Compass Diversified Holdings (CODI) reported cash flow grew in the first quarter due to year-over-year earnings growth in the company’s Clean Earth, Sterno Products, ERGObaby and 5.11 businesses, offset by declines at the company’s other businesses, including Liberty Safe.
First Quarter 2017 Highlights
• Reported Cash Used in Operating Activities of $1.4 million for the first quarter of 2017, and Cash Flow Available for Distribution and Reinvestmentof $14.9 million for the first quarter of 2017;
• Reported net loss of $21.1 million for the first quarter of 2017;
• Paid a first quarter 2017 cash distribution of 36 cents per share in April 2017, bringing cumulative distributions paid to $14.9952 per share since CODI’s IPO in May of 2006;
• Appointed Sally McCoy to the company’s Board of Directors;
• Sold a total of 5,108,718 shares of Fox Factory Holding Corp. (FOX) common stock, with total net proceeds of approximately $136.1 million; and
• Completed the accretive add-on acquisition of AERC Recycling Solutions (AERC) by CODI’s subsidiary Clean Earth Inc..
“During the first quarter, our leading middle market businesses generated stable operating results that were consistent with management’s expectations,” stated Alan Offenberg, CEO of Compass Diversified Holdings. “These results reflect strong performances at our Clean Earth, Sterno Products, ERGObaby and 5.11 subsidiaries, with each reporting year-over-year, double-digit revenue increases.”
Offenberg added, “We continued to reinvest in our current subsidiaries during the quarter with the accretive add-on acquisition of AERC, which expands Clean Earth’s waste processing capabilities and creates new cross-selling opportunities. Complementing this, we strengthened our balance sheet by monetizing our remaining investment in FOX, increasing gains we have realized for shareholders to over $770 million. With our substantial liquidity, CODI is well positioned to pursue both platform and add-on acquisitions that build long-term value and support cash distributions for our shareholders.”
Operating Results
For the quarter ended March 31, 2017, CODI reported Cash Used in Operating Activities of $1.4 million, as compared to Cash Provided by Operating Activities of $6 million for the quarter ended March 31, 2016. CODI reported Cash Flow of $14.9 million for the quarter ended March 31, 2017, as compared to $13.6 million for the prior year’s comparable quarter. CODI’s weighted average number of shares outstanding for the quarters ended March 31, 2017 and March 31, 2016 were 59.9 million and 54.3 million, respectively.
Cash Flow for the first quarter of 2017 reflects year-over-year earnings growth in the company’s Clean Earth, Sterno Products, ERGObaby and 5.11 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 over $770 million since going public in 2006.
Net loss for the quarter ended March 31, 2017 was $21.1 million, as compared to net loss of $15 million for the quarter ended
March 31, 2016. During the first quarter of 2017, CODI finalized the goodwill impairment testing at its Arnold subsidiary that had been recorded on a preliminary basis in the fourth quarter of 2016, and recorded an additional $8.9 million goodwill impairment expense.
Liquidity And Capital Resources
As of March 31, 2017, CODI had approximately $115.3 million in cash and cash equivalents, $564.2 million outstanding on its term loan facility and no outstanding borrowings under its revolving credit facility. The company has no significant debt maturities until 2019 and had net borrowing availability of $546.1 million at March 31, 2017 under its revolving credit facility.
During the first quarter of 2017, the company sold its remaining shares in its former subsidiary FOX in a secondary public offering for total net proceeds of approximately $136.1 million. Including this divestiture, CODI has realized approximately $525 million in proceeds from its investment in FOX.
First Quarter 2017 Distribution
On April 6, 2017, CODI’s Board of Directors declared a first quarter distribution of 36 cents per share. The cash distribution was paid on April 27, 2017 to all holders of record as of April 20, 2017. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $14.9952 per share.
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.
• 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).
