The Compass Group
Mar 1, 2017

Compass Diversified Holdings Reports Fourth Quarter and Full Year 2016 Financial Results

Completes Accretive Platform Acquisition of 5.11 Tactical® and Four Accretive Add-On Acquisitions During 2016

WESTPORT, Conn., March 1, 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 and twelve months ended December 31, 2016.

Fourth Quarter 2016 Highlights

  • Generated Cash Provided by Operating Activities of $50.8 million for the fourth quarter of 2016 and $111.4 million for the full year 2016, and Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $24.6 million for the fourth quarter of 2016 and $76.4 million for the full year 2016;
  • Reported net income of $2.0 million for the fourth quarter of 2016 and $56.5 million for the full year 2016;
  • Paid a fourth quarter 2016 cash distribution of $0.36 per share in January 2017, bringing cumulative distributions paid to $14.6352 per share since CODI's IPO in May of 2006;
  • Sold a total of 3,500,000 shares of Fox Factory Holding Corp. ("FOX") common stock, with total net proceeds of $71.8 million while retaining approximately 14% ownership of FOX;
  • Completed a 5,600,000 share offering in December 2016; and
  • Subsequent to year end, appointed Sally McCoy to the Company's Board of Directors.

"Our niche industrial and branded consumer businesses generated solid levels of cash flow for the fourth quarter and full year 2016," stated Alan Offenberg, CEO of Compass Diversified Holdings. "Results at our Sterno Products, ERGObaby, Manitoba Harvest and 5.11 subsidiaries were especially strong during the fourth quarter, with each reporting year-over-year, double-digit revenue and EBITDA growth."

Mr. Offenberg added, "In 2016, we capitalized on market opportunities with the accretive, platform acquisition of 5.11, whose industry leadership, broad customer base and product line make it a welcome addition to the CODI family. We are excited about the company's strong growth prospects and look forward to working with 5.11 as it expands its consumer penetration worldwide. During 2016, we also continued to reinvest in our current subsidiaries by completing two add-on acquisitions for Clean Earth and acquisitions at Sterno Products and ERGObaby. Additionally, we continued to strengthen our balance sheet, realizing $182.5 million in proceeds from partially monetizing our interest in FOX, increasing the gains we have achieved for shareholders to approximately $650 million. We also completed a 5.6 million share offering, generating $99.7 million in net proceeds. Moving ahead, CODI is well positioned to build value and support distributions for our shareholders and to pursue compelling acquisition opportunities."

Operating Results

For the quarter ended December 31, 2016, CODI generated Cash Provided by Operating Activities of $50.8 million, as compared to Cash Provided by Operating Activities of $38.1 million for the quarter ended December 31, 2015. CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $24.6 million for the quarter ended December 31, 2016, as compared to $16.1 million for the prior year's comparable quarter. CODI's weighted average number of shares outstanding for the quarters ended December 31, 2016 and December 31, 2015 were 55.5 million and 54.3 million, respectively.

Cash Flow for the fourth quarter of 2016 reflects year-over-year earnings growth in the Company's Advanced Circuits, Sterno Products, ERGObaby, Manitoba Harvest and 5.11 businesses, offset by declines at the Company's other businesses.

For the year ended December 31, 2016, CODI generated Cash Provided by Operating Activities of $111.4 million, as compared to Cash Provided by Operating Activities of $84.5 million for the year ended December 31, 2015. CODI reported Cash Flow of $76.4 million for the year ended December 31, 2016, as compared to $82.4 million for the year ended December 31, 2015. CODI's weighted average number of shares outstanding for the twelve month period ended December 31, 2016 was approximately 54.6 million, as compared to approximately 54.3 million for the twelve month period ended December 31, 2015.

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 approximately $650 million since going public in 2006.

Net income for the quarter ended December 31, 2016 was $2.0 million, as compared to net loss of $1.5 million for the quarter ended December 31, 2015. During the fourth quarter of 2016 and 2015, CODI's investment in FOX increased by $15.8 million and decreased by $5.0 million, respectively.  In addition, during the fourth quarter, CODI recorded a $16.0 million impairment of goodwill at its Arnold subsidiary.

