Compass Diversified Holdings Inc. (CODI), which owns a number of middle-market companies including Ergobaby and Liberty Safe, reported net income of $26.6 million in the second quarter ended June 30 compared to $12.3 million a year ago.
CODI’s cash flow more than doubled to $27.0 million for the quarter from $12.5 million for the prior year's comparable quarter. The increase reflects year-over-year growth in the company's Ergobaby, American Furniture Manufacturing, Advanced Circuits, Liberty Safe, Tridien, and CamelBak businesses, partially offset by a decline at the company's Arnold Magnetics business. In addition, the year-over-year growth includes the results from SternoCandleLamp and Clean Earth, each acquired during the second half of 2014.
During the quarter, CODI's equity method investment in Fox Factory Holding Corp. increased $11.2 million. The company owns approximately 41 percent of the common stock of FOX, a former subsidiary business that completed its initial public offering in August 2013.
In late July, CODI agreed to sell CamelBak to Vista Outdoor for $412.5 million. CODI anticipates recording a gain ranging between $150 million and $170 million during the third quarter from the sale of CamelBak.
Reflecting on the sale, Alan Offenberg, CODI’s CEO, said, “We truly enjoyed working with CamelBak's management team led by its CEO, Sally McCoy, and are proud of our accomplishments together. CODI's strategic investments enabled CamelBak to increase consumer penetration levels, build cash flows, and generate greater organic growth. We wish CamelBak continued success in the future with their new partner Vista Outdoor.”
He added, “The sale of CamelBak unlocks significant value for our shareholders and strengthens our balance sheet to pursue both organic and acquisition-related growth opportunities going forward. As we have consistently demonstrated in the past, we will remain disciplined in our approach to new acquisition opportunities.”
CamelBak’s sales in the second quarter grew 4 percent with EBITDA growth of 22 percent. During the last week of the quarter, CamelBak recognized a duty tax rebate of $1.5 million that contributed to EBITDA growth. Excluding that one-time rebate, CamelBak achieved year-over-year EBITDA growth of 6.5 percent.
In its other sports-related businesses, ERGObaby posted revenue and EBITDA growth of approximately 10 percent and 24 percent, respectively, from the prior-year period. Including Q2, the business has now posted double-digit earnings growth on a year-over-year basis for 11 out of the past 12 quarters.
The latest quarter for ERGObaby benefited from the timing of international distributor sales with certain orders shipping in the second quarter of this year as compared to the third quarter in 2014. Strong EBITDA growth at ERGObaby was primarily attributable to an improved product sales mix with a larger percentage of higher-margin baby carrier sales.
ERGObaby saw positive feedback from trade shows for its newest products highlighted by the recent launch of its Natural Curve Nursing Pillow. In addition, Orbit Baby is preparing to launch its new O2 jogging stroller, which has also received strong reviews. A significantly increased marketing spend will be made in the second half of the year to support the launches.
Liberty Safe’s revenues in the quarter grew 31 percent, consistent with internal expectations. The increase for the maker of gun safes reflected demand and volume returning to a more normalized level. On the call, Elias Sabo, CODI’s partner, said the gain reflected a “successful turnaround and reemergence of this business following last year's industry downturn.”
Second-quarter EBITDA margins at Liberty Safe were 14.4 percent compared with negative 2 percent in the year-ago period and 12.5 percent in the first quarter of 2015.
CODI ended the second quarter with approximately $25.4 million in cash and cash equivalents, $322 million outstanding on its term loan facility and $189 million of borrowings under its revolving credit facility. Following its sale of CamelBak and after closing on a pending acquisition, CODI expects to have no outstanding borrowings under its $400 million revolving credit facility.
