Compass Diversified Holdings [CODI-PA] Filings

10-Q 1 codi-20230630.htm 10-Q codi-20230630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMPASS DIVERSIFIED HOLDINGS

(Exact name of registrant as specified in its charter)

Delaware

001-34927

57-6218917

(State or other jurisdiction of
incorporation or organization)

(Commission
file number)

(I.R.S. employer
identification number)

COMPASS GROUP DIVERSIFIED HOLDINGS LLC

(Exact name of registrant as specified in its charter)

Delaware

001-34926

20-3812051

(State or other jurisdiction of
incorporation or organization)

(Commission
file number)

(I.R.S. employer
identification number)

301 Riverside Avenue, Second Floor, Westport, CT 06880

(203) 221-1703

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Shares representing beneficial interests in Compass Diversified Holdings

CODI

New York Stock Exchange

Series A Preferred Shares representing beneficial interests in Compass Diversified Holdings

CODI PR A

New York Stock Exchange

Series B Preferred Shares representing beneficial interests in Compass Diversified Holdings

CODI PR B

New York Stock Exchange

Series C Preferred Shares representing beneficial interests in Compass Diversified Holdings

CODI PR C

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of July 28, 2023, there were 71,895,929 Trust common shares of Compass Diversified Holdings outstanding.

COMPASS DIVERSIFIED HOLDINGS

QUARTERLY REPORT ON FORM 10-Q

For the period ended June 30, 2023

TABLE OF CONTENTS

Page
Number

FORWARD-LOOKING STATEMENTS

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4.

CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION

ITEM 1.

ITEM 1A.

ITEM 6.

NOTE TO READER

In reading this Quarterly Report on Form 10-Q, references to:

•the “Trust” and “Holdings” refer to Compass Diversified Holdings;

•the “LLC” refer to Compass Group Diversified Holdings LLC;

•the "Company" refer to Compass Diversified Holdings and Compass Group Diversified Holdings LLC, collectively;

•“businesses”, “operating segments”, “subsidiaries” and “reporting units” all refer to, collectively, the businesses controlled by the Company;

•the “Manager” refer to Compass Group Management LLC (“CGM”);

•the "Trust Agreement" refer to the Third Amended and Restated Trust Agreement of the Trust dated as of August 3, 2021;

•the "2022 Credit Facility" refers to the third amended and restated credit agreement entered into on July 12, 2022 among the LLC, the lenders from time to time party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and letter of credit issuer (the "agent")

•the "2022 Revolving Credit Facility" refers to the $600 million in revolving loans, swing line loans and letters of credit provided by the 2022 Credit Facility that matures in 2027;

•the "2022 Term Loan" refer to the $400 million term loan provided by the 2022 Credit Facility;

•the "2021 Credit Facility" refer to the second amended and restated credit agreement entered into on March 23, 2021 among the Company, the lenders from time to time party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the "agent") and other agents party thereto;

•the "2021 Revolving Credit Facility" refers to the $600 million in revolving loans, swing line loans and letters of credit provided by the 2021 Credit Facility that matures in 2026;

•the "2018 Credit Facility" refer to the amended and restated credit agreement entered into on April 18, 2018 among the Company, the lenders from time to time party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the "agent") and other agents party thereto, which was subsequently amended and restated by the 2021 Credit Facility;

•the "LLC Agreement" refer to the Sixth Amended and Restated Operating Agreement of the Company dated as of August 3, 2021, as further amended; and

