Compass Diversified Holdings Reports First Quarter 2013 Financial Results

Tue May 7, 2013 4:05pm EDT

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Compass Diversified Holdings Reports First Quarter 2013 Financial Results

Generates Cash Flow Available for Distribution and Reinvestment of $20.8 Million

PR Newswire

WESTPORT, Conn., May 7, 2013 /PRNewswire/ -- Compass Diversified Holdings (NYSE: CODI) ("CODI" or the "Company"), an owner of leading middle market businesses, announced today its consolidated operating results for the three months ended March 31, 2013.

First Quarter 2013 Highlights

  • Generated Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $20.8 million for the first quarter of 2013;
  • Reported net income of $3.6 million for the first quarter of 2013; and
  • Paid a first quarter 2013 cash distribution of $0.36 per share in April 2013, bringing cumulative distributions paid to $9.2352 per share since CODI's IPO in May of 2006.

"Our strong results for the first quarter of 2013 exceeded management's expectations, as Cash Flow increased 25.2% compared to the year-earlier period," stated Alan Offenberg, CEO of Compass Group Diversified Holdings LLC. "We continue to achieve considerable revenue and earnings growth on a combined basis across our branded products businesses consisting of CamelBak, ERGObaby, Fox and Liberty Safe. We also maintained relative stability in the performance of our four niche industrial businesses comprised of Advanced Circuits, American Furniture, Tridien Medical and Arnold Magnetic. Based on the continued application of our business model, we paid a first quarter distribution of $0.36 per share. As we continue to provide attractive cash distributions, we remain focused on leveraging our balance sheet strength to drive future performance. Our substantial liquidity bodes well for CODI to be able to continue to reinvest in our current family of leading middle market businesses while pursuing accretive acquisition opportunities that create significant value for our owners."

Operating Results
CODI reported Cash Flow (see note regarding use of Non-GAAP Financial Measures below) of $20.8 million for the quarter ended March 31, 2013, as compared to $16.6 million for the prior year comparable quarter. CODI's weighted average number of shares outstanding for both the quarter ended March 31, 2013 and March 31, 2012 was approximately 48.3 million.

The improvement in Cash Flow for the first quarter 2013 as compared to the corresponding year-earlier period was largely attributable to the year-over-year growth in the Company's CamelBak, ERGObaby, Fox and Liberty Safe businesses. In addition, Cash Flow for the first quarter 2013 was positively impacted by the full inclusion of operating results from the Company's Arnold Magnetic subsidiary, which was acquired on March 5, 2012. Partially offsetting these factors, Cash Flow for the first quarter 2013 excluded results from the Company's HALO subsidiary, which was sold on May 1, 2012.

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 sales of businesses, which have totaled approximately $198 million since 2007.

Net income for the quarter ended March 31, 2013 was $3.6 million, as compared to net income of $0.9 million for the quarter ended March 31, 2012. The year-over-year increase in the Company's net income reflects double-digit growth in each of net sales, gross profit and operating income. During the quarter ended March 31, 2013, CODI recorded a non-cash supplemental put accrual expense of $6.4 million based on the periodic review of current cash flow generation levels of its businesses as well as anticipated market multiples for those businesses in the event they were to be sold in the current environment. During the quarter ended March 31, 2012, the Company reversed approximately $1.5 million of its non-cash supplemental put accrual and expensed approximately $4.3 million of transaction costs related to its acquisition of Arnold Magnetic Technologies.

Liquidity and Capital Resources
As of March 31, 2013, CODI had $16.5 million in cash and cash equivalents, $251.9 million outstanding on its term loan facility and $27.0 million outstanding under its $290 million revolving credit facility. The Company has no significant debt maturities until 2017 and had borrowing availability of approximately $261 million at March 31, 2013 under its revolving credit facility.

On April 3, 2013, CODI exercised an option under its credit agreement, dated as of October 27, 2011, to expand its term loan facility by $30 million, which increased the Company's aggregate outstanding term loan borrowings under the facility to $281.9 million. The net proceeds of the incremental term loan were used to repay outstanding borrowings under the Company's revolving credit facility.  

CODI also amended the pricing terms of both its term loan facility and revolving credit facility. Under the terms of the amendments, the interest rate for the term loan facility was reduced by 1.25% and the interest rate for the revolving credit facility was reduced by 0.50%. In addition, the unused fee for the revolving credit facility was reduced by 0.25% when leverage is lower than a defined ratio and the maturity date for the revolving credit facility was extended to April 2017. All other terms of the credit agreement remain unchanged.

