Compass Diversified Holdings (NYSE: CODI) (“CODI,” “we,” “our” or
the “Company”), an owner of leading middle market businesses,
announced today its consolidated operating results for the three
and twelve months ended December 31, 2018.
Fourth Quarter 2018
Highlights
- Generated Cash Provided by Operating Activities of $55.7
million for the fourth quarter of 2018 and $114.5 million for the
full year 2018, and Cash Flow Available for Distribution and
Reinvestment (“CAD” or “Cash Flow”) of $22.9 million for the fourth
quarter of 2018 and $93.7 million for the full year 2018;
- Reported net loss of $6.5 million for the fourth quarter of
2018 and $1.8 million for the full year 2018;
- Paid a fourth quarter 2018 cash distribution of $0.36 per share
on CODI’s common shares in January 2019, bringing cumulative
distributions paid to $17.5152 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% Series A Preferred Shares in January
2019;
- Paid a quarterly cash distribution of $0.4921875 per share on
the Company's 7.875% Series B Preferred Shares in January
2019;
- Subsequent to year end, entered into a definitive agreement to
sell CODI’S majority owned subsidiary, FHF Holdings Ltd. (“Manitoba
Harvest”), to Tilray Inc. for an aggregate sales price of up to
C$419 million.
“We continued to provide shareholders with a
sizeable distribution in 2018, backed by our diverse and
uncorrelated middle market businesses and our highest CAD since
going public,” said Elias Sabo, CEO of Compass Diversified
Holdings. “During the year, we also took important steps to build
long-term and sustainable value in CODI and its leading
subsidiaries.”
Mr. Sabo continued, “We made important
investments in our branded consumer businesses to complement
growing cash flows in CODI’s industrial businesses and to further
drive long-term profitability. We also capitalized on compelling
market opportunities, completing a total of six add-on and platform
acquisitions to further enhance our earnings power. Complementing
this success, we strengthened our liquidity position and capital
structure, without diluting shareholders.”
Mr. Sabo concluded, “We are pleased to have
commenced 2019 by entering into an agreement to monetize Manitoba
Harvest at a highly attractive valuation, highlighting our proven
investment model and success creating significant value for
shareholders. The sale of Manitoba will significantly increase our
total realized gains and we intend to deploy the net proceeds
towards repaying our revolving credit facility. As we progress
through a robust market, we intend to pursue select add-on and
platform acquisitions while continuing to opportunistically
consider divestitures, consistent with our success realizing
sizeable total gains. With a diversified group of leading niche
industrial and branded consumer subsidiaries, we also remain well
positioned to continue to provide shareholders with sizeable
distributions.”
Operating ResultsFor the
quarter ended December 31, 2018, CODI generated Cash Provided by
Operating Activities of $55.7 million, as compared to Cash Provided
by Operating Activities of $22.5 million for the quarter ended
December 31, 2017. CODI reported Cash Flow (see Note Regarding Use
of Non-GAAP Financial Measures below) of $22.9 million for the
quarter ended December 31, 2018, as compared to $25.6 million for
the prior year’s comparable quarter. CODI’s weighted average number
of shares outstanding for the quarters ended December 31, 2018 and
December 31, 2017 were 59.9 million.
For the year ended December 31, 2018, CODI
generated Cash Provided by Operating Activities of $114.5 million,
as compared to Cash Provided by Operating Activities of $81.8
million for the year ended December 31, 2017. CODI reported Cash
Flow of $93.7 million for the year ended December 31, 2018, as
compared to $92.2 million for the prior year. CODI’s weighted
average number of shares outstanding for the twelve month periods
ended December 31, 2018 and December 31, 2017 were 59.9
million.
Cash Flow for the fourth quarter of 2018
reflects year-over-year earnings increases at the Company's
Advanced Circuits, Arnold Magnetics, and Sterno Group businesses,
offset by declines at the Company’s other businesses.
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 loss for the quarter ended December 31, 2018
was $6.5 million, as compared to net income of $49.1 million for
the quarter ended December 31, 2017. The quarter ended December 31,
2017 included 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% to 21%.
For the year ended December 31, 2018, CODI
reported a net loss of $1.8 million. This compared to net income of
$33.6 million for the year ended December 31, 2017.
