ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Item 2 contains forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, some of which are beyond our control. 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, including those discussed in the section entitled "Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q as well as those risk factors discussed in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 and in the section entitled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Overview
Compass Diversified Holdings ("Holdings") was incorporated in Delaware on November 18, 2005. Compass Group Diversified Holdings LLC (the "Company") was also formed on November 18, 2005. Holdings and the Company (collectively, "CODI") were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. The Company is the operating entity and is a controlling owner of ten businesses, or operating segments, at June 30, 2021. The segments are as follows: 5.11 Acquisition Corp. ("5.11"), Boa Holdings Inc. ("BOA"), The Ergo Baby Carrier, Inc. ("Ergobaby"), Liberty Safe and Security Products, Inc. ("Liberty Safe" or "Liberty"), Marucci Sports, LLC ("Marucci" or "Marucci Sports"), Velocity Outdoor, Inc. ("Velocity Outdoor" or "Velocity"), Compass AC Holdings, Inc. ("ACI" or "Advanced Circuits"), FFI Compass, Inc. ("Altor Solutions" or "Altor" (formerly "Foam Fabricators")), AMT Acquisition Corporation ("Arnold"), and The Sterno Group, LLC ("Sterno").
We acquired our existing businesses (segments) that we own at June 30, 2021 as follows:
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Ownership Interest - June 30, 2021
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Business
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Acquisition Date
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Primary
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Diluted
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Advanced Circuits
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May 16, 2006
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71.8%
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67.6%
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Liberty Safe
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March 31, 2010
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91.2%
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86.0%
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Ergobaby
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September 16, 2010
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81.8%
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72.9%
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Arnold
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March 5, 2012
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98.0%
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88.1%
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Sterno
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October 10, 2014
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100.0%
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87.1%
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5.11
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August 31, 2016
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97.7%
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88.4%
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Velocity Outdoor
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June 2, 2017
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99.3%
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88.0%
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Altor Solutions
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February 15, 2018
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100.0%
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91.5%
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Marucci Sports
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April 20, 2020
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92.2%
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83.8%
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BOA
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October 16, 2020
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81.9%
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75.0%
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We categorize the businesses we own into two separate groups of businesses: (i) branded consumer businesses, and (ii) niche industrial businesses. Branded consumer businesses are characterized as those businesses that we believe capitalize on a valuable brand name in their respective market sector. We believe that our branded consumer businesses are leaders in their particular product category. Niche industrial businesses are characterized as those businesses that focus on manufacturing and selling particular products and industrial services within a specific market sector. We believe that our niche industrial businesses are leaders in their specific market sector. The following is an overview of each of our businesses:
Branded Consumer
5.11 - 5.11 is a leading provider of purpose-built technical apparel and gear for law enforcement, firefighters, EMS, and military special operations as well as outdoor and adventure enthusiasts. 5.11 is a brand known for innovation and authenticity, and works directly with end users to create purpose-built apparel and gear designed to enhance the safety, accuracy, speed and performance of tactical professionals and enthusiasts worldwide. Headquartered in Irvine, California, 5.11 operates sales offices and distribution centers globally, and 5.11 products are widely distributed in uniform stores, military exchanges, outdoor retail stores, its own retail stores and on 511tactical.com.
BOA - BOA Technology, creator of the revolutionary, award-winning, patented BOA Fit System, partners with market-leading brands to make the best gear even better. Delivering fit solutions purpose-built for performance, the BOA Fit System is featured in footwear across snow sports, cycling, hiking/trekking, golf, running, court sports, workwear as well as headwear and medical bracing. The system consists of three integral parts: a micro-adjustable dial, high-tensile lightweight laces, and low friction lace guides creating a superior alternative to laces, buckles, Velcro, and other traditional closure mechanisms. Each unique BOA configuration is engineered for fast, effortless, precision fit, and is backed by The BOA Lifetime Guarantee. BOA is headquartered in Denver, Colorado and has offices in Austria, Greater China, South Korea, and Japan.
Ergobaby - Headquartered in Los Angeles, California, Ergobaby is dedicated to building a global community of confident parents with smart, ergonomic solutions that enable and encourage bonding between parents and babies. Ergobaby offers a broad range of award-winning baby carriers, strollers, swaddlers, nursing pillows, and related products that fit into families’ daily lives seamlessly, comfortably and safely. Historically, Ergobaby derives more than 50% of its sales from outside of the United States.
Liberty - Founded in 1988, Liberty Safe is the premier designer, manufacturer and marketer of home and gun safes in North America. From its over 300,000 square foot manufacturing facility, Liberty Safe produces a wide range of home and gun safe models in a broad assortment of sizes, features and styles ranging from an entry level product to good, better and best products. Products are marketed under the Liberty brand, as well as a portfolio of licensed and private label brands, including Cabela’s, Case IH, Colt and John Deere. Liberty Safe’s products are the market share leader and are sold through an independent dealer network ("Dealer sales") in addition to various sporting goods, farm and fleet and home improvement retail outlets ("Non-Dealer sales"). Liberty has the largest independent dealer network in the industry. Liberty is headquartered in Payson, Utah.
Marucci Sports - Founded in 2009, Marucci is a leading designer, manufacturer, and marketer of premium wood and metal baseball bats, fielding gloves, batting gloves, bags, protective gear, sunglasses, on and off-field apparel, and other baseball and softball equipment used by professional and amateur athletes. Marucci also develops sports training facilities that may be licensed franchises or corporate owned. Marucci is headquartered in Baton Rouge, Louisiana.
Velocity Outdoor - A leading designer, manufacturer, and marketer of airguns, archery products, laser aiming devices and related accessories, Velocity Outdoor offers its products under the highly recognizable Crosman, Benjamin, LaserMax, Ravin and CenterPoint brands that are available through national retail chains, mass merchants, dealer and distributor networks. The airgun product category consists of air rifles, air pistols and a range of accessories including targets, holsters and cases. Velocity Outdoor's other primary product categories are archery, with products including CenterPoint crossbows and the Pioneer Airbow, consumables, which includes steel and plastic BBs, lead pellets and CO2 cartridges, lasers for firearms, and airsoft products. In September 2018, Velocity acquired Ravin Crossbows, LLC ("Ravin" or "Ravin Crossbows"), a manufacturer and innovator of crossbows and accessories. Ravin primarily focuses on the higher-end segment of the crossbow market and has developed significant intellectual property related to the advancement of crossbow technology. Velocity Outdoor is headquartered in Bloomfield, New York.
Niche Industrial
Advanced Circuits - Advanced Circuits is a provider of small-run, quick-turn and volume production printed circuit boards ("PCBs") to customers throughout the United States. Historically, small-run and quick-turn PCBs have represented approximately 50% - 55% of Advanced Circuits’ gross sales. Small-run and quick-turn PCBs typically command higher margins than volume production PCBs given that customers require high levels of responsiveness, technical support and timely delivery of small-run and quick-turn PCBs and are willing to pay a premium for them. Advanced Circuits is able to meet its customers’ demands by manufacturing custom PCBs in as little as 24 hours, while maintaining over 98.0% error-free production rates and real-time customer service and product tracking 24 hours per day. Advanced Circuits is headquartered in Aurora, Colorado.
Altor Solutions - Founded in 1957 and headquartered in Scottsdale, Arizona, Altor Solutions is a designer and manufacturer of custom molded protective foam solutions and original equipment manufacturer (OEM) components made from expanded polystyrene (EPS) and expanded polypropylene (EPP). Altor operates 14 molding and fabricating facilities across North America and provides products to a variety of end-markets, including appliances and electronics, pharmaceuticals, health and wellness, automotive, building products and others. In July 2020, Altor Solutions acquired the assets of Polyfoam, a Massachusetts-based manufacturer of protective and temperature-sensitive packaging solutions for the medical, pharmaceutical, grocery and food industries, among others.
Arnold - Arnold serves a variety of markets including aerospace and defense, general industrial, motorsport/ automotive, oil and gas, medical, energy, reprographics and advertising specialties. Over the course of more than 100 years, Arnold has successfully evolved and adapted our products, technologies, and manufacturing presence to meet the demands of current and emerging markets. Arnold produces high performance permanent magnets (PMAG), precision foil products (Precision Thin Metals or "PTM"), turnkey electric motors ("Ramco") and flexible magnets (Flexmag™) that are mission critical in motors, generators, sensors and other systems and components. Arnold has expanded globally and built strong relationships with our customers worldwide. Arnold is the largest and, we believe, the most technically advanced U.S. manufacturer of engineered magnetic systems. Arnold is headquartered in Rochester, New York.
Sterno - Sterno, headquartered in Corona, California, is the parent company of Sterno LLC ("Sterno Products"), Sterno Home Inc. ("Sterno Home"), and Rimports Inc. ("Rimports"). Sterno is a leading manufacturer and marketer of portable food warming systems, creative indoor and outdoor lighting, and home fragrance solutions for the foodservice industry and consumer markets. Sterno offers a broad range of wick and gel chafing systems, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps through Sterno Products, flameless candles and outdoor lighting products through Sterno Home, and scented wax cubes and warmer products used for home decor and fragrance systems through Rimports.
While our businesses have different growth opportunities and potential rates of growth, we work with the management teams of each of our businesses to increase the value of, and cash generated by, each business through various initiatives, including making selective capital investments to expand geographic reach, increase capacity or reduce manufacturing costs of our businesses; improving and expanding existing sales and marketing programs; and assisting in the acquisition and integration of complementary businesses. We remain focused on marketing our Company's attractive ownership and management attributes to potential sellers of middle market businesses. In addition, we continue to pursue opportunities for add-on acquisitions by our existing subsidiary companies, which can be particularly attractive from a strategic perspective.
2021 Outlook and COVID-19 Update
In March 2020, the World Health Organization categorized COVID-19 as a pandemic. During 2020, the COVID-19 pandemic led to governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter-in-place” and “stay-at-home” orders, travel restrictions, business curtailments, particularly retail operations and non-essential businesses, school closures, and other measures. In addition, governments and central banks in several parts of the world enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19. The emergence of COVID-19 and new variants of the virus around the world continue to present significant risks to our business. The economic and health conditions in the United States and across most of the globe have continued to change since the beginning of the pandemic and the ultimate impact of COVID-19 on our business is dependent on future developments, including the duration of the pandemic, the emergence of variants of the virus and the related length of its impact on the global economy, which are highly uncertain and cannot be accurately predicted at this time. The public health situation, global response measures and corresponding impacts on various markets remain fluid and uncertain. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it is impacting our customers, employees, supply chains, and distribution networks. The health of our team and various stakeholders is our highest priority, and we have taken multiple steps to provide support and a safe work environment.
For 2021, the Company anticipates that COVID-19 will continue to have an impact on its results of operations, including a decrease in operating income and Adjusted EBITDA at certain of its niche industrial businesses. These niche industrial businesses will continue to experience operating constraints as their end markets are expected to be more significantly impacted by the pandemic. For example, the Company expects the Sterno Products division of Sterno to continue to be negatively impacted by the pandemic throughout 2021 due to that division's reliance on the food service industry. Additionally, disruption in the global supply chain due to transportation delays and U.S. port congestion are expected to continue during 2021 and continue to place constraints on several of our businesses. However, we expect the diversification of our group of businesses, particularly the continued strong performance in our consumer branded businesses, to offset the expected decline in operating results from the COVID-19 pandemic experienced by these niche industrial businesses. We expect that our outdoor consumer branded businesses, particularly, 5.11, Liberty Safe and Velocity Outdoor, and our 2020 acquisitions, Marucci Sports and BOA, will continue to build on trends experienced in the prior year, particularly the increase in consumer participation in outdoor activities.
The areas of focus for 2021, which are generally applicable to each of our businesses, include:
•Achieving sales growth through a combination of new product development, increasing distribution, new customer acquisitions and international expansion;
•Taking market share, where possible, in each of our niche market leading companies, generally at the expense of less well capitalized competitors;
•Striving for excellence in supply chain management, manufacturing and technological capabilities;
•Continuing to pursue expense reduction and cost savings in lower margin business lines or in response to lower production volume;
•Continuing to grow through disciplined, strategic acquisitions and rigorous integration processes; and
•Driving free cash flow through increased net income and effective working capital management, enabling continued investment in our businesses, strategic acquisitions, and distributions to our shareholders.
Recent Events
Issuance of Senior Notes
On March 23, 2021, we consummated the issuance and sale of $1,000 million aggregate principal amount of our 5.250% Senior Notes due 2029 (the "2029 Notes" or "2029 Senior Notes) offered pursuant to a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act, and to non-U.S. persons under Regulation S under the Securities Act. The Notes were issued pursuant to an indenture, dated as of March 23, 2021 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The Notes bear interest at the rate of 5.250% per annum and will mature on April 15, 2029. Interest on the 2029 Notes is payable in cash on April 15th and October 15th of each year. The first interest payment date on the 2029 Senior Notes will be October 15, 2021. The proceeds from the sale of the 2029 Notes was used to repay debt outstanding under the 2018 Credit Facility in connection with entering into the 2021 Credit Facility, and to redeem our 8.000% Senior Notes due 2026 (the “2026 Notes”).
