5.11 Tactical notched double-digit revenue and EBITDA growth, but parent company Compass Diversified Holdings revenue and earnings per share fell shy of Wall Street’s estimates for the third-quarter.

Third Quarter 2019 Highlights

  • Reported net sales of $388.3 million, short of estimates by $36 million
  • Reported net loss of $26.5 million inclusive of $33.4 million non-cash impairment charge at Velocity and $4.9 million loss on the sale of Tilray shares;
  • Reported non-GAAP Adjusted EBITDA of $63.8 million;
  • Reported Cash Provided by Operating Activities of $22.9 million, and Generated non-GAAP Cash Flow Available for Distribution and Reinvestment (“CAD”) of $30.2 million for the third quarter of 2019;
  • Paid a third quarter 2019 cash distribution of $0.36 per share on CODI’s common shares in October 2019, bringing cumulative distributions paid to $18.5952 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 percent Series A Preferred Shares and $0.4921875 per share on the Company’s 7.875 percent Series B Preferred Shares in October 2019;
  • Received approximately C$64 million of deferred consideration from the sale of Manitoba Harvest, comprised of cash and Tilray shares.

“During the third quarter our group of leading and diversified businesses generated solid revenue and cash flow, exceeding our expectations,” said Elias Sabo, CEO of Compass Diversified Holdings. “We are especially pleased with the performance of our branded consumer businesses, driven by 5.11 Tactical’s double digit revenue and EBITDA growth. 5.11 continues to exceed our expectations, as the company successfully expands into a consumer lifestyle apparel business. During the third quarter, 5.11 continued to invest in its omni channel consumer strategy, adding experiential retail stores and enhancing its online capabilities. We are pleased with 5.11’s progress and believe in its transformational potential for CODI, as 5.11 expands to meet the needs of its passionate and highly engaged customer base.”

Sabo continued, “Following the two opportunistic divestitures in the first half of 2019, we received C$64 million in deferred consideration from the sale of Manitoba Harvest in the third quarter of 2019.  During the third quarter, we sold all of our shares in Tilray received as part of the consideration, and have now successfully monetized all of the proceeds from the Manitoba Harvest sale and realized a gain of $121.7 million on our investment. The sales of Manitoba Harvest and Clean Earth in 2019 have resulted in significantly less financial leverage and greatly enhanced liquidity, positioning CODI with the strongest balance sheet in our history. Since going public in 2006, we have now realized gains for our shareholders in excess of $1 billion, and we have paid a sizeable and consistent distribution to our common shareholders, now reaching nearly $18.60, or 124 percent of our IPO price.  Based on the strength of our third quarter financial results, we now expect our fourth quarter results to exceed our original expectations.”

Operating Results

Net sales for the quarter ended September 30, 2019 were $388.3 million, as compared to $360.3 million for the quarter ended September 30, 2018. The September 30, 2018 net sales do not include net sales attributable to Ravin prior to CODI’s ownership.

Net loss for the quarter ended September 30, 2019 was $26.5 million, as compared to net income of $5.8 million for the quarter ended September 30, 2018.  CODI recorded a $33.4 million impairment at our Velocity Outdoor subsidiary during the quarter ended September 30, 2019.

Adjusted EBITDA (see Note Regarding Use of Non-GAAP Financial Measures below) for the quarter ended September 30, 2019 was $63.8 million, as compared to $57.9 million for the quarter ended September 30, 2018. Adjusted EBITDA does not include the results of Ravin prior to CODI’s ownership.

CODI reported CAD (see Note Regarding Use of Non-GAAP Financial Measures below) of $30.2 million for the quarter ended September 30, 2019, as compared to $26.4 million for the prior year’s comparable quarter.  CODI’s CAD 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, CAD excludes the gains from monetizing interests in CODI’s subsidiaries, which have totaled over $1 billion since going public in 2006. The increase in CAD over the prior year quarter is primarily the result of 5.11 Tactical’s improved operating performance, lower maintenance capital expenditures at our existing businesses, offset by the loss of cash flow from our two divestitures in the first half of 2019.

Liquidity and Capital Resources

For the quarter ended September 30, 2019, CODI reported Cash Provided by Operating Activities of $22.9 million, as compared to Cash Provided by Operating Activities of $23.5 million for the quarter ended September 30, 2018.

CODI’s weighted average number of shares outstanding for the quarters ended September 30, 2019 and September 30, 2018 were 59.9 million.

As of September 30, 2019, CODI had approximately $285.8 million in cash and cash equivalents, $298.8 million outstanding on its term loan facility, $400 million outstanding in 8.00 percent Senior Notes due 2026 and no outstanding borrowings under its revolving credit facility.  In July 2019, CODI repaid $193.8 million on its term loan facility.

The Company has no significant debt maturities until 2023 and had net borrowing availability of $596.4 million at September 30, 2019 under its revolving credit facility.

Concurrent with the June 2019 sale of Clean Earth, Compass Group Management volunteered to waive the management fee on cash balances held at CODI, commencing with the management fee due for the quarter ended June 30, 2019 and continuing until the quarter during which the Company next borrows under its revolving credit facility.

Third Quarter 2019 Distributions

On October 3, 2019, CODI’s Board of Directors (the “Board”) declared a third quarter distribution of $0.36 per share on the Company’s common shares. The cash distribution was paid on October 24, 2019 to all holders of record of common shares as of October 17, 2019. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $18.5952 per common share.

The Board also declared a quarterly cash distribution of $0.453125 per share on the Company’s 7.250 percent Series A Preferred Shares (the “Series A Preferred Shares”). The distribution on the Series A Preferred Shares covered the period from and including July 30, 2019, up to, but excluding, October 30, 2019. The distribution for such period was paid on October 30, 2019 to all holders of record of Series A Preferred Shares as of October 15, 2019.

The Board also declared a quarterly cash distribution of $0.4921875 per share on the Company’s 7.875 percent Series B Preferred Shares (the “Series B Preferred Shares”). The distribution on the Series B Preferred Shares covered the period from and including July 30, 2019, up to, but excluding, October 30, 2019. The distribution for such period was paid on October 30, 2019 to all holders of record of Series B Preferred Shares as of October 15, 2019.