The Compass Group
Nov 2, 2016

Compass Diversified Holdings Reports Third Quarter 2016 Financial Results

Acquires 5.11 Tactical® and Completes Partial Divestiture of Fox Factory Holding Corp. During the Quarter

WESTPORT, Conn., Nov. 2, 2016 /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, 2016.

Third Quarter 2016 Highlights

  • Generated Cash Provided by Operating Activities of $15.1 million, and Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $22.6 million for the third quarter of 2016;
  • Reported net income of $50.2 million for the third quarter of 2016;
  • Paid a third quarter 2016 cash distribution of $0.36 per share in October 2016, bringing cumulative distributions paid to $14.2752 per share since CODI's IPO in May of 2006;
  • Completed the accretive platform acquisition of 5.11 Tactical® "(5.11)";
  • Sold a total of 3,500,000 shares of Fox Factory Holding Corp. ("FOX") common stock, with total net proceeds of approximately $63.0 million while retaining approximately 23% ownership of FOX; and
  • Consummated the sale of its majority owned subsidiary, Anodyne Medical Device, Inc., also doing business and known as Tridien Medical, to Hill-Rom Holdings, Inc.

"During the third quarter, we continued to generate consistent free cash flow across both our niche industrial and our branded consumer businesses," stated Alan Offenberg, CEO of Compass Diversified Holdings. "In particular, our ERGObaby, Manitoba Harvest and Sterno Products subsidiaries each reported year-over-year, double-digit EBITDA growth aided by our recent add-on acquisitions."

Mr. Offenberg added, "We continued to capitalize on market opportunities with the accretive, platform acquisition of 5.11, whose market leadership, broad customer base, proven management team and compelling growth opportunities represent a strong addition to our family of leading middle market businesses. Complementing this, we completed the sale of Tridien Medical and realized $63.0 million in proceeds from partially monetizing our interest in FOX, increasing the gains we have realized for shareholders to over $625 million. We intend to continue capitalizing on our strong balance sheet and considerable liquidity position to pursue attractive platform and add-on transactions that we believe will create long-term shareholder value and support our ability to provide stable cash distributions."

Operating Results

For the quarter ended September 30, 2016, CODI generated Cash Provided by Operating Activities of $15.1 million, as compared to Cash Provided by Operating Activities of $14.2 million for the quarter ended September 30, 2015. CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $22.6 million for the quarter ended September 30, 2016, as compared to $23.8 million for the prior year's comparable quarter. CODI's weighted average number of shares outstanding for each of the quarter ended September 30, 2016 and the quarter ended September 30, 2015 was 54.3 million, respectively.

Cash Flow for the third quarter of 2016 reflects year-over-year earnings growth in the Company's Sterno Products, ERGObaby and Manitoba Harvest 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 more than $625 million since going public in 2006.

Net income for the quarter ended September 30, 2016 was $50.2 million, as compared to net income of $166.0 million for the quarter ended September 30, 2015. During the third quarter of 2016 and 2015, CODI's equity method investment in FOX increased $50.4 million and $11.8 million, respectively.  During the third quarter of 2015, CODI realized a net gain of $151.0 million on the sales of its AFM and CamelBak businesses.

Liquidity and Capital Resources

As of September 30, 2016, CODI had approximately $26.4 million in cash and cash equivalents, $567.1 million outstanding on its term loan facility and $167.0 million in borrowings under its revolving credit facility. The Company has no significant debt maturities until 2019 and had net borrowing availability of $377.9 million at September 30, 2016 under its revolving credit facility. In addition, the Company's equity investment in its former subsidiary FOX is valued at $197.7 million at September 30, 2016.

Third Quarter 2016 Distribution

On October 6, 2016, CODI's Board of Directors declared a third quarter distribution of $0.36 per share. The cash distribution was paid on October 27, 2016 to all holders of record as of October 20, 2016.  Since its IPO in May of 2006, CODI has paid a cumulative distribution of $14.2752 per share.

Conference Call

Management will host a conference call on Thursday, November 3, 2016 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 95434257. 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 10, 2016. 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 95434257.

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 23% 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, 2015 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,


2016


2015

(in thousands)

(unaudited)



Assets




Current assets




Cash and cash equivalents

$

26,389



$

85,240


Accounts receivable, net

173,921



105,910


Inventories

231,987



59,905


Prepaid expenses and other current assets

22,893



21,536


Current assets of discontinued operations



18,772


Total current assets

455,190



291,363


Property, plant and equipment, net

145,447



115,948


Equity method investment

197,742



249,747


Goodwill and intangible assets, net

1,034,068



741,342


Other non-current assets

13,307



9,819


Non-current assets of discontinued operations



12,823


Total assets

$

1,845,754



$

1,421,042






Liabilities and stockholders' equity




Current liabilities




Accounts payable and accrued expenses

$

139,221



$

89,907


Due to related party

8,236



5,863


Current portion, long-term debt

5,685



3,250


Other current liabilities

13,024



9,004


Current liabilities off discontinued operations



8,455


Total current liabilities

166,166



116,479


Deferred income taxes

103,898



103,635


Long-term debt

714,954



308,639


Other non-current liabilities

26,711



18,960


Non-current liabilities of discontinued operations



110


Total liabilities

1,011,729



547,823


Stockholders' equity




Total stockholders' equity attributable to Holdings

797,798



826,084


Noncontrolling interests

36,227



46,219


Noncontrolling interests of discontinued operations



916


Total stockholders' equity

834,025



873,219


Total liabilities and stockholders' equity

$

1,845,754



$

1,421,042


 