2021 Credit Facility
On March 23, 2021, we entered into a Second Amended and Restated Credit Agreement (the "2021 Credit Facility") to amend and restate the 2018 Credit Facility. The 2021 Credit Facility provides for revolving loans, swing line loans and letters of credit (the “2021 Revolving Credit Facility”) up to a maximum aggregate amount of $600 million and also permits the Company, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain term loans in an aggregate amount of up to $250 million, subject to certain restrictions and conditions. All amounts outstanding under the 2021 Revolving Credit Facility will become due on March 23, 2026, which is the maturity date of loans advanced under the Revolving Credit Facility.
Non-GAAP Financial Measures
"U.S. GAAP" or "GAAP" refer to generally accepted accounting principles in the United States. A non-GAAP financial measure is a numerical measure of historical or future performance, financial position or cash flow that excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in our financial statements, and vice versa for measures that include amounts, or are subject to adjustments that effectively include amounts, that are excluded from the most directly comparable measure as calculated and presented.
See “Reconciliation of Non-GAAP Financial Measures” for further discussion of our non-GAAP financial measures and related reconciliations.
Results of Operations
The following discussion reflects a comparison of the historical results of operations of our consolidated business for the three and six months ended June 30, 2021 and June 30, 2020, and components of the results of operations as well as those components presented as a percent of net revenues, for each of our businesses on a stand-alone basis. For the acquisitions of Marucci in April 2020 and BOA in October 2020, the pro forma results of operations for the Marucci and BOA business segments have been prepared as if we purchased those businesses on January 1, 2020. Where appropriate, relevant pro forma adjustments are reflected as part of the historical operating results of Marucci and BOA. We believe this is the most meaningful comparison for the operating results of acquired business segments. The consolidated results of operations reflect the operating results of Marucci and BOA from the date of acquisition.
In the first quarter of 2020, we began to see the impacts of COVID-19 on certain of our businesses, markets and operations, particularly those that were most affected by governmental “stay-at home” orders which led to reduced consumer traffic and either a closure of stores by some retailers or a focus on items that were deemed essential. The effect of the COVID-19 pandemic in the second quarter of 2020 was more significant, as many of our businesses saw a significant decrease in sales. The effects of the pandemic on our results of operations in the prior year will impact the comparisons of the three and six months ended 2021 versus the prior year. In response to reductions in revenue resulting from the pandemic, our businesses took a number of steps to address the effects of COVID-19, including reducing variable costs and payroll, and adjusting production levels to "right-size" inventory levels, while in the current period, spending levels reflect a return to more normal levels. The ultimate impact of COVID-19 on our business is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are highly uncertain and cannot be accurately predicted at this time. The following results of operations at each of our businesses are not necessarily indicative of the results to be expected for a full year.
All dollar amounts in the financial tables are presented in thousands. References in the financial tables to percentage changes that are not meaningful are denoted by "NM."
Results of Operations - Consolidated
The following table sets forth our unaudited results of operations for the three months ended June 30, 2021 and 2020:
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Three months ended
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Six months ended
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(in thousands)
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June 30, 2021
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June 30, 2020
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June 30, 2021
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June 30, 2020
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Net revenues
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$
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487,438
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$
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333,627
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$
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949,034
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$
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667,076
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Cost of revenues
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294,683
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216,224
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569,430
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430,185
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Gross profit
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192,755
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117,403
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379,604
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236,891
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Selling, general and administrative expense
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114,022
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84,014
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224,990
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167,814
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Fees to manager
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11,308
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5,157
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22,356
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13,777
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Amortization of intangibles
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18,847
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14,779
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37,446
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28,284
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Operating income
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48,578
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13,453
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94,812
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27,016
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Interest expense
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(14,947)
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(11,174)
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(28,752)
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(19,771)
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Amortization of debt issuance costs
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(722)
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(610)
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(1,408)
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(1,135)
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Loss on debt extinguishment
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(33,305)
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—
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(33,305)
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—
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Other income (expense)
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(663)
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(2,386)
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(2,890)
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(1,725)
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Income (loss) before income taxes
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(1,059)
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(717)
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28,457
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4,385
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Provision for income taxes
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10,192
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6,649
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17,712
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6,871
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Net income (loss)
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$
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(11,251)
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$
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(7,366)
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$
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10,745
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$
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(2,486)
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Three months ended June 30, 2021 compared to three months ended June 30, 2020
Net revenues
Consolidated net revenues for the three months ended June 30, 2021 increased by approximately $153.8 million, or 46.1%, compared to the corresponding period in 2020. Our BOA business, which we acquired in October 2020, contributed $44.1 million in net revenue during the second quarter of 2021. During the three months ended June 30, 2021 compared to 2020, we also saw significant increases in net sales at 5.11 ($22.4 million increase), Ergobaby ($6.9 million increase), Liberty ($9.0 million increase), Marucci ($19.2 million increase), Velocity Outdoor ($16.1 million increase), Arnold ($8.3 million increase), Altor Solutions ($16.2 million increase) and Sterno ($11.9 million increase). During the comparable period in 2020, the onset of the COVID-19 pandemic resulted in the implementation of various measures to help control the spread of the virus, including quarantines, "shelter-in-place" and "stay-at-home" orders, that severely impacted our businesses and led to a steep drop-off in revenue during the quarter. Refer to "Results of Operations - Business Segments" for a more detailed analysis of net revenues by business segment.
We do not generate any revenues apart from those generated by the businesses we own. We may generate interest income on the investment of available funds, but we expect such earnings to be minimal. Our investment in our businesses is typically in the form of loans from the Company to such businesses, as well as equity interests in those companies. Cash flows coming to the Trust and the Company are the result of interest payments on those loans, amortization of those loans and dividends on our equity ownership. However, on a consolidated basis, these items will be eliminated.
Cost of revenues
On a consolidated basis, cost of revenues increased approximately $78.5 million during the three months ended June 30, 2021 compared to the corresponding period in 2020. Our BOA business contributed $16.3 million of the increase, and we saw notable increases in cost of revenues at 5.11 ($8.1 million increase), Liberty ($6.5 million increase), Marucci ($6.7 million increase), Velocity ($9.0 million increase), Arnold ($5.9 million increase), Altor ($14.3 million increase) and Sterno ($9.9 million increase) that correspond to the revenue increases noted above. Gross profit as a percentage of net revenues was approximately 39.5% in the three months ended June 30, 2021 compared to 35.2% in the three months ended June 30, 2020. The increase in gross profit as a percentage of net sales in the quarter ended June 30, 2021 as compared to the quarter ended June 30, 2020 primarily related to the increase in net revenue at our branded consumer businesses, which have higher gross margins than our niche industrial businesses. Refer to "Results of Operations - Business Segments" for a more detailed analysis of gross profit by business segment.
Selling, general and administrative expense
Consolidated selling, general and administrative expense increased approximately $30.0 million during the three months ended June 30, 2021, compared to the corresponding period in 2020. A portion of the increase in the second quarter of 2021 is due to our BOA acquisitions in the prior year. $12.3 million of the increase is attributable to BOA, which was acquired in October 2020. We also saw an increase in selling, general and administrative expense at several of our subsidiaries versus the prior year quarter as spending on variable expenses were reduced in the prior year in response to the onset of the COVID-19 pandemic, with the current quarter spend reflecting more normal levels. Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by business segment. At the corporate level, general and administrative expense was $4.0 million in the second quarter of 2021 and $3.6 million in the second quarter of 2020.
Fees to manager
Pursuant to the Management Services Agreement ("MSA"), we pay CGM a quarterly management fee equal to 0.5% (2.0% annually) of our consolidated adjusted net assets. We accrue for the management fee on a quarterly basis. For the three months ended June 30, 2021, we incurred approximately $11.3 million in management fees as compared to $5.2 million in fees in the three months ended June 30, 2020. The increase in Management fees is primarily attributable to our acquisition of Marucci in April 2020 and BOA in October 2020. CGM has entered into a waiver of the MSA for a period through December 31, 2021 to receive a 1% annual management fee related to BOA, rather than the 2% called for under the MSA, which resulted in a lower management fee paid in the second quarter of 2021 than would have normally been due. Additionally, in the second quarter of 2020, in anticipation of an expected decline in earnings and cash flows due to the onset of the COVID-19 pandemic, CGM agreed to waive 50% of the management fee calculated for the quarter ended June 30, 2020.
Amortization expense
Amortization expense for the three months ended June 30, 2021 increased $4.1 million as compared to the three months ended June 30, 2020 as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for Marucci, which was acquired in April 2020, and BOA, which was acquired in October 2020.
Interest expense
We recorded interest expense totaling $14.9 million for the three months ended June 30, 2021 compared to $11.2 million for the comparable period in 2020, an increase of $3.8 million. The increase in interest expense for the quarter reflects the higher amount outstanding on our Senior Notes during the quarter after we redeemed our 8.000% 2026 Senior Notes and issued $1,000.0 million in 5.250% 2029 Senior Notes in March of 2021, offset by a decrease in the average amount outstanding under our Revolving Credit Facility during the second quarter of 2021 as compared to the second quarter of 2020.
Other income (expense)
For the quarter ended June 30, 2021, we recorded $0.7 million in other expense as compared to $2.4 million in other expense in the quarter ended June 30, 2020, a decrease in expense of $1.7 million. Other income (expense) in typically reflects the movement in foreign currency at our businesses with international operations, gains or (losses) realized on the sale of property, plant and equipment, and expenses incurred that are not considered a part of our operations.
Income taxes
We had an income tax provision of $10.2 million during the three months ended June 30, 2021 compared to an income tax provision of $6.6 million during the same period in 2020. Our income before income taxes for the quarter ended June 30, 2021 decreased by approximately $0.3 million as compared to the prior year quarter ended June 30, 2020, however this was driven by the recognition of $33.3 million in loss on debt extinguishment at the corporate level related to the refinancing of our Senior Notes. Our tax provision increased $3.5 million as the tax provision reflects an annual effective tax rate at our subsidiaries, the effect of state and local taxes and the related allocation of income, and the losses at our parent company, which is currently taxed as a partnership.
On June 23, 2021, the Trust and the Company issued a definitive proxy statement requesting shareholder approval to amend their governing documents to allow the Trust to “check-the-box” to elect to be treated as a corporation for U.S. federal income tax purposes. The shareholder meeting will be held on August 3, 2021. If the amendments are approved, we anticipate that the Company, acting through the Board of Directors, will cause the Trust to elect to be treated as a corporation for U.S. federal income tax purposes effective late in the third quarter of 2021 or early in the fourth quarter of 2021.
Six months ended June 30, 2021 compared to six months ended June 30, 2020
Net revenues
On a consolidated basis, net revenues for the six months ended June 30, 2021 increased by approximately $282.0 million, or 42.3%, compared to the corresponding period in 2020. Our Marucci business, which we acquired in April 2020, contributed $56.0 million in incremental net revenue during the first half of 2021, and our BOA business, which we acquired in October 2020, contributed $80.5 million in net revenue during the first half of 2021. During the six months ended June 30, 2021 compared to 2020, we also saw significant increases in net sales at 5.11 ($26.5 million increase), Ergobaby ($9.6 million increase), Liberty ($15.5 million increase), Velocity Outdoor ($51.4 million increase), Arnold ($11.2 million increase) and Altor Solutions ($25.6 million increase). The increase in net revenue at Altor Solutions during the first half of 2021 was partially attributable to their acquisition of Polyfoam in July 2020. Refer to "Results of Operations - Business Segments" for a more detailed analysis of net revenues by business segment.
We do not generate any revenues apart from those generated by the businesses we own. We may generate interest income on the investment of available funds, but we expect such earnings to be minimal. Our investment in our businesses is typically in the form of loans from the Company to such businesses, as well as equity interests in those companies. Cash flows coming to the Trust and the Company are the result of interest payments on those loans, amortization of those loans and dividends on our equity ownership. However, on a consolidated basis, these items will be eliminated.
Cost of revenues
On a consolidated basis, cost of revenues increased approximately $139.2 million during the six months ended June 30, 2021 compared to the corresponding period in 2020. Our Marucci and BOA businesses contributed $51.6 million of the increase, and we saw notable increases in cost of revenues at 5.11 ($7.4 million increase), Liberty ($10.7 million increase), Velocity ($31.0 million increase), Arnold ($7.3 million increase) and Altor ($22.3 million increase) that correspond to the revenue increases noted above. Gross profit as a percentage of net revenues was approximately 40.0% in the six months ended June 30, 2021 compared to 35.5% in the six months ended June 30, 2020. The increase in gross profit as a percentage of net sales in the quarter ended June 30, 2021 as compared to the quarter ended June 30, 2020 primarily related to the increase in net revenue at our branded consumer businesses, which have higher gross margins than our niche industrial businesses. Refer to "Results of Operations - Business Segments" for a more detailed analysis of gross profit by business segment.
Selling, general and administrative expense
Consolidated selling, general and administrative expense increased approximately $57.2 million during the six months ended June 30, 2021, compared to the corresponding period in 2020. A majority of the increase in the first half of 2021 is due to our Marucci and BOA acquisitions in the prior year. $9.5 million of the increase is attributable to our Marucci business, which was acquired in April 2020, and $23.8 million of the increase is attributable to BOA, which was acquired in October 2020. We also saw an increase in selling, general and administrative expense at several of our subsidiaries versus the prior year quarter as spending on variable expenses were reduced in the prior year in response to the onset of the COVID-19 pandemic, with the current quarter spend reflecting more normal levels of selling, general and administrative spend. Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by business segment. At the corporate level, general and administrative expense was $8.0 million in the first half of 2021 and $6.9 million in the first half of 2020. The increase in corporate general and administrative expense during the first half of 2021 is primarily due to increased professional fees associated with our proposal to cause the Trust to elect to be treated as a corporation for U.S. federal income tax purposes.
