The Compass Group
Nov 8, 2017

Compass Diversified Holdings Reports Third Quarter 2017 Financial Results

Completes Two Accretive Add-on Acquisitions for Crosman Corporation and Sterno Products During the Quarter

WESTPORT, Conn., Nov. 8, 2017 /PRNewswire/ -- Compass Diversified Holdings (NYSE: CODI) ("CODI," "we," "our" or the "Company"), an owner of leading middle market businesses, announced today its consolidated operating results for the three months ended September 30, 2017.

Third Quarter 2017 Highlights

  • Generated Cash Provided by Operating Activities of $23.4 million, and Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $26.2 million for the third quarter of 2017;
  • Reported net income of $8.4 million for the third quarter of 2017;
  • Paid a third quarter 2017 cash distribution of $0.36 per share on CODI's common shares in October 2017, bringing cumulative distributions paid to $15.7152 per common share since CODI's IPO in May of 2006;
  • Paid a quarterly cash distribution of $0.61423611 per share on the Company's 7.250% Series A Preferred Shares in October 2017;
  • Consummated the accretive add-on acquisition of the Commercial business of LaserMax, Inc. ("LaserMax") by CODI's subsidiary Crosman Corporation ("Crosman"); and
  • Completed the accretive add-on acquisition of sevenOKs, Inc. ("sevenOKs") by CODI's subsidiary Sterno Products, LLC ("Sterno Products").

"During the third quarter, our middle market businesses generated stable cash flow levels that were consistent with management's expectations," stated Alan Offenberg, CEO of Compass Diversified Holdings. "This included year-over-year EBITDA growth at our Advanced Circuits, Arnold Magnetic and Clean Earth subsidiaries."

Mr. Offenberg added, "CODI also continued to reinvest in our subsidiaries' continued growth with two accretive add-on acquisitions. This included Crosman's acquisition of LaserMax's Commercial business, which extends Crosman's reach into new retail categories and creates new cross-selling opportunities with current big box retail and international customers. Additionally, our Sterno Products subsidiary completed the acquisition of sevenOKs, strengthening the company's product offering for the foodservice market. With our strong balance sheet, CODI is well positioned to continue pursuing future acquisitions that build long-term shareholder value and support our ability to provide stable cash distributions."

Operating Results

For the quarter ended September 30, 2017, CODI generated Cash Provided by Operating Activities of $23.4 million, as compared to Cash Provided by Operating Activities of $15.1 million for the quarter ended September 30, 2016. CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $26.2 million for the quarter ended September 30, 2017, as compared to $22.6 million for the prior year's comparable quarter. CODI's weighted average number of shares outstanding for the quarters ended September 30, 2017 and September 30, 2016 were 59.9 million and 54.3 million, respectively.

Cash Flow for the third quarter of 2017 reflects year-over-year earnings growth in the Company's Advanced Circuits, Arnold Magnetic and Clean Earth businesses, offset by declines at the Company's other businesses.

CODI's Cash Flow is calculated after taking into account all interest expense, cash taxes paid and maintenance capital expenditures, and includes the operating results of each of our businesses for the periods during which CODI owned them. However, Cash Flow excludes the gains from monetizing interests in CODI's subsidiaries, which have totaled over $770 million since going public in 2006.

Net income for the quarter ended September 30, 2017 was $8.4 million, as compared to net income of $50.2 million for the quarter ended September 30, 2016. During the third quarter of 2016, CODI realized a net gain of $50.4 million related to its equity investment in its former subsidiary Fox Factory Holding Corp. ("FOX"). During the first quarter of 2017, the Company sold its remaining shares in FOX in a secondary public offering.

Liquidity and Capital Resources

As of September 30, 2017, CODI had approximately $41.5 million in cash and cash equivalents, $561.4 million outstanding on its term loan facility and $25.5 million in outstanding borrowings under its revolving credit facility. The Company has no significant debt maturities until 2019 and had net borrowing availability of $523.2 million at September 30, 2017 under its revolving credit facility.

Third Quarter 2017 Distributions

On October 5, 2017, CODI's Board of Directors (the "Board") declared a third quarter distribution of $0.36 per share on the Company's common shares (the "Common Shares"). The cash distribution was paid on October 26, 2017 to all holders of record of Common Shares as of October 19, 2017. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $15.7152 per common share.

The Board also declared a quarterly cash distribution of $0.61423611 per share on the Company's 7.250% Series A Preferred Shares (the "Preferred Shares"). The distribution on the Preferred Shares covered the period from and including June 28, 2017, the original issue date of the Preferred Shares, up to, but excluding, October 30, 2017. The distribution for such period was paid on October 30, 2017 to all holders of record of Preferred Shares as of October 15, 2017.

Conference Call

Management will host a conference call on Thursday, November 9, 2017 at 9:00 a.m. ET to discuss the latest corporate developments and financial results. The dial-in number for callers in the U.S. is (855) 212-2368 and the dial-in number for international callers is (315) 625-6886. The access code for all callers is 9897729. A live webcast will also be available on the Company's website at www.compassdiversifiedholdings.com.