•"we," "us" and "our" refer to the Trust, the Company and the businesses together.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, contains both historical and forward-looking statements. We may, in some cases, use words such as "project," "predict," "believe," "anticipate," "plan," "expect," "estimate," "intend," "should," "would," "could," "potentially," "may," or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. All statements other than statements of historical or current fact are “forward-looking statements” for purposes of federal and state securities laws. Forward looking statements include, among other things, (i) statements as to our future performance or liquidity, such as expectations for our results of operation, net income, adjusted EBITDA, adjusted earnings, and ability to make quarterly distributions and (ii) our plans, strategies and objectives for future operations, including our business outlook and planned capital expenditures. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the SEC, including, but not limited to, those described under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the United States Securities and Exchange Commission (“SEC”) on March 1, 2023, as such factors may be updated from time to time in our filings with the SEC. Many of these risks and uncertainties are beyond our control. Important factors that could cause our actual results, performance and achievements to differ materially from those estimates or projections contained in our forward-looking statements include, among other things:

•changes in general economic, political or business conditions or economic, political or demographic trends in the United States and other countries in which we have a presence, including changes in interest rates and inflation;

•disruption in the global supply chain, labor shortages and high labor costs;

•difficulties and delays in integrating, or business disruptions following, acquisitions or an inability to fully realize cost savings and other benefit related thereto;

•our ability to successfully operate our subsidiary businesses on a combined basis, and to effectively integrate and improve future acquisitions;

•our ability to maintain our credit facilities or incur additional borrowings on terms we deem attractive;

•our ability to remove CGM and CGM’s right to resign;

•our organizational structure, which may limit our ability to meet our dividend and distribution policy;

•our ability to service and comply with the terms of our indebtedness;

•our ability to make distributions in the future to our shareholders;

•our ability to pay the management fee and profit allocation if and when due;

•our ability to make and finance future acquisitions;

•our ability to implement our acquisition and management strategies;

•the legal and regulatory environment in which our subsidiaries operate;

•trends in the industries in which our subsidiaries operate;

•future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities);

•risks associated with possible disruption in operations or the economy generally due to terrorism or natural disaster or social, civil or political unrest;

•environmental risks affecting the business or operations of our subsidiaries;

•our and CGM’s ability to retain or replace qualified employees of our subsidiaries and CGM;

•the impact of the tax reclassifications of the Trust;

•costs and effects of legal and administrative proceedings, settlements, investigations and claims; and

•extraordinary or force majeure events affecting the business or operations of our subsidiary businesses.

Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ.

In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, whether as a result of new information, future events or otherwise, except as required by law.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COMPASS DIVERSIFIED HOLDINGS

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2023		December 31, 2022
(in thousands)	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	67,354	$	57,880
Accounts receivable, net	296,291		331,396
Inventories	788,283		728,083
Prepaid expenses and other current assets	95,245		74,700

Current assets of discontinued operations	—		18,126
Total current assets	1,247,173		1,210,185
Property, plant and equipment, net	204,804		198,525
Goodwill	1,072,951		1,066,726
Intangible assets, net	1,096,260		1,127,936
Other non-current assets	174,505		166,412
Non-current assets of discontinued operations	—		79,847
Total assets	$	3,795,693	$	3,849,631
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	90,234	$	90,404
Accrued expenses	178,287		196,239

Due to related parties (refer to Note P)	15,402		15,495
Current portion, long-term debt	10,000		10,000
Other current liabilities	36,951		36,545

Current liabilities of discontinued operations	—		11,148
Total current liabilities	330,874		359,831
Deferred income taxes	137,466		145,643
Long-term debt	1,757,673		1,824,468
Other non-current liabilities	152,075		141,535
Non-current liabilities of discontinued operations	—		16,192
Total liabilities	2,378,088		2,487,669
Commitments and contingencies (refer to Note O)
Stockholders’ equity
Trust preferred shares, 50,000 authorized; 12,600 shares issued and outstanding at June 30, 2023 and December 31, 2022
Series A preferred shares, no par value; 4,000 shares issued and outstanding at June 30, 2023 and December 31, 2022	96,417		96,417
Series B preferred shares, no par value; 4,000 shares issued and outstanding at June 30, 2023 and December 31, 2022	96,504		96,504
Series C preferred shares, no par value; 4,600 shares issued and outstanding at June 30, 2023 and December 31, 2022	110,997		110,997
Trust common shares, no par value, 500,000 authorized; 71,896 shares issued and outstanding at June 30, 2023 and 72,203 issued and outstanding at December 31, 2022	1,206,953		1,207,044
Treasury shares, at cost	(5,856)		—
Accumulated other comprehensive income (loss)	282		(1,136)
Accumulated deficit	(328,507)		(372,906)
Total stockholders’ equity attributable to Holdings	1,176,790		1,136,920
Noncontrolling interest	240,815		223,509

