Compass Diversified (NYSE:CODI) reported strong first-quarter 2024 results, exceeding expectations and raising its full-year 2024 guidance. The company's diversified portfolio of innovative and disruptive businesses continues to drive consistent growth, with its branded consumer segment leading the way.

Financials

For the full year 2023, Compass Diversified reported annual net income of $246.3 million, annual revenue of $2.06 billion, annual operating cash flow of $78.1 million, and annual free cash flow of $22.3 million. In the first quarter of 2024, the company generated revenue of $524.3 million, up 8.3% compared to the prior year period. Net income for the quarter was $5.8 million, while adjusted EBITDA came in at $94.8 million, a 28% increase year-over-year.

Segment Performance

The company's branded consumer segment was the standout performer in Q1 2024, with pro forma revenue increasing 11% and pro forma adjusted EBITDA rising 22% compared to the same period last year. Lugano Diamonds continued its remarkable growth, with revenue and EBITDA increasing 61% and 83%, respectively. BOA and PrimaLoft also showed signs of rebounding from the inventory destocking headwinds experienced in 2023. The Honey Pot Company, acquired in January 2024, is already integrated and seeing gains in shelf space across key retail partners.

On the industrial side, the segment saw a slight decline in both revenue and adjusted EBITDA in Q1 2024, as the macroeconomic environment weighed on performance. However, the company remains confident in the positioning of these businesses and expects modest growth later this year.

Geographic Performance

Geographically, the company saw strength across its international markets, with Europe and Asia-Pacific contributing 17% and 16% of total revenue, respectively, in the first quarter. The United States remained the largest market, accounting for 67% of revenue.

Outlook

Looking ahead, Compass Diversified has raised its full-year 2024 subsidiary adjusted EBITDA guidance to a range of $480 million to $520 million, up from the previous range of $470 million to $510 million. This revised guidance includes the impact of the recent divestiture of the Crosman air gun division of Velocity Outdoor. The company expects full-year 2024 adjusted EBITDA to be between $390 million and $430 million.

Adjusted earnings guidance for 2024 has also been increased to a range of $148 million to $163 million, up from the previous range of $145 million to $160 million. At the midpoint of this range and assuming the same share count as of March 31, 2024, the company expects to earn $2.07 in adjusted earnings per common share in 2024.

Liquidity

Compass Diversified's balance sheet remains strong, with $64.7 million in cash and $552 million available on its revolving credit facility as of March 31, 2024. The company's total leverage ratio stood at 3.84x at the end of the quarter, lower than anticipated due to strong operating performance. The company plans to use the proceeds from the Crosman divestiture to further pay down its revolving credit facility, which should lead to a decline in leverage in the second quarter.

Business Overview

The company's strategy of owning and managing a diversified group of innovative and disruptive businesses continues to pay dividends. Compass Diversified's ability to navigate the current macroeconomic environment, while delivering consistent growth, underscores the strength and resilience of its business model.

Importantly, the company recently released its inaugural sustainability report, highlighting its commitment to environmental, social, and governance (ESG) initiatives. This aligns with the company's focus on creating long-term value for its stakeholders.

Recent Developments

Looking ahead, Compass Diversified remains optimistic about the M&A landscape, citing improved quality of businesses coming to market and the continued struggle of competitors to secure financing, particularly for branded consumer businesses. The company's strong liquidity position and ability to act quickly on acquisition opportunities position it well to capitalize on these favorable market conditions.

Conclusion

Compass Diversified's first-quarter 2024 results and raised guidance demonstrate the success of its strategic repositioning and the strength of its diversified portfolio of innovative businesses. The company's focus on disruptive and high-growth companies, combined with its strong financial position, positions it well for continued outperformance in the years ahead.