The Compass Group
Nov 4, 2015

Compass Diversified Holdings Reports Third Quarter 2015 Financial Results

Cash Flow Available for Distribution and Reinvestment Increases 77% to $23.8 Million

WESTPORT, Conn., Nov. 4, 2015 /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, 2015.

Third Quarter 2015 Highlights

  • Generated Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $23.8 million for the third quarter of 2015; 
  • Reported net income of $166.0 million for the third quarter of 2015;
  • Paid a third quarter 2015 cash distribution of $0.36 per share in October 2015, bringing cumulative distributions paid to $12.8352 per share since CODI's IPO in May of 2006;
  • Consummated the platform acquisition of Fresh Hemp Foods Ltd. ("Manitoba Harvest"); and
  • Completed the sale of our CamelBak Products, LLC ("CamelBak") subsidiary.

"We generated strong operating results during the quarter, which both exceeded our expectations and significantly covered our distribution," stated Alan Offenberg, CEO of Compass Diversified Holdings. "Our third quarter performance reflects strong cash flow contributions from Liberty Safe, SternoCandleLamp and Ergobaby, underscoring the leadership and financial strength of our niche industrial and branded consumer businesses."

Mr. Offenberg added, "During the third quarter, we closed on our acquisition of Manitoba Harvest, highlighting our success adding niche leading businesses with a strong market leadership, proven management, a passionate consumer following and compelling expansion opportunities. We also completed the sale of CamelBak, unlocking significant value and increasing the gains we have realized for shareholders to over $480 million since our IPO. We continue to benefit from a strong balance sheet, positioning CODI to capitalize on compelling acquisition opportunities as well as reinvest in its current subsidiaries to further drive future cash flow growth."

Operating Results
CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $23.8 million for the quarter ended September 30, 2015, as compared to $13.4 million for the prior year's comparable quarter. CODI's weighted average number of shares outstanding for the quarters ended September 30, 2015 and September 30, 2014 were 54.3 million and 48.3 million, respectively.

Cash Flow for the third quarter of 2015 reflects year-over-year growth in the Company's Liberty Safe, SternoCandleLamp, Ergobaby, American Furniture Manufacturing, and Tridien businesses, partially offset by a decline at the Company's Advanced Circuits and Clean Earth businesses. Cash flow for the third quarter of 2015 included contributions from Manitoba Harvest from the date of acquisition and CamelBak through the date of sale.

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 more than $480 million since going public in 2006, including a $165 million gain from the sale of CamelBak recorded in the third quarter.

Net income for the quarter ended September 30, 2015 was $166.0 million, as compared to net income of $262.5 million for the quarter ended September 30, 2014. During the third quarter of 2015, CODI recorded a gain on the sale of CamelBak of $165.3 million and a loss on the classification of AFM as held for sale of $14.3 million.  In addition, during the third quarter of 2015, CODI's equity method investment in Fox Factory Holding Corp. ("FOX", Nasdaq: FOXF) increased $11.8 million. During the third quarter of 2014, CODI recorded a one-time accounting gain of approximately $264.3 million as a result of the deconsolidation of FOX.

For the nine month period ended September 30, 2015, CODI reported net income of $167.3 million, as compared to net income of $282.2 million for the nine months ended September 30, 2014, which included results from FOX until its deconsolidation in July 2014.

Liquidity and Capital Resources
As of September 30, 2015, CODI had approximately $88.7 million in cash and cash equivalents, $321 million outstanding on its term loan facility and no outstanding borrowings under its revolving credit facility. The Company has no significant debt maturities until 2019 and had net borrowing availability of approximately $395 million at September 30, 2015 under its revolving credit facility. In addition, the Company's equity investment in its former subsidiary FOX is valued at $254.7 million at September 30, 2015.  Subsequent to the quarter end, the Company sold American Furniture Manufacturing and received net proceeds of $23.5 million

Third Quarter 2015 Distribution
On October 7, 2015, CODI's Board of Directors declared a third quarter distribution of $0.36 per share. The cash distribution was paid on October 29, 2015 to all holders of record as of October 22, 2015. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $12.8352 per share.