Liquidity and Capital
ResourcesAs of December 31, 2018, CODI had approximately
$53.3 million in cash and cash equivalents, $496 million
outstanding on its term loan facility, $400 million in Senior Notes
and $228 million in outstanding borrowings under its revolving
credit facility.
The Company has no significant debt maturities
until 2023 and had net borrowing availability of approximately $372
million at December 31, 2018 under its revolving credit
facility.
Fourth Quarter 2018
DistributionsOn January 3, 2019, 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 24, 2019 to all holders of
record of Common Shares as of January 17, 2019. Since its IPO in
May of 2006, CODI has paid a cumulative distribution of $17.5152
per common share.
The Board also declared a quarterly cash
distribution of $0.453125 per share on the Company’s 7.250% Series
A Preferred Shares (the “Preferred Shares”). The distribution on
the Preferred Shares covered the period from and including October
30, 2018, up to, but excluding, January 30, 2019. The distribution
for such period was paid on January 30, 2019 to all holders of
record of Preferred Shares as of January 15, 2019.
The Board also declared a quarterly cash
distribution of $0.4921875 per share on the Company's 7.875% Series
B Preferred Shares (the "Series B Preferred Shares"). The
distribution on the Series B Preferred Shares covered the period
from and including October 30, 2018, up to, but excluding, January
30, 2019. The distribution for such period was paid on January 30,
2019 to all holders of record of Series B Preferred Shares as of
January 15, 2019.
Conference CallManagement will
host a conference call on Thursday, February 28, 2019 at 9:00 a.m.
ET to discuss the latest corporate developments and financial
results. The dial-in number for callers in the U.S. is (855)
212-2368 and the dial-in number for international callers is (315)
625-6886. The access code for all callers is 9769716. A live
webcast will also be available on the Company's website at
www.compassdiversifiedholdings.com.
A replay of the call will be available through
March 7, 2019. To access the replay, please dial (855) 859-2056 in
the U.S. and (404) 537-3406 outside the U.S., and then enter the
access code 9769716.
Note Regarding Use of Non-GAAP Financial
MeasuresCAD, or Cash Flow, is a non-GAAP measure used by
the Company to assess its performance, as well as its ability to
sustain and increase quarterly distributions. A number of CODI's
businesses have seasonal earnings patterns. Accordingly, the
Company believes that the most appropriate measure of its
performance is over a trailing or expected 12-month period. We have
reconciled CAD, or Cash Flow, to Net Income and Cash Flow from
Operating Activities on the attached schedules. We consider Net
Income and Cash Flow from Operating Activities to be the most
directly comparable GAAP financial measures to CAD, or Cash
Flow.
About Compass Diversified Holdings
(“CODI”)CODI owns and manages a diverse family of
established North American middle market businesses. Each of its
current subsidiaries is a leader in its niche market.
CODI maintains controlling ownership interests
in each of its subsidiaries in order to maximize its ability to
impact long term cash flow generation and value. The Company
provides both debt and equity capital for its subsidiaries,
contributing to their financial and operating flexibility. CODI
utilizes the cash flows generated by its subsidiaries to invest in
the long-term growth of the Company and to make cash distributions
to its shareholders.
Our 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 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);
- The manufacture and marketing of
portable food warming fuels for the hospitality and consumer
markets, flameless candles and house and garden lighting for the
home decor market, and wickless candle products used for home decor
and fragrance systems (The Sterno Group); and
- The design, manufacture and
marketing of airguns, archery products, optics and related
accessories (Velocity Outdoor).
