Compass Diversified Holdings

Previous wording

The macroeconomic environment remains dynamic as global macroeconomic trends, including inflationary pressures and higher interest rates, are impacting consumer spending behavior. We expect changing market conditions and inflationary pressures to continue to impact consumer spending, particularly for discretionary items purchased by low and middle income consumers, even as overall consumer sentiment among other income brackets appears to be improving. While overall inflation has increased at a slower pace domestically in the first half of 2024, prices remain significantly elevated as compared to the pre-COVID-19 environment, and inflation rates remain above central banks' targets. We continue to experience modest inflationary cost increases in our materials and rising labor costs, particularly at our businesses where hourly employees comprise a larger part of the workforce. We expect that low unemployment rates and increasing wage and benefit costs will have an impact on margins at our businesses in 2024. Certain locales that our businesses operate in have also significantly increased the minimum wage over the past two years with more increases scheduled in coming years, which adds additional wage pressure to the rates we pay hourly workers in these locales.

Current wording

The macroeconomic environment remains dynamic as global macroeconomic trends, including inflationary pressures and higher interest rates, are impacting consumer spending behavior. We expect uncertainty regarding changing market conditions, inflationary pressures and interest rates to impact consumer spending for the remainder of the year, particularly for discretionary items purchased by low and middle income consumers, even as overall consumer sentiment among other income brackets appears to be improving. While overall inflation has increased at a slower pace domestically in 2024, prices remain significantly elevated as compared to the pre-COVID-19 environment, and inflation rates remain above central banks' targets. We continue to experience modest inflationary cost increases in our materials and rising labor costs, particularly at our businesses where hourly employees comprise a larger part of the workforce. We expect that low unemployment rates and increasing wage and benefit costs will continue to have an impact on margins at our businesses for the remainder of 2024 and into the first part of 2025. Certain locales that our businesses operate in have also significantly increased the minimum wage over the past two years with more increases scheduled in coming years, which adds additional wage pressure to the rates we pay hourly workers in these locales.

Previous wording

Our lead-times for inventory have stabilized, which we expect will allow for more accurate forecasting in 2024. Several of our consumer brand businesses experienced a decrease in net revenues in 2023 resulting from higher than anticipated end market inventory levels due to supply chain normalization and a corresponding inventory ordering surge experienced in 2022. Transportation costs have also decreased from a peak, but global geopolitical threats that arose in the latter half of 2023 continue to pressure both fuel and freight costs. Our businesses have begun to see increases in freight costs, particularly ocean freight, which we expect to impact us in the latter half of 2024. Accordingly, our liquidity and financial results could be impacted in ways that we are not able to predict today.

Current wording

Several of our consumer brand businesses experienced a decrease in net revenues in 2023 resulting from higher than anticipated end market inventory levels due to supply chain normalization and a corresponding inventory ordering surge experienced in 2022. During the third quarter of 2024, our businesses began to see increases in freight costs, particularly ocean freight, as logistics costs, which had begun to moderate after remaining relatively high post pandemic, were negatively impacted by the then anticipated port strike on the east coast in the United States, geopolitical conflicts and higher fuel costs. Accordingly, our liquidity and financial results could be impacted in ways that we are not able to predict today.

Previous wording

On April 30, 2024, Velocity Outdoor entered into a stock purchase agreement to sell Crosman Corporation ("Crosman"), its airgun product division, to Daisy Manufacturing Company, for an enterprise value of approximately $63 million. The sale was completed on the same day. The Company recorded a loss of $24.6 million on the sale of Crosman in the quarter ended June 30, 2024. Velocity received net proceeds of approximately $58.5 million related to the sale of Crosman, which was used to repay amounts outstanding under its intercompany credit agreement. The results of operation of Crosman are included in the accompanying financial statements through the date of sale.

Current wording

On April 30, 2024, Velocity Outdoor entered into a stock purchase agreement to sell Crosman Corporation ("Crosman"), its airgun product division, to Daisy Manufacturing Company, for an enterprise value of approximately $63 million. The sale was completed on the same day. The Company recorded a loss of $24.2 million on the sale of Crosman in the quarter ended June 30, 2024. Velocity received net proceeds of approximately $61.9 million related to the sale of Crosman, which was used to repay amounts outstanding under its intercompany credit agreement. The results of operation of Crosman are included in the accompanying financial statements through the date of sale.

Previous wording

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, 2024 and June 30, 2023, and components of the results of operations as well as those components presented as a percent of net revenues, for each of our subsidiary businesses on a stand-alone basis.

Current wording

The following discussion reflects a comparison of the historical results of operations of our consolidated business for the three and nine months ended September 30, 2024 and September 30, 2023, and components of the results of operations as well as those components presented as a percent of net revenues, for each of our subsidiary businesses on a stand-alone basis.

Previous wording

In the following results of operations, we provide (i) our actual Consolidated Results of Operations for the three and six months ended June 30, 2024 and 2023, which includes the historical results of operations of each of our businesses (operating segments) from the date of acquisition in accordance with generally accepted accounting principles in the United States ("GAAP" or "US GAAP), and (ii) comparative historical components of the results of operations for each of our businesses on a stand-alone basis for the three and six months ended June 30, 2024 and 2023, where all periods presented include relevant pro forma adjustments for pre-acquisition periods and explanations where applicable. For the acquisition of The Honey Pot Co. in January 2024, the pro forma results of operations for The Honey Pot Co. business segment has been prepared as if we purchased this business on January 1, 2023. We believe this is the most meaningful comparison for the operating results of acquired business segments. The following results of operations at each of our businesses are not necessarily indicative of the results to be expected for a full year.