For the year ended December 31, 2016, CODI reported net income of $56.5 million, primarily as a result of a $74.5 million gain on CODI's investment in FOX. This compared to net income of $165.8 million for the year ended December 31, 2015, primarily as a result of the gain on the sale of CamelBak.

Liquidity and Capital Resources

As of December 31, 2016, CODI had approximately $39.8 million in cash and cash equivalents, $565.7 million outstanding on its term loan facility and $4.4 million in borrowings under its revolving credit facility. The Company has no significant debt maturities until 2019 and had net borrowing availability of $541.2 million at December 31, 2016 under its revolving credit facility. In addition, the Company's investment in its former subsidiary FOX is valued at $141.8 million at December 31, 2016.

In December 2016, CODI completed a public offering of 5.6 million trust shares. CODI raised approximately $99.7 million of net proceeds from the offering, which was used to repay a portion of the outstanding balance of its revolving credit facility.

Fourth Quarter 2016 Distribution

On January 5, 2017, CODI's Board of Directors declared a fourth quarter distribution of $0.36 per share. The cash distribution was paid on January 26, 2017 to all holders of record as of January 19, 2017. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $14.6352 per share.

Conference Call

Management will host a conference call on Thursday, March 2, 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 60500138. 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 March 9, 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 60500138.

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")

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 eight 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 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).

In addition, we own approximately 14% of the common stock of Fox Factory Holding Corp. ("FOX", Nasdaq: FOXF), 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, 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






December 31,


December 31,


2016


2015

(in thousands)




Assets




Current assets




Cash and cash equivalents

$

39,772



$

85,240


Accounts receivable, net

181,191



105,910


Inventories

212,984



59,905


Prepaid expenses and other current assets

18,872



21,536


Current assets of discontinued operations



18,772


Total current assets

452,819



291,363


Property, plant and equipment, net

142,370



115,948


Investment

141,767



249,747


Goodwill and intangible assets, net

1,030,848



741,342


Other non-current assets

9,351



9,819


Non-current assets of discontinued operations



12,823


Total assets

$

1,777,155



$

1,421,042






Liabilities and stockholders' equity




Current liabilities




Accounts payable and accrued expenses

$

152,553



$

89,907


Due to related parties

20,848



5,863


Current portion, long-term debt

5,685



3,250


Other current liabilities

23,435



9,004


Current liabilities off discontinued operations



8,455


Total current liabilities

202,521



116,479


Deferred income taxes

110,838



103,635


Long-term debt

551,652



308,639


Other non-current liabilities

17,600



18,960


Non-current liabilities of discontinued operations



110


Total liabilities

882,611



547,823


Stockholders' equity




Total stockholders' equity attributable to Holdings

856,405



826,084


Noncontrolling interests

38,139



46,219


Noncontrolling interests of discontinued operations



916


Total stockholders' equity

894,544



873,219


Total liabilities and stockholders' equity

$

1,777,155



$

1,421,042


 

 

 

Compass Diversified Holdings

Condensed Consolidated Statements of Operations

 










Three Months Ended


Year Ended

(in thousands, except per share data)

December 31,
2016


December 31,
2015


December 31,
2016


December 31,
2015









Net sales

$

318,561



$

199,531



$

978,309



$

727,978


Cost of sales

215,195



131,753



651,739



487,242


Gross profit

103,366



67,778



326,570



240,736


Operating expenses:








Selling, general and administrative expense

77,128



38,014



217,830



136,399


Management fees

8,012



6,061



29,406



25,658


Amortization expense

11,103



7,306



35,069



28,761


Loss on disposal/ impairment expense

17,990





25,204




Operating income (loss)

(10,867)



16,397



19,061



49,918


Other income (expense):








Interest expense, net

(1,447)



(1,877)



(24,651)



(25,924)


Gain (loss) on equity method investment

15,810



(4,985)



74,490



4,533


Amortization of debt issuance costs

(936)



(561)



(2,763)



(2,212)


Other income (expense), net

(1,067)



(1,340)



(2,919)



(2,323)


Income from continuing operations before income taxes

1,493



7,634



63,218



23,992


Provision (benefit) for income taxes

(309)



5,795



9,469



15,001


Net income from continuing operations

1,802



1,839



53,749



8,991


Income (loss) from discontinued operations, net of tax



(2,098)



