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Compass Diversified Reports Fourth Quarter and Full Year 2023 Financial Results
المصدر: Nasdaq GlobeNewswire / 28 فبراير 2024 15:15:01 America/Chicago
WESTPORT, Conn., Feb. 28, 2024 (GLOBE NEWSWIRE) -- Compass Diversified (NYSE: CODI) (“CODI” or the “Company”), an owner of leading middle market branded consumer and industrial businesses, announced today its consolidated operating results for the three and twelve months ended December 31, 2023.
“Our fourth quarter results exceeded our expectations and demonstrate that owning premium businesses with defensible competitive moats drives strong financial performance,” said Elias Sabo, CEO of Compass Diversified. “At a consolidated level, our business saw strong revenue, net income, and Subsidiary Adjusted EBITDA growth in the fourth quarter led by Lugano Diamonds. While the economic backdrop remains uncertain for many, our diversified business model continues to shine, and has us feeling optimistic that we will provide a strong shareholder return in the coming year.”
Sabo continued: “Our differentiated competitive advantage of a permanent capital structure and a lower cost of capital enabled our opportunistic sale of Marucci Sports in November and our acquisition of The Honey Pot Company in early 2024. Inclusive of The Honey Pot Company acquisition, we expect to see above trend growth in consolidated financial performance in 2024, on a pro forma basis.”
Fourth Quarter and Full Year 2023 Financial Summary vs. Same Year-Ago Period (where applicable)
- Net sales in the fourth quarter up 7% to $567.0 million. For the full year 2023, net sales up 2% to $2.1 billion, and roughly flat on a pro forma basis.
- Branded consumer net sales in the fourth quarter up 13% to $371.9 million. For the full year 2023, branded consumer pro forma net sales up 3% to $1.3 billion.
- Industrial net sales in the fourth quarter down 3% to $195.1 million. For the full year 2023, industrial net sales down 5% to $728.5 million.
- Net income in the fourth quarter of $139.4 million vs. $8.7 million last year. For the full year 2023, net income of $262.4 million vs. $51.4 million. The increase in both periods was primarily due to the $179.5 million gain on the sale of Marucci Sports in November 2023 and the $98.0 million gain on the sale of Advanced Circuits in February 2023.
- Loss from continuing operations in the fourth quarter of $36.4 million vs. $4.6 million in the prior year period. For the full year 2023, loss from continuing operations of $38.7 million vs. income from continuing operations of $3.7 million for full year 2022. The increases in net loss from continuing operations were primarily due to non-cash impairment charges associated with PrimaLoft and Velocity Outdoor.
- Adjusted Earnings, a non-GAAP financial measure, in the fourth quarter was $38.1 million vs. $16.3 million for the fourth quarter of 2022. For the full year 2023, Adjusted Earnings was $116.7 million vs. $110.2 million in the prior year.
- Adjusted EBITDA, a non-GAAP financial measure, in the fourth quarter was up 35% to $94.8 million. For the full year 2023, Adjusted EBITDA was up 11% to $340.9 million.
- Paid a fourth quarter 2023 cash distribution of $0.25 per share on CODI's common shares in January 2024.
Recent Business Highlights
- On February 1, 2024, CODI announced the completion of its partnership with The Honey Pot Company, a leading “better-for-you” feminine care brand, for an enterprise value of $380 million.
- On January 17, 2024, CODI hosted an Investor Day in Newport Beach, California, showcasing its Lugano Diamonds and 5.11 subsidiaries. A replay of the Lugano Diamonds and Compass Diversified presentations has been made available on the Investor Relations page of the Company’s website at compassdiversified.com.
- On December 21, 2023, CODI announced the completion of a private placement of approximately 3.6 million of its common shares to a mutual fund managed by Allspring Global Investments, LLC for $21.18 per share, or an aggregate sale price of approximately $75.2 million, before commissions and expenses.
- On December 19, 2023, PrimaLoft Inc., a subsidiary of CODI and a leading provider of branded, high-performance synthetic insulation and materials used primarily in consumer outerwear and accessories, announced the appointment of Anne Cavassa as CEO.
