Compass Diversified Holdings (CODI) reported net income of $533,000 in the second quarter against a loss of $2.7 million in the same period a year ago.

The company’s brands include Advanced Circuits, Arnold Magnetic Technologies, Clean Earth, Crosman, Ergobaby, Foam Fabricators, Liberty Safe, Manitoba Harvest and Sterno Products

Second Quarter 2018 Highlights

  • Generated Cash Provided by Operating Activities of $28.7 million for the second quarter of 2018, and Cash Flow Available for Distribution and Reinvestment (“CAD” or “Cash Flow”) of $30.3 million for the second quarter of 2018;
  • Reported net income of $0.5 million for the second quarter of 2018;
  • Announced the add-on acquisitions of ESMI Companies (“ESMI”) and MKC Enterprises, Inc. (“MKC”) by CODI’s subsidiary, Clean Earth, Inc. (“Clean Earth”);
  • 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;
  • Paid a second quarter 2018 cash distribution of $0.36 per share on CODI’s common shares in April 2018, bringing cumulative distributions paid to $16.7952 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.

“During the second quarter, our leading industrial and branded consumer businesses generated strong results,” said Elias Sabo, CEO of Compass Diversified Holdings. “We are pleased to have grown revenues at nine of our subsidiaries, while providing shareholders with solid and growing cash flows and a sizeable distribution.”

Sabo continued, “During the first six months of 2018, we continued to capitalize on compelling market opportunities, while reinvesting in our leading middle market businesses and implementing important measures aimed at further strengthening CODI’s long-term growth potential. Complementing this success, we enhanced our liquidity position and capital structure under favorable terms and remain in a strong position to implement our proven and disciplined investment strategy.”

Operating Results

For the quarter ended June 30, 2018, CODI generated Cash Provided by Operating Activities of $28.7 million, as compared to Cash Provided by Operating Activities of $37.3 million for the quarter ended June 30, 2017. CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $30.3 million for the quarter ended June 30, 2018, as compared to $25.5 million for the prior year’s comparable quarter. CODI’s weighted average number of shares outstanding for the quarters ended June 30, 2018 and June 30, 2017 were 59.9 million.

Cash Flow for the second quarter of 2018 reflects year-over-year earnings increases at the company’s Advanced Circuits, Arnold Magnetics, Clean Earth and Manitoba Harvest businesses, offset by declines at the company’s Liberty, ErgoBaby 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 income for the quarter ended June 30, 2018 was $0.5 million, as compared to net loss of $2.7 million for the quarter ended June 30, 2017.

Liquidity and Capital Resources

As of June 30, 2018, CODI had approximately $37.5 million in cash and cash equivalents, $498.8 million outstanding on its term loan facility, $400 million in Senior Notes and $92.0 million in outstanding borrowings under its 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 its 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 has approximately $508 million in net borrowing availability under its revolver as of June 30, 2018.

Second Quarter 2018 Distributions

On July 5, 2018, CODI’s Board of Directors (the “Board”) declared a second quarter distribution of $0.36 per share on the company’s common shares (the “Common Shares”). The cash distribution was paid on July 26, 2018 to all holders of common shares as of July 19, 2018. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $16.7952 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 April 30, 2018, up to, but excluding, July 30, 2018. The distribution for such period was paid on July 30, 2018 to all holders of record of Preferred Shares as of July 15, 2018.

The Board also declared a quarterly cash distribution of $0.74 per share on the company’s 7.875 percent Series B Preferred Shares (the “Series B Preferred Shares”). The distribution on the Series B Preferred Shares covers the period from and including March 13, 2018, the original issue date of the Series B Preferred Shares, up to, but excluding, July 30, 2018. The distribution for such period was paid on July 30, 2018 to all holders of record of the Series B Preferred Shares as of July 15, 2018.