 

Compass Diversified Holdings

Condensed Consolidated Statements of Operations

(unaudited)

 










Three Months Ended


Nine Months Ended

(in thousands, except per share data)

September 30, 2016


September 30, 2015


September 30, 2016


September 30, 2015









Net sales

$

252,285



$

184,830



$

659,748



$

528,447


Cost of sales

169,870



120,260



436,544



355,489


Gross profit

82,415



64,570



223,204



172,958


Operating expenses:








Selling, general and administrative expense

53,648



36,310



140,702



98,385


Management fees

8,435



6,373



21,394



19,597


Amortization expense

8,423



7,259



23,966



21,455


Loss on disposal/ impairment expense

551





7,214




Operating income

11,358



14,628



29,928



33,521


Other income (expense):








Interest expense, net

(4,376)



(11,205)



(23,204)



(24,047)


Gain on equity method investment

50,414



11,784



58,680



9,518


Amortization of debt issuance costs

(687)



(561)



(1,827)



(1,651)


Other income (expense), net

(3,271)



(949)



(1,852)



(983)


Income from continuing operations before income taxes

53,438



13,697



61,725



16,358


Provision for income taxes

4,894



3,688



9,778



9,206


Net income from continuing operations

48,544



10,009



51,947



7,152


Income (loss) from discontinued operations, net of tax

(455)



4,934



473



9,079


Gain on sale of discontinued operations, net of tax

2,134



151,075



2,134



151,075


Net income

50,223



166,018



54,554



167,306


Less: Income from continuing operations attributable to noncontrolling interest

682



1,272



1,749



4,006


Less: Income (loss) from discontinued operations attributable to noncontrolling interest

(164)



246



(116)



(755)


Net income attributable to Holdings

$

49,705



$

164,500



$

52,921



$

164,055










Basic and fully diluted income per share








Continuing operations

$

0.72



$

0.14



$

0.59



$

0.01


Discontinued operations

0.03



2.87



0.05



2.96



$

0.75



$

3.01



$

0.64



$

2.97










Basic and fully diluted weighted average number of shares outstanding

54,300



54,300



54,300



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, 2016


September 30, 2015

Net cash provided by operating activities

$

60,594



$

46,471


Net cash (used in) provided by investing activities

(417,284)



246,594


Net cash provided by (used in) financing activities

300,407



(225,450)


Effect of foreign currency on cash

(3,197)



(2,593)


Net (decrease) increase in cash and cash equivalents

(59,480)



65,022


Cash and cash equivalents — beginning of period

85,869



23,703


Cash and cash equivalents — end of period

$

26,389



$

88,725


 

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, 2016


September 30, 2015


September 30, 2016


September 30, 2015

Net income

$

50,223



$

166,018



$

54,554



$

167,306


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








Depreciation and amortization

24,052



17,498



53,972



49,743


Loss on disposal/ impairment expense

551





7,214



9,165


Gain on sale of businesses, net

(2,134)



(151,075)



(2,134)



(151,075)


Amortization of debt issuance costs and original issue discount

888



729



2,363



2,154


Unrealized (gain) loss on derivatives

(1,661)



6,177



8,322



8,044


Gain on equity method investment

(50,414)



(11,784)



(58,680)



(9,518)


Noncontrolling stockholders charges

964



744



3,012



2,627


Excess tax benefit on stock compensation





(366)




Other

127



(175)



408



324


Deferred taxes

1,712



(2,606)



(4,280)



(3,863)


Changes in operating assets and liabilities

(9,246)



(11,321)



(3,791)



(28,436)


Net cash provided by operating activities

15,062



14,205



60,594



46,471


Plus:








Unused fee on revolving credit facility (1)

418



456



1,355



1,062


Successful acquisition costs

2,161



1,126



3,888



1,126


Integration services fee (2)

292



1,250



792



3,250


Realized loss from foreign currency effect (3)

662



1,297





1,297


Excess tax benefit on stock compensation





366




Changes in operating assets and liabilities

9,246



11,321



3,791



28,436


Other

117



132



245




Less:








Maintenance capital expenditures (4)

4,079



5,506



13,744



13,685


Payment on swap

1,320



507



3,114



1,502


Realized gain from foreign currency effect (3)





2,396




Other







209


Estimated cash flow available for distribution and reinvestment

$

22,559



$

23,774



$

51,777



$

66,246










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



19,548



19,548



$

19,548



$

19,548



$

58,644



$

58,644


 

(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 $0.7 million and $0.1 million for the three months ended September 30, 2016 and 2015, and $1.6 million and $1.0 million for the nine months ended September 30, 2016 and 2015, respectively.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/compass-diversified-holdings-reports-third-quarter-2016-financial-results-300356089.html

SOURCE Compass Diversified Holdings

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