Compass Diversified Holdings (CODI) reported cash flow declined slightly in the first quarter as earnings growth in the company’s Advanced Circuits, Arnold Magnetics, Clean Earth, Sterno Products and Liberty Safe businesses,s was offset by declines at the company’s ErgoBaby, Manitoba Harvest and 5.11.
First Quarter 2018 Highlights
- Generated Cash Provided by Operating Activities of $6.6 million for the first quarter of 2018, and Cash Flow Available for Distribution and Reinvestment of $14.0 million for the first quarter of 2018;
- Reported net loss of $1.6 million for the first quarter of 2018;
- Consummated the accretive platform acquisition of Foam Fabricators, Inc. (“Foam Fabricators”);
- Consummated the add-on acquisition of Rimports Inc. (“Rimports”) by CODI’s subsidiary Sterno Products, LLC (“Sterno Products”);
- Completed an offering of 4,000,000 shares of 7.875 percent Series B Preferred Shares;
- Paid a first quarter 2018 cash distribution of $0.36 per share on CODI’s common shares in April 2018, bringing cumulative distributions paid to $16.4352 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 in April 2018;
- Subsequent to the end of the quarter, signed a credit agreement for a revolving credit facility totaling $600 million and a term loan facility in the amount of $500 million and completed a private offering of $400 million of 8.000 percent senior unsecured notes due 2026.
“During the first quarter, we grew revenues, generated solid cash flow and provided sizeable distributions, while taking important steps to accelerate the growth and future prospects of our leading middle market businesses,” said Elias Sabo, CEO of Compass Diversified Holdings. “With the accretive platform acquisition of Foam Fabricators, a leading designer and manufacturer of custom-molded protective foam solutions, we have further strengthened our niche industrial businesses and enhanced our ability to achieve stable and growing cash flows.”
Sabo added, “We also continued to reinvest in our leading subsidiaries and capitalize on accretive add-on opportunities. In addition to our investments in a number of our branded consumer businesses in the quarter, we are pleased to have completed the accretive add-on acquisition of Rimports for Sterno Products, further strengthening the company’s leading product offerings. During the quarter, we also took steps to enhance our financial flexibility and diversify our capital structure under favorable terms, without diluting shareholders and without increasing our total debt outstanding. With approximately $500 million in liquidity, we remain well positioned to continue to execute our proven investment strategy, taking advantage of compelling and accretive acquisition opportunities for the benefit of shareholders.”
For the quarter ended March 31, 2018, CODI-generated Cash Provided by Operating Activities of $6.6 million, as compared to Cash Used in Operating Activities of $1.4 million for the quarter ended March 31, 2017. CODI reported Cash Flow of $14.0 million for the quarter ended March 31, 2018, as compared to $14.9 million for the prior year’s comparable quarter. CODI’s weighted average number of shares outstanding for the quarters ended March 31, 2018 and March 31, 2017 were 59.9 million.
Cash Flow for the first quarter of 2018 reflects year-over-year earnings growth in the company’s Advanced Circuits, Arnold Magnetics, Clean Earth, Sterno Products and Liberty Safe businesses, offset by declines at the company’s ErgoBaby, Manitoba Harvest and 5.11 businesses.
CODI’s Cash Flow is calculated after taking into account all interest expense, cash taxes paid, preferred share distributions 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, 2018 was $1.6 million, as compared to net loss of $21.1 million for the quarter ended March 31, 2017. The quarter ended March 31, 2017 included an $8.9 million impairment charge.
Liquidity and Capital Resources
As of March 31, 2018, CODI had approximately $46.3 million in cash and cash equivalents, $559 million outstanding on its prior term loan facility and $391 million in outstanding borrowings under its prior revolving credit facility.
In April 2018, the company signed a credit agreement for a revolving credit facility totaling $600 million and a term loan facility in the amount of $500 million. Under the terms of the credit agreement, CODI extended the maturities of the company’s revolver and term loan to 2023 and 2025, respectively. In April 2018, the company also completed a private offering of $400 million of 8.000 percent senior unsecured notes due 2026. The company estimates approximately $500 million in net borrowing availability under the new revolver as of the closing date.
In March 2018, the company completed an offering of 4,000,000 shares of 7.875 percent Series B Preferred Shares with a liquidation preference of $25.00 per share. CODI raised $96.7 million of net proceeds from the offering, which was used to repay a portion of the outstanding balance of the company’s prior revolving credit facility and for general corporate purposes.
First Quarter 2018 Distributions
On April 5, 2018, CODI’s Board of Directors (the “Board”) declared a first quarter distribution of $0.36 per share on the company’s common shares (the “Common Shares”). The cash distribution was paid on April 26, 2018 to all holders of record of Common Shares as of April 19, 2018. Since the company’s IPO in May of 2006, CODI has paid a cumulative distribution of $16.4352 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 “Preferred Shares”). The distribution on the Preferred Shares covered the period from and including January 30, 2018, up to, but excluding, April 30, 2018. The distribution for such period was paid on April 30, 2018 to all holders of record of Preferred Shares as of April 15, 2018.