This press release may contain certain forward-looking
statements, including statements with regard to the future
performance of CODI. Words such as "believes," "expects,"
"projects," and "future" or similar expressions, are intended to
identify forward-looking statements. These forward-looking
statements are subject to the inherent uncertainties in predicting
future results and conditions. Certain factors could cause actual
results to differ materially from those projected in these
forward-looking statements, and some of these factors are
enumerated in the risk factor discussion in the Form 10-K filed by
CODI with the SEC for the year ended December 31, 2018 and other
filings with the SEC. Except as required by law, CODI undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
|
Compass Diversified HoldingsCondensed
Consolidated Balance
Sheets(unaudited) |
|
|
|
|
|
December 31, 2018 |
|
December 31, 2017 |
(in thousands) |
|
|
|
Assets |
|
|
|
Current assets |
|
|
|
Cash and cash
equivalents |
$ |
53,326 |
|
|
$ |
39,885 |
|
Accounts
receivable, net |
272,403 |
|
|
215,108 |
|
Inventories |
318,873 |
|
|
246,928 |
|
Prepaid
expenses and other current assets |
36,583 |
|
|
24,897 |
|
Total
current assets |
681,185 |
|
|
526,818 |
|
Property, plant and
equipment, net |
226,817 |
|
|
173,081 |
|
Goodwill and intangible
assets, net |
1,452,324 |
|
|
1,112,206 |
|
Other non-current
assets |
12,009 |
|
|
8,198 |
|
Total
assets |
$ |
2,372,335 |
|
|
$ |
1,820,303 |
|
|
|
|
|
Liabilities and
stockholders’ equity |
|
|
|
Current
liabilities |
|
|
|
Accounts
payable and accrued expenses |
$ |
234,996 |
|
|
$ |
191,411 |
|
Due to
related party |
11,443 |
|
|
7,796 |
|
Current
portion, long-term debt |
5,000 |
|
|
5,685 |
|
Other
current liabilities |
7,841 |
|
|
7,301 |
|
Total
current liabilities |
259,280 |
|
|
212,193 |
|
Deferred income
taxes |
74,959 |
|
|
81,049 |
|
Long-term debt |
1,098,871 |
|
|
584,347 |
|
Other non-current
liabilities |
19,883 |
|
|
16,715 |
|
Total
liabilities |
1,452,993 |
|
|
894,304 |
|
Stockholders'
equity |
|
|
|
Total stockholders'
equity attributable to Holdings |
859,372 |
|
|
873,208 |
|
Noncontrolling
interest |
59,970 |
|
|
52,791 |
|
Total
stockholders' equity |
919,342 |
|
|
925,999 |
|
Total
liabilities and stockholders’ equity |
$ |
2,372,335 |
|
|
$ |
1,820,303 |
|
|
|
|
|
|
Compass Diversified HoldingsCondensed
Consolidated Statements of
Operations(unaudited) |
|
|
|
|
|
|
|
|
|
Three Months EndedDecember 31, |
|
Year EndedDecember 31, |
(in thousands, except
per share data) |
2018 |
|
2017 |
|
2018 |
|
2017 |
Net sales |
$ |
452,523 |
|
|
$ |
348,399 |
|
|
$ |
1,691,673 |
|
|
$ |
1,269,729 |
|
Cost of sales |
304,832 |
|
|
222,468 |
|
|
1,117,485 |
|
|
822,020 |
|
Gross
profit |
147,691 |
|
|
125,931 |
|
|
574,188 |
|
|
447,709 |
|
Operating
expenses: |
|
|
|
|
|
|
|
Selling, general and administrative
expense |
97,323 |
|
|
79,382 |
|
|
392,501 |
|
|
318,484 |
|
Management fees |
11,452 |
|
|
8,385 |
|
|
44,294 |
|
|
32,693 |
|
Amortization expense |
18,796 |
|
|
12,747 |
|
|
68,076 |
|
|
52,003 |
|
Impairment expense |
— |
|
|
8,461 |
|
|
— |
|
|
17,325 |
|
Operating income |
20,120 |
|
|
16,956 |
|
|
69,317 |
|
|
27,204 |
|
Other income
(expense): |
|
|
|
|
|
|
|
Interest
expense, net |
(20,112 |