Noncontrolling interest of discontinued operations	—		1,533
Total stockholders’ equity	1,417,605		1,361,962
Total liabilities and stockholders’ equity	$	3,795,693	$	3,849,631

See notes to condensed consolidated financial statements.

COMPASS DIVERSIFIED HOLDINGS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended June 30,				Six months ended June 30,
(in thousands, except per share data)	2023		2022		2023		2022
Net revenues	$	524,159	$	515,597	$	1,066,387	$	1,026,110
Cost of revenues	287,269		303,840		591,666		613,538
Gross profit	236,890		211,757		474,721		412,572
Operating expenses:
Selling, general and administrative expense	148,218		125,624		294,383		246,296
Management fees	16,920		14,901		33,315		29,337
Amortization expense	26,677		20,921		53,051		42,026

Operating income	45,075		50,311		93,972		94,913
Other income (expense):
Interest expense, net	(26,615)		(17,519)		(52,795)		(34,938)
Amortization of debt issuance costs	(1,024)		(865)		(2,029)		(1,731)

Other income (expense), net	(101)		737		1,026		2,773
Income from continuing operations before income taxes	17,335		32,664		40,174		61,017
Provision for income taxes	4,444		6,132		14,280		16,108
Income from continuing operations	12,891		26,532		25,894		44,909
Income (loss) from discontinued operations, net of income taxes	—		5,004		(1,391)		10,374
Gain (loss) on sale of discontinued operations, net of income taxes	4,232		(579)		102,221		5,414
Net income	17,123		30,957		126,724		60,697
Less: Net income from continuing operations attributable to noncontrolling interest	3,517		3,635		8,498		8,572
Less: Net income (loss) from discontinued operations attributable to noncontrolling interest	—		955		(777)		1,996
Net income attributable to Holdings	$	13,606	$	26,367	$	119,003	$	50,129

Amounts attributable to Holdings
Income from continuing operations	$	9,374	$	22,897	$	17,396	$	36,337
Income (loss) from discontinued operations, net of income tax	—		4,049		(614)		8,378
Gain (loss) on sale of discontinued operations, net of income tax	4,232		(579)		102,221		5,414
Net income attributable to Holdings	$	13,606	$	26,367	$	119,003	$	50,129

Basic income (loss) per common share attributable to Holdings (refer to Note J)
Continuing operations	$	(0.41)	$	0.13	$	(0.43)	$	0.19
Discontinued operations	0.06		0.04		1.41		0.18
Basic income (loss) per common share attributable to Holdings (refer to Note J)	$	(0.35)	$	0.17	$	0.98	$	0.37

Basic weighted average number of shares of common shares outstanding	71,932		70,227		72,055		69,804

Cash distributions declared per Trust common share (refer to Note J)	$	0.25	$	0.25	$	0.50	$	0.50

See notes to condensed consolidated financial statements.

COMPASS DIVERSIFIED HOLDINGS

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2023		2022		2023		2022

Net income	$	17,123	$	30,957	$	126,724	$	60,697
Other comprehensive income (loss)
Foreign currency translation adjustments	610		(1,501)		1,856		(1,476)
Pension benefit liability, net	86		1,064		(438)		1,839
Other comprehensive income (loss)	696		(437)		1,418		363
Total comprehensive income, net of tax	$	17,819	$	30,520	128,142		61,060
Less: Net income attributable to noncontrolling interests	3,517		4,590		7,721		10,568
Less: Other comprehensive income (loss) attributable to noncontrolling interests	16		(8)		36		(2)
Total comprehensive income attributable to Holdings, net of tax	$	14,286	$	25,938	$	120,385	$	50,494

See notes to condensed consolidated financial statements.