A replay of the call will be available through November 16, 2017. To access the replay, please dial (855) 859-2056 in the U.S. and (404) 537-3406 outside the U.S., and then enter the access code 9897729.

Note Regarding Use of Non-GAAP Financial Measures

CAD, or Cash Flow, is a non-GAAP measure used by the Company to assess its performance, as well as its ability to sustain and increase quarterly distributions. A number of CODI's businesses have seasonal earnings patterns. Accordingly, the Company believes that the most appropriate measure of its performance is over a trailing or expected 12-month period. We have reconciled CAD, or Cash Flow, to Net Income and Cash Flow from Operating Activities on the attached schedules. We consider Net Income and Cash Flow from Operating Activities to be the most directly comparable GAAP financial measures to CAD, or Cash Flow.

About Compass Diversified Holdings ("CODI")

CODI owns and manages a diverse family of established North American middle market businesses. Each of its current subsidiaries is a leader in its niche market.

CODI maintains controlling ownership interests in each of its subsidiaries in order to maximize its ability to impact long term cash flow generation and value. The Company provides both debt and equity capital for its subsidiaries, contributing to their financial and operating flexibility. CODI utilizes the cash flows generated by its subsidiaries to invest in the long-term growth of the Company and to make cash distributions to its shareholders.

Our nine majority-owned subsidiaries are engaged in the following lines of business:

  • The design and marketing of purpose-built tactical apparel and gear serving a wide range of global customers (5.11);
  • The manufacture of quick-turn, small-run and production rigid printed circuit boards (Advanced Circuits);
  • The manufacture of engineered magnetic solutions for a wide range of specialty applications and end-markets (Arnold Magnetic Technologies);
  • Environmental services for a variety of contaminated materials including soils, dredged material, hazardous waste and drill cuttings (Clean Earth);
  • The design, manufacture and marketing of airguns, archery products, optics and related accessories (Crosman);
  • The design and marketing of wearable baby carriers, strollers and related products (Ergobaby);
  • The design and manufacture of premium home and gun safes (Liberty Safe);
  • The manufacture and marketing of branded, hemp-based food products (Manitoba Harvest); and
  • The manufacture and marketing of portable food warming fuels and creative ambience solutions for the hospitality and consumer markets (Sterno Products).

This press release may contain certain forward-looking statements, including statements with regard to the future performance of CODI. Words such as "believes," "expects," "projects," and "future" or similar expressions, are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, and some of these factors are enumerated in the risk factor discussion in the Form 10-K filed by CODI with the SEC for the year ended December 31, 2016 and other filings with the SEC. Except as required by law, CODI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Compass Diversified Holdings

Condensed Consolidated Balance Sheets






September 30,


December 31,


2017


2016

(in thousands)

(unaudited)



Assets




Current assets




     Cash and cash equivalents

$

41,487



$

39,772


     Accounts receivable, net

198,111



181,191


     Inventories

242,817



212,984


     Prepaid expenses and other current assets

27,145



18,872


         Total current assets

509,560



452,819


Property, plant and equipment, net

170,827



142,370


Investment in FOX



141,767


Goodwill and intangible assets, net

1,131,803



1,030,848


Other non-current assets

8,616



9,351


Total assets

$

1,820,806



$

1,777,155






Liabilities and stockholders' equity




Current liabilities




     Accounts payable and accrued expenses

$

182,475



$

152,553


     Due to related party

7,553



20,848


     Current portion, long-term debt

5,685



5,685


     Other current liabilities

15,493



23,435


         Total current liabilities

211,206



202,521


Deferred income taxes

122,033



110,838


Long-term debt

569,755



551,652


Other non-current liabilities

18,570



17,600


     Total liabilities

921,564



882,611


Stockholders' equity




Total stockholders' equity attributable to Holdings

851,616



856,405


Noncontrolling interests

47,626



38,139


     Total stockholders' equity

899,242



894,544


Total liabilities and stockholders' equity

$

1,820,806



$

1,777,155






 

 

 

Compass Diversified Holdings

Condensed Consolidated Statements of Operations

(unaudited)










Three Months Ended


Nine Months Ended

(in thousands, except per share data)

September 30,
2017


September 30,
2016


September 30,
2017


September 30,
2016

Net sales

$

323,957



$

252,285



$

921,330



$

659,748


Cost of sales

206,232



169,870



599,552



436,544


          Gross profit

117,725



82,415



321,778



223,204


Operating expenses:








     Selling, general and administrative expense

80,804



53,648



239,102



140,702


     Management fees

8,277



8,435



24,308



21,394


     Amortization expense

14,167



8,423



39,256



23,966


     Impairment expense/ Loss on disposal of assets



551



8,864



7,214


          Operating income

14,477



11,358



10,248



29,928


Other income (expense):








     Interest expense, net

(6,945)



(4,376)



(22,499)



(23,204)


     Gain (loss) on investment



50,414



(5,620)