- On November 15, 2023, CODI announced the completion of the sale of Marucci Sports to Fox Factory Holding Corp. (Nasdaq: FOXF) for an enterprise value of $572 million. CODI realized a $179.5 million gain on the sale of Marucci Sports.
Fourth Quarter and Full Year 2023 Financial Results
Net sales in the fourth quarter of 2023 were $567.0 million, up 7% compared to $529.7 million in the fourth quarter of 2022. For the full year 2023, net sales were $2.1 billion, up 2% compared to $2.0 billion a year ago. This was driven by a 63% increase in Lugano net sales, somewhat offset by lower net sales at PrimaLoft and Velocity Outdoor due to inventory destocking headwinds and reduced wholesale demand. On a pro forma basis, assuming CODI had acquired PrimaLoft on January 1, 2022, net sales were roughly flat in the full year 2023.
Branded consumer net sales increased 13% in the fourth quarter of 2023 to $371.9 million compared to the fourth quarter of 2022. On a pro forma basis, branded consumer net sales increased 3% to $1.3 billion in the full year 2023 compared to a year ago.
Industrial net sales decreased 3% in the fourth quarter of 2023 to $195.1 million compared to the fourth quarter of 2022, and decreased 5% to $728.5 million in the full year 2023 compared to a year ago.
Operating loss for the fourth quarter of 2023 was $4.0 million compared to operating income of $26.8 million in the fourth quarter of 2022. For the full year 2023, operating income decreased 31% to $90.1 million compared to $130.8 million a year ago. The decline was primarily due to a $56.8 million non-cash impairment expense associated with PrimaLoft in the fourth quarter of 2023.
Net income in the fourth quarter of 2023 was $139.4 million compared to net income of $8.7 million in the fourth quarter of 2022. For the full year 2023, net income was $262.4 million compared to $51.4 million a year ago. The increases in net income were due primarily to the $179.5 million gain on the sale of Marucci Sports in November 2023 and the $98.0 million gain on the sale of Advanced Circuits in February 2023.
Loss from continuing operations in the fourth quarter of 2023 was $36.4 million compared to $4.6 million in the fourth quarter of 2022. For the full year 2023, loss from continuing operations was $38.7 million compared to income from continuing operations of $3.7 million a year ago. The increases in net loss from continuing operations were primarily due to the non-cash impairment expenses associated with PrimaLoft and Velocity Outdoor.
Adjusted Earnings (see “Note Regarding Use of Non-GAAP Financial Measures” below) for the fourth quarter of 2023 was $38.1 million compared to $16.3 million a year ago. For the full year 2023, Adjusted Earnings was $116.7 million compared to $110.2 million a year ago. CODI's weighted average number of shares outstanding in the fourth quarter of 2023 was 72.43 million compared to 72.20 million in the prior year fourth quarter. For the full year 2023, CODI’s weighted average number of shares outstanding was 72.11 million compared to 70.72 million in 2022.
Adjusted EBITDA (see “Note Regarding Use of Non-GAAP Financial Measures” below) in the fourth quarter of 2023 was $94.8 million, up 35% compared to $70.0 million in the fourth quarter of 2022. For the full year 2023, Adjusted EBITDA was $340.9 million, up 11% compared to $306.0 million a year ago. The increases were primarily due to strong results at Lugano and the Company’s Industrial subsidiaries. The Company no longer adds back management fees in its calculation of Adjusted EBITDA. Management fees incurred during the fourth quarter and full year were $16.9 million and $68.4 million, respectively.
Liquidity and Capital Resources
As of December 31, 2023, CODI had approximately $450.5 million in cash and cash equivalents, $2.2 million outstanding on its revolver, $385.0 million outstanding in term loans, $1.0 billion outstanding in 5.250% Senior Notes due 2029 and $300.0 million outstanding in 5.000% Senior Notes due 2032.
As of December 31, 2023, the Company had no significant debt maturities until 2027 and had net borrowing availability of approximately $598 million under its revolving credit facility.
Fourth Quarter 2023 Distributions
On January 4, 2024, CODI’s Board declared a fourth quarter distribution of $0.25 per share on the Company's common shares. The cash distribution was paid on January 25, 2024, to all holders of record of common shares as of January 18, 2024.