COMPASS DIVERSIFIED HOLDINGS

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


(in thousands)	Trust Preferred Shares						Trust Common Shares				Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Stockholders' Equity Attributable to Holdings		Non- Controlling Interest		Non- Controlling Interest Attributable to Disc. Ops.		Total Stockholders’ Equity
	Series A		Series B		Series C				Treasury Shares
Balance — April 1, 2022	$	96,417	$	96,504	$	110,997	$	1,143,354	$	—	$	(313,902)	$	(228)	$	1,133,142	$	171,735	$	(1,449)	$	1,303,428
Net income	—		—		—		—		—		26,367		—		26,367		3,635		955		30,957
Total comprehensive loss, net	—		—		—		—		—		—		(437)		(437)		—		—		(437)
Issuance of Trust common shares	—		—		—		41,994		—		—		—		41,994		—		—		41,994
Option activity attributable to noncontrolling shareholders	—		—		—		—		—		—		—		—		2,681		124		2,805
Effect of subsidiary stock option exercise	—		—		—		—		—		—		—		—		50		—		50
Purchase of noncontrolling interest	—		—		—		—		—		—		—		—		(394)		—		(394)
Distributions paid - Trust Common Shares	—		—		—		—				(17,511)		—		(17,511)		—		—		(17,511)
Distributions paid - Trust Preferred Shares	—		—		—		—				(6,046)		—		(6,046)		—		—		(6,046)
Balance — June 30, 2022	$	96,417	$	96,504	$	110,997	$	1,185,348	$	—	$	(311,092)	$	(665)	$	1,177,509	$	177,707	$	(370)	$	1,354,846

Balance — April 1, 2023	$	96,417	$	96,504	$	110,997	$	1,206,996	$	(3,954)	$	(291,605)	$	(414)	$	1,214,941	$	229,692	$	—	$	1,444,633
Net income	—		—		—		—		—		13,606		—		13,606		3,517		—		17,123
Total comprehensive income, net	—		—		—		—		—		—		696		696		—		—		696
Issuance of Trust common shares	—		—		—		(43)		—		—		—		(43)		—		—		(43)
Purchase of Trust common shares for treasury	—		—		—		—		(1,902)		—		—		(1,902)		—		—		(1,902)
Option activity attributable to noncontrolling shareholders	—		—		—		—		—		—		—		—		3,666		—		3,666
Effect of subsidiary stock option exercise	—		—		—		—		—		—		—		—		52		—		52
Purchase of noncontrolling interest	—		—		—		—		—		—		—		—		(267)		—		(267)
Acquisition of Baum Bat	—		—		—		—		—		—		—		—		4,155		—		4,155
Distributions paid - Allocation Interests (refer to Note J)	—		—		—		—		—		(26,475)		—		(26,475)		—		—		(26,475)
Distributions paid - Trust Common Shares	—		—		—		—		—		(17,987)		—		(17,987)		—		—		(17,987)
Distributions paid - Trust Preferred Shares	—		—		—		—		—		(6,046)		—		(6,046)		—		—		(6,046)
Balance — June 30, 2023	$	96,417	$	96,504	$	110,997	$	1,206,953	$	(5,856)	$	(328,507)	$	282	$	1,176,790	$	240,815	$	—	$	1,417,605

