Compass Diversified Holdings (CODI) reported revenues at 5.11 Tactical grew 5 percent and Crosman added 1.1 percent in 2017 while sales at Liberty Safe were down 11.4 percent.
5.11’s 5 percent gain was led by 50 percent growth in its direct-to-consumer (DTC) business. EBITDA grew 6.5 percent in 2017. On a conference call with analysts, Elias Sabo, CODI’S CEO-elect and a founding partner of Compass Group management, said 5.11 implemented an ERM system in late 2017 that caused sales to shift from 2017 into 2018 and led to an “unusually large backlog” at the end of the year. 5.11 is expected to produce “solid revenue and earnings growth in 2018 as we continue to build the consumer segment of this business,” said Sabo.
The maker of tactical apparel and gear serving a wide range of global customers including law enforcement, military special operations and firefighters, as well as outdoor enthusiasts, headquartered in Irvine, CA, was acquired in 2016.
Crosman’s revenue increased 1.1 percent in the year while EBITDA declined 2.3 percent. Said Sabo, “Crosman’s results were impacted by a large Junior ROTC contract that shifted from the fourth quarter of 2017 into the first half of 2018. We expect Crosman to grow revenue and EBITDA modestly in 2018.”
The manufacturer and marketer of airguns, archery products, optics and related accessories, based in East Bloomfield, NY, was acquired by CODI in June 2017. In July 2017, Crosman, acquired the commercial business of LaserMax, a leading designer and manufacturer of gun-mounted laser aiming devices.
Liberty Safe’s revenue declined 11.4 percent in 2017 and EBITDA dropped 30.6 percent from 2016. Sabo said Liberty suffered from the bankruptcy of one of its largest customers, referring to Gander Mountain, as well as generally softer market conditions. Liberty is projected to achieve “modest revenue and earnings growth in 2018,” he said.
CODI has owned the maker of gun safes and fire safes since 2010.
Asked in the Q&A session if any of Crosman’s range would be impacted by the moves by Dick’s and Walmart to stop selling assault-style weapons, David Swanson, partner, CGM, said, “Conversations are ongoing. I would say that Walmart took steps in this direction several years ago, so the actual sales from Crosman to Walmart of the types of things that you just mentioned are pretty nominal, so it should not have a big impact; the same with Dick’s. But clearly something that we’re monitoring and having ongoing conversations with all of our customers. But this was something that took effect a couple of years ago already, so it shouldn’t be a big impact.”
Crosman sells non-slide ammunition or non-lethal weapons that look like assault weapons.
Asked if Liberty Safe faces risks to its growth with talks of gun law changes, Sabo said, “Not right now, and I think it’s a little bit too early to tell. Obviously, when these tragic events happen, everybody is saddened and there’s kind of renewed calls for gun legislation that picks up. And in some cases, historically we’ve seen that propel sales as consumers get nervous about what might be coming down the pike. It’s really too early right now. I would say after the change in the 2016 election, market conditions changed pretty dramatically because I think people were not as worried about gun legislation. But as of right now, it’s just too early to tell.”
Asked about the potential impact of higher tariffs on steel on Liberty Safe, Swanson said the company is “seeing some impact from that already. Just the talk of tariffs has an impact on steel prices. So I’d say Liberty has budgeted for that as a headwind and is doing everything it can to offset in other ways. But it is a big material cost for Liberty and will be a headwind. As Elias mentioned in his comments, we do expect some modest growth from Liberty this year, and I think that’s despite the steel price headwinds. But we’re certainly seeing some of it and expecting it.”
Overall revenue in its Branded Consumer Businesses (including Liberty Safe, ERGObaby, Manitoba Harvest, Crosman and 5.11 Tactical) was flat in the year and EBITDA declined 2.9 percent from prior year. The decline in EBITDA was primarily due to accounts receivable write-offs. Excluding the write-offs, EBITDA would have grown modestly.
For the year ended December 31, CODI overall reported net income of $33.6 million. This compared to net income of $56.5 million for the year ended December 31, 2016, primarily as a result of a $74.5 million gain on CODI’s investment in FOX.
CODI generated cash provided by operating activities of $81.8 million in the year, as compared to $111.4 million for the year ended December 31, 2016. CODI reported cash flow of $92.2 million for the latest year as compared to $76.4 million for the prior year.
Companies owned by CODI include 5.11, Advanced Circuits, Arnold Magnetic Technologies, Clean Earth, Crosman, Ergobaby, Foam Fabricators, Liberty Safe, Manitoba Harvest and Sterno Products.
Photo courtesy 5.11