60.9 | 63.0% | | PrimaLoft | $25.3 | $22.2 | 14.0% | | The Honey Pot Co. | $24.2 | N/A | N/A | | Velocity Outdoor | $18.7 | $37.8 | (50.6)% | | Industrial | | | | | Altor Solutions | $52.2 | $60.9 | (14.2)% | | Arnold | $43.2 | $40.1 | 7.5% | | Sterno | $73.8 | $74.6 | (1.1)% | - Lugano's operating income nearly doubled to $33.2 million in Q2 2024 from $17.1 million in Q2 2023, driven by a 63.0% sales surge and improved gross margins228232 - BOA's operating income more than doubled to $16.5 million in Q2 2024 from $8.1 million in Q2 2023, fueled by a 42.1% sales increase as end-market inventory levels improved209210214 - Velocity Outdoor's net sales fell 50.6% in Q2 2024, primarily due to the divestiture of its Crosman division. The segment recorded an operating loss of $1.9 million261262266 Liquidity and Capital Resources As of June 30, 2024, liquidity is strong with $68.4 million cash and $543.6 million credit availability, despite a cash decrease due to acquisitions and working capital needs - As of June 30, 2024, the company had $68.4 million in cash and cash equivalents and $543.6 million available under its 2022 Revolving Credit Facility304316 - Cash decreased by $382.1 million in H1 2024, largely because cash from the 2023 Marucci sale was used to acquire The Honey Pot Co. in January 2024304 - Cash used in operating activities was $48.4 million in H1 2024, a significant shift from $37.2 million provided in H1 2023, mainly due to increased working capital usage, including a $138.9 million inventory build at Lugano306307 Total Intercompany Debt from Subsidiaries (in thousands) | Subsidiary | Intercompany Loan Balance | | :--- | :--- | | Lugano | $524,927 | | BOA | $189,141 | | PrimaLoft | $153,400 | | 5.11 | $121,751 | | The Honey Pot Co. | $105,500 | | Sterno | $98,856 | | Ergobaby | $82,475 | | Velocity Outdoor | $69,899 | | Arnold | $68,947 | | Altor | $64,884 | | Total | $1,479,780 | Reconciliation of Non-GAAP Financial Measures This section reconciles non-GAAP measures, Adjusted EBITDA and Adjusted Earnings, to GAAP counterparts, providing management's view of ongoing performance - The company uses non-GAAP measures like Adjusted EBITDA and Adjusted Earnings to assess performance, believing they provide a better view of ongoing operations by excluding items like non-cash expenses, acquisition costs, and impairments326329 Reconciliation to Adjusted EBITDA and Adjusted Earnings (in thousands) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net Income (Loss) | ($7,942) | $126,724 | | Net (Loss) from Continuing Operations | ($11,287) | $11,663 | | Adjusted Earnings | $74,145 | $49,031 | | Adjusted EBITDA | $200,268 | $157,060 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No material changes to the company's market risk exposure have occurred since December 31, 2023 - There have been no material changes to the company's market risk since December 31, 2023358 ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2024359360 - No material changes to internal control over financial reporting were identified during the most recent fiscal quarter360 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material changes to legal proceedings have occurred since the last Annual Report on Form 10-K - There have been no material changes to legal proceedings since the last Annual Report on Form 10-K362 ITEM 1A. RISK FACTORS No material changes to the company's risk factors have occurred since the 2023 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K363 ITEM 6. EXHIBITS This section lists exhibits filed with the Form 10-Q, including corporate governance documents and required CEO/CFO certifications - The report includes various exhibits, such as amendments to the Trust Agreement and Operating Agreement, share designations for preferred stock, and CEO/CFO certifications365