COMPASS DIVERSIFIED HOLDINGS

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


(in thousands)	Trust Preferred Shares						Trust Common Shares				Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Stockholders' Equity Attributable to Holdings		Non- Controlling Interest		Non- Controlling Interest Attributable to Disc. Ops.		Total Stockholders’ Equity
	Series A		Series B		Series C				Treasury Shares
Balance — January 1, 2022	$	96,417	$	96,504	$	110,997	$	1,123,193	$	—	$	(314,267)	$	(1,028)	$	1,111,816	$	175,328	$	(2,614)	$	1,284,530
Net income	—		—		—		—		—		50,129		—		50,129		8,572		1,996		60,697
Total comprehensive income, net	—		—		—		—		—		—		363		363		—		—		363
Issuance of Trust common shares	—		—		—		62,155		—		—		—		62,155		—		—		62,155
Option activity attributable to noncontrolling shareholders	—		—		—		—		—		—		—		—		5,362		248		5,610
Effect of subsidiary stock option exercise	—		—		—		—		—		—		—		—		440		—		440
Purchase of noncontrolling interest	—		—		—		—		—		—		—		—		(703)		—		(703)
Distributions paid to noncontrolling shareholders	—		—		—		—		—		—		—		—		(11,292)		—		(11,292)

Distributions paid - Trust Common Shares	—		—		—		—		—		(34,863)		—		(34,863)		—		—		(34,863)
Distributions paid - Trust Preferred Shares	—		—		—		—		—		(12,091)		—		(12,091)		—		—		(12,091)
Balance — June 30, 2022	$	96,417	$	96,504	$	110,997	$	1,185,348	$	—	$	(311,092)	$	(665)	$	1,177,509	$	177,707	$	(370)	$	1,354,846

Balance — January 1, 2023	$	96,417	$	96,504	$	110,997	$	1,207,044	$	—	$	(372,906)	$	(1,136)	$	1,136,920	$	223,509	$	1,533	$	1,361,962
Net income (loss)	—		—		—		—		—		119,003		—		119,003		8,498		(777)		126,724
Total comprehensive income, net	—		—		—		—		—		—		1,418		1,418		—		—		1,418
Issuance of Trust common shares	—		—		—		(91)		—		—		—		(91)		—		—		(91)
Purchase of Trust common shares for treasury	—		—		—		—		(5,856)		—		—		(5,856)		—		—		(5,856)
Option activity attributable to noncontrolling shareholders	—		—		—		—		—		—		—		—		5,711		973		6,684
Effect of subsidiary stock option exercise	—		—		—		—		—		—		—		—		57		—		57
Purchase of noncontrolling interest	—		—		—		—		—		—		—		—		(1,115)		—		(1,115)
Acquisition of Baum Bat	—		—		—		—		—		—		—		—		4,155		—		4,155
Disposition of ACI	—		—		—		—		—		—		—		—		—		(1,729)		(1,729)
Distributions paid - Allocation Interests (refer to Note J)	—		—		—		—				(26,475)		—		(26,475)		—		—		(26,475)
Distributions paid - Trust Common Shares	—		—		—		—		—		(36,038)		—		(36,038)		—		—		(36,038)
Distributions paid - Trust Preferred Shares	—		—		—		—		—		(12,091)		—		(12,091)		—		—		(12,091)
Balance — June 30, 2023	$	96,417	$	96,504	$	110,997	$	1,206,953	$	(5,856)	$	(328,507)	$	282	$	1,176,790	$	240,815	$	—	$	1,417,605

See notes to condensed consolidated financial statements.


COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six months ended June 30,
(in thousands)	2023		2022
Cash flows from operating activities:
Net income	$	126,724	$	60,697
Income (loss) from discontinued operations	(1,391)		10,374
Gain on sale of discontinued operations	102,221		5,414
Income from continuing operations	25,894		44,909
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense	24,574		20,281
Amortization expense - intangibles	53,051		42,026
Amortization expense - inventory step-up	1,134		3,812
Amortization of debt issuance costs	2,029		1,731
Noncontrolling stockholder stock based compensation	5,711		5,361
Provision for receivable and inventory reserves	(2,201)		(2,173)
Deferred taxes	(7,516)		(3,756)