Current wording

In the following results of operations, we provide (i) our actual Consolidated Results of Operations for the three and nine months ended September 30, 2024 and 2023, which includes the historical results of operations of each of our businesses (operating segments) from the date of acquisition in accordance with US GAAP, and (ii) comparative historical components of the results of operations for each of our businesses on a stand-alone basis for the three and nine months ended September 30, 2024 and 2023, where all periods presented include relevant pro forma adjustments for pre-acquisition periods and explanations where applicable. For the acquisition of The Honey Pot Co. in January 2024, the pro forma results of operations for The Honey Pot Co. business segment has been prepared as if we purchased this business on January 1, 2023. We believe this is the most meaningful comparison for the operating results of acquired business segments. The following results of operations at each of our businesses are not necessarily indicative of the results to be expected for a full year.

Previous wording

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."

Current wording

All dollar amounts in the financial tables are presented in thousands. Certain amounts and percentages may not sum or recalculate due to the presentation of rounded numbers. Amounts discussed within the supporting narrative are calculated based on unrounded numbers and consequently the sum of the components may not agree to totals using the rounded numbers provided. References in the financial tables to percentage changes that are not meaningful are denoted by "NM."

Previous wording

The following table sets forth our unaudited results of operations for the three and six months ended June 30, 2024 and 2023:

Current wording

The following table sets forth our unaudited results of operations for the three and nine months ended September 30, 2024 and 2023:

Previous wording

2023, we saw notable increases in net revenues at BOA ($16.0 million increase) and Lugano ($38.4 million increase), offset by decreases in net revenue at Velocity ($19.1 million decrease, primarily as a result of the sale of Crosman) and Altor Solutions ($8.7 million decrease). The Honey Pot Co., which we acquired on January 31, 2024, contributed $24.2 million in net revenues in the second quarter of 2024. Refer to "Results of Operations - Business Segments" for a more detailed analysis of net revenues by subsidiary business segment.

Current wording

Consolidated net revenues for the three months ended September 30, 2024 increased by approximately $61.6 million, or 11.8%, compared to the corresponding period in 2023. During the three months ended September 30, 2024 compared to 2023, we saw notable increases in net revenues at 5.11 ($4.0 million increase)BOA ($8.3 million increase), Lugano ($39.8 million increase), Arnold ($4.3 million increase) and Sterno ($5.0 million increase), offset by decreases in net revenue at Velocity ($25.7 million decrease, primarily as a result of the sale of Crosman) and Altor Solutions ($7.1 million decrease). The Honey Pot Co., which we acquired on January 31, 2024, contributed

Previous wording

On a consolidated basis, cost of revenues increased approximately $13.2 million during the three months ended June 30, 2024 compared to the corresponding period in 2023. We saw notable increases in cost of revenues at BOA ($4.8 million increase) and Lugano ($13.4 million increase) that correlates with the increase in net revenue in the second quarter of 2024. We saw notable decreases in cost of revenues at Velocity ($14.8 million decrease, primarily as a result of the sale of Crosman) and Altor ($4.1 million decrease) that corresponded to the decrease in net revenue noted above. The Honey Pot Co. had cost of sales of $12.9 million in the second quarter of 2024. Gross profit as a percentage of net revenues was approximately 47.8% in the three months ended June 30, 2024 compared to 44.5% in the three months ended June 30, 2023. The increase in gross profit as a percentage of net sales in the quarter ended June 30, 2024 as compared to the quarter ended June 30, 2023 is driven by the mix of products sold, with increases in net revenue at our higher margin businesses, particularly Lugano. Our branded consumer businesses had gross profit as a percentage of net revenues of 56.7% in the second quarter of 2024 as compared to 53.1% in the second quarter of 2023, while our industrial businesses had gross profit as a percentage of net revenues of 28.1% in the second quarter of 2024 as compared to 29.3% in the second quarter of 2023. Refer to "Results of Operations - Business Segments" for a more detailed analysis of gross profit by subsidiary business segment.

Current wording

On a consolidated basis, cost of revenues increased approximately $12.3 million during the three months ended September 30, 2024 compared to the corresponding period in 2023. We saw notable increases in cost of revenues at Lugano ($13.3 million increase) and Sterno ($3.6 million increase) that correlates with the increase in net revenue in the third quarter of 2024. We saw notable decreases in cost of revenues at Velocity ($18.7 million decrease, primarily as a result of the sale of Crosman) and Altor ($4.7 million decrease) that corresponded to the decrease in net revenue noted above. The Honey Pot Co. had cost of revenue of $14.6 million in the third quarter of 2024. Gross profit as a percentage of net revenues was approximately 47.1% in the three months ended September 30, 2024 compared to 43.2% in the three months ended September 30, 2023. The increase in gross profit as a percentage of net revenue in the quarter ended September 30, 2024 as compared to the quarter ended September 30, 2023 is driven by the mix of products sold, with increases in net revenue at our higher margin businesses, particularly Lugano. Our branded consumer businesses had gross profit as a percentage of net revenues of 56.0% in the third quarter of 2024 as compared to 51.6% in the third quarter of 2023, while our industrial businesses had gross profit as a percentage of net revenues of 27.8% in the third quarter of 2024 as compared to 27.7% in the third quarter of 2023. Refer to "Results of Operations - Business Segments" for a more detailed analysis of gross profit by subsidiary business segment.