Fees to manager
Pursuant to the Management Services Agreement ("MSA"), we pay CGM a quarterly management fee equal to 0.5% (2.0% annually) of our consolidated adjusted net assets. We accrue for the management fee on a quarterly basis. For the six months ended June 30, 2021, we incurred approximately $22.4 million in management fees as compared to $13.8 million in fees in the six months ended June 30, 2020. The increase in Management fees is primarily attributable to our acquisition of Marucci in April 2020 and BOA in October 2020. CGM has entered into a waiver of the MSA for a period through December 31, 2021 to receive a 1% annual management fee related to BOA, rather than the 2% called for under the MSA, which resulted in a lower management fee paid in the first half of 2021 than would have normally been due. In the first quarter of 2020, as a proactive measure to provide the Company with additional liquidity in light of the onset of the COVID-19 pandemic, the Company drew $200 million down on the 2018 Revolving Credit Facility. The Company and CGM entered a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to cash balances at March 31, 2020 which reduced the amount of Management fee that would have been paid in the first quarter of 2020. Additionally, as a result of an expected decline in earnings and cash flows in the second quarter of 2020 in light of the COVID-19 pandemic, CGM agreed to waive 50% of the management fee calculated at June 30, 2020. In the first quarter of 2021, the Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee related to the amount of the proceeds deposited with the Trustee that was in excess of the amount payable related to the 2026 Senior Notes at March 31, 2021.
Amortization expense
Amortization expense for the six months ended June 30, 2021 increased $9.2 million as compared to the six months ended June 30, 2020 as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for Marucci, which was acquired in April 2020, and BOA, which was acquired in October 2020.
Interest expense
We recorded interest expense totaling $28.8 million for the six months ended June 30, 2021 compared to $19.8 million for the comparable period in 2020, an increase of $9.0 million. The increase in interest expense for the quarter reflects the higher amount outstanding on our Senior Notes during the current year after we redeemed $600.0 million of our 8.000% 2026 Senior Notes and issued $1000.0 million of 5.250% 2029 Senior Notes in March of 2021, as well as an increase in the average amount outstanding under our Revolving Credit Facility during the first half of 2021. The average amount outstanding on our Revolving Credit Facility in the first half of 2021 was approximately $161 million, while the average amount outstanding during the first half of 2020 was $58 million.
Other income (expense)
For the six months ended June 30, 2021, we recorded $2.9 million in other expense as compared to $1.7 million in other expense in the six months ended June 30, 2020, an increase in expense of $1.2 million. Other income (expense) in typically reflects the movement in foreign currency at our businesses with international operations, gains or (losses) realized on the sale of property, plant and equipment, and expenses incurred that are not considered a part of our operations.
Income taxes
We had an income tax provision of $17.7 million during the six months ended June 30, 2021 compared to an income tax provision of $6.9 million during the same period in 2020. Our income before income taxes for the six months ended June 30, 2021 increased by approximately $24.1 million as compared to the prior year six months ended June 30, 2020, and our tax provision increased $10.8 million as the tax provision reflects an annual effective tax rate at our subsidiaries, the effect of state and local taxes and the related allocation of income, and the losses at our parent company, which is currently taxed as a partnership.
On June 23, 2021, the Trust and the Company issued a definitive proxy statement requesting shareholder approval to amend their governing documents to allow the Trust to “check-the-box” to elect to be treated as a corporation for U.S. federal income tax purposes. The shareholder meeting will be held on August 3, 2021. If the amendments are approved, we anticipate that the Company, acting through the Board of Directors, will cause the Trust to elect to be treated as a corporation for U.S. federal income tax purposes effective late in the third quarter of 2021 or early in the fourth quarter of 2021.
Results of Operations - Business Segments
Branded Consumer Businesses
5.11
|
|
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|
|
|
|
|
|
|
|
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|
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Three months ended
|
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Six months ended
|
|
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|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net sales
|
|
$
|
110,033
|
|
|
100.0
|
%
|
|
$
|
87,635
|
|
|
100.0
|
%
|
|
$
|
209,910
|
|
|
100.0
|
%
|
|
$
|
183,416
|
|
|
100.0
|
%
|
|
Gross profit
|
|
$
|
58,642
|
|
|
53.3
|
%
|
|
$
|
44,321
|
|
|
50.6
|
%
|
|
$
|
110,716
|
|
|
52.7
|
%
|
|
$
|
91,578
|
|
|
49.9
|
%
|
|
SG&A
|
|
$
|
44,210
|
|
|
40.2
|
%
|
|
$
|
37,182
|
|
|
42.4
|
%
|
|
$
|
87,985
|
|
|
41.9
|
%
|
|
$
|
77,417
|
|
|
42.2
|
%
|
|
Operating income
|
|
$
|
11,969
|
|
|
10.9
|
%
|
|
$
|
4,702
|
|
|
5.4
|
%
|
|
$
|
17,805
|
|
|
8.5
|
%
|
|
$
|
9,288
|
|
|
5.1
|
%
|
Three months ended June 30, 2021 compared to three months ended June 30, 2020
Net sales
Net sales for the three months ended June 30, 2021 were $110.0 million as compared to net sales of $87.6 million for the three months ended June 30, 2020, an increase of $22.4 million, or 25.6%. This increase is due in part to e-commerce and retail sales growth of $12.6 million, up 36% from the prior year comparable period. Retail sales grew largely due to thirteen new retail store openings since June 2020 (bringing the total store count to eighty-one as of June 30, 2021) as well as positive growth in same-store sales for the three months ended June 30, 2021 as compared to the same period last year which was negatively impacted by the effects of the COVID-19 pandemic, as certain of our retail locations had to temporarily close. Net sales were also positively impacted by domestic wholesale sales growth of $8.0 million, up 24.7% from the prior year comparable period which was negatively impacted by the effects of the COVID-19 pandemic.
Gross profit
Gross profit as a percentage of net sales was 53.3% in the three months ended June 30, 2021 as compared to 50.6% for the three months ended June 30, 2020. Growth in gross profit percentage was driven by channel mix as direct to consumer sales, which realize higher gross profit than wholesale sales, grew versus the prior period. Growth in gross profit percentage was also favorably impacted for the three months ended June 30, 2021, due to the release of duty liabilities (decreased cost of goods sold) for over-accrued duty for 5.11's international operations which did not occur in the three months ended June 30, 2020. The increase in gross profit from the release of duty liabilities was offset in part by the write-off of domestic duty drawback receivables from previous years deemed uncollectable during the three months ended June 30, 2021.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended June 30, 2021 was $44.2 million, or 40.2% of net sales compared to $37.2 million, or 42.4% of net sales for the comparable period in 2020. The increase in selling, general and administrative expense for the three months ended June 30, 2021 as compared to the prior year comparable period was driven by the costs associated with additional retail stores (eighty-one opened at June 30, 2021 versus sixty-eight opened at June 30, 2020 during the comparable period), as well as additional sales and
marketing spend to drive digital sales. For the three months ended June 30, 2020, management significantly reduced variable expenses, including payroll, bonus, travel and entertainment, and sales and marketing, as a response to decreased sales from the effects of the COVID-19 pandemic. While management continues to control and reduce variable expenses, payroll and bonus for the three months ended June 30, 2021 were not reduced, thereby increasing selling, general and administrative expense as compared to the three months ended June 30, 2020.
Income from operations
Income from operations for the three months ended June 30, 2021 was $12.0 million, an increase of $7.3 million when compared to income from operations of $4.7 million for the same period in 2020, based on the factors described above.
Six months ended June 30, 2021 compared to six months ended June 30, 2020
Net sales
Net sales for the six months ended June 30, 2021 were $209.9 million as compared to net sales of $183.4 million for the six months ended June 30, 2020, an increase of $26.5 million, or 14.4%. This increase is due primarily to e-commerce and retail sales growth of $20.9 million, up 31% from the prior year comparable period. Retail sales grew largely due to thirteen new retail store openings since June 2020 (bringing the total store count to eighty-one as of June 30, 2021) as well as positive growth in same-store sales for the six months ended June 30, 2021 as compared to the same period last year which was negatively impacted by the effects of the COVID-19 pandemic. Net sales were also positively impacted by domestic wholesale sales growth of $8.7 million, up 12.8% from the prior year comparable period which was negatively impacted by the effects of the COVID-19 pandemic, as certain of our retail stores had to temporarily close. The increase in sales from our retail and e-commerce channels was partially offset by a decrease of $6.8 million in sales in our direct to agency business (DTA) as we fulfilled a large contract in the first half of 2020 which did not repeat in 2021.
Gross profit
Gross profit as a percentage of net sales was 52.7% in the six months ended June 30, 2021 as compared to 49.9% for the six months ended June 30, 2020. Growth in gross profit percentage was driven by channel mix as direct to consumer sales, which realize higher gross profit than wholesale sales, grew versus the prior period. Growth in gross profit percentage was also favorably impacted as in the six months ended June 30, 2020, we recorded a duty drawback accrual (which increased cost of goods sold) for audited duty drawback claims which was not repeated for the comparable period in 2021.
Selling, general and administrative expense
Selling, general and administrative expense for the six months ended June 30, 2021 was $88.0 million, or 41.9% of net sales compared to $77.4 million, or 42.2% of net sales for the comparable period in 2020. The increase in selling, general and administrative expense for the six months ended June 30, 2021 as compared to the prior year comparable period was driven by the costs associated with additional retail stores (eighty-one open in 2021 versus sixty-eight open in 2020 during the comparable period), as well as additional sales and marketing spend to drive digital sales. For the six months ended June 30, 2020, management significantly reduced variable expenses, including payroll, bonus, travel and entertainment, and sales and marketing, as a response to decreased sales from the effects of the COVID-19 pandemic. While management continues to control and reduce variable expenses, payroll and bonus for the first half of 2021 increased in correlation with the increase in net sales.
Income from operations
Income from operations for the six months ended June 30, 2021 was $17.8 million, an increase of $8.5 million when compared to income from operations of $9.3 million for the same period in 2020, based on the factors described above.
BOA
In the following results of operations, we provide comparative pro forma results of operations for BOA for the three and six months ended June 30, 2020 as if we had acquired the business on January 1, 2020. The results of operations that follows include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable. The operating results for BOA have been included in the consolidated results of operation from the date of acquisition in October 2020.
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
Net sales
|
|
$
|
44,085
|
|
|
100.0%
|
|
$
|
24,524
|
|
|
100.0%
|
|
$
|
80,537
|
|
|
100.0%
|
|
$
|
51,032
|
|
|
100.0%
|
|
Gross profit
|
|
$
|
27,777
|
|
|
63.0%
|
|
$
|
14,224
|
|
|
58.0%
|
|
$
|
50,541
|
|
|
62.8%
|
|
$
|
29,607
|
|
|
58.0%
|
|
SG&A
|
|
$
|
12,330
|
|
|
28.0%
|
|
$
|
8,027
|
|
|
32.7%
|
|
$
|
23,754
|
|
|
29.5%
|
|
$
|
17,266
|
|
|
33.8%
|
|
Amortization expense
|
|
$
|
3,744
|
|
|
8.5%
|
|
$
|
3,810
|
|
|
15.5%
|
|
$
|
7,580
|
|
|
9.4%
|
|
$
|
7,620
|
|
|
14.9%
|
|
Operating income
|
|
$
|
11,453
|
|
|
26.0%
|
|
$
|
2,137
|
|
|
8.7%
|
|
$
|
18,707
|
|
|
23.2%
|
|
$
|
4,221
|
|
|
8.3%
|
Pro forma results of operations include the following pro form adjustments as if we had acquired BOA January 1, 2020:
•Amortization expense associated with the intangible assets recorded in connection with the purchase price allocation for BOA of $3.8 million and $7.6 million, respectively, for the three and six months ended June 30, 2020.
•Management fees that would have been payable to the Manager during each period.
Three months ended June 30, 2021 compared to pro forma three months ended June 30, 2020
Net sales
Net sales for the three months ended June 30, 2021 were $44.1 million as compared to net sales of $24.5 million for the three months ended June 30, 2020, an increase of $19.6 million, or 79.8%. This increase is due to underlying category and BOA momentum within key markets including Cycling, Outdoor and Golf. The two factors primarily impacting growth rates were consumer participation increases as well as accelerated production ordering due to longer lead times, resulting from overall global supply chain constraints.
Gross profit
Gross profit as a percentage of net sales was 63.0% in the three months ended June 30, 2021 as compared to 58.0% for the three months ended June 30, 2020. Growth in gross profit as a percentage of net sales was driven by manufacturing overhead leverage, cost engineering and targeted price increases.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended June 30, 2021 was $12.3 million, or 28.0% of net sales compared to $8.0 million, or 32.7% of net sales for the comparable period in 2020. Selling general and administrative expense in the current quarter includes $1.1 million in integration services fees paid to CGM. The remainder of the increase in selling, general, and administrative expense is due to increased employee costs related to BOA's bonus plan, incremental headcount and marketing investments.
Income from operations
Income from operations for the three months ended June 30, 2021 was $11.5 million, an increase of $9.3 million when compared to income from operations of $2.1 million for the same period in 2020, based on the factors described above.