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, October 30, 2023, up to, but excluding, January 30, 2024. The distribution for such period was payable on January 30, 2024, to all holders of record of Series A Preferred Shares as of January 15, 2024.
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, October 30, 2023, up to, but excluding, January 30, 2024. The distribution for such period was payable on January 30, 2024, to all holders of record of Series B Preferred Shares as of January 15, 2024.
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, October 30, 2023, up to, but excluding, January 30, 2024. The distribution for such period was payable on January 30, 2024, to all holders of record of Series C Preferred Shares as of January 15, 2024.
2024 Outlook
CODI expects its current subsidiaries, inclusive of The Honey Pot Company as if we owned it from January 1, 2024, to produce consolidated Subsidiary Adjusted EBITDA (see “Note Regarding Use of Non-GAAP Financial Measures” below) for the full year 2024 of between $480 million and $520 million. Of this range, CODI expects its Branded Consumer vertical to produce $355 million to $385 million and its Industrial vertical to produce $125 million to $135 million. This estimate is based on the summation of the Company’s expectations for its current subsidiaries in 2024, and is absent additional acquisitions or divestitures, and excludes corporate expenses such as interest expense, management fees paid by CODI and corporate overhead.
CODI is now providing guidance for Adjusted EBITDA (see “Note Regarding Use of Non-GAAP Financial Measures” below) including management fees and corporate expenses, and expects to earn between $390 million and $430 million for the full year 2024. Adjusted EBITDA only includes results from The Honey Pot Company from the date of acquisition.
In addition, the Company expects to earn between $145 million and $160 million in Adjusted Earnings (see “Note Regarding Use of Non-GAAP Financial Measures” below) for the full year 2024.
In reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K, CODI has not reconciled 2024 consolidated Subsidiary Adjusted EBITDA, 2024 Adjusted EBITDA or 2024 Adjusted Earnings to their comparable GAAP measure because it does not provide guidance on 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, CODI is unable to address the probable significance of the unavailable information, which could be material to future results.
Conference Call
Management will host a conference call on Wednesday, February 28, 2024, 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) 259-6580 and the dial-in number for international callers is (416) 764-8624. The Conference ID is 60782779. 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 Wednesday, March 6, 2024. 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 reflect important financial measures as each 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.
Pro forma net sales is defined as net sales including the historical net sales relating to the pre-acquisition periods of PrimaLoft, assuming that the Company acquired PrimaLoft on January 1, 2022. 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 2024 consolidated Subsidiary Adjusted EBITDA, 2024 Adjusted EBITDA or 2024 Adjusted Earnings to their comparable GAAP measures 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
