Compass Diversified Holdings Reports Second Quarter 2015 Financial Results

Cash Flow Available for Distribution and Reinvestment Increases 115% to $27.0 Million

Aug 05, 2015, 16:05 ET from Compass Diversified Holdings

WESTPORT, Conn., Aug. 5, 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 June 30, 2015.

Second Quarter 2015 Highlights

  • Generated Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $27.0 million for the second quarter of 2015;
  • Reported net income of $26.6 million for the second quarter of 2015;
  • Paid a second quarter 2015 cash distribution of $0.36 per share in July 2015, bringing cumulative distributions paid to $12.4752 per share since CODI's IPO in May of 2006;
  • Consummated the platform acquisition of Fresh Hemp Foods Ltd. ("Manitoba Harvest") subsequent to the quarter end; and
  • Completed the sale of our CamelBak Products, LLC ("CamelBak") subsidiary subsequent to the quarter end.

"During the second quarter, we generated strong results that demonstrate the leadership position and comparative financial strength of our middle market businesses," stated Alan Offenberg, CEO of Compass Diversified Holdings. "Our performance exceeded management's expectations as Cash Flow, which benefitted from our recent acquisitions, more than doubled compared to the year ago period and covered our distribution. Our branded consumer and niche industrial businesses combined to produce solid revenue and earnings growth, underscoring our efforts to expand their relative market share."

Mr. Offenberg added, "We continued to take advantage of market opportunities by completing two transactions subsequent to the end of the second quarter. First, we acquired Manitoba Harvest, a pioneer and global leader in branded, hemp-based foods. With a business operating in a large and expanding marketplace, growing cash flow levels and an experienced management team, Manitoba Harvest possesses several qualities that meet our acquisition criteria. And second, following a successful partnership, we consummated the sale of our CamelBak subsidiary at an attractive valuation that significantly strengthened our liquidity position and provided value to our shareholders. With our strong balance sheet, we remain disciplined in pursuing future acquisitions while reinvesting in our current subsidiaries to drive future performance." 

Operating Results CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $27.0 million for the quarter ended June 30, 2015, as compared to $12.5 million for the prior year's comparable quarter. CODI's weighted average number of shares outstanding for the quarters ended June 30, 2015 and June 30, 2014 were 54.3 million and 48.3 million, respectively.

Cash Flow for the second quarter of 2015 reflects year-over-year growth in the Company's Ergobaby, American Furniture Manufacturing, Advanced Circuits, Liberty Safe, Tridien, and CamelBak businesses, partially offset by a decline at the Company's Arnold Magnetics business. In addition, the year-over-year growth includes the results from SternoCandleLamp and Clean Earth, each acquired during the second half of 2014.

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 $340 million since going public in 2006. Subsequent to the quarter end, CODI anticipates recording a gain ranging between $150 million and $170 million from the sale of CamelBak.

Net income for the quarter ended June 30, 2015 was $26.6 million, as compared to net income of $12.3 million for the quarter ended June 30, 2014. During the second quarter of 2015, CODI's equity method investment in Fox Factory Holding Corp. ("FOX", Nasdaq: FOXF) increased $11.2 million.  The net income during the quarter ended June 30, 2014 included results of FOX which was deconsolidated from the financial statements in July 2014.                     

For the six month period ended June 30, 2015, CODI reported net income of $1.3 million, as compared to net income of $19.7 million for the six months ended June 30, 2014, which included results from FOX until its deconsolidation in July 2014.

Liquidity and Capital Resources As of June 30, 2015, CODI had approximately $25.4 million in cash and cash equivalents, $322 million outstanding on its term loan facility and $189 million of borrowings under its revolving credit facility. The Company has no significant debt maturities until 2019 and had net borrowing availability of approximately $206 million at June 30, 2015 under its revolving credit facility.  Subsequent to the acquisition of Manitoba Harvest and the sale of CamelBak, the Company expects to have no outstanding borrowings under its $400 million revolving credit facility.  In addition, the Company's equity investment in its former subsidiary FOX is valued at $243 million at June 30, 2015. 

Second Quarter 2015 Distribution On July 9, 2015, CODI's Board of Directors declared a second quarter distribution of $0.36 per share. The cash distribution was paid on July 29, 2015 to all holders of record as of July 22, 2015. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $12.4752 per share.

Conference Call Management will host a conference call on Thursday, August 6, 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 72682762. 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 13, 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 72682762.

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 August 5, 2015, our nine 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 promotionally priced upholstered furniture (American Furniture Manufacturing);
  • 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 Hemp Foods); 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 ride dynamic products primarily for bicycles, 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

June 30,

December 31,

2015

2014

(in thousands)

(unaudited)