Six months ended June 30, 2021 compared to pro forma six months ended June 30, 2020
Net sales
Net sales for the six months ended June 30, 2021 were $80.5 million as compared to net sales of $51.0 million for the six months ended June 30, 2020, an increase of $29.5 million, or 57.8%. This increase is due to underlying category and BOA momentum within key markets including Cycling, Outdoor and Golf. The two factors primarily impacting growth rates were consumer participation increases as well as accelerated production ordering due to longer lead times, resulting from overall global supply chain constraints.
Gross profit
Gross profit as a percentage of net sales was 62.8% in the six months ended June 30, 2021 as compared to 58.0% for the six months ended June 30, 2020. Growth in gross profit as a percentage of net sales was driven by manufacturing overhead leverage, cost engineering and targeted price increases.
Selling, general and administrative expense
Selling, general and administrative expense for the six months ended June 30, 2021 was $23.8 million, or 29.5% of net sales compared to $17.3 million, or 33.8% of net sales for the comparable period in 2020. Selling general and administrative expense in the current year includes $2.2 million in integration services fees paid to CGM. The remainder of the increase in selling, general, and administrative expense is due to increased employee costs related to BOA's bonus plan, incremental headcount and marketing investments.
Income from operations
Income from operations for the six months ended June 30, 2021 was $18.7 million, an increase of $14.5 million when compared to income from operations of $4.2 million for the same period in 2020, based on the factors described above.
Ergobaby
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net sales
|
|
$
|
26,956
|
|
|
100.0
|
%
|
|
$
|
20,044
|
|
|
100.0
|
%
|
|
$
|
49,284
|
|
|
100.0
|
%
|
|
$
|
39,693
|
|
|
100.0
|
%
|
|
Gross profit
|
|
$
|
17,827
|
|
|
66.1
|
%
|
|
$
|
13,176
|
|
|
65.7
|
%
|
|
$
|
32,856
|
|
|
66.7
|
%
|
|
$
|
25,942
|
|
|
65.4
|
%
|
|
SG&A
|
|
$
|
12,052
|
|
|
44.7
|
%
|
|
$
|
9,194
|
|
|
45.9
|
%
|
|
$
|
22,977
|
|
|
46.6
|
%
|
|
$
|
18,450
|
|
|
46.5
|
%
|
|
Operating income
|
|
$
|
3,754
|
|
|
13.9
|
%
|
|
$
|
2,026
|
|
|
10.1
|
%
|
|
$
|
5,718
|
|
|
11.6
|
%
|
|
$
|
3,580
|
|
|
9.0
|
%
|
Three months ended June 30, 2021 compared to three months ended June 30, 2020
Net sales
Net sales for the three months ended June 30, 2021 were $27.0 million, an increase of $6.9 million, or 34.5%, compared to the same period in 2020. During the three months ended June 30, 2021, international sales were approximately $17.9 million, representing an increase of $4.9 million over the corresponding period in 2020, primarily as a result of increased distributor sales as well as strong European online and key account sales. Domestic sales were $9.1 million in the second quarter of 2021, reflecting an increase of $2.0 million compared to the corresponding period in 2020. The increase in domestic sales was primarily attributable to strong e-commerce and key accounts sales.
Gross profit
Gross profit as a percentage of net sales was 66.1% for the three months ended June 30, 2021, as compared to 65.7% for the three months ended June 30, 2020. The increase in gross profit as a percentage of sales was due to the mix of sales channels.
Selling, general and administrative expense
Selling, general and administrative expense increased $2.9 million quarter over quarter, with expense of $12.1 million, or 44.7% of net sales for the three months ended June 30, 2021 as compared to $9.2 million or 45.9% of net sales for the same period of 2020. The increase in selling, general and administrative expense in the three months ended June 30, 2021 as compared to the comparable period in the prior year is due to increased variable expenses related to sales and payroll accruals, and the timing of marketing spend.
Income from operations
Income from operations for the three months ended June 30, 2021 increased $1.7 million, compared to the same period in 2020, based on the factors noted above.
Six months ended June 30, 2021 compared to six months ended June 30, 2020
Net sales
Net sales for the six months ended June 30, 2021 were $49.3 million, an increase of $9.6 million, or 24.2%, compared to the same period in 2020. During the six months ended June 30, 2021, international sales were approximately $31.4 million, representing an increase of $5.1 million over the corresponding period in 2020 as a result of increased sales across all channels. Domestic sales were $17.9 million in the first half of 2021, reflecting
an increase of $4.5 million compared to the corresponding period in 2020. The increase in domestic sales was primarily attributable to strong e-commerce and key accounts sales.
Gross profit
Gross profit as a percentage of net sales was 66.7% for the quarter ended June 30, 2021, as compared to 65.4% for the six months ended June 30, 2020. The increase in gross profit as a percentage of sales was due to the mix of sales channels.
Selling, general and administrative expense
Selling, general and administrative expense increased $4.5 million quarter over quarter, with expense of $23.0 million, or 46.6% of net sales for the six months ended June 30, 2021 as compared to $18.5 million or 46.5% of net sales for the same period of 2020. The increase in selling, general and administrative expense in the six months ended June 30, 2021 as compared to the comparable period in the prior year is due to increased variable expenses related to sales, payroll accruals, and timing of marketing expenses.
Income from operations
Income from operations for the six months ended June 30, 2021 increased $2.1 million, compared to the same period in 2020, based on the factors noted above.
Liberty Safe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net sales
|
|
$
|
33,448
|
|
|
100.0
|
%
|
|
$
|
24,453
|
|
|
100.0
|
%
|
|
$
|
64,926
|
|
|
100.0
|
%
|
|
$
|
49,413
|
|
|
100.0
|
%
|
|
Gross profit
|
|
$
|
8,879
|
|
|
26.5
|
%
|
|
$
|
6,340
|
|
|
25.9
|
%
|
|
$
|
17,776
|
|
|
27.4
|
%
|
|
$
|
12,947
|
|
|
26.2
|
%
|
|
SG&A
|
|
$
|
2,851
|
|
|
8.5
|
%
|
|
$
|
2,815
|
|
|
11.5
|
%
|
|
$
|
5,993
|
|
|
9.2
|
%
|
|
$
|
6,152
|
|
|
12.5
|
%
|
|
Operating income
|
|
$
|
5,903
|
|
|
17.6
|
%
|
|
$
|
3,400
|
|
|
13.9
|
%
|
|
$
|
11,533
|
|
|
17.8
|
%
|
|
$
|
6,545
|
|
|
13.2
|
%
|
Three months ended June 30, 2021 compared to three months ended June 30, 2020
Net sales
Net sales for the quarter ended June 30, 2021 increased approximately $9.0 million, or 36.8%, to $33.4 million, compared to the corresponding quarter ended June 30, 2020. Non-Dealer sales were approximately $16.5 million in the three months ended June 30, 2021 as compared to $11.4 million in the quarter ended June 30, 2020. The increase in Non-Dealer sales of $5.1 million or 45% is attributable to strong performance in the Farm and Fleet channel. Dealer sales totaled approximately $16.9 million in the three months ended June 30, 2021 compared to $13.1 million in the same period in 2020, representing an increase of $3.8 million or 29%.
Gross profit
Gross profit as a percentage of net sales totaled approximately 26.5% and 25.9% for the quarters ended June 30, 2021 and June 30, 2020, respectively. The increase in gross profit as a percentage of net sales during the three months ended June 30, 2021 compared to the same period in 2020 is primarily attributable to favorable operating efficiencies due to higher production volumes and reduced consumer rebates during the current quarter, offset by higher material costs.
Selling, general and administrative expense
Selling, general and administrative expense was $2.9 million for the three months ended June 30, 2021 as compared to $2.8 million in selling, general and administrative expense in the three months ended June 30, 2020. Selling, general and administrative expense represented 8.5% of net sales in the three months ended March 31, 2021 and 11.5% of net sales for the same period of 2020.
Income from operations
Income from operations increased during the three months ended June 30, 2021 to $5.9 million, as compared to $3.4 million in the corresponding period in 2020. This increase was a result of the factors noted above.
Six months ended June 30, 2021 compared to six months ended June 30, 2020
Net sales
Net sales for the six months ended June 30, 2021 increased approximately $15.5 million, or 31.4%, to $64.9 million, compared to the corresponding six months ended June 30, 2020. Non-Dealer sales were approximately $31.5 million in the six months ended June 30, 2021 as compared to $21.3 million in the quarter ended June 30, 2020. The increase in Non-Dealer sales of $10.2 million or 48% is attributable to strong performance in the Farm and Fleet channel. Dealer sales totaled approximately $33.4 million in the six months ended June 30, 2021 compared to $28.1 million in the same period in 2020, representing an increase of $5.3 million or 19%.
Gross profit
Gross profit as a percentage of net sales totaled approximately 27.4% and 26.2% for the six months ended June 30, 2021 and June 30, 2020, respectively. The increase in gross profit as a percentage of net sales during the six months ended June 30, 2021 compared to the same period in 2020 is primarily attributable to favorable operating efficiencies due to higher production volumes and reduced consumer rebates during the current quarter.
Selling, general and administrative expense
Selling, general and administrative expense was $6.0 million for the six months ended June 30, 2021 as compared to $6.2 million in selling, general and administrative expense in the six months ended June 30, 2020. The decrease in selling, general and administrative expense in the first half of 2021 is due to spending reductions in advertising and promotion in an effort to manage demand for safes, partially offset by an increase in professional fees. Selling, general and administrative expense represented 9.2% of net sales in the six months ended June 30, 2021 and 12.5% of net sales for the same period of 2020.
Income from operations
Income from operations increased during the six months ended June 30, 2021 to $11.5 million, as compared to $6.5 million in the corresponding period in 2020. This increase was a result of the factors noted above.
Marucci Sports
In the following results of operations, we provide comparative pro forma results of operations for Marucci for the three and six months ended June 30, 2020 as if we had acquired the business on January 1, 2020. The results of operations that follows include relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable. The operating results for Marucci have been included in the consolidated results of operation from the date of acquisition in April 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
Net sales
|
|
$
|
24,640
|
|
|
100.0
|
%
|
|
$
|
5,521
|
|
|
100.0
|
%
|
|
$
|
61,288
|
|
|
100.0
|
%
|
|
$
|
27,756
|
|
|
100.0
|
%
|
|
Gross profit
|
|
$
|
12,375
|
|
|
50.2
|
%
|
|
$
|
(207)
|
|
|
(3.7)
|
%
|
|
$
|
34,163
|
|
|
55.7
|
%
|
|
$
|
12,151
|
|
|
43.8
|
%
|
|
SG&A
|
|
$
|
9,484
|
|
|
38.5
|
%
|
|
$
|
8,004
|
|
|
145.0
|
%
|
|
$
|
18,938
|
|
|
30.9
|
%
|
|
$
|
15,991
|
|
|
57.6
|
%
|
|
Amortization expense
|
|
$
|
1,586
|
|
|
6.4
|
%
|
|
$
|
1,656
|
|
|
30.0
|
%
|
|
$
|
3,288
|
|
|
5.4
|
%
|
|
$
|
3,310
|
|
|
11.9
|
%
|
|
Operating income
|
|
$
|
1,180
|
|
|
4.8
|
%
|
|
$
|
(9,992)
|
|
|
(181.0)
|
%
|
|
$
|
11,687
|
|
|
19.1
|
%
|
|
$
|
(7,400)
|
|
|
(26.7)
|
%
|
Pro forma results of operations include the following pro form adjustments as if we had acquired Marucci January 1, 2020:
•Depreciation expense associated with the increase in depreciable lives of capital assets of $0.1 million and $0.2 million, respectively in the three and six months ended June 30, 2020.
•Amortization expense associated with the intangible assets recorded in connection with the purchase price allocation for Marucci of $0.4 million and $0.8 million, respectively, for the three and six months ended June 30, 2020.
•Management fees that would have been payable to the Manager during each period.
Three months ended June 30, 2021 compared to pro forma three months ended June 30, 2020
Net sales
Net sales for the three months ended June 30, 2021 were $24.6 million, an increase of $19.1 million as compared to net sales of $5.5 million for the three months ended June 30, 2020. During the second quarter of 2020, Marucci experienced a significant slowdown in sales as the COVID-19 pandemic led to the postponement of the baseball and softball seasons throughout much of the United States. During the current quarter, Marucci has continued to see increased customer demand and improved market share in many of Marucci's key product lines including aluminum and wood bats, batting gloves, and bags. The increased sales from these products occurred in both retail and direct channels.
Gross profit
Gross profit for the quarter ended June 30, 2021 increased $12.6 million as compared to the three months ended June 30, 2020. Gross profit as a percentage of net sales for the three months ended June 30, 2021 was 50.2%, as compared to gross profit as a percentage of sales of (3.7)% for the three months ended June 30, 2020. In the prior year, Marucci recorded $3.0 million in amortization of the inventory step-up resulting from the acquisition purchase price allocation. Excluding the effect of the step-up amortization, the gross profit as a percentage of net sales for the three months ended June 30, 2020 was 50.6%. During the current quarter, Marucci's facilities in Baton Rouge were damaged by floodwaters, which resulted in the write-off of $1.8 million in inventory. Excluding the write-off related to the flood, gross profit as a percentage of net sales during the quarter ended June 30, 2021 would have been higher than the prior year due to various factors including a shift of product mix in favor of higher margin products, mainly its aluminum bats, and channel mix, with increased sales through Marucci's higher margin direct-to-consumer and e-commerce channels.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended June 30, 2021 was $9.5 million, or 38.5% of net sales compared to $8.0 million, or 145.0% of net sales for the three months ended June 30, 2020. Selling, general and administrative expense for the three months ended June 30, 2021 includes $0.5 million in integration service fees paid to CGM. The remainder of the increase in selling, general and administrative expense for the three months ended June 30, 2021 correlates to the increase in net sales, with increases in credit card expenses, royalties, commissions, business development fees, and other variable expenses.
