Compass Diversified Holdings Inc. said an uptick in consumer spending in the first quarter benefited its consumer brands, which include Camelbak, Ergobaby, Fox Factory and Liberty Safe. Brisk firearms sales caused sales at Liberty Safe to rise 40.6 percent, while revenue grew 20.2 percent at Fox Factory and 18.5 percent at Ergobaby.
Alternatively, Department of Defense cutbacks had a negative impact on revenues and earnings at Advanced Circuits and Arnold, two of our industrial niche businesses. The company said it has plenty of cash to reinvest in our existing businesses and pursue additional platform and bolt-on acquisitions through the remainder of fiscal 2013. Compass Diversified, which is essentially a publicly traded private equity firm, has emerged as a significant strategic buyer of sporting goods companies in the last five years.
“Our strong results for the first quarter of 2013 exceeded management’s expectations, as Cash Flow increased 25.2% compared to the year-earlier period,” stated Alan Offenberg, CEO of Compass Group Diversified Holdings LLC. “We continue to achieve considerable revenue and earnings growth on a combined basis across our branded products businesses consisting of CamelBak, ERGObaby, Fox and Liberty Safe. We also maintained relative stability in the performance of our four niche industrial businesses comprised of Advanced Circuits, American Furniture, Tridien Medical and Arnold Magnetic.
Middle market deal flow in the first quarter of 2013 was slower than typical, in part due to a high level of tax-driven transactions in the fourth quarter of 2012 resulting in a reduced deal pipeline at the start of the year, the company repoted in its 10K. We have recently experienced a slight uptick in the early stages of deal activity and are cautiously optimistic that deal flow will increase over the balance of this year. Valuation levels remain relatively high for high quality companies, driven by the continued availability of debt capital with attractive terms and financial and strategic buyers seeking to deploy equity capital.
Results for the company’s four branded product businesses were:
Camelbak
The table below summarizes the income from operations data for CamelBak for the three month periods ended March 31, 2013 and March 31, 2012.
Three months ended
(in thousands)
March 31, 2013
March 31, 2012
Net sales
$
42,755
$
40,189
Cost of sales
23,136
22,014
Gross profit
19,619
18,175
Selling, general and administrative expense
8,278
8,528
Fees to manager
125
125
Amortization of intangibles
2,278
2,378
Income from operations
$
8,938
$
7,144
Net sales for the three months ended March 31, 2013 were approximately $42.8 million, an increase of $2.6 million, or 6.4%, compared to the same period in 2012. The increase in gross sales is a result of increased sales in Hydration Systems ($2.2 million), Bottles ($1.7 million) and Accessories ($0.5 million), offset in part by a decrease in sales in Gloves ($1.7 million). The increased sales is attributable to the continued success of Antidote, CamelBaks reservoir for the recreational Hydration Systems line, introduced in 2010, the expansion of offerings in Bottles, such as the Eddy and the Podium line of insulated bottles, and the continued expansion in its customer base, including new and existing customers, for all product lines.
In addition, CamelBak began providing Hydration Systems as a subcontractor as part of the United States Marine Corps pack program beginning at the end of 2011 which accounted for a substantial portion of Hydration Systems sales during the fiscal quarters ending March 31, 2013 and 2012. The Marine Corps contract was substantially completed during the quarter ending March 31, 2013. The decrease in Glove sales in the three-months ended March 31, 2013 compared to the same period in 2012 is principally due to continuing decreased demand from the U.S. Military.
Sales of Hydration Systems and Bottles represented approximately 88% of gross sales for the three months ended March 31, 2013 compared to 84% for the same period in 2012. Military sales were approximately 36% of gross sales for the three months ended March 31, 2013 compared to 35% for the same period in 2012. International sales were approximately 21% of gross sales for the three months ended March 31, 2013 compared to 20% for the same period in 2012..
Cost of sales for the three months ended March 31, 2013 were approximately $23.1 million compared to approximately $22.0 million in the same period of 2012. The increase is due principally to the corresponding increase in sales. Gross profit as a percentage of sales increased to 45.9% compared to 45.2% in the quarter ended March 31, 2012. The increase is attributable to: (i) a favorable sales mix in Bottles and Hydration Systems during this years first quarter compared to last years quarter, and (ii) the decrease in Glove sales, which carries a lower gross profit margin than CamelBaks other product sectors.
Selling, general and administrative expense for the quarter decreased to approximately $8.3 million or 19.4% of net sales compared to $8.5 million or 21.2% of net sales for the same period of 2012. Income from operations for the three months ended March 31, 2013 was approximately $8.9 million, an increase of $1.8 million when compared to the same period in 2012, based on the factors described above.
Ergobaby
The table below summarizes the income from operations data for Ergobaby for the three month periods ended March 31, 2013 and March 31, 2012.
Three-months ended
(in thousands)
March 31, 2013
March 31, 2012
Net sales
$
16,207
$
13,681
Cost of sales
6,048
5,715
Gross profit
10,159
7,966
Selling, general and administrative expense
6,577
5,414
Fees to manager
125
125
Amortization of intangibles
743
778
Income from operations
$
2,714
$
1,649
Net sales for the three months ended March 31, 2013 were $16.2 million, an increase of $2.5 million or 18.5% compared to the same period in 2012. During the three-months ended March 31, 2013 international sales were approximately $9.1 million, representing an increase of $0.9 million over the corresponding period in 2012.
International baby carrier and accessory sales increased by approximately $2.0 million, offset in part by a decrease in international stroller sales totaling approximately $1.1 million. International stroller sales were negatively impacted during the first quarter of 2013 by the timing of shipments to distributors. Domestic sales were $7.1 million in the first quarter of 2013 reflecting an increase of $1.6 million over the corresponding period in 2012. The increase in domestic sales in the first quarter of 2013 compared to 2012 is primarily attributable to increased sales of baby carriers and accessories to national retail accounts. Baby carriers and accessories represented 82.1% of gross sales in the three-months ended March 31, 2013 compared to 74.4% in the same period in 2012.
Cost of sales for the three months ended March 31, 2013 were approximately $6.0 million compared to $5.7 million in the same period of 2012. The increase of $0.3 million is principally due to the increase in sales in 2013 compared to the same period in 2012. Gross profit as a percentage of sales was 62.7% for the quarter ended March 31, 2013 compared to 58.2% for the same period in 2012. The 4.5% increase is primarily attributable to $0.6 million in amortization expense reflected in cost of sales in the first quarter of 2012 resulting from an inventory fair value step-up as part of the purchase price allocation in connection with the acquisition of Orbit Baby in November 2011. Excluding the inventory step-up amortization charges reflected in 2012, gross profit as a percentage of sales was 62.4% in the 2012 period.
Selling, general and administrative expense for the three months ended March 31, 2013 increased to approximately $6.6 million or 40.6% of net sales compared $5.4 million or 39.6% of net sales for the same period of 2012. The $1.2 million increase is primarily attributable to increases in employee related costs due to increased headcount to support business growth.
Income from operations for the three months ended March 31, 2013 increased $1.1 million, to $2.7 million, as compared to $1.6 million the same period of 2012, based on the factors described above.
Fox Factory
The table below summarizes the income from operations data for Fox for the three-month periods ended March 31, 2013 and March 31, 2012.