Previous wording

Consolidated selling, general and administrative expense increased approximately $17.7 million during the three months ended June 30, 2024, compared to the corresponding period in 2023. We saw increases in selling, general and administrative expenses at several of our consumer brands due to increased investment in marketing and headcount, increases in employee compensation and increases in fulfillment costs. We saw notable increase in selling, general and administrative expenses at BOA ($2.8 million of the increase), Ergobaby ($1.6 million of the increase) and Lugano ($9.0 million of the increase). The Honey Pot Co. had selling, general and administrative expense of $9.3 million in the second quarter of 2024, of which $0.9 million was integration service fees associated with the Company's acquisition. Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by subsidiary business segment. At the corporate level, general and administrative expense was $4.0 million in the second quarter of 2024 and $4.1 million in the second quarter of 2023.

Current wording

Consolidated selling, general and administrative expense increased approximately $25.8 million during the three months ended September 30, 2024, compared to the corresponding period in 2023. We saw increases in selling, general and administrative expenses at several of our consumer brands due to increased investment in marketing and headcount, increases in employee compensation and increases in fulfillment costs. We saw notable increase in selling, general and administrative expenses at 5.11 ($2.8 million of the increase), BOA ($3.0 million of the increase), and Lugano ($6.5 million of the increase). The Honey Pot Co. had selling, general and administrative expense of $9.8 million in the third quarter of 2024, of which $0.9 million was integration service fees associated with the Company's acquisition. Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by subsidiary business segment. At the corporate level, general and administrative expense was $5.9 million in the third quarter of 2024 and $3.7 million in the third quarter of 2023. The increase in general and administrative expense in the third quarter of 2024 related to severance paid to our former chief financial officer, who departed during the third quarter, and professional fees associated with the recruitment of our new chief financial officer.

Previous wording

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, 2024, we incurred approximately $18.9 million in management fees as compared to $16.8 million in fees in the three months ended June 30, 2023. The increase in management fees is primarily attributable to our acquisition of The Honey Pot Co. in January 2024.

Current wording

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 September 30, 2024, we incurred approximately $18.8 million in management fees as compared to $18.5 million in fees in the three months ended September 30, 2023. The increase in management fees is primarily attributable to our acquisition of The Honey Pot Co. in January 2024.

Previous wording

Amortization expense for the three months ended June 30, 2024 increased $3.5 million as compared to the three months ended June 30, 2023 as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for The Honey Pot Co., which was acquired in January 2024.

Current wording

Amortization expense for the three months ended September 30, 2024 increased $2.8 million as compared to the three months ended September 30, 2023 as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for The Honey Pot Co., which was acquired in January 2024, partially offset by the reduction in amortization expense at Velocity related to the intangible assets that were included in the sale of Crosman.

Previous wording

We recorded interest expense totaling $26.6 million for the three months ended June 30, 2024 compared to $26.6 million for the comparable period in 2023. There was an average of $90 million outstanding on the revolving credit facility in the second quarter of 2024 and $104 million outstanding in the second quarter of 2023. The amount outstanding on the revolving credit facility in the last year was impacted by the timing of our dispositions and acquisitions, with the proceeds from the sale of Advanced Circuits in February 2023 used to pay down outstanding balances on the facility, and the proceeds from the sale of Marucci in November 2023 used to pay for the acquisition of The Honey Pot Co. rather than using the availability under the facility.

Current wording

We recorded interest expense totaling $27.4 million for the three months ended September 30, 2024 compared to $27.6 million for the comparable period in 2023. There was an average of $125 million outstanding on the revolving credit facility in the third quarter of 2024 and $131 million outstanding in the third quarter of 2023, but the effective interest rate on the amounts outstanding in the third quarter of 2024 on the revolving credit facility was higher than in the comparable quarter in the prior year, resulting in higher interest expense.

Previous wording

On April 30, 2024, Velocity Outdoor sold Crosman Corporation ("Crosman"), its airgun product division. Velocity received net proceeds of approximately $58.5 million related to the sale of Crosman, which was used to repay amounts outstanding under its intercompany credit agreement. The Company recorded a loss on the sale of Crosman in the quarter ending June 30, 2024 of $24.6 million.

Current wording

On April 30, 2024, Velocity Outdoor sold Crosman Corporation ("Crosman"), its airgun product division. Velocity recorded a loss on the sale of Crosman in the quarter ending June 30, 2024 of $24.6 million, and a gain on the sale in the third quarter of $0.4 million related to proceeds received from the working capital settlement.

Previous wording

For the quarter ended June 30, 2024, we recorded $1.4 million in other expense as compared to $0.1 million in other expense in the quarter ended June 30, 2023, an increase in expense of $1.3 million. Other income (expense) typically reflects the movement in foreign currency at our subsidiary businesses with international operations, gains or (losses) realized on the sale of property, plant and equipment, and expenses incurred or income earned that are not considered a part of our operations. In the quarter ended June 30, 2024, other expense reflects the accrual of a legal settlement at the corporate level.

