Compass Diversified Holdings (CODI), the parent of 5.11 Tactical, Velocity Outdoor and Liberty Safe, in a letter to shareholders, said it has a detailed crisis preparedness plan in place and “sufficient liquidity” to manage during the COVID-19 pandemic.
CODI’s businesses also include Advanced Circuits, Arnold Magnetic Technologies, ERGObaby, Foam Fabricators and Sterno Products. The full letter follows.
Dear Fellow Shareholders,
In this truly unprecedented time, we hope this letter finds you and your families safe and healthy.
Like so many of you, we have been closely monitoring developments related to the spread of the novel coronavirus (“COVID-19”). While pandemic-fueled volatility has sent financial markets on wild swings, we are carefully monitoring how businesses, governments and health organizations around the world take measures that would have seemed unimaginable just months ago to contain the virus and keep our communities safe. Although we are still in the early days of understanding and assessing the impact to the global economy, we wanted to provide an interim update on our business as well as what we are seeing in the market now.
At CODI, we have always managed our business for the long-term. Our unique permanent capital structure, disciplined approach to investing and diversified group of companies give us the flexibility to take the unexpected in stride. While others were accumulating assets at record high prices throughout 2019, our long-term, balanced risk approach ensured that we were defensively positioned and had the system’s readiness in place to operate in the current environment. Importantly, the actions we took in 2019 – including opportunistically divesting two companies, issuing equity capital in November and substantially de-risking our balance sheet – will allow us to continue identifying and executing on compelling opportunities as the current dislocation begins to settle.
Today our Board of Directors authorized the regularly scheduled distributions on the Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares and our Common Shares. This marks the 37th consecutive quarter that we have paid our Common Stock distribution at a rate of $1.44 per share annualized.
We were prepared to operate in today’s market and have implemented robust precautions.
We have a detailed crisis preparedness plan in place, allowing us to migrate to a remote working structure with all systems and operations functioning seamlessly. The health of our team and various stakeholders is our highest priority, and we are taking all appropriate measures to ensure they are safe and supported.
We are continually working with our management teams at each subsidiary to evaluate business-specific risks and support them as they make decisions about contingency planning. With a large portion of the country under some form of a “stay-at-home” order, we anticipate downward revenue pressure on certain subsidiaries as a result of the abrupt halt to large segments of the economy. However, our group of companies is strategically diverse, serving a broad range of end markets, distribution channels and customers. Many of our consumer brands stand for readiness and we believe these readiness-focused brands will have enhanced appeal to a broader group of potential customers and therefore emerge with stronger growth prospects.
We are in regular contact with our subsidiary teams to assist in managing any financial or operational disruptions that may occur. With a clear focus on maintaining operations to the full extent possible, we have the flexibility to temporarily cut discretionary spending, freeze new hires, defer capital expenditures and postpone growth initiatives to ensure that our subsidiaries remain viable. We will continue to make decisions in real-time and re-evaluate on a day-to-day basis.
We believe we have sufficient liquidity and are positioned to generate future shareholder value.
We currently have significant levels of capital available, and our net leverage remains at only 1.5 times. Last year, we further strengthened our balance sheet through the divestiture of two subsidiaries and the issuance of our 7.875% Series C Preferred Shares, taking steps to defensively position the company.
As previously disclosed, as of December 31, 2019, we had approximately $100.3 million in cash and cash equivalents, $400.0 million outstanding in 8.00% Senior Notes due 2026 with no outstanding borrowings under our revolving credit facility. In an abundance of caution, and as a proactive measure, in late March 2020, we elected to draw down $200 million from our revolving credit facility. Following the recent drawdowns, we have more than $245 million cash on hand at the corporate level, exclusive of cash held on hand at our subsidiary companies (which was approximately $35 million as of December 31, 2019). Subsequent to the expected close of Marucci Sports LLC, and including our ability to upsize our revolving credit facility by $250 million, we expect to have more than $650 million of liquidity available to support our business.
We continue to identify and execute compelling opportunities.
With our permanent capital structure, strong liquidity position and operational preparedness, CODI is not only navigating the current environment, we are also continuing to execute on compelling opportunities while under no pressure to divest of assets in an unfavorable market.
Last month we announced the acquisition of Marucci Sports, a fast-growing, authentic consumer products company operating in the baseball industry. We believe this transaction has a tremendous upside for shareholders and is one that other investment firms may not have been able to close in such volatile markets.
Despite the challenges ahead, we believe that we are positioned to succeed in a time of market dislocation and look forward to continuing to find unique opportunities to acquire, manage and opportunistically divest leading middle-market businesses on your behalf.
In closing, as difficult as this period is, we believe that the companies that successfully manage through this turmoil will be stronger and more valuable on the other end. We are taking every step that we can to prepare for the impact and we are well-positioned to continue to generate shareholder value in the years to come. As we have done through other challenging moments in time, we are confident that we have the right strategy, an excellent team in place and a strong group of subsidiaries to not only persevere but also find stronger footing on the other side.
Thank you for your dedication to CODI. We will continue to be transparent about the expected impact and will keep you updated moving forward.
Elias J. Sabo, CEO
Compass Group Diversified Holdings, LLC
Ryan J. Faulkingham, CFO
Compass Group Diversified Holdings, LLC
Photo courtesy Compass Group Diversified Holdings, LLC