Income (loss) from operations
Income from operations for the three months ended June 30, 2021 was $1.2 million, an increase of $11.2 million when compared to loss from operations of $10.0 million for the same period in 2020, primarily as a result of the factors noted above.
Six months ended June 30, 2021 compared to pro forma six months ended June 30, 2020
Net sales
Net sales for the six months ended June 30, 2021 were $61.3 million, an increase of $33.5 million as compared to net sales of $27.8 million for the six months ended June 30, 2020. The increase in net sales during the six months ended June 30, 2021 was primarily due to increased customer demand and market shares in many of Marucci's key product lines including aluminum and wood bats, batting gloves, and bags. The increased sales from these products occurred in both retail and direct channels. In the prior year, the shutdown of professional and youth baseball and softball in March as a response to the COVID-19 pandemic led to a significant drop off in demand for product through the end of the second quarter.
Gross profit
Gross profit for the quarter ended June 30, 2021 increased $22.0 million as compared to the six months ended June 30, 2020. Gross profit as a percentage of net sales for the six months ended June 30, 2021 was 55.7%, as compared to gross profit as a percentage of sales of 43.8% for the six months ended June 30, 2020. In the prior year, Marucci recorded $3.0 million in amortization of the inventory step-up resulting from the acquisition purchase price allocation. Excluding the effect of the step-up amortization, the gross profit as a percentage of net sales for the six months ended June 30, 2020 was 54.6%. During the current year, Marucci's facilities in Baton Rouge were damaged by floodwaters, which resulted in the write-off of $1.8 million in inventory. Despite the effect of the write-off related to the flood, gross profit as a percentage of net sales during the six months ended June 30, 2021 was higher than the prior year due to various factors including a shift of product mix in favor of higher margin products, mainly
its aluminum bats, and channel mix, with increased sales through Marucci's higher margin direct-to-consumer and e-commerce channels.
Selling, general and administrative expense
Selling, general and administrative expense for the six months ended June 30, 2021 was $18.9 million, or 30.9% of net sales compared to $16.0 million, or 57.6% of net sales for the six months ended June 30, 2020. Selling, general and administrative expense for the six months ended June 30, 2021 includes $1.0 million in in integration service fees paid to CGM. The remainder of the increase in selling, general and administrative expense for the six months ended June 30, 2021 correlates to the increase in net sales, with increases in credit card expenses, royalties, commissions, business development fees, and other variable expenses.
Income (loss) from operations
Income from operations for the six months ended June 30, 2021 was $11.7 million, an increase of $19.1 million when compared to loss from operations of $7.4 million for the same period in 2020, primarily as a result of the factors noted above.
Velocity Outdoor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net sales
|
|
$
|
63,358
|
|
|
100.0
|
%
|
|
$
|
47,221
|
|
|
100.0
|
%
|
|
$
|
128,990
|
|
|
100.0
|
%
|
|
$
|
77,611
|
|
|
100.0
|
%
|
|
Gross profit
|
|
$
|
19,961
|
|
|
31.5
|
%
|
|
$
|
12,810
|
|
|
27.1
|
%
|
|
$
|
41,117
|
|
|
31.9
|
%
|
|
$
|
20,753
|
|
|
26.7
|
%
|
|
SG&A
|
|
$
|
8,453
|
|
|
13.3
|
%
|
|
$
|
6,404
|
|
|
13.6
|
%
|
|
$
|
16,167
|
|
|
12.5
|
%
|
|
$
|
13,103
|
|
|
16.9
|
%
|
|
Operating income
|
|
$
|
9,100
|
|
|
14.4
|
%
|
|
$
|
3,998
|
|
|
8.5
|
%
|
|
$
|
20,134
|
|
|
15.6
|
%
|
|
$
|
2,834
|
|
|
3.7
|
%
|
Three months ended June 30, 2021 compared to three months ended June 30, 2020
Net sales
Net sales for the three months ended June 30, 2021 were $63.4 million, an increase of $16.1 million or 34.2%, compared to the same period in 2020. The increase in net sales for the three months ended June 30, 2021 is primarily due to significant increase in consumer demand across all Velocity Outdoor product lines.
Gross profit
Gross profit for the quarter ended June 30, 2021 increased $7.2 million as compared to the quarter ended June 30, 2020. Gross profit as a percentage of net sales was 31.5% for the three months ended June 30, 2021 as compared to 27.1% in the three months ended June 30, 2020. The increase in gross profit as a percentage of net sales was primarily attributable to favorable sales product mix of airguns, archery equipment and consumables.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended June 30, 2021 was $8.5 million, or 13.3% of net sales compared to $6.4 million, or 13.6% of net sales for the three months ended June 30, 2020. The increase in selling, general and administrative expense for the three months ended June 30, 2021 is primarily related to volume driven expenses that correlate to the increase in sales, as well as additional investments in marketing and additional professional fees.
Income from operations
Income from operations for the three months ended June 30, 2021 was $9.1 million, an increase of $5.1 million when compared to income from operations of $4.0 million for the same period in 2020 based on the factors noted above.
Six Months ended June 30, 2021 compared to six months ended June 30, 2020
Net sales
Net sales for the six months ended June 30, 2021 were $129.0 million, an increase of $51.4 million or 66.2%, compared to the same period in 2020. The increase in net sales for the six months ended June 30, 2021 is primarily due to significant increase in consumer demand across all Velocity Outdoor product lines.
Gross profit
Gross profit for the quarter ended June 30, 2021 increased $20.4 million as compared to the quarter ended June 30, 2020. Gross profit as a percentage of net sales was 31.9% for the six months ended June 30, 2021 as compared to 26.7% in the six months ended June 30, 2020. The increase in gross profit as a percentage of net sales was primarily attributable to favorable sales product mix of airguns, archery equipment and consumables.
Selling, general and administrative expense
Selling, general and administrative expense for the six months ended June 30, 2021 was $16.2 million, or 12.5% of net sales compared to $13.1 million, or 16.9% of net sales for the six months ended June 30, 2020. The increase in selling, general and administrative expense for the six months ended June 30, 2021 is primarily related to volume driven expenses that correlate to the increase in sales, as well as additional investments in marketing.
Income from operations
Income from operations for the six months ended June 30, 2021 was $20.1 million, an increase of $17.3 million when compared to income from operations of $2.8 million for the same period in 2020 based on the factors noted above.
Niche Industrial Businesses
Advanced Circuits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net sales
|
|
$
|
22,465
|
|
|
100.0
|
%
|
|
$
|
22,956
|
|
|
100.0
|
%
|
|
$
|
44,027
|
|
|
100.0
|
%
|
|
$
|
44,652
|
|
|
100.0
|
%
|
|
Gross profit
|
|
$
|
10,312
|
|
|
45.9
|
%
|
|
$
|
10,371
|
|
|
45.2
|
%
|
|
$
|
19,717
|
|
|
44.8
|
%
|
|
$
|
20,108
|
|
|
45.0
|
%
|
|
SG&A
|
|
$
|
3,853
|
|
|
17.2
|
%
|
|
$
|
3,847
|
|
|
16.8
|
%
|
|
$
|
7,628
|
|
|
17.3
|
%
|
|
$
|
7,637
|
|
|
17.1
|
%
|
|
Operating income
|
|
$
|
6,324
|
|
|
28.2
|
%
|
|
$
|
6,329
|
|
|
27.6
|
%
|
|
$
|
11,819
|
|
|
26.8
|
%
|
|
$
|
12,067
|
|
|
27.0
|
%
|
Three months ended June 30, 2021 compared to three months ended June 30, 2020
Net sales
Net sales for the three months ended June 30, 2021 were $22.5 million, a decrease of approximately $0.5 million or 2.1% compared to the three months ended June 30, 2020. The decrease in net sales for the quarter ended June 30, 2021 as compared to the quarter ended June 30, 2020 was primarily due to decreased sales in the Quick-Turn Small-Run PCBs product line.
Gross profit
Gross profit as a percentage of net sales increased 70 basis points during the three months ended June 30, 2021 compared to the corresponding period in 2020 (45.9% at June 30, 2021 compared to 45.2% at June 30, 2020) primarily as a result of sales mix.
Selling, general and administrative expense
Selling, general and administrative expense was approximately $3.9 million in the three months ended June 30, 2021 and $3.8 million in the three months ended June 30, 2020. Selling, general and administrative expense represented 17.2% of net sales for the three months ended June 30, 2021 and 16.8% of net sales in the corresponding period in 2020.
Income from operations
Income from operations for both the three months ended June 30, 2021 and the three months ended June 30, 2020 was approximately $6.3 million.
Six months ended June 30, 2021 compared to six months ended June 30, 2020
Net sales
Net sales for the six months ended June 30, 2021 were $44.0 million, a decrease of approximately $0.6 million or 1.4% compared to the six months ended June 30, 2020. The decrease in net sales for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 was due to decreased sales in the Quick-Turn Small-Run PCBs product line of approximately $1.7 million. This was partially offset by an increase in the Long-Lead Time/Other product line of approximately $0.5 million, subcontract of approximately $0.4 million and decreased promotional allowances of approximately $0.2 million.
Gross profit
Gross profit as a percentage of net sales decreased 20 basis points during the six months ended June 30, 2021 compared to the corresponding period in 2020 (44.8% at June 30, 2021 compared to 45.0% at June 30, 2020) primarily as a result of sales mix.
Selling, general and administrative expense
Selling, general and administrative expense was approximately $7.6 million in both the six months ended June 30, 2021 and the six months ended June 30, 2020. Selling, general and administrative expense represented 17.3% of net sales for the six months ended June 30, 2021 and 17.1% of net sales in the corresponding period in 2020.
Income from operations
Income from operations for the six months ended June 30, 2021 was approximately $11.8 million compared to $12.1 million in the same period in 2020, a decrease of approximately $0.2 million, principally as a result of the factors described above.
Altor Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net sales
|
|
$
|
40,640
|
|
|
100.0
|
%
|
|
$
|
24,429
|
|
|
100.0
|
%
|
|
$
|
78,460
|
|
|
100.0
|
%
|
|
$
|
52,812
|
|
|
100.0
|
%
|
|
Gross profit
|
|
$
|
9,258
|
|
|
22.8
|
%
|
|
$
|
7,316
|
|
|
29.9
|
%
|
|
$
|
19,342
|
|
|
24.7
|
%
|
|
$
|
15,981
|
|
|
30.3
|
%
|
|
SG&A
|
|
$
|
3,469
|
|
|
8.5
|
%
|
|
$
|
2,223
|
|
|
9.1
|
%
|
|
$
|
7,206
|
|
|
9.2
|
%
|
|
$
|
5,130
|
|
|
9.7
|
%
|
|
Operating income
|
|
$
|
3,548
|
|
|
8.7
|
%
|
|
$
|
2,847
|
|
|
11.7
|
%
|
|
$
|
8,232
|
|
|
10.5
|
%
|
|
$
|
6,359
|
|
|
12.0
|
%
|
Three months ended June 30, 2021 compared to three months ended June 30, 2020
Net sales
Net sales for the quarter ended June 30, 2021 were $40.6 million, an increase of $16.2 million, or 66.4%, compared to the quarter ended June 30, 2020. The increase in net sales during the quarter was due to the acquisition of Polyfoam in July 2020 and organic growth in our appliance and cold chain customer sectors, as well as the continued recovery during the quarter from the effects of the COVID-19 pandemic experienced in the prior year.
Gross profit
Gross profit as a percentage of net sales was 22.8% and 29.9% for the three months ended June 30, 2021 and 2020, respectively. The decrease in gross profit as a percentage of net sales in the quarter ended June 30, 2021 was primarily due to labor wage increases in the fourth quarter of 2020, increases in the price of Altor's primary raw material, expanded polystyrene ("EPS"), and margin dilution due to the acquisition of Polyfoam, which has historically had lower margins than the legacy business.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended June 30, 2021 was $3.5 million as compared to $2.2 million for the three months ended June 30, 2020, an increase of $1.2 million. The increase in selling, general and administrative expense in the second quarter of 2021 was due to the acquisition of Polyfoam and increased information technology and professional fees incurred during the quarter.
Income from operations
Income from operations was $3.5 million in the three months ended June 30, 2021, an increase of $0.7 million as compared to the three months ended June 30, 2020, based on the factors noted above.
Six months ended June 30, 2021 compared to six months ended June 30, 2020
Net sales
Net sales for the six months ended June 30, 2021 were $78.5 million, an increase of $25.6 million, or 48.6%, compared to the quarter ended June 30, 2020. The increase in net sales during the quarter was due to the acquisition of Polyfoam in July 2020 and the continued recovery during the quarter from the effects of the COVID-19 pandemic experienced in the prior year.
Gross profit
Gross profit as a percentage of net sales was 24.7% and 30.3% for the six months ended June 30, 2021 and 2020, respectively. The decrease in gross profit as a percentage of net sales in the quarter ended June 30, 2021 was primarily due to labor wage increases in the fourth quarter of 2020, increases in the price of Altor's primary raw material, EPS, during the first half of the year and margin dilution due to the acquisition of Polyfoam, which has historically had lower margins than the legacy business.