58,680


     Amortization of debt issuance costs

(1,004)



(687)



(2,940)



(1,827)


     Other income (expense), net

2,020



(3,271)



2,950



(1,852)


   Income (loss) from continuing operations before income taxes

8,548



53,438



(17,861)



61,725


   Provision (benefit) for income taxes

192



4,894



(2,002)



9,778


          Net income (loss) from continuing operations

8,356



48,544



(15,859)



51,947


   Income (loss) from discontinued operations, net of income tax



(455)





473


   Gain on sale of discontinued operations, net of tax



2,134



340



2,134


Net income (loss)

8,356



50,223



(15,519)



54,554


   Less: Income from continuing operations attributable to
   noncontrolling interest

650



682



2,492



1,749


   Less: Loss from discontinued operations attributable to 
   noncontrolling interest



(164)





(116)


          Net income (loss) attributable to Holdings

$

7,706



$

49,705



$

(18,011)



$

52,921










Basic and fully diluted income (loss) per share








   Continuing operations

$

0.10



$

0.72



$

(1.03)



$

0.59


   Discontinued operations



0.03



0.01



0.05



$

0.10



$

0.75



$

(1.02)



$

0.64










Basic and fully diluted weighted average number of shares outstanding

59,900



54,300



59,900



54,300










Cash distributions declared per share

$

0.36



$

0.36



$

1.08



$

1.08










 

 

Compass Diversified Holdings

Summarized Statement of Cash Flows

(unaudited)

 






Nine Months Ended

(in thousands)

September 30,
2017


September 30,
2016

     Net cash provided by operating activities

$

59,236



$

60,594


     Net cash used in investing activities

(62,956)



(417,284)


     Net cash provided by financing activities

7,862



300,407


Effect of foreign currency on cash

(2,427)



(3,197)


Net increase (decrease) in cash and cash equivalents

1,715



(59,480)


Cash and cash equivalents — beginning of period

39,772



85,869


Cash and cash equivalents — end of period

$

41,487



$

26,389






 

 

Compass Diversified Holdings

Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment

(unaudited)


Three Months Ended


Nine Months Ended

(in thousands)

September 30,
2017


September 30,
2016


September 30,
2017


September 30,
2016

Net income (loss)

$

8,356



$

50,223



$

(15,519)



$

54,554


Adjustments to reconcile net income (loss) to net cash provided
by operating activities:








     Depreciation and amortization

26,077



24,052



88,659



53,972


     Impairment expense/ loss on disposal of assets



551



8,864



7,214


     Gain on sale of businesses, net



(2,134)



(340)



(2,134)


     Amortization of debt issuance costs and original issue discount

1,261



888



3,721



2,363


     Unrealized loss on derivatives

(90)



(1,661)



1,178



8,322


     (Gain) loss on investment in FOX



(50,414)



5,620



(58,680)


     Noncontrolling stockholders charges

1,702



964



4,952



3,012


     Excess tax benefit on stock compensation

(417)





(417)



(366)


     Provision for loss on receivables

983



(144)



4,310



59


     Other

(209)



271



494



349


     Deferred taxes

(5,997)



1,712



(17,937)



(4,280)


     Changes in operating assets and liabilities

(8,298)



(9,246)



(24,349)



(3,791)


Net cash provided by operating activities

23,368



15,062



59,236



60,594


Plus:








     Unused fee on revolving credit facility

670



418



2,143



1,355


     Successful acquisition costs

363



2,161



1,836



3,888


     Integration services fee (1)

958



292



2,708



792


     Realized loss from foreign currency effect (2)



662






     Excess tax benefit on stock compensation

417





417



366


     Changes in operating assets and liabilities

8,298



9,246



24,349



3,791


     Other



117





245


Less:








     Maintenance capital expenditures (3)

4,346



4,079



13,415



13,744


     Payment on swap

935



1,320



3,050



3,114


     Realized gain from foreign currency effect (2)

1,933





3,583



2,396


     Other (4)

616





3,980




Estimated cash flow available for distribution and reinvestment

$

26,244



$

22,559



$

66,661



$

51,777










Distribution paid in April 2017/2016

$



$



$

21,564



$

19,548


Distribution paid in July 2017/ 2016





21,564



19,548


Distribution paid in October 2017/ 2016

21,564



19,548



21,564



19,548



$

21,564



$

19,548



$

64,692



$

58,644




(1)  

 Represents fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership, payable quarterly.

(2)   

Reflects the foreign currency transaction gain/ loss resulting from the Canadian dollar intercompany loans issued to Manitoba Harvest.

(3)   

Excludes growth capital expenditures of approximately $7.1 million and $0.1 million for the three months ended September 30, 2017 and 2016, and $17.5 million and $1.6 million for the nine months ended September 30, 2017 and 2016, respectively.

(4)   

Includes amounts for the establishment of accounts receivable reserves related to two retail customers who filed bankruptcy during the first and third quarter of 2017.

 

 

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SOURCE Compass Diversified Holdings

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