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Compass Diversified Holdings Reports Second Quarter 2018 Financial Results

Generates Revenue Growth at Nine Subsidiaries; Provides Shareholders with Stable and Growing Cash Flows and a Sizeable Distribution

WESTPORT, Conn., Aug. 1, 2018 /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 June 30, 2018.

Second Quarter 2018 Highlights

  • Generated Cash Provided by Operating Activities of $28.7 million for the second quarter of 2018, and Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $30.3 million for the second quarter of 2018;
  • Reported net income of $0.5 million for the second quarter of 2018;
  • Announced the add-on acquisitions of ESMI Companies ("ESMI") and MKC Enterprises, Inc. ("MKC") by CODI's subsidiary, Clean Earth, Inc. ("Clean Earth");
  • Signed a credit agreement for a revolving credit facility totaling $600 million and a term loan facility in the amount of $500 million; and completed a private offering of $400 million of 8.000% senior unsecured notes due 2026;
  • Paid a second quarter 2018 cash distribution of $0.36 per share on CODI's common shares in April 2018, bringing cumulative distributions paid to $16.7952 per common share since CODI's IPO in May of 2006;
  • Paid a quarterly cash distribution of $0.453125 per share on the Company's 7.250% Series A Preferred Shares in April 2018.

"During the second quarter, our leading industrial and branded consumer businesses generated strong results," said Elias Sabo, CEO of Compass Diversified Holdings. "We are pleased to have grown revenues at nine of our subsidiaries, while providing shareholders with solid and growing cash flows and a sizeable distribution."

Mr. Sabo continued, "During the first six months of 2018, we continued to capitalize on compelling market opportunities, while reinvesting in our leading middle market businesses and implementing important measures aimed at further strengthening CODI's long-term growth potential. Complementing this success, we enhanced our liquidity position and capital structure under favorable terms and remain in a strong position to implement our proven and disciplined investment strategy."

Operating Results
For the quarter ended June 30, 2018, CODI generated Cash Provided by Operating Activities of $28.7 million, as compared to Cash Provided by Operating Activities of $37.3 million for the quarter ended June 30, 2017. CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $30.3 million for the quarter ended June 30, 2018, as compared to $25.5 million for the prior year's comparable quarter. CODI's weighted average number of shares outstanding for the quarters ended June 30, 2018 and June 30, 2017 were 59.9 million.

Cash Flow for the second quarter of 2018 reflects year-over-year earnings increases at the Company's Advanced Circuits, Arnold Magnetics, Clean Earth and Manitoba Harvest businesses, offset by declines at the Company's Liberty, ErgoBaby and 5.11 businesses.

CODI's Cash Flow is calculated after taking into account all interest expense, cash taxes paid, preferred share distributions 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 June 30, 2018 was $0.5 million, as compared to net loss of $2.7 million for the quarter ended June 30, 2017.

Liquidity and Capital Resources
As of June 30, 2018, CODI had approximately $37.5 million in cash and cash equivalents, $498.8 million outstanding on its term loan facility, $400 million in Senior Notes and $92.0 million in outstanding borrowings under its revolving credit facility.

In April 2018, the Company signed a credit agreement for a revolving credit facility totaling $600 million and a term loan facility in the amount of $500 million. Under the terms of the credit agreement, CODI extended the maturities of its revolver and term loan to 2023 and 2025, respectively. In April 2018, the Company also completed a private offering of $400 million of 8.000% senior unsecured notes due 2026. The Company has approximately $508 million in net borrowing availability under its revolver as of June 30, 2018.

Second Quarter 2018 Distributions
On July 5, 2018, CODI's Board of Directors (the "Board") declared a second quarter distribution of $0.36 per share on the Company's common shares (the "Common Shares"). The cash distribution was paid on July 26, 2018 to all holders of common shares as of July 19, 2018. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $16.7952 per common share.

The Board also declared a quarterly cash distribution of $0.453125 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 April 30, 2018, up to, but excluding, July 30, 2018. The distribution for such period was paid on July 30, 2018 to all holders of record of Preferred Shares as of July 15, 2018.

The Board also declared a quarterly cash distribution of $0.74 per share on the Company's 7.875% Series B Preferred Shares (the "Series B Preferred Shares"). The distribution on the Series B Preferred Shares covers the period from and including March 13, 2018, the original issue date of the Series B Preferred Shares, up to, but excluding, July 30, 2018. The distribution for such period was paid on July 30, 2018 to all holders of record of the Series B Preferred Shares as of July 15, 2018.

Conference Call
Management will host a conference call on Thursday, August 2, 2018 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 7092917. 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 August 9, 2018. 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 7092917.

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 ten 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 custom molded protective foam solutions and OEM components (Foam Fabricators);
  • 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, 2017 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






June 30, 2018


December 31, 2017

(in thousands)

(Unaudited)



Assets




Current assets




Cash and cash equivalents

$

37,456



$

39,885


Accounts receivable, net

272,707



215,108


Inventories

300,263



246,928


Prepaid expenses and other current assets

37,656



24,897


Total current assets

648,082



526,818


Property, plant and equipment, net

212,610



173,081


Goodwill and intangible assets, net

1,398,312



1,112,206


Other non-current assets

12,292



8,198


Total assets

$

2,271,296



$

1,820,303






Liabilities and stockholders' equity




Current liabilities




Accounts payable and accrued expenses

$

221,844



$

191,411


Due to related party

10,247



7,796


Current portion, long-term debt

5,000



5,685


Other current liabilities

4,749



7,301


Total current liabilities

241,840



212,193


Deferred income taxes

77,263



81,049


Long-term debt

963,851



584,347


Other non-current liabilities

18,310



16,715


Total liabilities

1,301,264



894,304


Stockholders' equity




Total stockholders' equity attributable to Holdings

916,292



873,208


Noncontrolling interest

53,740



52,791


Total stockholders' equity

970,032



925,999


Total liabilities and stockholders' equity

$

2,271,296



$

1,820,303






 