Since its founding in 1998 and IPO in 2006, CODI has consistently executed on its strategy of owning and managing a diverse set of highly defensible, middle-market businesses across the 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 2024 consolidated Subsidiary Adjusted EBITDA, our 2024 Adjusted EBITDA, our 2024 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, including changes in inflation and interest rates; risks associated with possible disruption in CODI’s operations or the economy generally due to terrorism, war, 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); environmental risks affecting the business or operations of our subsidiaries; 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 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
irinquiry@compassdiversified.comGateway Group
Cody Slach
949.574.3860
CODI@gateway-grp.comMedia Relations
Mediainquiry@compassdiversified.comThe IGB Group
Leon Berman
212.477.8438
lberman@igbir.comCompass Diversified Holdings Condensed Consolidated Balance Sheets (in thousands) December 31, 2023 December 31, 2022 Assets Current assets Cash and cash equivalents $ 450,477 $ 56,599 Accounts receivable, net 318,241 297,722 Inventories, net 740,387 680,545 Prepaid expenses and other current assets 94,715 73,200 Current assets of discontinued operations — 102,119 Total current assets 1,603,820 1,210,185 Property, plant and equipment, net 192,562 184,501 Goodwill 901,428 991,007 Intangible assets, net 923,905 1,015,497 Other non-current assets 195,266 162,392 Non-current assets of discontinued operations — 286,049 Total assets $ 3,816,981 $ 3,849,631 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 93,412 $ 82,942 Accrued expenses 150,725 177,245 Deferred revenue 6,731 7,093 Due to related parties 16,025 15,495 Current portion, long-term debt 10,000 10,000 Other current liabilities 35,465 35,286 Current liabilities of discontinued operations — 31,771 Total current liabilities 312,358 359,832 Deferred income taxes 120,131 142,627 Long-term debt 1,661,879 1,824,468 Other non-current liabilities 203,232 139,267 Non-current liabilities of discontinued operations — 21,475 Total liabilities 2,297,600 2,487,669 Stockholders' equity Total stockholders' equity attributable to Holdings 1,326,750 1,136,920 Noncontrolling interest 192,631 203,464 Noncontrolling interest of discontinued operations — 21,578 Total stockholders' equity 1,519,381 1,361,962 Total liabilities and stockholders’ equity $ 3,816,981 $ 3,849,631 Compass Diversified Holdings Consolidated Statements of Operations Three months ended December 31, Year ended December 31, (in thousands, except per share data) 2023 2022 2023 2022 Net revenues $ 566,989 $ 529,682 $ 2,058,876 $ 2,009,130 Cost of revenues 320,682 327,934 1,165,553 1,226,078 Gross profit 246,307 201,748 893,323 783,052 Operating expenses: Selling, general and administrative expense 152,626 132,969 549,589 484,369 Management fees 16,909 17,050 68,445 62,604 Amortization expense 23,914 24,886 95,820 84,689 Impairment expense 56,832 — 89,400 20,552 Operating income (loss) (3,974 ) 26,843 90,069 130,838 Other income (expense): Interest expense, net (24,826 ) (25,768 ) (105,179 ) (83,492 ) Amortization of debt issuance costs (1,004 ) (1,005 ) (4,038 ) (3,740 ) Loss on debt extinguishment — — — (534 ) Other income (expense), net (357 ) (1,349 ) 1,743 (2,321 ) Net income (loss) before income taxes (30,161 ) (1,279 ) (17,405 ) 40,751 Provision (benefit) for income taxes 6,254 3,313 21,331 37,093 Income (loss) from continuing operations (36,415 ) (4,592 ) (38,736 ) 3,658 Income (loss) from discontinued operations, net of income tax (3,674 ) 10,800 18,116 38,387 Gain on sale of discontinued operations 179,530 2,500 283,025 