CODI Narrows Q1 Loss to $49.7M Amid Revenue Growth, Higher Debt Costs

TL;DR

**CODI's Q1 loss narrowed, but rising debt costs and the Lugano fallout mean this diversified holding company is still a risky bet.**

AI Summary

Compass Diversified Holdings (CODI-PC) reported a net loss of $49.71 million for the three months ended March 31, 2025, a significant improvement from the $85.27 million net loss in the prior-year period. Net revenues increased by 10.45% to $453.78 million from $410.83 million in Q1 2024. Despite revenue growth, the company's operating income remained low at $3.44 million, though it reversed an operating loss of $12.11 million in Q1 2024. Interest expense, net, rose substantially to $35.85 million in Q1 2025 from $25.27 million in Q1 2024, indicating increased borrowing costs. The company's current portion of long-term debt increased to $1.86 billion as of March 31, 2025, from $1.77 billion at December 31, 2024. This filing was delayed due to an investigation into financial practices at its Lugano Holding Inc. subsidiary, which led to a restatement of prior financial information.

Why It Matters

This 10-Q filing reveals Compass Diversified Holdings is still navigating significant financial challenges, particularly with its substantial debt load and the lingering impact of the Lugano Investigation. For investors, the improved net loss and revenue growth offer a glimmer of hope, but the rising interest expense and large current debt portion signal continued pressure on profitability and liquidity. Employees and customers of CODI's diverse portfolio of businesses will be watching for stability, as financial health directly impacts operational investments and job security. In a competitive market, CODI's ability to manage its debt and integrate its subsidiaries effectively will determine its long-term viability and market position against rivals in the diversified holdings space.

Risk Assessment

Risk Level: high — The risk level is high due to the significant increase in the current portion of long-term debt to $1.86 billion as of March 31, 2025, from $1.77 billion at December 31, 2024. Additionally, the filing explicitly states a risk of 'lenders' ability to accelerate our outstanding indebtedness and the uncertainty of our ability to secure amendments, waivers, or forbearance, which could jeopardize our ability to continue as a going concern.' The delayed filing and restatement due to the Lugano Investigation also highlight internal control deficiencies.

Analyst Insight

Investors should exercise extreme caution and consider reducing exposure to CODI-PC given the high debt levels and ongoing financial uncertainties. Monitor future filings closely for updates on debt refinancing, the resolution of the Lugano Investigation's financial impact, and any improvements in internal controls. Await clear signs of sustained profitability and debt reduction before considering new positions.

Financial Highlights

revenue

$453.78M

operating Margin

0.76%

total Assets

$3.37B

total Debt

$1.86B

net Income

-$49.71M

gross Margin

43.20%

cash Position

$146.24M

revenue Growth

+10.45%

Key Numbers

• $49.71M — Net Loss (Improved from $85.27M in Q1 2024)
• $453.78M — Net Revenues (Increased by 10.45% from $410.83M in Q1 2024)
• $3.44M — Operating Income (Reversed a $12.11M operating loss in Q1 2024)
• $35.85M — Interest Expense, Net (Increased from $25.27M in Q1 2024)
• $1.86B — Current Portion of Long-Term Debt (Increased from $1.77B at December 31, 2024)
• $0.25 — Cash Distributions per Common Share (Consistent with Q1 2024)
• 75,236 — Basic Weighted Average Common Shares Outstanding (Slightly decreased from 75,274 in Q1 2024)
• $146.24M — Cash and Cash Equivalents (Increased from $59.66M at December 31, 2024)
• $1.07B — Total Current Assets (Increased from $964.77M at December 31, 2024)
• $2.54B — Total Current Liabilities (Increased from $2.43B at December 31, 2024)