 

 

Compass Diversified Holdings

Condensed Consolidated Statements of Operations

(Unaudited)

 










Three Months Ended


Six Months Ended

(in thousands, except per share data)

June 30, 2018


June 30, 2017


June 30, 2018


June 30, 2017

Net sales

$

429,757



$

307,381



$

790,450



$

597,373


Cost of sales

279,075



197,661



513,657



393,320


Gross profit

150,682



109,720



276,793



204,053


Operating expenses:








Selling, general and administrative expense

100,407



79,575



198,272



158,298


Management fees

11,011



8,183



21,860



16,031


Amortization expense

19,019



14,779



31,718



25,089


Impairment expense







8,864


Operating income (loss)

20,245



7,183



24,943



(4,229)


Other income (expense):








Interest expense, net

(13,580)



(8,418)



(19,766)



(15,554)


Loss on investment







(5,620)


Amortization of debt issuance costs

(953)



(1,003)



(2,051)



(1,936)


Other income (expense), net

(2,205)



952



(3,586)



930


Income (loss) from continuing operations before income
taxes

3,507



(1,286)



(460)



(26,409)


Provision (benefit) for income taxes

4,139



1,454



1,793



(2,194)


Net loss from continuing operations

(632)



(2,740)



(2,253)



(24,215)


Gain on sale of discontinued operations, net of tax

1,165





1,165



340


 Net income (loss)

533



(2,740)



(1,088)



(23,875)


Less: Income from continuing operations attributable to noncontrolling interest

1,441



1,372



2,161



1,842


Net loss attributable to Holdings

$

(908)



$

(4,112)



$

(3,249)



$

(25,717)










Basic income (loss) per common share attributable to Holdings








Continuing operations

$

(0.12)



$

(0.53)



$

(0.20)



$

(1.14)


Discontinued operations

0.02





0.02



0.01



$

(0.10)



$

(0.53)



$

(0.18)



$

(1.13)










Basic weighted average number of common shares outstanding

59,900



59,900



59,900



59,900










Cash distributions declared per Trust common share

$

0.36



$

0.36



$

0.72



$

0.72










 

 

Compass Diversified Holdings

Summarized Statement of Cash Flows

(Unaudited)

 

 






Six Months Ended

(in thousands)

June 30, 2018


June 30, 2017

Net cash provided by operating activities

$

35,312



$

35,868


Net cash used in investing activities

(454,715)



(44,386)


Net cash provided by financing activities

415,358



8,532


Effect of foreign currency on cash

1,616



(499)


Net decrease in cash and cash equivalents

(2,429)



(485)


Cash and cash equivalents — beginning of period

39,885



39,772


Cash and cash equivalents — end of period

$

37,456



$

39,287






 

 

Compass Diversified Holdings

Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment

(unaudited)


Three Months Ended


Six Months Ended

(in thousands)

June 30, 2018


June 30, 2017


June 30, 2018


June 30, 2017

Net income (loss)

$

533



$

(2,740)



$

(1,088)



$

(23,875)


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








Depreciation and amortization

34,198



31,187



57,131



62,582


Impairment expense







8,864


Gain on sale of businesses, net

(1,165)





(1,165)



(340)


Amortization of debt issuance costs and original issue
discount

971



1,261



2,324



2,460


Unrealized (gain) loss on derivatives

(999)



1,497



(3,900)



1,268


Loss on investment in FOX







5,620


Noncontrolling stockholder charges

2,614



1,798



5,165



3,250


Provision for loss on receivables

(230)



9



98



3,327


Other

312



384



135



704


Deferred taxes

1,069



(4,305)



(3,242)



(11,940)


Changes in operating assets and liabilities

(8,634)



8,191



(20,146)



(16,052)


Net cash provided by (used in) operating activities

28,669



37,282



35,312



35,868


Plus:








Unused fee on revolving credit facility

403



696



855



1,473


Successful acquisition costs

158



1,473



2,347



1,473


Integration services fee (1)

938



875



1,594



1,750


Realized loss from foreign currency effect (2)

908





2,247




Changes in operating assets and liabilities

8,634





20,146



16,052


Other

1,073





791




Less:








Maintenance capital expenditures (3)

8,296



4,338



14,268



9,068


Payment of interest rate swap

380



1,026



1,086



2,115


Changes in operating assets and liabilities



8,191






Realized gain from foreign currency effect (2)



1,260





1,650


Preferred share distributions

1,812





3,625




Other (4)



8





3,366


Estimated cash flow available for distribution and reinvestment

$

30,295



$

25,503



$

44,313



$

40,417










Distribution paid in April 2018/ 2017

$



$



$

21,564



$

21,564


Distribution paid in July 2018/ 2017

21,564



21,564



21,564



21,564



$

21,564



$

21,564



$

43,128



$

43,128






(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 $8.3 million and $6.5 million for the three months ended June 30, 2018 and 2017, and $14.5 million and $10.4 million for the six months ended June 30, 2018 and 2017, respectively.

(4)

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

 

Cision View original content:http://www.prnewswire.com/news-releases/compass-diversified-holdings-reports-second-quarter-2018-financial-results-300690524.html

SOURCE Compass Diversified Holdings

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