Conference Call
Management will host a conference call on Thursday, November 5, 2015 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 51916531. 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 12, 2015. 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 51916531.

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 Provided by Operating Activities on the attached schedules. We consider Net Income and Cash Flow Provided by Operating Activities to be the most directly comparable GAAP financial measures to CAD, or Cash Flow.

About Compass Diversified Holdings
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.

As of November 4, 2015, our eight majority-owned subsidiaries are engaged in the following lines of business:

  • The manufacture of quick-turn, small-run and production rigid printed circuit boards (Advanced Circuits);
  • The design and manufacture of medical therapeutic support surfaces and other wound treatment devices (Anodyne Medical Device, also doing business and known as Tridien Medical);
  • 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 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 fuel and creative table lighting solutions for the foodservice industry (SternoCandleLamp).

In addition, we own approximately 41% of the common stock of FOX, a former subsidiary business that completed its initial public offering in August 2013. FOX designs and manufactures high-performance suspension products primarily for mountain bikes, side-by-side vehicles, on-road and off-road vehicles and trucks, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles. 

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, 2014 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,


2015


2014

(in thousands)

(unaudited)



Assets




Current assets




Cash and cash equivalents

$

88,725



$

21,946


Accounts receivable, net

124,240



118,852


Inventories

74,296



58,308


Prepaid expenses and other current assets

24,363



23,357


Current assets held for sale

46,097



98,336


Total current assets

357,721



320,799


Property, plant and equipment, net

109,640



106,981


Equity method investment

254,733



245,214


Goodwill and intangible assets, net

737,724



677,725


Other non-current assets

16,318



16,884


Non-current assets held for sale



179,827


Total assets

$

1,476,136



$

1,547,430






Liabilities and stockholders' equity




Current liabilities




Accounts payable and accrued expenses

$

96,504



$

101,229


Due to related party

6,374



6,068


Current portion, long-term debt

3,250



3,250


Other current liabilities

6,268



6,311


Current liabilities held for sale

22,396



24,373


Total current liabilities

134,792



141,231


Deferred income taxes

101,067



91,616


Long-term debt

313,888



485,547


Other non-current liabilities

21,354



14,039


Non-current liabilities held for sale



6,663


Total liabilities

571,101



739,096


Stockholders' equity




Total stockholders' equity attributable to Holdings

868,411



767,431


Noncontrolling interests of continuing operations

36,624



25,711


Noncontrolling interests of discontinued operations



15,192


Total stockholders' equity

905,035



808,334


Total liabilities and stockholders' equity

$

1,476,136



$

1,547,430


 

 


Compass Diversified Holdings

Condensed Consolidated Statements of Operations

(unaudited)










Three Months Ended


Nine Months Ended

(in thousands, except per share data)

September 30, 2015


September 30, 2014


September 30, 2015


September 30, 2014









Net sales

$

208,148



$

141,293



$

587,298



$

509,285


Cost of sales

139,169



95,253



402,532



345,048


Gross profit

68,979



46,040



184,766



164,237


Operating expenses:








Selling, general and administrative expense

38,975



29,227



105,946



101,235


Management fees

6,461



5,751



19,860



15,259


Amortization expense

7,731



4,577



22,777



15,222


Impairment expense





9,165




Operating income

15,812



6,485



27,018



32,521


Other income (expense):








Interest expense, net

(11,205)



(7,059)



(24,047)



(16,436)


Gain on equity method investment

11,784





9,518




Gain on deconsolidation of subsidiary



264,325





264,325


Amortization of debt issuance costs

(561)



(545)



(1,651)



(1,698)


Loss on debt extinguishment







(2,143)


Other expense, net

(950)



(425)



(983)



(177)


Income from continuing operations before income taxes

14,880



262,781



9,855



276,392


Provision for income taxes

3,756



3,676



9,274



8,485


Net income from continuing operations

11,124



259,105



581



267,907


Income from discontinued operations, net of tax

3,819



3,425



15,650



14,315


Gain on sale of discontinued operations, net of tax

151,075





151,075




Net income

166,018



262,530



167,306



282,222


Less: Income from continuing operations attributable to noncontrolling interest

1,428



1,388



2,622



10,364


Less: Income from discontinued operations attributable to noncontrolling interest