9,393 Net income 139,441 8,708 262,405 51,438 Less: Net income (loss) attributable to noncontrolling interest 2,555 (1,131 ) 15,945 10,367 Less: Net income (loss) from discontinued operations attributable to noncontrolling interest (551 ) 1,255 174 4,684 Net income attributable to Holdings $ 137,437 $ 8,584 $ 246,286 $ 36,387 Basic income (loss) per common share attributable to Holdings Continuing operations $ (0.74 ) $ (0.50 ) $ (1.71 ) $ (0.66 ) Discontinued operations 2.44 0.16 4.17 0.56 $ 1.70 $ (0.34 ) $ 2.46 $ (0.10 ) Basic weighted average number of common shares outstanding 72,429 72,203 72,105 70,715 Cash distributions declared per Trust common share $ 0.25 $ 0.25 $ 1.00 $ 1.00 Compass Diversified Holdings Net Income to Non-GAAP Adjusted Earnings and Non-GAAP Adjusted EBITDA - 2023 (Unaudited) Three months ended Year ended (in thousands) March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 December 31, 2023 Net income (loss) $ 109,601 $ 17,123 $ (3,760 ) $ 139,441 $ 262,405 Gain on sale of discontinued operations, net of tax 97,989 4,232 1,274 179,530 283,025 Income (loss) from discontinued operations, net of tax 10,000 2,840 8,950 (3,674 ) 18,116 Net income (loss) from continuing operations $ 1,612 $ 10,051 $ (13,984 ) $ (36,415 ) $ (38,736 ) Less: income from continuing operations attributable to noncontrolling interest 4,171 3,498 5,721 2,555 15,945 Net income (loss) attributable to Holdings - continuing operations $ (2,559 ) $ 6,553 $ (19,705 ) $ (38,970 ) $ (54,681 ) Adjustments: Distributions paid - preferred shares (6,045 ) (6,046 ) (6,045 ) (6,045 ) (24,181 ) Amortization expense - intangible assets and inventory step-up 25,148 23,977 23,956 23,914 96,995 Impairment expense — — 32,568 56,832 89,400 Tax effect - impairment expense — — (4,308 ) 978 (3,330 ) Non-controlling interest - impairment expense — — — (5,382 ) (5,382 ) Non-controlling shareholder compensation 1,641 3,207 2,750 3,067 10,665 Acquisition expense — — — 321 321 Integration services fee 1,187 1,188 — — 2,375 Other 432 348 349 3,377 4,506 Adjusted earnings $ 19,804 $ 29,227 $ 29,565 $ 38,092 $ 116,688 Plus (less): Depreciation expense 11,155 12,107 11,994 11,291 46,547 Income tax provision 6,920 4,320 3,837 6,254 21,331 Interest expense 26,180 26,613 27,560 24,826 105,179 Amortization of debt issuance costs 1,005 1,024 1,005 1,004 4,038 Income from continuing operations attributable to noncontrolling interest 4,171 3,498 5,721 2,555 15,945 Distributions paid - preferred shares 6,045 6,046 6,045 6,045 24,181 Tax effect - impairment expense — — 4,308 (978 ) 3,330 Non-controlling interest - impairment expense — — — 5,382 5,382 Other (1,160 ) 105 (1,045 ) 357 (1,743 ) Adjusted EBITDA $ 74,120 $ 82,940 $ 88,990 $ 94,828 $ 340,878 Compass Diversified Holdings Net Income (Loss) to Non-GAAP Adjusted Earnings and Non-GAAP Adjusted EBITDA - 2022 (Unaudited) Three months ended Year ended (in thousands) March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 December 31, 2022 Net income (loss) $ 29,740 $ 30,957 $ 2,585 $ (11,844 ) $ 51,438 Gain (loss) on sale of discontinued operations, net of tax 5,993 (579 ) 1,479 2,500 9,393 Income from discontinued operations, net of tax 13,059 4,371 10,157 10,800 38,387 Net income (loss) from continuing operations $ 10,688 $ 27,165 $ (9,051 ) $ (25,144 ) $ 3,658 Less: income (loss) from continuing operations attributable to noncontrolling interest 4,388 3,813 3,297 (1,131 ) 10,367 Net income (loss) attributable to Holdings - continuing operations $ 6,300 $ 23,352 $ (12,348 ) $ (24,013 ) $ (6,709 ) Adjustments: Distributions paid - preferred shares (6,045 ) (6,046 ) (6,045 ) (6,045 ) (24,181 ) Amortization expense - intangible assets and inventory step-up 19,691 20,258 24,400 26,454 90,803 Impairment expense — — — 20,552 20,552 Tax effect - impairment expense — — — (3,557 ) (3,557 ) Non-controlling interest - impairment expense — — — (3,120 ) (3,120 ) Loss on debt extinguishment — — 534 — 534 Non-controlling shareholder compensation 2,405 2,404 2,581 4,608 11,998 Acquisition expense 216 — 5,902 — 6,118 Integration services fee 563 563 1,625 1,312 4,063 Corporate tax effect — (4,338 ) 16,457 — 12,119 Other — 1,027 434 119 1,580 Adjusted earnings $ 23,130 $ 37,220 $ 33,540 $ 16,310 $ 110,200 Plus (less): Depreciation expense 9,450 9,741 10,149 10,690 40,030 Income tax provision 7,970 6,926 18,884 3,313 37,093 Corporate tax effect — 4,338 (16,457 ) — (12,119 ) Tax effect - impairment expense — — — 3,557 3,557 Non-controlling interest - impairment expense — — — 3,120 3,120 Interest expense 17,419 17,509 22,796 25,768 83,492 Amortization of debt issuance costs 866 865 1,004 1,005 3,740 Income from continuing operations attributable to noncontrolling interest 4,388 3,813 3,297 (1,131 ) 10,367 Distributions paid - preferred shares 6,045 6,046 6,045 6,045 24,181 Other (226 ) (718 ) 1,916 1,349 2,321 Adjusted EBITDA $ 69,042 $ 85,740 $ 81,174 $ 70,026 $ 305,982 Compass Diversified Holdings Net Income (Loss) from Continuing Operations to Non-GAAP Consolidated Adjusted EBITDA Reconciliation Three Months Ended December 31, 2023 (Unaudited) (in thousands) Corporate 5.11 BOA Ergo Lugano PrimaLoft Velocity Outdoor Altor Solutions Arnold Sterno Consolidated Net income (loss) from continuing operations $ (10,847 ) $ 9,840 $ 1,345 $ (1,487 ) $ 20,847 $ (64,383 ) $ (3,183 ) $ 4,260 $ 3,523 $ 3,670 $ (36,415 ) Adjusted for: Provision (benefit) for income taxes 301 1,004 639 (37 ) 4,293 (2,549 ) 289 1,797 921 (406 ) 6,252 Interest expense, net 24,732 (4 ) (9 ) — — (2 ) 120 — (11 ) — 24,826 Intercompany interest (35,402 ) 4,546 2,548 2,111 10,177 4,780 3,440 2,303 1,728 3,769 — Depreciation and amortization 342 6,143 5,496 1,998 2,258 5,394 3,259 4,183 2,193 4,943 36,209 EBITDA (20,874 ) 21,529 10,019 2,585 37,575 (56,760 ) 3,925 12,543 8,354 11,976 30,872 Other (income) expense — (412 ) (19 ) 7 (75 ) (66 ) (31 ) 1,239 (4 ) (280 ) 359 Non-controlling shareholder compensation — 203 950 278 162 761 228 186 1 298 3,067 Impairment expense — — — — — 57,810 (978 ) — — — 56,832 Acquisition expenses — — — 321 — — — — — — 321 Other — — 3,072 — — — — — — 305 3,377 Adjusted EBITDA $ (20,874 ) $ 21,320 $ 14,022 $ 3,191 $ 37,662 $ 1,745 $ 3,144 $ 13,968 $ 8,351 $ 12,299 $ 94,828 Compass Diversified Holdings Net Income (Loss) from Continuing Operations to Non-GAAP Consolidated Adjusted EBITDA Reconciliation Three Months Ended December 31, 2022 (Unaudited) (in thousands) Corporate 5.11 BOA Ergo Lugano PrimaLoft Velocity Outdoor Altor Solutions Arnold Sterno Consolidated Net income (loss) from continuing operations $ (16,856 ) $ 7,093 $ 5,491 $ (18,035 ) $ 6,063 $ (9,249 ) $ (3,699 ) $ 2,513 $ 466 $ 1,069 $ (25,144 ) Adjusted for: Provision (benefit) for income taxes — 2,126 (292 ) (4,706 ) 6,026 (308 ) (810 ) 267 561 449 3,313 Interest expense, net 25,684 (12 ) (6 ) 8 4 (3 ) 87 — 6 — 25,768 Intercompany interest (29,950 ) 4,260 1,776 2,026 4,932 4,261 3,295 2,898 1,571 4,931 — Depreciation and amortization 342 6,168 5,648 2,033 3,148 6,271 3,393 4,149 1,976 5,021 38,149 EBITDA (20,780 ) 19,635 12,617 (18,674 ) 20,173 972 2,266 9,827 4,580 11,470 42,086 