Compass Diversified completes financial restatement following fraud

Compass Diversified (NYSE: CODI) filed restated financial results for fiscal years 2022, 2023, and 2024 following financial and accounting fraud at subsidiary Lugano Holding, Inc., the company announced. The restatement covers financial information for interim periods within those years.

The fraud was isolated to Lugano and involved the former CEO of the subsidiary. CEO Elias Sabo stated the company's eight other subsidiaries were not involved and continue to perform well.

The company adjusted its 2025 guidance for Subsidiary Adjusted EBITDA to between $330 million and $360 million, consistent with prior guidance when excluding Lugano. CODI is in discussions with senior lenders regarding an amendment to its credit agreement that would provide additional relief and flexibility regarding leverage profile and certain covenants.

The restatement revealed significant adjustments to previously reported financial statements. For fiscal year 2024, the company reported a net loss from continuing operations of $327.8 million compared to previously reported income of $42.3 million. The adjustments primarily related to invalid revenue transactions, improper inventory recordings, and unrecorded financing arrangements at Lugano.

Key restatement adjustments included reducing accounts receivable by $237.2 million, reducing inventories by $391.2 million, and recording $169.8 million in previously unrecorded subsidiary financing arrangements. The company also recorded impairment charges and adjusted goodwill and intangible assets related to the Lugano acquisition.

CODI expects to file 2025 first, second and third quarter financial results on Form 10-Q in the coming weeks, which will bring the company back into compliance with SEC filing requirements. The company also anticipates announcing a credit agreement amendment in the coming weeks.

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