Current wording

For the quarter ended September 30, 2024, we recorded $0.1 million in other expense as compared to $1.0 million in other income in the quarter ended September 30, 2023, an increase in expense of $1.1 million. Other income (expense) typically reflects the movement in foreign currency at our subsidiary businesses with international operations, gains or (losses) realized on the sale of property, plant and equipment, and expenses incurred or income earned that are not considered a part of our operations.

Previous wording

We had an income tax provision of $21.5 million during the three months ended June 30, 2024 compared to an income tax provision of $4.3 million during the same period in 2023, an increase of $17.2 million. Our effective tax rate in the quarter ended June 30, 2024 was 276.0%, compared to an effective income tax rate of 30.1% during the same period in 2023. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. In addition to state income taxes, the items with the most significant impact on the difference between our statutory U.S. federal income tax rate of 21% percent and our effective income tax rate in the second quarter was the limitations on the net operating loss carryforwards and utilization of tax credits at our subsidiaries and the loss on the sale of Crosman recognized at Velocity in the second quarter of 2024.

Current wording

We had an income tax provision of $10.8 million during the three months ended September 30, 2024 compared to an income tax provision of $3.8 million during the same period in 2023, an increase of $6.9 million due to the increase in income from continuing operation before income taxes. Our effective tax rate in the quarter ended September 30, 2024 was 25.5%, compared to an effective income tax rate of (37.8)% during the same period in 2023. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. In addition to state income taxes, the items with the most significant impact on the difference between our statutory U.S. federal income tax rate of 21% and our effective income tax rate in the third quarter was the limitations on the net operating loss carryforwards and utilization of tax credits at our subsidiaries.

Previous wording

Consolidated net revenues for the six months ended June 30, 2024 increased by approximately $96.1 million, or 9.9%, compared to the corresponding period in 2023. During the six months ended June 30, 2024 compared to 2023, we saw notable increases in net revenues at BOA ($21.0 million increase) and Lugano ($77.6 million increase), offset by decreases in net revenue at Velocity ($23.3 million decrease), Altor Solutions ($16.8 million decrease) and Sterno ($11.0 million decrease). The Honey Pot Co., which we acquired on January 31, 2024, contributed $44.3 million in net revenues in 2024 post-acquisition in January 2024. Refer to "Results of Operations - Business Segments" for a more detailed analysis of net revenues by subsidiary business segment.

Current wording

Consolidated net revenues for the nine months ended September 30, 2024 increased by approximately $157.6 million, or 10.6%, compared to the corresponding period in 2023. During the nine months ended September 30, 2024 compared to 2023, we saw notable increases in net revenues at BOA ($29.3 million increase), Lugano ($117.4 million increase), PrimaLoft ($3.9 million increase) and Arnold ($8.5 million increase), offset by decreases in net revenue at Velocity ($48.9 million decrease, primarily due to the sale of Crosman in April 2024), Altor Solutions ($23.9 million decrease) and Sterno ($6.0 million decrease). The Honey Pot Co., which we acquired on January 31, 2024, contributed $75.9 million in net revenues in 2024 post-acquisition in January 2024. Refer to "Results of Operations - Business Segments" for a more detailed analysis of net revenues by subsidiary business segment.

Previous wording

On a consolidated basis, cost of revenues increased approximately $16.8 million during the six months ended June 30, 2024 compared to the corresponding period in 2023. We saw notable increases in cost of revenues at BOA ($6.3 million increase) and Lugano ($25.9 million increase) that correlates with the increase in net revenue in the first half of 2024. We saw notable decreases in cost of revenues at Velocity ($17.4 million decrease), Altor ($11.7 million decrease), and Sterno ($12.7 million decrease) that corresponded to the decrease in net revenue noted above. The Honey Pot Co. had cost of sales of $24.4 million in 2024 post-acquisition. Gross profit as a percentage of net revenues was approximately 47.0% in the six months ended June 30, 2024 compared to 43.4% in the six months ended June 30, 2023. The increase in gross profit as a percentage of net sales in the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 is driven by the mix of products sold, with increases in net revenue at our higher margin businesses, particularly Lugano. Our branded consumer businesses had gross profit as a percentage of net revenues of 55.2% in the first half of 2024 as compared to 52.5% in the first half of 2023, while our industrial businesses had gross profit as a percentage of net revenues of 28.3% in the first half of 2024 as compared to 27.5% in the first half of 2023. Refer to "Results of Operations - Business Segments" for a more detailed analysis of gross profit by subsidiary business segment.