Other	1,047		239
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	33,982		(2,279)
Inventories	(58,387)		(136,498)
Other current and non-current assets	(1,459)		(13,320)
Accounts payable and accrued expenses	(39,333)		(7,098)
Cash provided by (used in) operating activities - continuing operations	38,526		(46,765)
Cash provided by (used in) operating activities - discontinued operations	(1,287)		11,428
Cash provided by (used in) provided by operating activities	37,239		(35,337)
Cash flows from investing activities:
Acquisitions, net of cash acquired	(22,816)		(3,636)
Purchases of property and equipment	(31,540)		(24,435)
Proceeds from sale of businesses	105,123		6,898
Other investing activities	(1,107)		(903)
Cash provided by (used in) investing activities - continuing operations	49,660		(22,076)
Cash provided by (used in) investing activities - discontinued operations	68,169		(162)
Cash provided by (used in) investing activities	117,829		(22,238)


COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Six months ended June 30,
(in thousands)	2023		2022
Cash flows from financing activities:
Proceeds and expenses from issuance of Trust common shares, net	(91)		62,155
Purchase of treasury shares, net	(5,856)		—
Borrowings under credit facility	217,000		24,000
Repayments under credit facility	(280,000)		(24,000)
Principal payments - term loan	(5,000)		—
Distributions paid - common shares	(36,038)		(34,863)
Distributions paid - preferred shares	(12,091)		(12,091)
Distributions paid - allocation interests	(26,475)		—
Distributions paid to noncontrolling shareholders	—		(11,292)
Net proceeds provided by noncontrolling shareholders	57		440
Purchase of noncontrolling interest	(1,115)		(703)
Debt issuance costs	—		(35)
Other	(10)		(14)
Net cash provided by (used in) financing activities	(149,619)		3,597
Foreign currency impact on cash	634		(1,132)
Net increase (decrease) in cash and cash equivalents	6,083		(55,110)
Cash and cash equivalents — beginning of period (1)	61,271		160,733
Cash and cash equivalents — end of period (2)	$	67,354	$	105,623

(1) Includes cash from discontinued operations of $3.4 million at January 1, 2023 and $3.6 million at January 1, 2022.

(2) Includes cash from discontinued operations of $2.9 million at June 30, 2022.

See notes to condensed consolidated financial statements.

COMPASS DIVERSIFIED HOLDINGS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2023

Note A - Presentation and Principles of Consolidation

Compass Diversified Holdings, a Delaware statutory trust (the "Trust") and Compass Group Diversified Holdings LLC, a Delaware limited liability company (the "LLC"), were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. Collectively, Compass Diversified Holdings and Compass Group Diversified Holdings, LLC are referred to as the "Company". In accordance with the Third Amended and Restated Trust Agreement, dated as of August 3, 2021 (as amended and restated, the "Trust Agreement"), the Trust is sole owner of 100% of the Trust Interests (as defined in the Company’s Sixth Amended and Restated Operating Agreement, dated as of August 3, 2021 (as amended and restated, the "LLC Agreement")) of the LLC and, pursuant to the LLC Agreement, the LLC has, outstanding, the identical number of Trust Interests as the number of outstanding common shares of the Trust. The LLC is the operating entity with a board of directors and other corporate governance responsibilities, similar to that of a Delaware corporation.

The LLC is a controlling owner of ten businesses, or operating segments, at June 30, 2023. The segments are as follows: 5.11 Acquisition Corp. ("5.11"), Boa Holdings Inc. ("BOA"), The Ergo Baby Carrier, Inc. ("Ergobaby"), Lugano Holdings, Inc. ("Lugano Diamonds" or "Lugano"), Wheelhouse Holdings, Inc. ("Marucci Sports" or "Marucci"), Relentless Intermediate, Inc. ("PrimaLoft"), Velocity Outdoor, Inc. ("Velocity Outdoor" or "Velocity"), AMT Acquisition Corporation ("Arnold"), FFI Compass, Inc. ("Altor Solutions" or "Altor") (formerly "Foam Fabricators"), and Sterno Products, LLC ("Sterno"). The segments are referred to interchangeably as “businesses”, “operating segments” or “subsidiaries” throughout the financial statements. Refer to Note E - "Operating Segment Data" for further discussion of the operating segments. Compass Group Management LLC, a Delaware limited liability Company ("CGM" or the "Manager"), manages the day to day operations of the LLC and oversees the management and operations of our businesses pursuant to a management services agreement (the "Management Services Agreement" or "MSA").