Assets

Current assets

Cash and cash equivalents

$

25,379

$

23,703

Accounts receivable, less allowance of $5,115 and $5,200

161,015

157,535

Inventories

125,232

111,214

Prepaid expenses and other current assets

28,149

28,347

Total current assets

339,775

320,799

Property, plant and equipment, net

111,521

115,871

Equity method investment

242,948

245,214

Goodwill and intangible assets, net

818,584

846,400

Other non-current assets

17,868

19,146

Total assets

$

1,530,696

$

1,547,430

Liabilities and stockholders' equity

Current liabilities

Accounts payable and accrued expenses

$

127,690

$

125,477

Due to related party

6,124

6,193

Current portion, long-term debt

3,250

3,250

Other current liabilities

3,894

6,311

Total current liabilities

140,958

141,231

Deferred income taxes

96,820

97,731

Long-term debt

503,532

485,547

Other non-current liabilities

15,775

14,587

Total liabilities

757,085

739,096

Stockholders' equity

Total stockholders' equity attributable to Holdings

728,592

767,431

Noncontrolling interests

45,019

40,903

Total stockholders' equity

773,611

808,334

Total liabilities and stockholders' equity

$

1,530,696

$

1,547,430

 

Compass Diversified Holdings

Condensed Consolidated Statements of Operations

(unaudited)

Three Months Ended

Six Months Ended

(in thousands, except per share data)

June 30,

2015

June 30,

2014

June 30,

2015

June 30,

2014

Net sales

$

284,727

$

269,084

$

541,998

$

515,132

Cost of sales

198,766

186,542

384,121

356,238

Gross profit

85,961

82,542

157,877

158,894

Operating expenses:

Selling, general and administrative expense

45,540

48,080

89,568

94,253

Management fees

6,791

5,023

13,649

9,758

Amortization expense

9,415

7,678

19,428

15,027

Impairment expense

258

9,165

Operating income

23,957

21,761

26,067

39,856

Other income (expense):

Interest expense, net

(3,125)

(4,810)

(12,843)

(9,382)

Gain (loss) on equity method investment

11,181

(2,266)

Amortization of debt issuance costs

(545)

(583)

(1,090)

(1,153)

Loss on debt extinguishment

(2,143)

(2,143)

Other income, net

940

106

633

290

Income before income taxes

32,408

14,331

10,501

27,468

Provision for income taxes

5,833

2,012

9,213

7,776

Net income

26,575

12,319

1,288

19,692

Less: Net income attributable to noncontrolling interest

2,118

6,600

1,733

9,314

Net income (loss) attributable to Holdings

$

24,457

$

5,719

$

(445)

$

10,378

Basic and fully diluted income (loss) per share

$

0.40

$

0.11

$

(0.06)

$

0.19

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

$

0.72

$

0.72

 

Compass Diversified Holdings

Summarized Statement of Cash Flows

(unaudited)

Six months ended

(in thousands)

June 30, 2015

June 30, 2014

Net cash provided by operating activities

$

32,267

$

11,320

Net cash used in by investing activities

(9,249)

(51,582)

Net cash (used in) provided by financing activities

(21,660)

42,231

Effect of foreign currency on cash

318

151

Net increase in cash and cash equivalents

1,676

2,120

Cash and cash equivalents — beginning of period

23,703

113,229

Cash and cash equivalents — end of period

$

25,379

$

115,349

 

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,

2015

June 30,

2014

June 30,

2015

June 30,

2014

Net income

$

26,575

$

12,319

$

1,288

$

19,692

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

Depreciation and amortization

15,710

12,549

32,245

24,534

Impairment expense

258

9,165

Amortization of debt issuance costs and original issue discount

712

835

1,425

1,699

Unrealized loss on derivatives

(2,447)

181

1,867

273

Loss on debt extinguishment

2,143

2,143

Excess tax benefit from subsidiary stock options (1)

(601)

(1,662)

(Gain) loss on equity method investment

(11,181)

2,266

Noncontrolling stockholders charges

859

1,604

1,883

2,969

Other

73

281

500

228

Deferred taxes

(451)

(2,341)

(1,257)

(2,935)

Changes in operating assets and liabilities

(1,128)

(9,610)

(17,115)

(35,621)

Net cash provided by operating activities

28,980

17,360

32,267

11,320

Plus:

Unused fee on revolving credit facility (2)

297

574

606

1,174

Excess tax benefit from subsidiary stock options (1)

601

1,662

Integration services fee (3)

1,000

2,000

Changes in operating assets and liabilities

1,128

9,610

17,115

35,621

Other

43

96

Less:

Maintenance capital expenditures (4)

3,890

3,539

8,179

6,643

FOX CAD (5)

11,545

15,039

Payment on swap

500

501

995

996

Other

37

70

342

70

Estimated cash flow available for distribution and reinvestment

$

26,978

$

12,533

$

42,472

$

27,125

Distribution paid in April 2015/2014

$

19,548

$

17,388

Distribution paid in July 2015/ 2014

$

19,548

$

17,388

19,548

17,388

$

19,548

$

17,388

$

39,096

$

34,776

(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)    Excludes growth capital expenditures of approximately $0.4 million and $0.5 million for the three months ended June 30, 2015 and 2014, and $0.9 million and $1.0 million for the six months ended June 30, 2015 and 2014.

(5)    Represents FOX CAD subsequent to IPO date.  For the six months ended June 30, 2014, the amount includes approximately $23.1 million of EBITDA, less: $3.6 million of cash taxes, $1.9 million of management fees, $2.2 million of maintenance capital expenditures and $0.3 million of interest expense.  For the quarter ended June 30, 2014, the amount includes approximately $15.5 million of EBITDA, less: $1.4 million of cash taxes, $1.0 million of management fees, $1.3 million of maintenance capital expenditures and $0.3 million of interest expense.

SOURCE Compass Diversified Holdings



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