Current wording

On a consolidated basis, cost of revenues increased approximately $29.1 million during the nine months ended September 30, 2024 compared to the corresponding period in 2023. We saw notable increases in cost of revenues at BOA ($7.9 million increase) and Lugano ($39.2 million increase) that correlates with the increase in net revenue in the first nine months of 2024. We saw notable decreases in cost of revenues at Velocity ($36.1 million decrease), Altor ($16.4 million decrease), and Sterno ($9.0 million decrease) that corresponded to the decrease in net revenue noted above. The Honey Pot Co. had cost of revenues of $39.1 million in 2024 post-acquisition. Gross profit as a percentage of net revenues was approximately 47.0% in the nine months ended September 30, 2024 compared to 43.4% in the nine months ended September 30, 2023. The increase in gross profit as a percentage of net revenues in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 is driven by the mix of products sold, with increases in net revenue at our higher margin businesses, particularly Lugano. Our branded consumer businesses had gross profit as a percentage of net revenuesof 55.5% in the first nine months of 2024 as compared to 52.2% in the first nine months of 2023, while our industrial businesses had gross profit as a percentage of net revenues of 28.1% in the first nine months of 2024 as compared to 27.5% in the first nine months of 2023. Refer to "Results of Operations - Business Segments" for a more detailed analysis of gross profit by subsidiary business segment.

Previous wording

Consolidated selling, general and administrative expense increased approximately $38.1 million during the six months ended June 30, 2024, compared to the corresponding period in 2023. We saw increases in selling, general and administrative expenses at several of our consumer brands due to increased investment in marketing and headcount, increases in employee compensation and increases in fulfillment costs. We saw notable increase in selling, general and administrative expenses at BOA ($4.6 million of the increase), Ergobaby ($2.8 million of the increase) and Lugano ($16.0 million of the increase). The Honey Pot Co. had selling, general and administrative expense of $18.1 million in the first half of 2024 post-acquisition, of which $3.5 million was transaction costs and $0.9 million was integration service fees associated with the acquisition. Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by subsidiary business segment. At the corporate level, general and administrative expense was $8.9 million in both the first half of 2024 and the first half of 2023.

Current wording

Consolidated selling, general and administrative expense increased approximately $64.0 million during the nine months ended September 30, 2024, compared to the corresponding period in 2023. We saw increases in selling, general and administrative expenses at several of our consumer brands due to increased investment in marketing and headcount, increases in employee compensation and increases in fulfillment costs. We saw notable increases in selling, general and administrative expenses at 5.11 ($2.8 million increase), BOA ($7.6 million of the increase), Ergobaby ($3.9 million of the increase) and Lugano ($22.6 million of the increase). The Honey Pot Co. had selling, general and administrative expense of $28.0 million in the 2024 post-acquisition period, of which $3.5 million was transaction costs and $1.8 million was integration service fees associated with the acquisition. The increase inselling, general and administrative expense was offset by a decrease in expense at Velocity of $7.1 million resulting from the sale of the Crosman division. Refer to "Results of Operations - Business Segments" for a more detailed analysis of selling, general and administrative expense by subsidiary business segment. At the corporate level, general and administrative expense was $14.4 million in the nine months ended September 30, 2024 and $12.6 million the nine months ended September 30, 2023. The increase in general and administrative expense related to severance paid to our former chief financial officer, who departed during the third quarter, and professional fees associated with the recruitment of our new chief financial officer.

Previous wording

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, 2024, we incurred approximately $36.9 million in management fees as compared to $33.1 million in fees in the six months ended June 30, 2023. The increase in management fees is primarily attributable to our acquisition of The Honey Pot Co. in January 2024.

Current wording

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 nine months ended September 30, 2024, we incurred approximately $55.7 million in management fees as compared to $51.5 million in fees in the nine months ended September 30, 2023. The increase in management fees is primarily attributable to our acquisition of The Honey Pot Co. in January 2024.

Previous wording

Amortization expense for the six months ended June 30, 2024 increased $5.8 million as compared to the six months ended June 30, 2023 as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for The Honey Pot Co., which was acquired in January 2024.

Current wording

Amortization expense for the nine months ended September 30, 2024 increased $8.6 million as compared to the nine months ended September 30, 2023 as a result of the amortization expense associated with the intangibles that were recognized in conjunction with the purchase price allocation for The Honey Pot Co., which was acquired in January 2024, partially offset by the reduction in amortization expense at Velocity related to the intangible assets that were included in the sale of Crosman.

Previous wording

In connection with our annual goodwill impairment test, we tested the goodwill at the Velocity reporting unit quantitatively. The impairment test resulted in Velocity recording impairment expense of$8.2 million in thesix months ended June 30, 2024.

Current wording

In connection with our annual goodwill impairment test, we tested the goodwill at the Velocity reporting unit quantitatively. The impairment test resulted in Velocity recording impairment expense of$8.2 million in thenine months ended September 30, 2024. In the prior year, Velocity performed an interim impairment test of their goodwill during the quarter ended September 30, 2023 asa result of operating results that were below the forecast that we used in the quantitative annual impairment test of Velocity Outdoor at March 31, 2023. The impairment test resulted in Velocity recording impairment expense of$32.6 million in the quarter ended September 30, 2023.

Previous wording

We recorded interest expense totaling $50.1 million for the six months ended June 30, 2024 compared to $52.8 million for the comparable period in 2023, a decrease in expense of $2.7 million. We received $1.8 million in interest income on our cash balances at the LLC during the six months ended June 30, 2024 related to the proceeds from our sale of Marucci, prior to using these funds for our acquisition of The Honey Pot in January 2024. The remaining decrease in interest expense in the current period reflects the lower average amount outstanding under our revolving credit facility in the first half of 2024 as compared to the first half of 2023. There was an average of $59 million outstanding on the revolving credit facility in the first half of 2024 and $105 million outstanding in the first half of 2023. The amount outstanding on the revolving credit facility in the last year was impacted by the timing of our dispositions and acquisitions in the past year, with the proceeds from the sale of Advanced Circuits in February 2023 used to pay down outstanding balances on the facility, and the proceeds from the sale of Marucci in November 2023 used to pay for the acquisition of The Honey Pot Co. rather than using the availability under the facility.