First Quarter 2013 Distribution
On April 9, 2013, CODI's Board of Directors declared a first quarter distribution of $0.36 per share. The cash distribution was paid on April 30, 2013 to all holders of record as of April 23, 2013. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $9.2352 per share.

Conference Call
Management will host a conference call on Wednesday, May 8, 2013 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 (888) 466-4462 and the dial-in number for international callers is (719) 457-2727. The access code for all callers is 5197923. 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 May 15, 2013. To access the replay, please dial (888) 203-1112 in the U.S. and (719) 457-0820 outside the U.S., and then enter the access code 5197923.

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 eight current businesses is a leader in their niche market. 

CODI maintains controlling ownership interests in each of its businesses 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 businesses, contributing to their financial and operating flexibility. CODI utilizes the cash flows generated by its businesses to invest in the long-term growth of the Company and to make cash distributions to its owners.

Our businesses are engaged in the following lines of business:

  • The manufacture of quick-turn, prototype and production rigid printed circuit boards (Advanced Circuits, www.advancedcircuits.com);
  • The design and manufacture of promotionally priced upholstered furniture (American Furniture Manufacturing, www.americanfurn.net);
  • 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, www.tridien.com);
  • The manufacture of engineered magnetic solutions for a wide range of specialty applications and end-markets (Arnold Magnetic Technologies, www.arnoldmagnetics.com);
  • The design and manufacture of personal hydration products for outdoor, recreation and military use (CamelBak Products, www.camelbak.com);
  • The design and marketing of wearable baby carriers, strollers and related products (ERGObaby, www.ergobaby.com);
  • The design, manufacture and marketing of premium suspension products for mountain bikes and powered off-road vehicles (FOX, www.ridefox.com);
  • The design and manufacture of premium home and gun safes (Liberty Safe, www.libertysafe.com).

To find out more about Compass Diversified Holdings, please visit www.compassdiversifiedholdings.com.

This press release may contain certain forward-looking statements, including statements with regard to the future performance of the Company. 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 Securities and Exchange Commission for the year ended December 31, 2012 and other filings with the Securities and Exchange Commission. 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







(in thousands)


March 31,


December 31,



2013


2012



(unaudited)



Assets





Current assets:





Cash and cash equivalents


$      16,500


$        18,241

Accounts receivable, less allowance of $3,130 and $3,049


119,354


100,647

Inventories


129,247


127,283

Prepaid expenses and other current assets


20,488


21,488






    Total current assets


285,589


267,659






Property, plant and equipment, net


67,504


68,488

Goodwill


257,527


257,527

Intangible assets, net


333,099


340,666

Deferred debt issuance costs, net


7,744


8,238

Other non-current assets


14,035


12,623






Total assets


$        965,498


$          955,201











Liabilities and stockholders' equity 





Current liabilities:





Accounts payable and accrued expenses


$    118,612


$      100,346

Due to related party


3,825


3,765

Current portion of long-term debt


2,550


2,550

Current portion of supplemental put obligation


5,603


5,185

Other liabilities


2,055


1,953






    Total current liabilities


132,645


113,799






Long-term debt


269,731


267,008

Supplemental put obligation


52,391


46,413

Deferred income taxes


63,679


63,982

Other non-current liabilities


7,109


7,787






Total liabilities


525,555


498,989






Stockholders' equity





Trust shares, no par value, 500,000 authorized; 48,300 shares issued and 


650,043


650,043

   outstanding at 3/31/13 and 12/31/12





Accumulated other comprehensive loss


(850)


(132)

Accumulated deficit


(251,077)


(235,283)

Total stockholders' equity attributable to Holdings


398,116


414,628

Noncontrolling interests


41,827


41,584

    Total stockholders' equity


439,943


456,212

Total liabilities and stockholders' equity


$        965,498


$          955,201

 

Compass Diversified Holdings

Condensed Consolidated Statements of Operations

(unaudited)


















Three Months 


Three Months 



Ended


Ended

(in thousands, except per share data) 


March 31, 2013


March 31, 2012






Net sales


$                   241,567


$                 195,327

Cost of sales


165,194


133,640

           Gross profit


76,373


61,687

Operating expenses:





     Selling, general and administrative expense


41,209


40,433

     Supplemental put expense (reversal) 


6,396


(1,540)

     Management fees


4,316


4,532

     Amortization expense


7,630


7,176

           Operating income  


16,822


11,086






Other income (expense):





     Interest income


2


33

     Interest expense


(5,341)


(6,029)

     Amortization of debt issuance costs


(485)


(356)

     Other, net


327


(268)