90



44



629



382


Net income attributable to Holdings

$

164,500



$

261,098



$

164,055



$

271,476










Basic and fully diluted income (loss) per share








Continuing operations

$

0.16



$

5.08



$

(0.09)



$

5.05


Discontinued operations

2.85



0.07



3.06



0.29



$

3.01



$

5.15



$

2.97



$

5.34










Basic and fully diluted weighted average number of shares outstanding

54,300



48,300



54,300



48,300










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,
2015


September 30,
2014

Net cash provided by operating activities

$

46,471



$

46,160


Net cash provided by (used in) investing activities

246,594



(237,899)


Net cash (used in) provided by financing activities

(225,450)



102,331


Effect of foreign currency on cash

(2,593)



(552)


Net increase (decrease) in cash and cash equivalents

65,022



(89,960)


Cash and cash equivalents — beginning of period

23,703



113,229


Cash and cash equivalents — end of period

$

88,725



$

23,269


 

 

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, 2015


September 30, 2014


September 30, 2015


September 30, 2014

Net income

$

166,018



$

262,530



$

167,306



$

282,222


Adjustments to reconcile net income to net cash provided by operating activities:








Depreciation and amortization

17,498



11,350



49,743



35,884


Impairment expense





9,165




Gain on sale of CamelBak

(165,337)





(165,337)




Loss on sale of American Furniture

14,262





14,262




Amortization of debt issuance costs and original issue discount

729



713



2,154



2,412


Unrealized loss on derivatives

6,177



2,536



8,044



2,809


Loss on debt extinguishment







2,143


Excess tax benefit from subsidiary stock options (1)







(1,662)


Gain on equity method investment

(11,784)





(9,518)




Gain on deconsolidation of subsidiary



(264,325)





(264,325)


Noncontrolling stockholders charges

744



623



2,627



3,592


Other

(175)



133



324



361


Deferred taxes

(2,606)



991



(3,863)



(1,944)


Changes in operating assets and liabilities

(11,321)



20,289



(28,436)



(15,332)


Net cash provided by operating activities

14,205



34,840



46,471



46,160


Plus:








Unused fee on revolving credit facility (2)

456



461



1,062



1,635


Excess tax benefit from subsidiary stock options (1)







1,662


Successful acquisition costs

1,126



1,935



1,126



2,030


Integration services fee (3)

1,250





3,250




Realized loss from foreign currency effect (4)

1,297





1,297




Changes in operating assets and liabilities

11,321





28,436



15,332


Other

132



122





123


Less:








Maintenance capital expenditures (5)

5,506



2,358



13,685



9,001


FOX CAD (6)



677





15,716


Payment on swap

507



506



1,502



1,502


Changes in operating assets and liabilities



20,289






Other



131



209



201


Estimated cash flow available for distribution and reinvestment

$

23,774



$

13,397



$

66,246



$

40,522


Distribution paid in April 2015/2014





$

19,548



$

17,388


Distribution paid in July 2015/ 2014





19,548



17,388


Distribution paid in October 2015/2014

$

19,548



$

17,388



19,548



17,388



$

19,548



$

17,388



$

58,644



$

52,164


 

(1) 

Represents the non-cash excess tax benefit at FOX related to the exercise of stock options.

(2) 

Represents the commitment fee on the unused portion of the Revolving Credit Facility.

(3)

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

(4)

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

(5) 

Excludes growth capital expenditures of approximately $0.1 million and $0.2 million for the three months ended September 30, 2015 and 2014, and $1.0 million and $1.2 million for the nine months ended September 30, 2015 and 2014.

(6)

Represents FOX CAD subsequent to IPO date.  For the nine months ended September 30, 2014, the amount includes approximately $24.2 million of EBITDA, less: $3.8 million of cash taxes, $1.9 million of management fees, $2.4 million of maintenance capital expenditures and $0.4 million of interest expense.

 

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SOURCE Compass Diversified Holdings

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