Current wording

We recorded interest expense totaling $77.5 million for the nine months ended September 30, 2024 compared to $80.4 million for the comparable period in 2023, a decrease in expense of $2.9 million. We received $1.8 million in interest income on our cash balances at the LLC during the nine months ended September 30, 2024 related to the proceeds from our sale of Marucci, prior to using these funds for our acquisition of The Honey Pot in January 2024. The remaining decrease in interest expense in the current period reflects the lower average amount outstanding under our 2022 Revolving Credit Facility in the first nine months of 2024 as compared to the first nine months of 2023. There was an average of $81 million outstanding on the revolving credit facility in the nine month ended September 30, 2024 and $114 million outstanding in the nine months ended September 30, 2023. The amount outstanding on the revolving credit facility in the last year was impacted by the timing of our dispositions and acquisitions in the past year, with the proceeds from the sale of Advanced Circuits in February 2023 used to pay down outstanding balances on the facility, and the proceeds from the sale of Marucci in November 2023 used to pay for the acquisition of The Honey Pot Co. rather than using the availability under the Revolving Credit Facility.

Previous wording

On April 30, 2024, Velocity Outdoor sold Crosman Corporation ("Crosman"), its airgun product division. Velocity received net proceeds of approximately $58.5 million related to the sale of Crosman, which was used to repay amounts outstanding under its intercompany credit agreement. The Company recorded a loss on the sale of Crosman in the quarter ending June 30, 2024 of $24.6 million.

Current wording

On April 30, 2024, Velocity Outdoor sold Crosman Corporation ("Crosman"), its airgun product division. Velocity recorded a loss on the sale of Crosman in the quarter ending June 30, 2024 of $24.6 million, and an offsetting gain on sale of $0.4 million in the quarter ended September 30, 2024 related to the working capital settlement.

Previous wording

For the six months ended June 30, 2024, we recorded $4.2 million in other expense as compared to $1.1 million in other income in the six months ended June 30, 2023, an increase in expense of $5.3 million. Other income (expense) typically reflects the movement in foreign currency at our subsidiary businesses with international operations, gains or (losses) realized on the sale of property, plant and equipment, and expenses incurred or income earned that are not considered a part of our operations. In the six months ended June 30, 2024, the other expense reflects a loss on an equity method investment at Altor Solutions and the accrual of a legal settlement at the corporate level

Current wording

For the nine months ended September 30, 2024, we recorded $4.3 million in other expense as compared to $2.1 million in other income in the nine months ended September 30, 2023, an increase in expense of $6.4 million. Other income (expense) typically reflects the movement in foreign currency at our subsidiary businesses with international operations, gains or (losses) realized on the sale of property, plant and equipment, and expenses incurred or income earned that are not considered a part of our operations. In the nine months ended September 30, 2024, the other expense reflects a loss on an equity method investment at Altor Solutions and the accrual of a legal settlement at the corporate level.

Previous wording

We had an income tax provision of $30.2 million during the six months ended June 30, 2024 compared to an income tax provision of $11.2 million during the same period in 2023, an increase of $19.0 million. Our effective tax rate in the six months ended June 30, 2024 was 159.7%, compared to an effective income tax rate of 49.1% during the same period in 2023. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. In addition to state income taxes, the items with the most significant impact on the difference between our statutory U.S. federal income tax rate of 21% percent and our effective income tax rate in 2024 was the limitations on the net operating loss carryforwards and utilization of tax credits at our subsidiaries, the impairment expense recognized at Velocity in the first quarter of 2024 and the loss on the sale of Crosman in the second quarter of 2024.

Current wording

We had an income tax provision of $41.0 million during the nine months ended September 30, 2024 compared to an income tax provision of $15.1 million during the same period in 2023, an increase of $25.9 million. Our effective tax rate in the nine months ended September 30, 2024 was 67.0%, compared to an effective income tax rate of 118.2% during the same period in 2023. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. In addition to state income taxes, the items with the most significant impact on the difference between our statutory U.S. federal income tax rate of 21% and our effective income tax rate in 2024 was the limitations on the net operating loss carryforwards and utilization of tax credits at our subsidiaries, the impairment expense recognized at Velocity in the first quarter of 2024 and the third quarter of 2023, and the loss on the sale of Crosman in the second quarter of 2024.

Previous wording

Net sales for the three months ended June 30, 2024 were $123.2 million as compared to net sales of $126.0 million for the three months ended June 30, 2023, a decrease of $2.8 million, or 2.2%. This decrease was driven by a $3.8 million decrease in direct-to-consumer sales due to lower off price selling and a $0.2 million decrease in domestic wholesale sales due to decreased inventory availability, which were offset by a $0.5 million increase in international sales growth from strong demand.

