Press release·02/27/2025 22:50:02

Overview of Compass Diversified Holdings

Compass Diversified Holdings (the “Company”) is a publicly traded company that owns and manages a diversified group of middle market businesses. The Company was formed in 2006 and has since acquired 24 businesses and divested 14 businesses.

The Company categorizes its businesses into two groups: branded consumer businesses and industrial businesses. Branded consumer businesses are those that capitalize on a valuable brand name, while industrial businesses focus on manufacturing and selling products or services within a specific market sector.

Some of the Company’s key branded consumer businesses include 5.11, BOA, Lugano, PrimaLoft, and The Honey Pot Co. Industrial businesses include Altor Solutions, Arnold, and Sterno. The Company aims to acquire niche market-leading companies and help them grow through strategic initiatives.

Financial Performance

The Company reported strong financial results in 2024, with net revenues increasing 11.9% to $2.20 billion compared to 2023. This was driven by notable increases at BOA, Lugano, PrimaLoft, and the acquisition of The Honey Pot Co., partially offset by decreases at Velocity Outdoor and Sterno.

Gross profit as a percentage of net revenues was 45.5% in 2024, up from 42.4% in 2023. The increase was primarily due to the higher-margin product mix, with growth in the Company’s branded consumer businesses.

Selling, general and administrative (SG&A) expenses increased $85.5 million in 2024, largely due to higher costs at Lugano, The Honey Pot Co., and Arnold. Corporate-level SG&A also increased by $1.5 million.

The Company paid $74.8 million in management fees to its external manager in 2024, up from $67.9 million in 2023, primarily due to the acquisition of The Honey Pot Co.

Amortization expense increased $11.4 million in 2024, mainly from the intangible assets recognized with the acquisition of The Honey Pot Co. The Company also recorded $8.2 million in impairment expense related to its Velocity Outdoor reporting unit.

Interest expense was $106.7 million in 2024, up slightly from $105.2 million in 2023, due to higher average borrowings on the revolving credit facility. The Company also recorded a $24.2 million loss on the sale of its Crosman division within Velocity Outdoor.

The Company’s effective tax rate was 53.7% in 2024, compared to (102.0)% in 2023. The increase was primarily due to limitations on net operating loss carryforwards, the impairment expense at Velocity, and the loss on the Crosman sale.

Overall, the Company reported net income from continuing operations of $42.3 million in 2024, compared to a loss of $44.8 million in 2023.

Segment Performance

The Company’s branded consumer businesses generally performed well in 2024:

• 5.11 saw a slight decrease in net sales but maintained strong profitability, with segment operating income of $38.8 million.
• BOA had a 22.5% increase in net sales and segment operating income of $47.2 million.
• Lugano experienced a 52.7% increase in net sales and segment operating income of $183.2 million.
• PrimaLoft saw a 10.7% increase in net sales and segment operating income of $4.0 million, after recording a $57.8 million impairment charge in 2023.
• The Honey Pot Co., acquired in 2024, contributed $115.3 million in net sales and $0.1 million in segment operating income.

The industrial businesses had a more mixed performance:

• Altor Solutions’ net sales were flat, but segment operating income decreased to $21.7 million.
• Arnold’s net sales increased 3.1%, but segment operating income declined to $7.5 million due to higher costs.
• Sterno’s net sales decreased 1.7%, but segment operating income increased to $31.4 million.

Liquidity and Capital Resources

The Company had $59.7 million in cash and cash equivalents as of December 31, 2024. It generated $78.1 million in cash from operations in 2023 but used $67.6 million in 2024, primarily due to increased working capital needs.

Investing activities used $422.5 million in 2024, mainly for the acquisition of The Honey Pot Co. and an add-on acquisition at Altor. In 2023, investing activities provided $570.5 million, primarily from the sales of Advanced Circuits and Marucci.

Financing activities provided $100.6 million in 2024, including $122.6 million from the Company’s at-the-market equity offering programs and $100 million in net draws on its revolving credit facility. In 2023, financing activities used $260.2 million, mainly to repay the revolving credit facility.

As of December 31, 2024, the Company had $1.0 billion in 5.250% senior notes due 2029, $300 million in 5.000% senior notes due 2032, and $375 million outstanding on its term loan, as well as $110 million drawn on its $600 million revolving credit facility. The Company was in compliance with its debt covenants as of the end of 2024.

Outlook and Trends

The Company expects the macroeconomic environment to remain dynamic, with continued inflationary pressures and interest rate uncertainty impacting consumer spending, particularly for discretionary items. Rising labor and freight costs are also expected to pressure margins.

However, the Company believes its businesses are well-positioned to navigate these challenges through various initiatives, including:

• Pursuing sales growth through new product development, distribution expansion, and international expansion
• Driving free cash flow through increased net income and effective working capital management
• Raising prices to offset input cost inflation and preserve margins
• Gaining market share by leveraging the Company’s strong market positions and financial resources
• Continuing to drive operational excellence and cost savings
• Pursuing strategic acquisitions to further diversify and strengthen the portfolio

Overall, the Company remains cautiously optimistic about its ability to deliver solid financial performance in 2025 and beyond, despite the uncertain macroeconomic environment.