Compass Diversified Holdings (CODI), the owner of Crosman, 5.11, Liberty Safe and other middle-market brands, reported a sharp gain in earnings in the fourth quarter ended December 31 due to a tax benefit. Cash flow from operations improved slightly.

 

Fourth Quarter 2017 Highlights

  • Generated Cash Provided by Operating Activities of $22.5 million for the fourth quarter of 2017 and $81.8 million for the full year 2017, and Cash Flow Available for Distribution and Reinvestment (“CAD” or “Cash Flow”) of $25.6 million for the fourth quarter of 2017 and $92.2 million for the full year 2017;
  • Reported net income of $49.1 million for the fourth quarter of 2017 and $33.6 million for the full year 2017;
  • Paid a fourth quarter 2017 cash distribution of $0.36 per share on CODI’s common shares in January 2018, bringing cumulative distributions paid to $16.0752 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 January 2018;
  • Subsequent to year end, announced the upcoming retirement of Alan B. Offenberg and naming of Elias J. Sabo as CODI’s chief executive officer, effective May 3, 2018;
  • Completed the accretive platform acquisition of Foam Fabricators, Inc. (“Foam Fabricators”) subsequent to year-end; and
  • Consummated the add-on acquisition of Rimports Inc. (“Rimports”) subsequent to year end by CODI’s subsidiary Sterno Products, LLC (“Sterno Products”).

“During 2017 we continued to successfully execute our proven investment strategy, generate strong cash flow and provide sizable distributions to our shareholders,” said Alan Offenberg, CEO of Compass Diversified Holdings. “We consummated the accretive platform acquisition of Crosman Corporation, expanding our branded consumer businesses, while continuing to reinvest in our subsidiaries by completing three attractive add-on acquisitions. Complementing this success, we monetized our remaining interest in Fox Factory Holding Corp., which increased CODI’s realized gains to over $770 million.”

Elias Sabo, CODI’s CEO-elect, stated, “We commenced 2018 by completing the platform acquisition of Foam Fabricators, a leading designer and manufacturer of custom molded protective foam solutions that has a strong management team, a diversified customer base, strong free cash flow and attractive growth prospects. This accretive platform acquisition, combined with our add-on acquisition of Rimports for Sterno Products, strengthens our family of niche-leading businesses and positions CODI to continue growing cash flow to a level that meaningfully covers our distribution. Going forward, we will continue to use our considerable financial strength for compelling platform acquisitions as well as add-on acquisitions to accelerate the growth of our subsidiaries.”

Operating Results

For the quarter ended December 31, 2017, CODI generated Cash Provided by Operating Activities of $22.5 million, as compared to Cash Provided by Operating Activities of $50.8 million for the quarter ended December 31, 2016. CODI reported Cash Flow of $25.6 million for the quarter ended December 31, 2017, as compared to $24.6 million for the prior year’s comparable quarter. CODI’s weighted average number of shares outstanding for the quarters ended December 31, 2017 and December 31, 2016 were 59.9 million and 55.5 million, respectively.

For the year ended December 31, 2017, CODI generated Cash Provided by Operating Activities of $81.8 million, as compared to Cash Provided by Operating Activities of $111.4 million for the year ended December 31, 2016. CODI reported Cash Flow of $92.2 million for the year ended December 31, 2017, as compared to $76.4 million for the prior year. CODI’s weighted average number of shares outstanding for the twelve month period ended December 31, 2017 was approximately 59.9 million, as compared to approximately 54.6 million for the twelve month period ended December 31, 2016.

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 income for the quarter ended December 31, 2017 was $49.1 million, as compared to net income of $2.0 million for the quarter ended December 31, 2016. During the fourth quarter of 2017, CODI recorded an income tax benefit of $38.7 million primarily related to the enactment of the Tax Cuts and Jobs Act in December 2017, which lowered the U.S. federal corporate income tax rate from 35 percent to 21 percent. During the fourth quarter of 2016, CODI realized a net gain of $15.8 million related to its equity investment in its former subsidiary Fox Factory Holding Corp. (“FOX”). During the first quarter of 2017, the company sold its remaining shares in FOX in a secondary public offering.

For the year ended December 31, 2017, CODI 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.

Liquidity and Capital Resources

As of December 31, 2017, CODI had approximately $39.9 million in cash and cash equivalents, $560 million outstanding on its term loan facility and $42 million in outstanding borrowings under its revolving credit facility. The company has no significant debt maturities until 2019 and had net borrowing availability of $507.4 million at December 31, 2017 under its revolving credit facility.

Fourth Quarter 2017 Distributions

On January 4, 2018, CODI’s Board of Directors (the “Board”) declared a fourth quarter distribution of $0.36 per share on the company’s common shares (the “Common Shares”). The cash distribution was paid on January 25, 2018 to all holders of record of Common Shares as of January 18, 2018. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $16.0752 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 October 30, 2017, up to, but excluding, January 30, 2018. The distribution for such period will be paid on January 30, 2018 to all holders of record of Preferred Shares as of January 15, 2018.

CODI’s ten majority-owned subsidiaries are engaged in the following lines of business:

  • 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, manufacture and marketing of airguns, archery products, optics and related accessories (Crosman);
  • The design and marketing of wearable baby carriers, strollers and related products (Ergobaby);
  • The design and manufacture of custom molded protective foam solutions and OEM components (Foam Fabricators);
  • 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).