) |
|
(5,124 |
) |
|
(55,577 |
) |
|
(27,623 |
) |
Loss on
investment |
— |
|
|
— |
|
|
— |
|
|
(5,620 |
) |
Amortization of debt issuance costs |
(927 |
) |
|
(1,062 |
) |
|
(3,905 |
) |
|
(4,002 |
) |
Other
income (expense), net |
(3,241 |
) |
|
(316 |
) |
|
(6,335 |
) |
|
2,634 |
|
Income (loss) from continuing
operations before income taxes |
(4,160 |
) |
|
10,454 |
|
|
3,500 |
|
|
(7,407 |
) |
Provision
(benefit) for income taxes |
2,401 |
|
|
(38,677 |
) |
|
6,548 |
|
|
(40,679 |
) |
Net
income (loss) from continuing operations |
(6,561 |
) |
|
49,131 |
|
|
(3,048 |
) |
|
33,272 |
|
Gain on sale of discontinued
operations, net of tax |
93 |
|
|
— |
|
|
1,258 |
|
|
340 |
|
Net income (loss) |
(6,468 |
) |
|
49,131 |
|
|
(1,790 |
) |
|
33,612 |
|
Less: Income from continuing
operations attributable to noncontrolling interest |
711 |
|
|
3,129 |
|
|
3,912 |
|
|
5,621 |
|
Net income (loss) attributable to
Holdings |
$ |
(7,179 |
) |
|
$ |
46,002 |
|
|
$ |
(5,702 |
) |
|
$ |
27,991 |
|
|
|
|
|
|
|
|
|
Basic income (loss) per
common share attributable to Holdings |
|
|
|
|
|
|
|
Continuing operations |
$ |
(0.25 |
) |
|
$ |
0.53 |
|
|
$ |
(0.44 |
) |
|
$ |
(0.45 |
) |
Discontinued operations |
— |
|
|
— |
|
|
0.02 |
|
|
0.01 |
|
|
$ |
(0.25 |
) |
|
$ |
0.53 |
|
|
$ |
(0.42 |
) |
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
Basic weighted average number of common shares
outstanding |
59,900 |
|
|
59,900 |
|
|
59,900 |
|
|
59,900 |
|
|
|
|
|
|
|
|
|
Cash distributions declared per Trust common
share |
$ |
0.36 |
|
|
$ |
0.36 |
|
|
$ |
1.44 |
|
|
$ |
1.44 |
|
|
|
|
|
|
|
|
|
|
Compass Diversified HoldingsSummarized
Statement of Cash Flows(unaudited) |
|
|
|
|
|
Year Ended |
(in thousands) |
December 31, 2018 |
|
December 31, 2017 |
Net cash provided by
operating activities |
$ |
114,452 |
|
|
$ |
81,771 |
|
Net cash used in investing
activities |
(604,080 |
) |
|
(77,278 |
) |
Net cash provided by (used in)
financing activities |
500,111 |
|
|
(2,588 |
) |
Effect of foreign currency on cash |
2,958 |
|
|
(1,792 |
) |
Net increase in cash
and cash equivalents |
13,441 |
|
|
113 |
|
Cash and cash
equivalents — beginning of period |
39,885 |
|
|
39,772 |
|
Cash and cash
equivalents — end of period |
$ |
53,326 |
|
|
$ |
39,885 |
|
|
|
|
|
|
Compass Diversified HoldingsCondensed
Consolidated Table of Cash Flows Available for Distribution and
Reinvestment(unaudited) |
|
Three Months EndedDecember 31, |
|
Year EndedDecember 31, |
(in thousands) |
2018 |
|
2017 |
|
2018 |
|
2017 |
Net income (loss) |
$ |
(6,468 |
) |
|
$ |
49,131 |
|
|
$ |
(1,790 |
) |
|
$ |
33,612 |
|
Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
32,697 |
|
|
21,392 |
|
|
120,575 |
|
|
110,051 |
|
Impairment expense |
— |
|
|
8,461 |
|
|
— |
|
|
17,325 |
|
Gain on
sale of businesses, net |
(93 |
) |
|
— |
|
|
(1,258 |
) |
|
(340 |
) |
Amortization of debt issuance costs and original issue
discount |
1,080 |
|
|
1,286 |
|
|
4,483 |
|
|
5,007 |
|
Unrealized (gain) loss on derivatives |
2,398 |
|
|
(1,826 |
) |
|
(2,251 |
) |
|
(648 |
) |
Loss on
investment in FOX |
— |
|
|
— |
|
|
— |
|
|
5,620 |
|
Noncontrolling stockholder charges |
1,281 |
|
|
2,075 |
|
|
8,975 |
|
|
7,027 |
|
Excess
tax benefit on stock compensation |
— |
|
|
— |
|
|
— |
|
|
(417 |
) |