Current wording

Net sales for the three months ended September 30, 2024 were $139.2 million as compared to net sales of $135.2 million for the three months ended September 30, 2023, an increase of $4.0 million, or 3.0%. This increase was driven by a $5.5 million increase in international sales growth from strong demand, a $1.3 million increase in direct-to-agency sales due to the fulfillment of large contracts, and a $0.7 million increase in domestic wholesale sales due to increased inventory availability, which were offset by a $3.0 million decrease in direct-to-consumer sales due to less promotional sales and lower off price selling early in the quarter.

Previous wording

Gross profit was $67.5 million in the three months ended June 30, 2024 as compared to $67.9 million in the three months ended June 30, 2023, a decrease of $0.4 million. Gross profit as a percentage of net sales was 54.8% in the second quarter of 2024 as compared to 53.9% in the second quarter of 2023. Gross profit as a percentage of net sales was favorably impacted by lower off price selling.

Current wording

Gross profit was $74.7 million in the three months ended September 30, 2024 as compared to $70.4 million in the three months ended September 30, 2023, an increase of $4.4 million. Gross profit as a percentage of net sales was 53.7% in the third quarter of 2024 as compared to 52.0% in the third quarter of 2023. Gross profit as a percentage of net sales was favorably impacted by a non-recurring increase in inventory reserves for aged raw materials for the three months ended September 30, 2023, as well as less promotional sales and lower off price selling in the current year quarter versus the prior year quarter.

Previous wording

Net sales for the six months ended June 30, 2024 were $248.2 million as compared to net sales of $250.5 million for the six months ended June 30, 2023, a decrease of $2.3 million, or 0.9%. This decrease was driven by a $4.9 million decrease in direct-to-consumer sales due to lower off price selling and a $0.9 million decrease in domestic wholesale sales due to decreased inventory availability, both of which were partially offset by a $3.2 million increase in international sales growth from strong demand.

Current wording

Net sales for the nine months ended September 30, 2024 were $387.4 million as compared to net sales of $385.7 million for the nine months ended September 30, 2023, an increase of $1.7 million, or 0.4%. This increase was driven by a $8.5 million increase in international sales from strong demand and a $1.5 million increase in direct-to-agency sales due to the fulfillment of large contracts. These increases were offset by a $7.9 million decrease in direct-to-consumer sales due to less promotional sales and lower off-price selling, as well as a $0.3 million decrease in domestic wholesale sales due to inventory availability.

Previous wording

Gross profit was $133.4 million in the six months ended June 30, 2024 as compared to $132.8 million in the six months ended June 30, 2023, an increase of $0.6 million. Gross profit as a percentage of net sales was 53.8% in the first half of 2024 as compared to 53.0% in the first half of 2023. Gross profit as a percentage of net sales was favorably impacted by decreased lower off price selling.

Current wording

Gross profit was $208.1 million in the nine months ended September 30, 2024 as compared to $203.2 million in the nine months ended September 30, 2023, an increase of $4.9 million. Gross profit as a percentage of net sales was 53.7% in the first nine months of 2024 as compared to 52.7% in the first nine months of 2023. Gross profit as a percentage of net sales was favorably impacted by a non-recurring increase in inventory reserves for aged raw materials during the nine months ended September 30, 2023, as well as less promotional sales and lower off price selling in the current year period versus the comparable period in the prior year.

Previous wording

Net sales for the three months ended June 30, 2024 were $54.2 million as compared to net sales of $38.1 million for the three months ended June 30, 2023, an increase of $16.0 million, or 42.1%. The increase was reflected across key industries including Cycling, Athletic, Workwear and Snow Sports. The increase in sales was a result of the improvement of end market inventory levels, coupled with market share gains in many of our key industries.

Current wording

Net sales for the three months ended September 30, 2024 were $45.6 million as compared to net sales of $37.3 million for the three months ended September 30, 2023, an increase of $8.3 million, or 22.3%. The increase was reflected across key industries including Cycling, Athletic, Workwear, Outdoor and Snow Sports. The increase in sales was a result of the improvement of end market inventory levels, coupled with market share gains in many of our key industries.

Previous wording

Gross profit was $34.1 million for the three months ended June 30, 2024 as compared to $22.8 million for the three months ended June 30, 2023, an increase of $11.3 million. Gross Profit as a percentage of net sales was 62.9% for the three months ended June 30, 2024 as compared to 59.8% for the three months ended June 30, 2023. The increase in gross profit as a percentage of net sales was driven by manufacturing overhead leverage as well as product mix.

Current wording

Gross profit was $28.7 million for the three months ended September 30, 2024 as compared to $22.0 million for the three months ended September 30, 2023, an increase of $6.7 million. Gross profit as a percentage of net sales was 62.9% for the three months ended September 30, 2024 as compared to 58.9% for the three months ended September 30, 2023. The increase in gross profit as a percentage of net sales was driven by manufacturing overhead leverage as well as product mix.

Previous wording

Selling, general and administrative expense for the three months ended June 30, 2024 was $13.4 million, or 24.7% of net sales compared to $10.6 million, or 27.7% of net sales for the comparable period in 2023. The increase in selling, general, and administrative expense is primarily due to increased employee costs related to BOA’s bonus plan and equity program.