Basis of Presentation

The condensed consolidated financial statements for the three and six month periods ended June 30, 2023 and June 30, 2022 are unaudited, and in the opinion of management, contain all adjustments necessary for a fair presentation of the condensed consolidated financial statements. Such adjustments consist solely of normal recurring items. Interim results are not necessarily indicative of results for a full year or any subsequent interim period. The condensed consolidated financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP" or "GAAP") and presented as permitted by Form 10-Q and do not contain certain information included in the annual consolidated financial statements and accompanying notes of the Company. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Consolidation

The condensed consolidated financial statements include the accounts of the Trust and the Company, as well as the businesses acquired as of their respective acquisition date. All significant intercompany accounts and transactions have been eliminated in consolidation. Discontinued operating entities are reflected as discontinued operations in the Company's results of operations and statements of financial position.

Discontinued Operations

During the first quarter of 2023, the Company completed the sale of Compass AC Holdings, Inc. (“Advanced Circuits or ACI”). The results of operations of ACI are reported as discontinued operations in the condensed consolidated statements of operations for the six months ended June 30, 2023 and the three and six months ended June 30, 2022. Refer to Note C - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.

Seasonality

Earnings of certain of our operating segments are seasonal in nature due to various recurring events, holidays and seasonal weather patterns, as well as the timing of our acquisitions during a given year. Historically, the third and fourth quarters produce the highest net sales during our fiscal year, however, due to various acquisitions since 2020, there is generally less seasonality in our net sales on a consolidated basis than there has been historically.

Note B — Acquisitions

The acquisitions of our businesses are accounted for under the acquisition method of accounting. For each platform acquisition, the Company typically structures the transaction so that a newly created holding company acquires 100% of the equity interests in the acquired business. The entirety of the purchase consideration is paid by the newly created holding company to the selling shareholders. The total purchase consideration is the amount paid to the selling shareholders and we will, from time to time, allow the selling shareholder to reinvest a portion of their proceeds alongside the Company at the same price per share, into the holding company that acquires the target business. Once the acquisition is complete, the selling shareholders no longer hold equity interests in the acquired company, but rather hold noncontrolling interest in the holding company that acquired the target business. Because the selling shareholders are investing in the transaction alongside the Company at the same price per share as the Company and are not retaining their existing equity in the acquired business, the Company includes the amount provided by noncontrolling shareholders in the total purchase consideration.

A component of our acquisition financing strategy that we utilize in acquiring the businesses we own and manage is to provide both equity capital and debt capital, raised at the parent level, typically through our existing credit facility. The debt capital is in the form of “intercompany loans” made by the LLC to the newly created holding company and the acquired business and are due from the newly created holding company and the acquired business, and payable to the LLC by the newly created holding company and the acquired business. The selling shareholders of the acquired businesses are not a party to the intercompany loan agreements nor do they have any obligation to repay the intercompany loans. These intercompany loans eliminate in consolidation and are not reflected on the Company's consolidated balance sheets.