473



6,981


Gain (loss) on sale of discontinued operations, net of tax

174



(1,277)



2,308



149,798


Net income (loss)

1,976



(1,536)



56,530



165,770


Less: Income from continuing operations attributable to noncontrolling interest

212



1,127



1,961



5,133


Less: Loss from discontinued operations attributable to noncontrolling interest



(446)



(116)



(1,201)


Net income (loss) attributable to Holdings

$

1,764



$

(2,217)



$

54,685



$

161,838










Basic and fully diluted income (loss) per share








Continuing operations

$

(0.14)



$

(0.34)



$

0.46



$

(0.30)


Discontinued operations



(0.05)



0.05



2.91



$

(0.14)



$

(0.39)



$

0.51



$

2.61










Basic and fully diluted weighted average number of shares outstanding

55,457



54,300



54,591



54,300










Cash distributions declared per share

$

0.36



$

0.36



$

1.44



$

1.44


 

 

Compass Diversified Holdings

Summarized Statement of Cash Flows

 

 






Year Ended

(in thousands)

December 31, 2016


December 31, 2015

Net cash provided by operating activities

$

111,372



$

84,548


Net cash (used in) provided by investing activities

(363,021)



233,880


Net cash provided by (used in) financing activities

208,726



(254,357)


Effect of foreign currency on cash

(3,174)



(1,905)


Net (decrease) increase in cash and cash equivalents

(46,097)



62,166


Cash and cash equivalents — beginning of period

85,869



23,703


Cash and cash equivalents — end of period

$

39,772



$

85,869


 

 

Compass Diversified Holdings

Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment

(unaudited)


Three Months Ended


Year Ended

(in thousands)

December 31,
2016


December 31,
2015


December 31,
2016


December 31,
2015

Net income (loss)

$

1,976



$

(1,536)



$

56,530



$

165,770


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








Depreciation and amortization

33,433



13,329



87,405



63,072


Loss on disposal/ impairment expense

17,990





25,204



9,165


(Gain) loss on sale of businesses, net

(173)



1,277



(2,308)



(149,798)


Amortization of debt issuance costs and original issue discount

1,202



729



3,565



2,883


Unrealized (gain) loss on derivatives

(6,783)



(2,382)



1,539



5,662


(Gain) loss on equity method investment

(15,810)



4,985



(74,490)



(4,533)


Noncontrolling stockholders charges

1,370



1,110



4,382



3,737


Excess tax benefit on stock compensation

(797)





(1,163)




Other

1,485



(290)



1,893



34


Deferred taxes

(5,390)



732



(9,669)



(3,131)


Changes in operating assets and liabilities

22,275



20,123



18,484



(8,313)


Net cash provided by operating activities

50,778



38,077



111,372



84,548


Plus:








Unused fee on revolving credit facility (1)

591



550



1,947



1,612


Successful acquisition costs



700



3,888



1,826


Integration services fee (2)

875



250



1,667



3,500


Realized loss from foreign currency effect (3)

1,069



1,264





2,561


Excess tax benefit on stock compensation

797





1,163




Earnout provision adjustment

394





394




Changes in operating assets and liabilities







8,313


Other

177



409



421



200


Less:








Maintenance capital expenditures (4)

6,619



4,509



20,363



18,194


Payment on swap

1,189



505



4,303



2,007


Changes in operating assets and liabilities

22,275



20,123



18,484




Realized gain from foreign currency effect (3)





1,327




Estimated cash flow available for distribution and reinvestment

$

24,598



$

16,113



$

76,375



$

82,359










Distribution paid in April 2016/2015

$



$



$

19,548



$

19,548


Distribution paid in July 2016/ 2015





19,548



19,548


Distribution paid in October 2016/ 2015





19,548



19,548


Distribution paid in January 2017/ 2016

21,564



19,548



21,564



19,548



$

21,564



$

19,548



$

80,208



$

78,192


(1)    

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

(2)    

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

(3)    

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

(4)    

Excludes growth capital expenditures of approximately $2.1 million for the three months ended December 31, 2016, and $3.4 million and $1.0 million for the years ended December 31, 2016 and 2015, respectively.

 

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SOURCE Compass Diversified Holdings

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