Provision
for loss on receivables |
(26 |
) |
|
(346 |
) |
|
433 |
|
|
3,964 |
|
Other |
961 |
|
|
(101 |
) |
|
1,007 |
|
|
393 |
|
Deferred
taxes |
(2,850 |
) |
|
(41,492 |
) |
|
(9,472 |
) |
|
(59,429 |
) |
Changes in operating assets and
liabilities |
26,700 |
|
|
(16,045 |
) |
|
(6,250 |
) |
|
(40,394 |
) |
Net cash provided by operating
activities |
55,680 |
|
|
22,535 |
|
|
114,452 |
|
|
81,771 |
|
Plus: |
|
|
|
|
|
|
|
Unused
fee on revolving credit facility |
348 |
|
|
713 |
|
|
1,630 |
|
|
2,856 |
|
Successful acquisition costs |
348 |
|
|
214 |
|
|
5,343 |
|
|
2,050 |
|
Integration services fee (1) |
563 |
|
|
375 |
|
|
2,719 |
|
|
3,083 |
|
Realized loss from foreign currency
effect (2) |
2,719 |
|
|
268 |
|
|
4,083 |
|
|
— |
|
Excess tax benefit on stock
compensation |
— |
|
|
— |
|
|
— |
|
|
417 |
|
Changes in operating assets and
liabilities |
— |
|
|
16,045 |
|
|
6,250 |
|
|
40,394 |
|
Other
(3) |
4,296 |
|
|
394 |
|
|
5,181 |
|
|
— |
|
Less: |
|
|
|
|
|
|
|
Maintenance capital expenditures (4) |
5,425 |
|
|
6,855 |
|
|
27,246 |
|
|
20,270 |
|
Payment
of interest rate swap |
339 |
|
|
914 |
|
|
1,783 |
|
|
3,964 |
|
Changes in operating assets and
liabilities |
26,700 |
|
|
— |
|
|
— |
|
|
— |
|
Realized
gain from foreign currency effect (2) |
— |
|
|
— |
|
|
— |
|
|
3,315 |
|
Preferred
share distributions |
3,781 |
|
|
2,457 |
|
|
12,179 |
|
|
2,457 |
|
Earnout
provision adjustment |
4,800 |
|
|
4,736 |
|
|
4,800 |
|
|
4,736 |
|
Other
(5) |
— |
|
|
— |
|
|
— |
|
|
3,586 |
|
Estimated cash
flow available for distribution and reinvestment |
$ |
22,909 |
|
|
$ |
25,582 |
|
|
$ |
93,650 |
|
|
$ |
92,243 |
|
|
|
|
|
|
|
|
|
Distribution paid in
April 2018/ 2017 |
$ |
— |
|
|
$ |
— |
|
|
$ |
21,564 |
|
|
$ |
21,564 |
|
Distribution paid in
July 2018/ 2017 |
— |
|
|
— |
|
|
21,564 |
|
|
21,564 |
|
Distribution paid in
October 2018/ 2017 |
— |
|
|
— |
|
|
21,564 |
|
|
21,564 |
|
Distribution paid in
January 2019/ 2018 |
21,564 |
|
|
21,564 |
|
|
21,564 |
|
|
21,564 |
|
|
$ |
21,564 |
|
|
$ |
21,564 |
|
|
$ |
86,256 |
|
|
$ |
86,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents fees
paid by newly acquired companies to the Manager for integration
services performed during the first year of ownership, payable
quarterly.(2) Reflects the foreign
currency transaction gain/ loss resulting from the Canadian dollar
intercompany loans issued to Manitoba
Harvest.(3) Includes $4.2 million in
additional reserves established during the fourth quarter of 2018
for slow moving inventory acquired prior to our ownership of
5.11.(4) Excludes growth capital
expenditures of approximately $3.3 million and $6.8 million for the
three months ended December 31, 2018 and 2017, and $22.5 million
and $24.3 million for the year ended December 31, 2018 and 2017,
respectively.(5) Includes amounts for
the establishment of additional accounts receivable reserves
related to a retail customer who filed bankruptcy during the first
and third quarter of 2017.
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Compass Diversified
HoldingsRyan J. FaulkinghamChief Financial
Officer203.221.1703ryan@compassequity.com |
Investor Relations and
Media Contact:The IGB Group Leon Berman 212.477.8438
lberman@igbir.com |
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