Current wording

Selling, general and administrative expense for the three months ended September 30, 2024 was $14.1 million, or 31.0% of net sales compared to $11.1 million, or 29.8% of net sales for the comparable period in 2023. The increase in selling, general, and administrative expense is primarily due to increased employee costs related to BOA’s bonus plan and equity program.

Previous wording

Net sales for the six months ended June 30, 2024 were $97.1 million as compared to net sales of $76.1 million for the six months ended June 30, 2023, an increase of $21.0 million, or 27.5%. The increase was reflected across key industries including Cycling, Athletic, Workwear and Snow Sports. The increase in sales was a result of the improvement of end market inventory levels, coupled with market share gains in many of our key industries.

Current wording

Net sales for the nine months ended September 30, 2024 were $142.7 million as compared to net sales of $113.4 million for the nine months ended September 30, 2023, an increase of $29.3 million, or 25.8%. The increase was reflected across key industries including Cycling, Athletic, Workwear, Outdoor and Snow Sports. The increase in sales was a result of the improvement of end market inventory levels, coupled with market share gains in many of our key industries.

Previous wording

Gross profit was $60.3 million for the six months ended June 30, 2024 as compared to $45.6 million for the six months ended June 30, 2023, an increase of $14.7 million. Gross Profit as a percentage of net sales was 62.1% for the six months ended June 30, 2024 as compared to 59.9% for the six months ended June 30, 2023. The increase in gross profit as a percentage of net sales was driven by manufacturing overhead leverage as well as product mix.

Current wording

Gross profit was $89.0 million for the nine months ended September 30, 2024 as compared to $67.6 million for the nine months ended September 30, 2023, an increase of $21.4 million. Gross Profit as a percentage of net sales was 62.3% for the nine months ended September 30, 2024 as compared to 59.6% for the nine months ended September 30, 2023. The increase in gross profit as a percentage of net sales was driven by manufacturing overhead leverage as well as product mix.

Previous wording

Selling, general and administrative expense for the six months ended June 30, 2024 was $25.8 million, or 26.6% of net sales compared to $21.2 million, or 27.9% of net sales for the comparable period in 2023. The increase in selling, general, and administrative expense is primarily due to increased employee costs related to BOA’s bonus plan and equity program.

Current wording

Selling, general and administrative expense for the nine months ended September 30, 2024 was $39.9 million, or 28.0% of net sales compared to $32.3 million, or 28.5% of net sales for the comparable period in 2023. The increase in selling, general, and administrative expense is primarily due to increased employee costs related to BOA’s bonus plan and equity program.

Previous wording

Net sales for the three months ended June 30, 2024 were $28.6 million, an increase of $2.4 million, or 9.2%, compared to the same period in 2023. During the three months ended June 30, 2024, international sales were approximately $18.1 million, representing an increase of $1.9 million over the corresponding period in 2023, primarily as a result of timing of distributor sales and a strong quarter from key international accounts. Domestic sales were $10.5 million in the second quarter of 2024, reflecting an increase of $0.5 million compared to the corresponding period in 2023. The increase in domestic sales was primarily due to increases from online channels.

Current wording

Net sales for the three months ended September 30, 2024 were $21.8 million, a decrease of $1.5 million, or 6.3%, compared to the same period in 2023. During the three months ended September 30, 2024, international sales were approximately $12.6 million, representing a decrease of $2.3 million over the corresponding period in 2023, primarily as a result of decreased distributor sales. Domestic sales were $9.2 million in the third quarter of 2024, reflecting an increase of $0.9 million compared to the corresponding period in 2023. The increase in domestic sales was primarily due to increases from key accounts.

Previous wording

Gross profit as a percentage of net sales was 64.4% for the three months ended June 30, 2024, as compared to 64.3% for the three months ended June 30, 2023. The increase in gross profit as a percentage of sales was due to shifts in channel mix.

Current wording

Gross profit as a percentage of net sales was 63.5% for the three months ended September 30, 2024, as compared to 64.8% for the three months ended September 30, 2023. The decrease in gross profit as a percentage of sales was due to shifts in channel mix.

Previous wording

Selling, general and administrative expense increased $1.6 million quarter over quarter, with expense of $13.9 million, or 48.6% of net sales for the three months ended June 30, 2024 as compared to $12.3 million or 47.0% of net sales for the same period of 2023. The increase in selling, general and administrative expense in the three months ended June 30, 2024 as compared to the comparable period in the prior year isdue to increased outbound freight, warehousing and marketing expenses, as well as increased legal fees.

Current wording

Selling, general and administrative expense increased $1.0 million quarter over quarter, with expense of $12.8 million, or 58.8% of net sales for the three months ended September 30, 2024 as compared to $11.8 million or 50.6% of net sales for the same period of 2023. The increase in selling, general and administrative expense in the three months ended September 30, 2024 as compared to the comparable period in the prior year isdue to increased outbound freight, warehousing and marketing expenses, as well as increased legal fees.

Previous wording

Ergobaby had segment operating income of approximately $2.6 million for both the three months ended June 30, 2024, and June 30, 2023, based on the factors noted above.

Current wording

Ergobaby had segment operating loss of approximately $0.9 million for the three months ended September 30, 2024, and segment operating income of $1.3 million for the three months ended September 30, 2023, a decrease of $2.2 million based on the factors noted above.