Selling, general and administrative expense
Selling, general and administrative expense for the six months ended June 30, 2021 was $7.2 million as compared to $5.1 million for the six months ended June 30, 2020, an increase of $2.1 million. The increase in selling, general and administrative expense in the first half of 2021 was primarily due to the acquisition of Polyfoam, and increased information technology and professional fees incurred during the quarter.
Income from operations
Income from operations was $8.2 million in the six months ended June 30, 2021, an increase of $1.9 million as compared to the six months ended June 30, 2020, based on the factors noted above.
Arnold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net sales
|
|
$
|
32,556
|
|
|
100.0
|
%
|
|
$
|
24,270
|
|
|
100.0
|
%
|
|
$
|
65,041
|
|
|
100.0
|
%
|
|
$
|
53,828
|
|
|
100.0
|
%
|
|
Gross profit
|
|
$
|
8,562
|
|
|
26.3
|
%
|
|
$
|
6,148
|
|
|
25.3
|
%
|
|
$
|
17,935
|
|
|
27.6
|
%
|
|
$
|
14,062
|
|
|
26.1
|
%
|
|
SG&A
|
|
$
|
5,130
|
|
|
15.8
|
%
|
|
$
|
3,770
|
|
|
15.5
|
%
|
|
$
|
10,572
|
|
|
16.3
|
%
|
|
$
|
9,096
|
|
|
16.9
|
%
|
|
Operating income
|
|
$
|
2,497
|
|
|
7.7
|
%
|
|
$
|
1,443
|
|
|
5.9
|
%
|
|
$
|
5,493
|
|
|
8.4
|
%
|
|
$
|
3,096
|
|
|
5.8
|
%
|
Three months ended June 30, 2021 compared to three months ended June 30, 2020
Net sales
Net sales for the three months ended June 30, 2021 were approximately $32.6 million, an increase of $8.3 million compared to the same period in 2020. International sales were $10.5 million in the three months ended June 30, 2021 and $9.0 million in the three months ended June 30, 2020. The increase in net sales is primarily a result of increased demand in defense and industrial markets driven in part by the acquisition of Ramco Electric Motors, Inc. in March 2021.
Gross profit
Gross profit for the three months ended June 30, 2021 was approximately $8.6 million compared to approximately $6.1 million in the same period of 2020. Gross profit as a percentage of net sales increased to 26.3% for the quarter ended June 30, 2021 from 25.3% in the quarter ended June 30, 2020 principally due to increased volume and improved operational efficiencies.
Selling, general and administrative expense
Selling, general and administrative expense in the three months ended June 30, 2021 was $5.1 million, an increase in expense of approximately $1.4 million compared to $3.8 million for the three months ended June 30, 2020. Selling, general and administrative expense was 15.8% of net sales in the three months ended June 30, 2021 and 15.5% in the three months ended June 30, 2020. The increase in selling general and administrative expense was due to higher staffing related costs, higher legal and environmental costs and an increase in travel related costs.
Income from operations
Income from operations for the three months ended June 30, 2021 was approximately $2.5 million, an increase of $1.1 million when compared to the same period in 2020, as a result of the factors noted above.
Six months ended June 30, 2021 compared to six months ended June 30, 2020
Net sales
Net sales for the six months ended June 30, 2021 were approximately $65.0 million, an increase of $11.2 million compared to the same period in 2020. International sales were $21.6 million in the six months ended June 30, 2021 and $20.0 million in the six months ended June 30, 2020. The increase in net sales is primarily a result of increased demand in defense and industrial markets driven in part by the acquisition of Ramco Electric Motors, Inc. in March 2021.
Gross profit
Gross profit for the six months ended June 30, 2021 was approximately $17.9 million compared to approximately $14.1 million in the same period of 2020. Gross profit as a percentage of net sales increased to 27.6% for the six months ended June 30, 2021 from 26.1% in the six months ended June 30, 2020 principally due to favorable material and labor costs driven by product mix and operational improvements.
Selling, general and administrative expense
Selling, general and administrative expense in the six months ended June 30, 2021 was $10.6 million, an increase in expense of approximately $1.5 million compared to $9.1 million for the six months ended June 30, 2020. The increase in selling, general and administrative expense during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 is due to higher staffing related costs, acquisition costs and higher legal and environmental costs partially offset by lower travel related costs. Selling, general and administrative expense was 16.3% of net sales in the six months ended June 30, 2021 and 16.9% in the six months ended June 30, 2020.
Income from operations
Income from operations for the six months ended June 30, 2021 was approximately $5.5 million, an increase of $2.4 million when compared to the same period in 2020, as a result of the factors noted above.
Sterno
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net sales
|
|
$
|
89,257
|
|
|
100.0
|
%
|
|
$
|
77,363
|
|
|
100.0
|
%
|
|
$
|
166,571
|
|
|
100.0
|
%
|
|
$
|
160,395
|
|
|
100.0
|
%
|
|
Gross profit
|
|
$
|
19,161
|
|
|
21.5
|
%
|
|
$
|
17,196
|
|
|
22.2
|
%
|
|
$
|
35,441
|
|
|
21.3
|
%
|
|
$
|
35,796
|
|
|
22.3
|
%
|
|
SG&A
|
|
$
|
8,205
|
|
|
9.2
|
%
|
|
$
|
8,855
|
|
|
11.4
|
%
|
|
$
|
15,823
|
|
|
9.5
|
%
|
|
$
|
17,808
|
|
|
11.1
|
%
|
|
Operating income
|
|
$
|
6,578
|
|
|
7.4
|
%
|
|
$
|
3,963
|
|
|
5.1
|
%
|
|
$
|
10,862
|
|
|
6.5
|
%
|
|
$
|
9,232
|
|
|
5.8
|
%
|
Three months ended June 30, 2021 compared to three months ended June 30, 2020
Net sales
Net sales for the three months ended June 30, 2021 were approximately $89.3 million, an increase of $11.9 million, or 15.4%, compared to the same period in 2020. The net sales variance reflects an increase in sales at Sterno Products as we began to see a return of demand in the food service and hospitality industries during the current quarter. The increase in sales at Sterno Products quarter over quarter was offset by a decrease in sales at Rimports. During the prior year, Rimports saw strong sales growth at the onset of the COVID-19 pandemic since most resellers of Rimports products were not impacted by the retail store closures. Rimports continues to see strong consumer demand for their products at the retail level.
Gross profit
Gross profit as a percentage of net sales decreased from 22.2% for the three months ended June 30, 2020 to 21.5% for the same period ended June 30, 2021. The decrease in gross profit in the second quarter of 2021 as compared to the second quarter of 2020 was primarily attributable to sales mix, and additional inventory reserves recorded in the second quarter of 2021 at Sterno Home.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended June 30, 2021 was approximately $8.2 million as compared to $8.9 million for the three months ended June 30, 2020, a decrease of $0.7 million, reflecting lower salaries, commissions, and various cost savings initiatives implemented to address the effects of decreased demand from COVID-19. Selling, general and administrative expense represented 9.2% of net sales for the three months ended June 30, 2021 and 11.4% for the three months ended June 30, 2020.
Income from operations
Income from operations for the three months ended June 30, 2021 was approximately $6.6 million, an increase of $2.6 million compared to the three months ended June 30, 2020 based on the factors noted above.
Six months ended June 30, 2021 compared to six months ended June 30, 2020
Net sales
Net sales for the six months ended June 30, 2021 were approximately $166.6 million, an increase of $6.2 million, or 3.9%, compared to the same period in 2020. The increase in net sales reflects an increase in sales at each of our product groups, Sterno Products, Rimports and Sterno Home as compared to the first six months of 2020. Sterno Products began to see a return of demand in the food service and hospitality industries, while Rimports has continued to see strong consumer demand for their products at the retail level.
Gross profit
Gross profit as a percentage of net sales decreased from 22.3% for the six months ended June 30, 2020 to 21.3% for the same period ended June 30, 2021. The decrease in gross profit in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 was primarily attributable to sales mix, additional inventory reserves recorded in 2021, increases in raw material costs and freight, and the continuing impact of absorbing overheads on the reduced sales volume at Sterno Products.
Selling, general and administrative expense
Selling, general and administrative expense for the six months ended June 30, 2021 was approximately $15.8 million as compared to $17.8 million for the six months ended June 30, 2020, a decrease of $2.0 million, reflecting lower salaries, commissions, and various cost savings initiatives implemented to address the effects of decreased demand from COVID-19. Selling, general and administrative expense represented 9.5% of net sales for the six months ended June 30, 2021 and 11.1% for the six months ended June 30, 2020.
Income from operations
Income from operations for the six months ended June 30, 2021 was approximately $10.9 million, an increase of $1.6 million compared to the six months ended June 30, 2020 based on the factors noted above.
Liquidity and Capital Resources
Liquidity
At June 30, 2021, we had approximately $110.2 million of cash and cash equivalents on hand, an increase of $39.4 million as compared to the year ended December 31, 2020. The majority of our cash is in non-interest bearing checking accounts or invested in short-term money market accounts and is maintained in accordance with the Company’s investment policy, which identifies allowable investments and specifies credit quality standards. The change in cash and cash equivalents is as follows:
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
(in thousands)
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Cash provided by operating activities
|
|
$
|
109,434
|
|
|
$
|
88,330
|
|
|
|
|
|
|
|
For the six months ended June 30, 2021, cash flows provided by operating activities totaled approximately $109.4 million, which represents a $21.1 million increase compared to cash provided by operating activities of $88.3 million during the six-month period ended June 30, 2020. Cash used in operating activities for working capital for the six months ended June 30, 2021 was $5.7 million, as compared to cash provided by operating activities for working capital of $39.9 million for the six months ended June 30, 2020. We typically have a higher usage of cash for working capital in the first half of the year as most of our companies will build up inventories after the fourth quarter. In the current year, several of our businesses had higher inventory levels than normal given longer lead times due to supply chain issues. In the prior year, the onset of the COVID-19 pandemic in March led our businesses to implement a variety of steps to conserve cash and increase liquidity given the uncertainty in the economy, resulting in a lower usage of cash for working capital. The increase in cash used in operating activities for working capital in the first half of 2021 is more typical of our liquidity usage, and also reflects the acquisition of Marucci Sports and BOA in the second and fourth quarter, respectively, of the prior year.
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
(in thousands)
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Cash used in investing activities
|
|
$
|
(52,696)
|
|
|
$
|
(212,990)
|
|
|
|
|
|
|
|
Cash flows used in investing activities for the six months ended June 30, 2021 totaled $52.7 million, compared to cash used in investing activities of $213.0 million in the same period of 2020. In the first quarter of 2021, our Arnold subsidiary acquired an add-on acquisition for $34.2 million, while in the prior year, our investing activities reflect the acquisition of Marucci Sports in April 2020. Our spending on capital expenditures increased $5.7 million during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, with $17.8 million in capital expenditures in 2021 and $12.2 million in capital expenditures in 2020. The additional capital expenditures reflects our acquisitions of Marucci in the second quarter of 2020 and BOA in the fourth quarter of 2020. We expect capital expenditures for the full year of 2021 to be approximately $32 million to $41 million.
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
(in thousands)
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Cash (used in) provided by financing activities
|
|
$
|
(17,324)
|
|
|
$
|
230,595
|
|
|
|
|
|
|
|
Cash flows used in financing activities totaled approximately $17.3 million during the six months ended June 30, 2021 compared to cash flows provided by financing activities of $230.6 million during the six months ended June 30, 2020. During the first quarter of 2021, we completed an offering of $1,000.0 million of our 2029 Senior Notes, and used the proceeds to pay down our 2018 Revolving Credit Facility and pay off the existing 2026 Senior Notes. Financing activities in both periods reflect the payment of our common and preferred share distributions. During the six months ended June 30, 2021, we made a distribution to the Allocation Member of $5.2 million related
to the five-year holding event of our Liberty and Ergobaby business, while in the prior year, we made a distribution to the Allocation Member of $9.1 million related to the five-year Holding event for our Sterno business.
Intercompany Debt
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 through our existing credit facility. Our strategy of providing intercompany debt financing within the capital structure of the businesses that we acquire and manage allows us the ability to distribute cash to the parent company through monthly interest payments and amortization of the principal on these intercompany loans. Each loan to our businesses has a scheduled maturity and each business is entitled to repay all or a portion of the principal amount of the outstanding loans, without penalty, prior to maturity. Certain of our businesses have paid down their respective intercompany debt balances through the cash flow generated by these businesses and we have recapitalized, and expect to continue to recapitalize, these businesses in the normal course of our business. The recapitalization process involves funding the intercompany debt using either cash on hand at the parent or our applicable Credit Facility, and serves the purpose of optimizing the capital structure at our subsidiaries and providing the noncontrolling shareholders with a distribution on their ownership interest in a cash flow positive business.
In the fourth quarter of 2020, we amended the Arnold intercompany credit agreement to increase the revolving credit commitment available under the credit agreement, and to remove the requirement to meet the financial covenants through September 30, 2021. All of our subsidiaries were in compliance with the financial covenants included within their intercompany credit arrangements at June 30, 2021.