Key Players & Entities

• Compass Diversified Holdings (company) — Registrant of the 10-Q filing
• Lugano Holding Inc. (company) — Subsidiary subject to financial investigation and restatement
• Audit Committee (company) — Initiated the investigation into Lugano's financial practices
• Bank of America, N.A. (company) — Administrative Agent for the 2022 Credit Facility
• SEC (regulator) — United States Securities and Exchange Commission
• $49.71 million (dollar_amount) — Net loss for Q1 2025
• $85.27 million (dollar_amount) — Net loss for Q1 2024
• $453.78 million (dollar_amount) — Net revenues for Q1 2025
• $1.86 billion (dollar_amount) — Current portion of long-term debt as of March 31, 2025
• $1.77 billion (dollar_amount) — Current portion of long-term debt as of December 31, 2024

FAQ

Risk Factors

• Investigation into Lugano Holding Inc. subsidiary [high — legal]: The company experienced a delay in its 10-Q filing due to an ongoing investigation into financial practices at its Lugano Holding Inc. subsidiary. This investigation has led to a restatement of prior financial information, indicating potential material weaknesses or control deficiencies.
• Increased Interest Expense [medium — financial]: Interest expense, net, rose substantially to $35.85 million in Q1 2025 from $25.27 million in Q1 2024. This 42% increase highlights rising borrowing costs and a greater reliance on debt financing.
• High Debt Levels [high — financial]: The current portion of long-term debt increased to $1.86 billion as of March 31, 2025, from $1.77 billion at December 31, 2024. This substantial debt burden, coupled with rising interest rates, poses a significant financial risk.
• Dependence on Subsidiaries [medium — operational]: As a diversified holding company, CODI's performance is heavily reliant on the operational and financial success of its various subsidiaries. Issues at any single subsidiary, such as the investigation at Lugano Holding Inc., can have a material impact on the consolidated results.
• Economic Downturn Impact [medium — market]: The company's diverse portfolio of businesses operates across various industries, making it susceptible to broader economic downturns. Reduced consumer spending or industrial activity could negatively impact revenues and profitability across multiple segments.

Industry Context

Compass Diversified Holdings operates as a diversified holding company, acquiring and managing businesses across various sectors. This structure provides some resilience against downturns in any single industry but also means its performance is tied to the health of multiple, potentially disparate, economic environments. The current environment is characterized by rising interest rates and inflationary pressures, which can impact operating costs and consumer demand across its portfolio.

Regulatory Implications

The delay in filing and the investigation into its Lugano Holding Inc. subsidiary highlight significant regulatory and compliance risks. Such investigations can lead to fines, sanctions, and reputational damage, impacting investor confidence and potentially leading to further scrutiny from regulatory bodies.

What Investors Should Do

1. Monitor the outcome of the Lugano Holding Inc. investigation.
2. Analyze the drivers of increased interest expense.
3. Evaluate the company's debt management strategy.
4. Assess the performance and outlook of individual business segments.

Key Dates

• 2025-03-31: End of Q1 2025 — Reporting period for the condensed consolidated financial statements, showing a net loss of $49.71M and revenue of $453.78M.
• 2025-03-31: Current Portion of Long-Term Debt as of Q1 2025 — Stood at $1.86 billion, an increase from $1.77 billion at the end of 2024, indicating increased short-term debt obligations.
• 2025-03-31: Cash and Cash Equivalents as of Q1 2025 — Increased to $146.24 million from $59.66 million at the end of 2024, providing improved liquidity.
• 2024-12-31: End of Q4 2024 — Previous reporting period for comparison, with $59.66M in cash and cash equivalents and $1.77B in current portion of long-term debt.

Glossary

Accumulated deficit

The cumulative net losses of a company that have not been offset by net income. It represents the total losses incurred since the company's inception. (CODI has an accumulated deficit of $1.06 billion as of March 31, 2025, indicating that the company has historically incurred more losses than profits.)

Noncontrolling interest

The portion of equity in a subsidiary that is not attributable to the parent company. It represents the ownership interest of outside shareholders in the consolidated financial statements. (CODI has a noncontrolling interest of $167.09 million as of March 31, 2025, reflecting the ownership stake of others in its consolidated entities.)