           Income from continuing operations before income taxes  


11,325


4,466

Provision for income taxes


7,699


4,099

          Income from continuing operations


3,626


367

Income from discontinued operations, net of income tax benefit


-


522

           Net income


3,626


889

Net income from continuing operations attributable to noncontrolling interest


2,032


1,676

Net loss from discontinued operations attributable to noncontrolling interest


-


(1)

           Net income (loss) attributable to Holdings


$                       1,594


$                      (786)






Basic and fully diluted income (loss) per share


$                         0.03


$                     (0.02)






Weighted average number of shares outstanding – basic and fully diluted


48,300


48,300






Cash distributions declared per share


$                         0.36


$                       0.36

 

Compass Diversified Holdings

Condensed Consolidated Statements of Cash Flows

(unaudited)








Three Months 


Three Months 



 Ended


 Ended

(in thousands)


March 31, 2013


March 31, 2012






Cash flows from operating activities:





Net income


$                    3,626


$                        889

Adjustments to reconcile net income to net cash provided by 





         (used in) operating activities





   Depreciation and amortization expense


11,611


13,090

   Amortization of debt issuance costs and original issue discount


845


731

   Supplemental put expense (reversal)


6,396


(1,540)

   Noncontrolling stockholder notes and other


1,301


791

   Deferred taxes


(857)


(49)

   Unrealized (gain) loss on interest rate and foreign currency derivatives


(385)


345

   Other


(71)


830






Changes in operating assets and liabilities, net of acquisition:





   Increase in accounts receivable


(18,130)


(1,874)

   Increase in inventories


(2,010)


(5,107)

   Increase in prepaid expenses and other current assets


(187)


(629)

   Increase in accounts payable and accrued expenses


17,987


1,392

   Payment of profit allocation


-


(13,675)

          Net cash provided by (used in) operating activities


20,126


(4,806)






Cash flows from investing activities:





      Acquisition of businesses, net of cash acquired


-


(123,575)

      Purchases of property and equipment


(3,328)


(3,405)

      Proceeds released from escrow related to Staffmark and HALO sales 


93


5,045

      Purchase of Fox common stock


-


(1,466)

      Other investing activities


-


268

          Net cash used in investing activities


(3,235)


(123,133)






Cash flows from financing activities:





      Net borrowing of debt


2,363


79,438

      (Payments to) proceeds from noncontrolling equity issuances


(3,090)


4,628

      Redemption of CamelBak preferred stock


-


(48,022)

      Debt issuance costs


-


(638)

      Other


(22)


(106)

      Distributions paid


(17,388)


(17,388)

          Net cash provided by (used in) financing activities


(18,137)


17,912






Foreign currency adjustment


(495)


20

Net decrease in cash and cash equivalents


(1,741)


(110,007)

Cash and cash equivalents — beginning of period


18,241


132,370

Cash and cash equivalents — end of period


$                  16,500


$                   22,363

 

Compass Diversified Holdings

Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment ("CAD")

(unaudited)













Three Months Ended


Three Months Ended

(in thousands)     


March 31, 2013


March 31, 2012






Net income 


$                 3,626


$                  889

   Adjustment to reconcile net income to cash provided by  (used in)





           operating activities





      Depreciation and amortization 


11,611


13,090

      Amortization of debt issuance costs and original issue discount


845


731

      Supplemental put expense (reversal)


6,396


(1,540)

      Noncontrolling stockholder notes and other


1,301


791

      Deferred taxes  


(857)


(49)

      Unrealized (gain) loss on interest rate and foreign currency derivatives


(385)


345

      Other


(71)


830

      Changes in operating assets and liabilities  


(2,340)


(19,893)

Net cash provided by (used in) operating activities


20,126


(4,806)

Plus:





      Unused fee on revolving credit facilities (1)


645


660

      Successful acquisition expense (2)


-


4,325

      Changes in operating assets and liabilities 


2,340


19,893

      Other


71


-

Less:





      Maintenance capital expenditures (3)


2,346


2,594

      Other


-


830






Estimated cash flow available for distribution and reinvestment 


$               20,836


$             16,648











Distribution paid in April 2013/2012


$               17,388


$             17,388











(1) Represents the commitment fee on the unused portion of the Revolving Credit Facilities.






(2) Represents transaction costs for successful acquisitions that were expensed during the period.






(3) Represents maintenance capital expenditures that were funded from operating cash flow. Excludes $1.0 million and $0.8 million of expenditures considered growth capital expenditures for the three months ended March 31, 2013 and 2012, respectively.

 

SOURCE Compass Diversified Holdings

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