As of June 30, 2021, we had the following outstanding loans due from each of our businesses:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
5.11
|
|
$
|
131,078
|
|
|
BOA
|
|
$
|
93,649
|
|
|
Ergobaby
|
|
$
|
25,725
|
|
|
Liberty
|
|
$
|
26,707
|
|
|
Marucci
|
|
$
|
42,875
|
|
|
Velocity Outdoor
|
|
$
|
103,821
|
|
|
Advanced Circuits
|
|
$
|
89,112
|
|
|
Altor
|
|
$
|
82,812
|
|
|
Arnold
|
|
$
|
65,242
|
|
|
Sterno
|
|
$
|
219,024
|
|
Our primary source of cash is from the receipt of interest and principal on the outstanding loans to our businesses. Accordingly, we are dependent upon the earnings of and cash flow from these businesses, which are available for (i) operating expenses; (ii) payment of principal and interest under our 2021 Credit Facility and interest on our Senior Notes; (iii) payments to CGM due pursuant to the MSA and the LLC Agreement; (iv) cash distributions to our shareholders; and (v) investments in future acquisitions. Payments made under (iii) above are required to be paid before distributions to shareholders and may be significant and exceed the funds held by us, which may require us to dispose of assets or incur debt to fund such expenditures.
Financing Arrangements
2021 Credit Facility
On March 23, 2021, we entered into a Second Amended and Restated Credit Agreement to amend and restate the 2018 Credit Facility. The 2021 Credit Facility provides for revolving loans, swing line loans and letters of credit up to a maximum aggregate amount of $600 million and also permits the Company, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain term loans in an aggregate amount of up to $250 million, subject to certain restrictions and conditions. All amounts outstanding under the 2021 Revolving Credit Facility will become due on March 23, 2026, which is the maturity date of loans advanced under the Revolving Credit Facility.
2018 Credit Facility
In April 2018, we entered into an Amended and Restated Credit Agreement (the "2018 Credit Facility") to amend and restate the 2014 Credit Facility. The 2018 Credit Facility provided for (i) revolving loans, swing line loans and letters of credit (the “2018 Revolving Credit Facility”) up to a maximum aggregate amount of $600 million, and (ii) a $500 million term loan (the “2018 Term Loan”). The 2018 Credit Facility also permitted the Company, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain term loans in an aggregate amount of up to $250 million, subject to certain restrictions and conditions. In 2019, we repaid the amounts due under the 2018 Term Loan. We used a portion of the proceeds from the issuance of the 2029 Notes offering to pay all amounts outstanding under the 2018 Revolving Credit Facility in March 2021.
We had $599.1 million in net availability under the 2021 Revolving Credit Facility at June 30, 2021. The outstanding borrowings under the 2021 Revolving Credit Facility include $0.9 million of outstanding letters of credit at June 30, 2021.
Senior Notes
On March 23, 2021, we consummated the issuance and sale of $1,000 million aggregate principal amount of our 5.250% 2029 Notes offered pursuant to a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act, and to non-U.S. persons under Regulation S under the Securities Act. The Notes were issued pursuant to an indenture, dated as of March 23, 2021 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The Notes bear interest at the rate of 5.250% per annum and will mature on April 15, 2029. Interest on the Notes is payable in cash on April 15th and October 15th of each year. The 2029 Notes are general unsecured obligations of the Company and are not guaranteed by our subsidiaries.
The proceeds from the sale of the 2029 Notes was used to repay debt outstanding under the 2018 Credit Facility in connection with entering into the 2021 Credit Facility, as described above, and to redeem our 8.000% Senior Notes due 2026 (the “2026 Notes”).
The following table reflects required and actual financial ratios as of June 30, 2021 included as part of the affirmative covenants in our 2021 Credit Facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description of Required Covenant Ratio
|
|
Covenant Ratio Requirement
|
|
Actual Ratio
|
|
|
|
|
|
|
|
Consolidated Fixed Charge Coverage Ratio
|
|
Greater than or equal to 1.50:1.0
|
|
4.98:1.0
|
|
Consolidated Senior Secured Leverage Ratio
|
|
Less than or equal to 3.50:1.0
|
|
0.00:1.0
|
|
Consolidated Total Leverage Ratio
|
|
Less than or equal to 5.00:1.0
|
|
2.64:1.0
|
Interest Expense
The components of interest expense and periodic interest charges on outstanding debt are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
2021
|
|
2020
|
|
Interest on credit facilities
|
$
|
1,584
|
|
|
$
|
693
|
|
|
Interest on Senior Notes
|
26,395
|
|
|
18,400
|
|
|
Unused fee on Revolving Credit Facility
|
743
|
|
|
728
|
|
|
Amortization of bond premium
|
(83)
|
|
|
(56)
|
|
|
Other interest expense
|
115
|
|
|
164
|
|
|
Interest income
|
(2)
|
|
|
(158)
|
|
|
Interest expense, net
|
$
|
28,752
|
|
|
$
|
19,771
|
|
The following table provides the effective interest rate of the Company’s outstanding long-term debt at June 30, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
Effective Interest Rate
|
|
Amount
|
|
Effective Interest Rate
|
|
Amount
|
|
Senior Notes (1)
|
6.43%
|
|
$
|
1,000,000
|
|
|
7.92%
|
|
$
|
600,000
|
|
|
Revolving Credit Facility
|
1.97%
|
|
—
|
|
|
2.13%
|
|
307,000
|
|
|
Unamortized premiums and debt issuance costs
|
|
|
(11,651)
|
|
|
|
|
(7,540)
|
|
|
Long-term debt
|
|
|
$
|
988,349
|
|
|
|
|
$
|
899,460
|
|
(1) On March 23, 2021, we issued $1,000 million in 5.250% Senior Notes, and used a portion of the proceeds to repay our 8.000% Senior Notes. The 8.000% Senior Notes were redeemed on April 1, 2021, and we paid interest on these through the date of redemption.
Reconciliation of Non-GAAP Financial Measures
GAAP or U.S. GAAP refer to generally accepted accounting principles in the United States. From time to time we may publicly disclose certain "non-GAAP" financial measures in the course of our investor presentations, earnings releases, earnings conference calls or other venues. A non-GAAP financial measure is a numerical measure of historical or future performance, financial position or cash flow that excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in our financial statements, and vice versa for measures that include amounts, or are subject to adjustments that effectively include amounts, that are excluded from the most directly comparable measure as calculated and presented.
Non-GAAP financial measures are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.
The tables below reconcile the most directly comparable GAAP financial measures to Earnings before Interest, Income Taxes, Depreciation and Amortization ("EBITDA"), Adjusted EBITDA, and Cash Flow Available for Distribution and Reinvestment ("CAD").
Reconciliation of Net income (Loss) to EBITDA and Adjusted EBITDA
EBITDA – EBITDA is calculated as net income (loss) before interest expense, income tax expense (benefit), depreciation expense and amortization expense. Amortization expenses consist of amortization of intangibles and debt charges, including debt issuance costs, discounts, etc.
Adjusted EBITDA – Adjusted EBITDA is calculated utilizing the same calculation as described above in arriving at EBITDA further adjusted by: (i) noncontrolling stockholder compensation, which generally consists of non-cash stock option expense; (ii) successful acquisition costs, which consist of transaction costs (legal, accounting, due diligence, etc.) incurred in connection with the successful acquisition of a business expensed during the period in compliance with ASC 805; (iii) management fees, which reflect fees due quarterly to our Manager in connection with our MSA, as well as Integration Services Fees paid by newly acquired companies; (iv) impairment charges, which reflect write downs to goodwill or other intangible assets; and (v) items of other income or expense that are material to a subsidiary and non-recurring in nature.
We believe that EBITDA and Adjusted EBITDA provide useful information to investors and reflect important financial measures as they exclude 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) these financial measures are 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. This presentation also 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.
We believe that these measurements are also useful in measuring our ability to service debt and other payment obligations. EBITDA and Adjusted EBITDA are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.
The following tables reconcile EBITDA and Adjusted EBITDA to net income (loss), which we consider to be the most comparable GAAP financial measure (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
Six months ended June 30, 2021
|
|
|
Corporate
|
|
5.11
|
|
BOA
|
|
Ergobaby
|
|
Liberty
|
|
Marucci Sports
|
|
Velocity Outdoor
|
|
ACI
|
|
Altor
|
|
Arnold
|
|
Sterno
|
|
Consolidated
|
|
Net income (loss)
|
$
|
(52,764)
|
|
|
$
|
9,095
|
|
|
12,652
|
|
|
$
|
3,602
|
|
|
$
|
7,574
|
|
|
$
|
7,250
|
|
|
$
|
10,589
|
|
|
$
|
6,545
|
|
|
$
|
3,298
|
|
|
$
|
1,594
|
|
|
$
|
1,310
|
|
|
$
|
10,745
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
—
|
|
|
3,027
|
|
|
1,465
|
|
|
1,028
|
|
|
2,607
|
|
|
2,289
|
|
|
3,047
|
|
|
1,454
|
|
|
1,531
|
|
|
1,004
|
|
|
260
|
|
|
17,712
|
|
|
Interest expense, net
|
28,651
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,752
|
|
|
Intercompany interest
|
(36,877)
|
|
|
5,783
|
|
|
4,362
|
|
|
1,073
|
|
|
1,360
|
|
|
1,193
|
|
|
3,684
|
|
|
3,692
|
|
|
3,418
|
|
|
2,815
|
|
|
9,497
|
|
|
—
|
|
|
Loss on debt extinguishment
|
33,305
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,305
|
|
|
Depreciation and amortization
|
359
|
|
|
10,894
|
|
|
9,884
|
|
|
4,327
|
|
|
948
|
|
|
4,222
|
|
|
6,328
|
|
|
1,101
|
|
|
5,816
|
|
|
3,817
|
|
|
10,591
|
|
|
58,287
|
|
|
EBITDA
|
(27,326)
|
|
|
28,806
|
|
|
28,363
|
|
|
10,030
|
|
|
12,489
|
|
|
14,958
|
|
|
23,738
|
|
|
12,792
|
|
|
14,063
|
|
|
9,230
|
|
|
21,658
|
|
|
148,801
|
|
|
Other (income) expense
|
149
|
|
|
(301)
|
|
|
80
|
|
|
—
|
|
|
(48)
|
|
|
892
|
|
|
2,613
|
|
|
68
|
|
|
(133)
|
|
|
—
|
|
|
(430)
|
|
|
2,890
|
|
|
Noncontrolling shareholder compensation
|
—
|
|
|
1,287
|
|
|
1,083
|
|
|
807
|
|
|
14
|
|
|
551
|
|
|
524
|
|
|
248
|
|
|
513
|
|
|
8
|
|
|
583
|
|
|
5,618
|
|
|
Acquisition expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
310
|
|
|
—
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration services fee
|
—
|
|
|
—
|
|
|
2,200
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,200
|
|
|
Other
|
898
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,300)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
333
|
|
|
(1,069)
|
|
|
Management fees
|
19,231
|
|
|
500
|
|
|
500
|
|
|
250
|
|
|
250
|
|
|
250
|
|
|
250
|
|
|
250
|
|
|
375
|
|
|
250
|
|
|
250
|
|
|
22,356
|
|
|
Adjusted EBITDA
|
$
|
(7,048)
|
|
|
$
|
30,292
|
|
|
$
|
32,226
|
|
|
$
|
11,087
|
|
|
$
|
12,705
|
|
|
$
|
17,651
|
|
|
$
|
24,825
|
|
|
$
|
13,358
|
|
|
$
|
14,818
|
|
|
$
|
9,798
|
|
|
$
|
22,394
|
|
|
$
|
182,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
Six months ended June 30, 2020
|
|
|
Corporate
|
|
5.11
|
|
|
|
Ergobaby
|
|
Liberty
|
|
Marucci Sports
|
|
Velocity Outdoor
|
|
ACI
|
|
Altor
|
|
Arnold
|
|
Sterno
|
|
Consolidated
|
|
Net income (loss)
|
$
|
(3,521)
|
|
|
$
|
2,120
|
|
|
|
|
$
|
1,160
|
|
|
$
|
3,460
|
|
|
$
|
(6,325)
|
|
|
$
|
(9,541)
|
|
|
$
|
7,312
|
|
|
$
|
2,146
|
|
|
$
|
1,472
|
|
|
$
|
(769)
|
|
|
$
|
(2,486)
|
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
—
|
|
|
(1,577)
|
|
|
|
|
1,154
|
|
|
1,148
|
|
|
(1,944)
|
|
|
6,328
|
|
|
1,819
|
|
|
1,141
|
|
|
(1,306)
|
|
|
108
|
|
|
6,871
|
|
|
Interest expense, net
|
19,651
|
|
|
40
|
|
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
76
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,771
|
|
|
Intercompany interest
|
(34,632)
|
|
|
7,334
|
|
|
|
|
1,252
|
|
|
1,900
|
|
|
532
|
|
|
4,791
|
|
|
2,843
|
|
|
3,513
|
|
|
2,882
|
|
|
9,585
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
259
|
|
|
10,639
|
|
|
|
|
4,106
|
|
|
862
|
|
|
4,717
|
|
|
6,474
|
|
|
1,347
|
|
|
6,108
|
|
|
3,320
|
|
|
11,489
|
|
|
49,321
|
|
|
EBITDA
|
(18,243)
|
|
|
18,556
|
|
|
|
|
7,672
|
|
|
7,370
|
|
|
(3,016)
|
|
|
8,128
|
|
|
13,321
|
|
|
12,908
|
|
|
6,368
|
|
|
20,413
|
|
|
73,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense
|
1
|
|
|
1,168
|
|
|
|
|
—
|
|
|
(3)
|
|
|
(40)
|
|
|
1,067
|
|
|
17
|
|
|
(567)
|
|
|
—
|
|
|
82
|
|
|
1,725
|
|
|
Noncontrolling shareholder compensation
|
—
|
|
|
1,155
|
|
|
|
|
417
|
|
|
14
|
|
|
90
|
|
|
1,045
|
|
|
247
|
|
|
515
|
|
|
36
|
|
|
426
|
|
|
3,945
|
|
|
Acquisition expenses
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
2,042
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
—
|
|
|
|
|
598
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
598
|
|
|
Management fees
|
11,305
|
|
|
500
|
|
|
|
|
250
|
|
|
250
|
|
|
97
|
|
|
250
|
|
|
250
|
|
|
375
|
|
|
250
|
|
|
250
|
|
|
13,777
|
|
|
Adjusted EBITDA
|
$
|
(6,937)
|
|
|
$
|
21,379
|
|
|
|
|
$
|
8,937
|
|
|
$
|
7,631
|
|
|
$
|
(827)
|
|
|
$
|
10,490
|
|
|
$
|
13,835
|
|
|
$
|
13,231
|
|
|
$
|
6,654
|
|
|
$
|
21,171
|
|
|
$
|
95,564
|
|
Reconciliation of Cash Flow Available for Distribution and Reinvestment
The table below details cash receipts and payments that are not reflected on our income statement in order to provide an additional measure of management's estimate of cash flow available for distribution ("CAD"). CAD is a non-GAAP measure that we believe provides additional, useful information to our shareholders in order to enable them to evaluate our ability to make anticipated quarterly distributions. CAD is not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.