Trust preferred shares

A type of preferred stock that is structured as a trust, often used by financial institutions to raise capital. They typically have features of both debt and equity. (CODI has 20,069 shares of trust preferred shares issued and outstanding as of March 31, 2025, which represent a specific class of financing.)

Goodwill

An intangible asset that arises when a company acquires another company for a price greater than the fair value of its net identifiable assets. It represents the future economic benefits arising from assets acquired in a business combination. (CODI holds $895.42 million in goodwill as of March 31, 2025, primarily resulting from past acquisitions.)

Intangible assets, net

Assets that lack physical substance but are identifiable and controllable by the company, such as patents, trademarks, and customer lists. 'Net' indicates that accumulated amortization has been deducted. (CODI has $960.76 million in net intangible assets as of March 31, 2025, which are significant components of its asset base.)

Year-Over-Year Comparison

Compass Diversified Holdings reported a net loss of $49.71 million for Q1 2025, a significant improvement from the $85.27 million net loss in Q1 2024. Net revenues saw a healthy increase of 10.45% to $453.78 million. However, operating income remained low at $3.44 million, despite reversing a prior year operating loss. A key concern is the substantial increase in interest expense, up to $35.85 million from $25.27 million, and a rise in the current portion of long-term debt to $1.86 billion. The company also faced a filing delay due to an investigation at a subsidiary, leading to restatements.

Key Financial Figures

• $600 million — evolving Credit Facility" refers to the $600 million in revolving loans, swing line loans an
• $400 million — 27; the "2022 Term Loan" refers to the $400 million term loan provided by the 2022 Credit F
• $200 million — 22 Credit Facility, plus the additional $200 million term loan provided pursuant to a First
• $100 million — 9, 2025 ("First Amendment"), plus up to $100 million delay draw term loan that could be draw

Filing Documents

• codi-20250331.htm (10-Q) — 2542KB
• a03312025-ex311.htm (EX-31.1) — 9KB
• a03312025-ex312.htm (EX-31.2) — 10KB
• a03312025-ex321.htm (EX-32.1) — 6KB
• a03312025-ex322.htm (EX-32.2) — 6KB
• 0001345126-25-000085.txt ( ) — 12564KB
• codi-20250331.xsd (EX-101.SCH) — 75KB
• codi-20250331_cal.xml (EX-101.CAL) — 96KB
• codi-20250331_def.xml (EX-101.DEF) — 735KB
• codi-20250331_lab.xml (EX-101.LAB) — 806KB
• codi-20250331_pre.xml (EX-101.PRE) — 841KB
• codi-20250331_htm.xml (XML) — 1688KB

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS 4

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

FINANCIAL STATEMENTS (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) CONDENSED CONSOLIDATED BALANCE SHEETS 7 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 8 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 9 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 10 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 13

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 54

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 81

CONTROLS AND PROCEDURES

ITEM 4. CONTROLS AND PROCEDURES 81

OTHER INFORMATION 82

PART II. OTHER INFORMATION 82

LEGAL PROCEEDINGS

ITEM 1. LEGAL PROCEEDINGS 82

RISK FACTORS

ITEM 1A. RISK FACTORS 82

EXHIBITS

ITEM 6. EXHIBITS 83

SIGNATURES

SIGNATURES 86 2 NOTE TO READER In reading this Quarterly Report on Form 10-Q, references to: the "Trust" and "Holdings" refer to Compass Diversified Holdings; the "LLC" refers to Compass Group Diversified Holdings LLC; the "Company" refers to Compass Diversified Holdings and Compass Group Diversified Holdings LLC, collectively; "businesses", "operating segments", "subsidiaries" and "reporting units" all refer to, collectively, the businesses controlled by the Company; the "Manager" refers to Compass Group Management LLC ("CGM"); the "Trust Agreement" refers to the Third Amended and Restated Trust Agreement of the Trust dated as of August 3, 2021, as further amended; the "2022 Credit Facility" refers to the third amended and restated credit agreement entered into on July 12, 2022, as further amended, among the LLC, the lenders from time to time party thereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and letter of credit issuer (the "agent") the "2022 Revolving Credit Facility" refers to the $600 million in revolving loans, swing line loans and letters of credit provided by the 2022 Credit Facility that matures in 2027; the "2022 Term Loan" refers to the $400 million term loan provided by the 2022 Credit Facility, plus the additional $200 million term loan provided pursuant to a First Incremental Facility Amendment dated as of January 9, 2025 ("First Amendment"), plus up to $100 million delay draw term loan that could be drawn and provided pursuant to the First Amendment ; the "LLC Agreement" refers to the Sixth Amended and Restated Operating Agreement of the Company dated as of August 3, 2021, as further amended; the "Management Services Agreement" or "MSA" refer to the Management Services Agreement with CGM effective May 16, 2006, as amended; and "we," "us" and "our" refer to the Trust, the Company and the businesses together. 3