Other (income) expense 15 (310 ) 545 2 — (148 ) 1,263 547 (20 ) (545 ) 1,349 Non-controlling shareholder compensation — 301 622 325 379 2,142 229 411 2 197 4,608 Impairment expense — — — 20,552 — — — — — — 20,552 Integration services fee — — — — — 1,313 — — — — 1,313 Other — — — — — — — — — 119 119 Adjusted EBITDA $ (20,765 ) $ 19,626 $ 13,784 $ 2,205 $ 20,552 $ 4,279 $ 3,758 $ 10,785 $ 4,562 $ 11,241 $ 70,027 Compass Diversified Holdings Net Income (Loss) from Continuing Operations to Non-GAAP Consolidated Adjusted EBITDA Reconciliation Year ended December 31, 2023 (Unaudited) (in thousands) Corporate 5.11 BOA Ergo Lugano PrimaLoft Velocity Outdoor Altor Solutions Arnold Sterno Consolidated Net income (loss) from continuing operations $ (51,761 ) $ 21,690 $ 16,496 $ (2,601 ) $ 52,315 $ (69,883 ) $ (40,045 ) $ 16,504 $ 10,434 $ 8,115 $ (38,736 ) Adjusted for: Provision (benefit) for income taxes 301 4,994 2,863 (1,309 ) 14,589 (5,672 ) (5,616 ) 5,890 4,185 1,106 21,331 Interest expense, net 104,855 (8 ) (18 ) — 4 (11 ) 352 — 5 — 105,179 Intercompany interest (134,835 ) 20,244 7,580 8,595 32,837 18,123 13,510 10,486 6,806 16,654 — Loss on debt extinguishment — — — — — — — — — — — Depreciation and amortization 1,399 26,009 22,932 8,110 9,229 21,478 13,282 16,741 8,441 19,959 147,580 EBITDA (80,041 ) 72,929 49,853 12,795 108,974 (35,965 ) (18,517 ) 49,621 29,871 45,834 235,354 Other (income) expense (128 ) (515 ) 98 36 (80 ) 62 (1,210 ) 1,440 (5 ) (1,441 ) (1,743 ) Non-controlling shareholder compensation — 1,191 3,019 1,214 1,474 980 914 986 27 860 10,665 Impairment expense — — — — — 57,810 31,590 — — — 89,400 Acquisition expenses — — — 321 — — — — — — 321 Integration services fee — — — — — 2,375 — — — — 2,375 Other — — 3,072 — — — — — — 1,434 4,506 Adjusted EBITDA $ (80,169 ) $ 73,605 $ 56,042 $ 14,366 $ 110,368 $ 25,262 $ 12,777 $ 52,047 $ 29,893 $ 46,687 $ 340,878 Compass Diversified Holdings Net Income (Loss) from Continuing Operations to Non-GAAP Consolidated Adjusted EBITDA Reconciliation Year ended December 31, 2022 (Unaudited) (in thousands) Corporate 5.11 BOA Ergo Lugano PrimaLoft Velocity Outdoor Altor Solutions Arnold Sterno Consolidated Net income (loss) from continuing operations $ (77,990 ) $ 22,633 $ 42,613 $ (18,669 ) $ 27,934 $ (17,741 ) $ 4,127 $ 9,662 $ 7,683 $ 3,406 $ 3,658 Adjusted for: Provision (benefit) for income taxes 12,119 7,125 6,527 (4,274 ) 11,889 (3,878 ) 1,562 3,174 3,329 (480 ) 37,093 Interest expense, net 83,243 — (25 ) 10 16 (7 ) 229 — 26 — 83,492 Intercompany interest (92,177 ) 13,761 7,410 6,026 12,773 7,512 10,282 10,742 5,518 18,153 — Loss on debt extinguishment 534 — — — — — — — — — 534 Depreciation and amortization 1,405 22,972 21,993 8,094 11,533 10,465 13,374 16,403 8,041 20,293 134,573 EBITDA (72,866 ) 66,491 78,518 (8,813 ) 64,145 (3,649 ) 29,574 39,981 24,597 41,372 259,350 Other (income) expense (58 ) (217 ) 1,043 6 2 112 2,417 766 (20 ) (1,730 ) 2,321 Non-controlling shareholder compensation — 1,511 2,511 1,479 1,179 2,142 971 1,321 40 844 11,998 Impairment expense — — — 20,552 — — — — — — 20,552 Acquisition expenses — — — — — 5,680 222 216 — — 6,118 Integration services fee — — — — 1,688 2,375 — — — — 4,063 Other — — — 250 — — — — — 1,330 1,580 Adjusted EBITDA $ (72,924 ) $ 67,785 $ 82,072 $ 13,474 $ 67,014 $ 6,660 $ 33,184 $ 42,284 $ 24,617 $ 41,816 $ 305,982 Compass Diversified Holdings Adjusted EBITDA (Unaudited) Three months ended December 31, Year ended December 31, (in thousands) 2023 2022 2023 2022 Branded Consumer 5.11 $ 21,320 $ 19,626 $ 73,605 $ 67,785 BOA 