The following table reconciles CAD to net income (loss) and cash flows provided by operating activities, which we consider to be the most directly comparable financial measure calculated and presented in accordance with GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended
|
|
(in thousands)
|
June 30, 2021
|
|
June 30, 2020
|
|
Net income (loss)
|
$
|
10,745
|
|
|
$
|
(2,486)
|
|
|
Adjustment to reconcile net income (loss) to cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
56,879
|
|
|
48,186
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and premium
|
1,325
|
|
|
1,079
|
|
|
Loss on debt extinguishment
|
33,305
|
|
|
—
|
|
|
Noncontrolling shareholder charges
|
5,618
|
|
|
3,945
|
|
|
Provision for receivable and inventory reserves
|
3,526
|
|
|
2,519
|
|
|
Deferred taxes
|
1,715
|
|
|
(5,933)
|
|
|
Other
|
2,030
|
|
|
1,155
|
|
|
Changes in operating assets and liabilities
|
(5,709)
|
|
|
39,865
|
|
|
Net cash provided by operating activities
|
109,434
|
|
|
88,330
|
|
|
Plus:
|
|
|
|
|
Unused fee on revolving credit facility
|
743
|
|
|
728
|
|
|
Integration services fee (1)
|
3,200
|
|
|
—
|
|
|
Successful acquisition costs
|
310
|
|
|
2,042
|
|
|
Changes in operating assets and liabilities
|
5,709
|
|
|
—
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
Changes in operating assets and liabilities
|
—
|
|
|
39,865
|
|
|
Maintenance capital expenditures: (2)
|
|
|
|
|
Compass Group Diversified Holdings LLC
|
—
|
|
|
—
|
|
|
5.11
|
868
|
|
|
784
|
|
|
BOA
|
593
|
|
|
—
|
|
|
Advanced Circuits
|
482
|
|
|
93
|
|
|
Altor Solutions
|
1,253
|
|
|
975
|
|
|
Arnold
|
2,221
|
|
|
1,630
|
|
|
Ergobaby
|
—
|
|
|
124
|
|
|
Liberty
|
94
|
|
|
292
|
|
|
Marucci Sports
|
1,804
|
|
|
51
|
|
|
Sterno
|
1,555
|
|
|
915
|
|
|
Velocity Outdoor
|
2,087
|
|
|
1,673
|
|
|
Other
|
3,526
|
|
|
1,919
|
|
|
Preferred share distribution
|
12,091
|
|
|
11,587
|
|
|
Estimated cash flow available for distribution and reinvestment
|
$
|
92,822
|
|
|
$
|
31,192
|
|
|
|
|
|
|
|
Distribution paid in April 2021/2020
|
$
|
(23,364)
|
|
|
$
|
(21,564)
|
|
|
Distribution paid in July 2021/ 2020
|
(23,364)
|
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(23,364)
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$
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(46,728)
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$
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(44,928)
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(1) Represents fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership, payable quarterly.
(2) Represents maintenance capital expenditures that were funded from operating cash flow, net of proceeds from the sale of property, plant and equipment, and excludes growth capital expenditures of approximately $6.9 million for the six months ended June 30, 2021 and $5.6 million for the six months ended June 30, 2020.
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 quarter produce the highest net sales during our fiscal year.
Related Party Transactions
Management Services Agreement
We entered into the MSA with CGM effective May 16, 2006. The MSA provides for, among other things, CGM to perform services for the Company in exchange for a management fee paid quarterly and equal to 0.5% of the Company's adjusted net assets, as defined in the MSA. In March 2020, as a proactive measure to provide the Company with additional cash liquidity in light of the COVID-19 pandemic, the Company elected to draw down $200 million on our 2018 Revolving Credit Facility. The Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of March 31, 2020. In addition, as a result of an expected decline in earnings and cash flows in the second quarter of 2020, CGM agreed to waive 50% of the management fee calculated at June 30, 2020 that was paid in July 2020. Further, for the third quarter of 2020, the Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of September 30, 2020. CGM has also entered into a waiver of the MSA for a period through December 31, 2021 to receive a 1% annual management fee related to BOA, rather than the 2% called for under the MSA. In the first quarter of 2021, the Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee related to the amount of the proceeds deposited with the Trustee that was in excess of the amount payable related to the 2026 Senior Notes at March 31, 2021.
Integration Services Agreements
Marucci Sports, which was acquired in April 2020, entered into an ISA with CGM whereby Marucci paid an integration service fee of $2.0 million quarterly over a twelve month period as services are rendered beginning in the quarter ended September 30, 2020. BOA, which was acquired in October 2020, entered into an Integration Services Agreement ("ISA") with CGM whereby BOA will pay CGM an integration service fee of $4.4 million quarterly over a twelve month period as services are rendered, beginning in the quarter ended December 31, 2020. Under the ISAs, CGM provides services for new platform acquisitions to, amongst other things, assist the management at the acquired entities in establishing a corporate governance program, implement compliance and reporting requirements of the Sarbanes-Oxley Act of 2002, as amended, and align the acquired entity's policies and procedures with our other subsidiaries.
Profit Allocation Payments
The ten-year anniversary of Liberty occurred in March 2020 and the ten-year anniversary of Ergobaby occurred in September 2020. Both of these represented a Holding Event, and the holders of the Allocation Interests elected to defer the distribution until after the end of 2020. The profit allocation payment of $3.3 million related to the Liberty Holding Event and the profit allocation of $2.0 million related to the Ergobaby Holding Event were both paid in January 2021. The fifteen-year anniversary of ACI occurred in May 2021 which represented a Holding Event. The Company declared and paid a distribution to the Holders of $12.1 million in July 2021.
5.11
Related Party Vendor Purchases - 5.11 purchases inventory from a vendor who is a related party to 5.11 through one of the executive officers of 5.11 via the executive's 40% ownership interest in the vendor. During the three and six months ended June 30, 2021, 5.11 purchased approximately $0.4 million and $0.8 million, respectively, in inventory from the vendor.
BOA
Related Party Vendor Purchases - A contract manufacturer used by BOA as the primary supplier of molded injection parts is a noncontrolling shareholder of BOA. BOA had approximately $11.8 million and $21.6 million, respectively, in purchases from this supplier during the three and six months ended June 30, 2021.
Off-Balance Sheet Arrangements
We have no special purpose entities or off-balance sheet arrangements.
Contractual Obligations
Long-term contractual obligations, except for our long-term debt obligations and operating lease liabilities, are generally not recognized in our consolidated balance sheet. Contractual obligations associated with ongoing business and financing activities will require cash payments in future periods. A table summarizing the amounts and estimated timing of these future cash payments as of December 31, 2020 was provided in the Company's annual report on Form 10-K for the year ended December 31, 2020. The only significant change related to our contractual obligations since December 31, 2020 relates to our long-term debt obligations. In March 2021, we issued our 2029 Senior Notes, resulting in proceeds of $1,000 million, which were used to repay the $600 million principal amount outstanding on our 2026 Senior Notes on April 1, 2021, and to repay our 2018 Revolving Credit Facility. The 2029 Senior Notes pay interest at 5.250%, as opposed to the 2026 Senior Notes which paid interest at 8.000%. In connection with the repayment of the 2018 Revolving Credit Facility, we entered into the 2021 Credit Facility provides for revolving loans, swing line loans and letters of credit up to a maximum aggregate amount of $600 million and also permits the Company, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain term loans in an aggregate amount of up to $250 million, subject to certain restrictions and conditions.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates under different assumptions and judgments and uncertainties, and potentially could result in materially different results under different conditions. These critical accounting policies and estimates are reviewed periodically by our independent auditors and the audit committee of our board of directors.
Except as set forth below, our critical accounting estimates have not changed materially from those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, for the year ended December 31, 2020, as filed with the SEC on February 24, 2021.
Goodwill and Indefinite-lived Intangible Asset Impairment Testing
Goodwill
Goodwill represents the excess amount of the purchase price over the fair value of the assets acquired. Our goodwill and indefinite lived intangible assets are tested for impairment on an annual basis as of March 31st, and if current events or circumstances require, on an interim basis. Goodwill is allocated to various reporting units, which are generally an operating segment or one level below the operating segment. Each of our businesses represents a reporting unit.
We use a qualitative approach to test goodwill for impairment by first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment testing. The qualitative factors we consider include, in part, the general macroeconomic environment, industry and market specific conditions for each reporting unit, financial performance including actual versus planned results and results of relevant prior periods, operating costs and cost impacts, as well as issues or events specific to the reporting unit. If qualitative factors are not sufficient to determine that the fair value of a reporting unit is more likely than not to exceed its carrying value, we will perform a quantitative test of the reporting unit whereby we estimate the fair value of the reporting unit using an income approach or market approach, or a weighting of the two methods. Under the income approach, we estimate the fair value of our reporting unit based on the present value of future cash flows. Cash flow projections are based on management's estimate of revenue growth rates and operating margins and take into consideration
industry and market conditions as well as company specific economic factors. The discount rate used is based on the weighted average cost of capital adjusted for the relevant risk associated with the business and the uncertainty associated with the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimate fair value based on market multiples of revenue and earnings derived from comparable public companies with operating characteristics that are similar to the reporting unit. When market comparables are not meaningful or available, we estimate the fair value of the reporting unit using only the income approach.
2021 Annual Impairment Testing - For our annual impairment testing at March 31, 2021, we performed a qualitative assessment of our reporting units. The qualitative factors we consider include, in part, the general macroeconomic environment, industry and market specific conditions for each reporting unit, financial performance including actual versus planned results and results of relevant prior periods, operating costs and cost impacts, as well as issues or events specific to the reporting unit. As a result of the current COVID-19 pandemic, we have considered how we expect COVID-19 to impact our future operating results and short and long term financial condition as part of our qualitative assessment, including the effects on our end customers, potential short-term supply chain constraints, and the continued restrictions imposed by government and regulatory authorities. The results of the qualitative analysis indicated that it was more-likely-than-not that the fair value of each of our reporting units except Arnold exceeded their carrying value. Based on our analysis, we determined that the Arnold operating segment required quantitative testing because we could not conclude that the fair value of this reporting unit significantly exceeded the carrying value based on qualitative factors alone.
We performed the quantitative tests of Arnold using an income approach to determine the fair value of the reporting units. We do not believe that the market approach results in relevant data points for market multiples or data from comparable companies since most of Arnold's competitors are privately held and do not publish data that can be used in an income approach. In developing the prospective financial information used in the income approach, we considered recent market conditions, taking into consideration the uncertainty associated with the COVID-19 pandemic and its economic fallout. The prospective financial information considers reporting unit specific facts and circumstances and is our best estimate of operational results and cash flows for the Arnold reporting unit as of the date of our impairment testing. The discount rate used in the income approach was 13.0%, and the results of the quantitative impairment testing indicated that the fair value of the Arnold reporting unit exceeded the carrying value by approximately 272%. The prospective financial information that is used to determine the fair values of the Arnold reporting unit requires us to make assumptions regarding future operational results including revenue growth rates and gross margins. If we do not achieve the forecasted revenue growth rates and gross margins, the results of the quantitative testing could change, potentially leading to additional testing and impairment at the reporting unit that was tested quantitatively.
Indefinite-lived intangible assets
We use a qualitative approach to test indefinite lived intangible assets for impairment by first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment testing. Our indefinite-lived intangible assets consist of trade names with a carrying value of approximately $60.0 million. The results of the qualitative analysis of our reporting unit's indefinite-lived intangible assets, which we completed as of March 31, 2021, indicated that the fair value of the indefinite lived intangible assets exceeded their carrying value.
Recent Accounting Pronouncements