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (this "Form 10-Q"), contains both historical and forward-looking statements. We may, in some cases, use words such as "project," "predict," "believe," "anticipate," "plan," "expect," "estimate," "intend," "should," "would," "could," "potentially," "may," or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. All statements other than statements of historical or current fact are "forward-looking statements" for purposes of federal and state securities laws. Forward-looking statements include, among other things, (i) statements as to our future performance or liquidity, such as expectations for our results of operation, net income, Adjusted EBITDA, and Adjusted Earnings and ability to make quarterly distributions, (ii) our plans, strategies and objectives for future operations, including our business outlook and planned capital expenditures and (iii) our plans to regain covenant compliance under our 2022 credit facility. Forward-looking statements in this Form 10-Q are subject to a number of risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the SEC, including, but not limited to, those described under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in both this Form 10-Q and our Amendment No. 1 to the Annual Report on Form 10-K/A for the year ended December 31, 2024 filed with the United States Securities and Exchange Commission ("SEC") on December 8, 2025 as such factors may be updated from time to time in our filings with the SEC. Many of these risks and uncertainties are beyond our control. Important factors that could cause our actual results, performance and achievements to differ materially from those estimates or projections contained in our forward-looking statements include, among other things: litigation relati

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS COMPASS DIVERSIFIED HOLDINGS CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2025 December 31, 2024 (in thousands) (Unaudited) (As Restated) Assets Current assets: Cash and cash equivalents $ 146,235 $ 59,659 Accounts receivable, net 196,422 207,172 Inventories, net 598,847 571,248 Prepaid expenses and other current assets 123,705 126,692 Total current assets 1,065,209 964,771 Property, plant and equipment, net 245,612 244,746 Goodwill 895,420 895,916 Intangible assets, net 960,760 983,396 Other non-current assets 199,947 208,593 Total assets $ 3,366,948 $ 3,297,422 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 100,138 $ 103,239 Accrued expenses 326,322 318,476 Due to related parties (refer to Note O) 17,738 18,036 Current portion, long-term debt 1,860,064 1,774,290 Subsidiary financing arrangements (refer to Note H) 181,682 169,765 Other current liabilities 51,440 49,617 Total current liabilities 2,537,384 2,433,423 Deferred income taxes 101,521 108,091 Long-term debt (refer to Note H) — — Other non-current liabilities 214,398 225,334 Total liabilities 2,853,303 2,766,848 Commitments and contingencies (refer to Note N) Stockholders' equity Trust preferred shares, 50,000 authorized; 20,069 shares issued and outstanding at March 31, 2025 and 17,497 shares issued and outstanding at December 31, 2024 Series A preferred shares, no par value; 4,673 shares issued and outstanding at March 31, 2025 and 4,551 shares issued and outstanding at December 31, 2024 111,907 109,159 Series B preferred shares, no par value; 7,494 shares issued and outstanding at March 31, 2025 and and 6,192 shares issued and outstanding at December 31, 2024 177,112 147,906 Series C preferred shares, no par value; 7,902 shares issued and outstanding at March 31, 2025 and 6,754 shares issued and outstanding at December 31, 2024 187,950 161,767 Trust common shares, no par value, 500,000 authorized; 76

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