14,022 13,784 56,042 82,072 Ergobaby 3,191 2,205 14,366 13,474 Lugano 37,662 20,552 110,368 67,014 PrimaLoft (1) 1,745 4,279 25,262 6,660 Velocity Outdoor 3,144 3,758 12,777 33,184 Total Branded Consumer $ 81,084 $ 64,204 $ 292,420 $ 270,189 Industrial Altor Solutions $ 13,968 $ 10,785 $ 52,047 $ 42,284 Arnold Magnetics 8,351 4,562 29,893 24,617 Sterno 12,299 11,241 46,687 41,816 Total Industrial $ 34,618 $ 26,588 $ 128,627 $ 108,717 Corporate expense (20,874 ) (20,765 ) (80,169 ) (72,924 ) Total Adjusted EBITDA $ 94,828 $ 70,027 $ 340,878 $ 305,982 (1) The above results for PrimaLoft do not include management's estimate of Adjusted EBITDA, before our ownership, of $24.3 million for the twelve months ended December 31, 2022. PrimaLoft was acquired on July 12, 2022. Compass Diversified Holdings Net Sales to Pro Forma Net Sales Reconciliation (unaudited) Three months ended December 31, Year ended December 31, (in thousands) 2023 2022 2023 2022 Net Sales $ 566,989 $ 529,682 $ 2,058,876 $ 2,009,130 Acquisitions (1) — — — 55,185 Pro Forma Net Sales $ 566,989 $ 529,682 $ 2,058,876 $ 2,064,315 (1) Acquisitions reflects the net sales for PrimaLoft on a proforma basis as if we had acquired this business on January 1, 2022. Compass Diversified Holdings Subsidiary Pro Forma Net Sales (unaudited) Three months ended December 31, Year ended December 31, (in thousands) 2023 2022 2023 2022 Branded Consumer 5.11 $ 147,394 $ 135,605 $ 533,089 $ 486,213 BOA 42,435 42,473 155,825 208,688 Ergobaby 22,074 20,179 93,859 88,435 Lugano 104,750 64,278 308,321 201,507 PrimaLoft (1) 9,434 14,032 67,053 79,929 Velocity Outdoor 45,842 51,464 172,190 232,238 Total Branded Consumer $ 371,929 $ 328,031 $ 1,330,337 $ 1,297,010 Industrial Altor Solutions 56,417 61,748 238,030 261,338 Arnold Magnetics 44,632 37,496 166,679 153,815 Sterno 94,011 102,407 323,830 352,152 Total Industrial $ 195,060 $ 201,651 $ 728,539 $ 767,305 Total Subsidiary Net Sales $ 566,989 $ 529,682 $ 2,058,876 $ 2,064,315 (1) Net sales for PrimaLoft are pro forma as if we had acquired this business on January 1, 2022. Historical net sales for PrimaLoft prior to acquisition on July 12, 2022, were $55.2 million for the twelve months ended December 31, 2022. Compass Diversified Holdings Condensed Consolidated Cash Flows Three months ended December 31, Year ended December 31, (in thousands) 2023 2022 2023 2022 Net cash provided by (used in) operating activities $ 21,128 $ 11,632 $ 78,080 $ (28,291 ) Net cash provided by (used in) investing activities 466,213 (27,774 ) 570,503 (626,725 ) Net cash provided by (used in) financing activities (102,236 ) 14,757 (260,163 ) 556,885 Foreign currency impact on cash 636 1,404 786 (1,331 ) Net increase (decrease) in cash and cash equivalents 385,741 19 389,206 (99,462 ) Cash and cash equivalents - beginning of the period (1) 64,736 61,252 61,271 160,733 Cash and cash equivalents - end of the period $ 450,477 $ 61,271 $ 450,477 $ 61,271 (1) Includes cash from discontinued operations of $4.7 million at January 1, 2023 and $3.6 million at January 1, 2022. Compass Diversified Holding Selected Financial Data - Cash Flows Three months ended December 31, Year ended December 31, (in thousands) 2023 2022 2023 2022 Changes in operating assets and liabilities $ (24,390 ) $ (27,722 ) $ (153,310 ) $ (224,587 ) Purchases of property and equipment $ (17,239 ) $ (23,726 ) $ (55,776 ) $ (60,989 ) Distributions paid - common shares $ (17,955 ) $ (18,051 ) $ (71,967 ) $ (70,845 ) Distributions paid - preferred shares $ (6,045 ) $ (6,045 ) $ (24,181 ) $ (24,181 ) 