Acquisition of PrimaLoft

On July 12, 2022, the LLC, through its newly formed indirect acquisition subsidiary, Relentless Intermediate, Inc. ("PrimaLoft Buyer"), acquired PrimaLoft Technologies Holdings, Inc. (“PrimaLoft”) pursuant to a Stock Purchase Agreement (the “PrimaLoft Purchase Agreement”), dated June 4, 2022, by and between PrimaLoft Buyer and VP PrimaLoft Holdings, LLC ("PrimaLoft Seller"). The Company acquired PrimaLoft for a total purchase price, including proceeds from noncontrolling shareholders, of approximately $541.1 million. The Company funded the acquisition through a draw on its 2022 Revolving Credit Facility and the proceeds from its $400 million 2022 Term Loan Facility. PrimaLoft management invested in the transaction along with the Company, representing 9.2% of the initial equity interest in PrimaLoft. Concurrent with the closing, the Company provided a credit facility to PrimaLoft pursuant to which a secured revolving loan commitment and secured term loan were made available to PrimaLoft (the "PrimaLoft Credit Agreement"). The initial revolving loan and term loan commitments under these facilities on the closing date were $178 million. CGM received integration service fees of $4.8 million quarterly over the twelve-month period ended June 30, 2023. The Company incurred $5.7 million of transaction costs in conjunction with the PrimaLoft acquisition, which was included in selling, general and administrative expense in the consolidated statements of operations during the third quarter of 2022.

PrimaLoft, Inc. is a branded, advanced material technology company based in Latham, New York and is focused on the research and innovative development of high-performance material solutions, specializing in insulations and fabrics.

The results of operations of PrimaLoft have been included in the consolidated results of operations since the date of acquisition. PrimaLoft's results of operations are reported as a separate operating segment as a branded consumer business. The table below provides the recording of the fair value of assets acquired and liabilities assumed as of the date of acquisition.


(in thousands)	Preliminary Purchase Price Allocation		Measurement Period Adjustments		Final Purchase Price Allocation
Purchase Consideration	$	539,576	$	1,536	$	541,112

Fair value of identifiable assets acquired:
Cash	$	6,951	$	—	$	6,951
Accounts receivable (1)	2,992		—

Compass Diversified Holdings [CODI-PA] Filings
Compass Diversified Holdings [CODI] Filings
Compass Diversified Holdings [CODI-PB] Filings
Compass Diversified Holdings [CODI-PC] Filings
10-Q	[2023-08-02]
10-Q	[2023-05-03]
10-K	[2023-03-01]
10-Q	[2022-11-03]
10-Q	[2022-08-03]
10-Q	[2022-05-05]
10-K	[2022-02-24]
10-Q	[2021-10-28]
10-Q	[2021-07-29]
10-Q	[2021-04-29]
10-K	[2021-02-24]
10-Q	[2020-10-28]
10-Q	[2020-07-29]
10-Q	[2020-04-30]
10-K	[2020-02-26]
10-Q	[2019-10-30]
10-Q	[2019-07-31]
10-Q	[2019-05-01]
10-K	[2019-02-27]
10-Q	[2018-10-31]
10-Q	[2018-08-01]
10-Q	[2018-05-02]
10-K	[2018-02-28]
10-Q	[2017-11-08]
10-Q	[2017-08-02]
10-Q	[2017-05-03]
10-K	[2017-03-02]
10-Q	[2016-11-02]
10-Q	[2016-08-03]
10-Q	[2016-05-04]
10-K	[2016-02-29]
10-Q	[2015-11-04]
10-Q	[2015-08-05]
10-Q	[2015-05-06]
10-K	[2015-03-02]
10-Q	[2014-11-05]
10-Q	[2014-08-06]
10-Q	[2014-05-07]
10-K	[2014-03-11]
10-Q	[2013-11-06]
10-Q	[2013-08-08]
10-Q	[2013-05-07]
10-K	[2013-03-06]
10-Q	[2012-11-07]
10-Q	[2012-08-07]
10-Q	[2012-05-09]
10-K	[2012-03-07]

Compass Diversified Holdings [CODI-PA] Filings

Compass Diversified Holdings [CODI] Filings

Compass Diversified Holdings [CODI-PB] Filings

Compass Diversified Holdings [CODI-PC] Filings