Achieves Highest Full Year CAD Since Going Public
WESTPORT, Conn., Feb. 27, 2019 (GLOBE NEWSWIRE) -- Compass Diversified Holdings (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.”
For 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 Resources
As 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 Distributions
On 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.
Management 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 Measures
CAD, 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 Holdings |
Condensed Consolidated Balance Sheets
|December 31, 2018||December 31, 2017|
|Cash and cash equivalents||$||53,326||$||39,885|
|Accounts receivable, net||272,403||215,108|
|Prepaid expenses and other current assets||36,583||24,897|
|Total current assets||681,185||526,818|
|Property, plant and equipment, net||226,817||173,081|
|Goodwill and intangible assets, net||1,452,324||1,112,206|
|Other non-current assets||12,009||8,198|
|Liabilities and stockholders’ equity|
|Accounts payable and accrued expenses||$||234,996||$||191,411|
|Due to related party||11,443||7,796|
|Current portion, long-term debt||5,000||5,685|
|Other current liabilities||7,841||7,301|
|Total current liabilities||259,280||212,193|
|Deferred income taxes||74,959||81,049|
|Other non-current liabilities||19,883||16,715|
|Total stockholders' equity attributable to Holdings||859,372||873,208|
|Total stockholders' equity||919,342||925,999|
|Total liabilities and stockholders’ equity||$||2,372,335||$||1,820,303|
|Compass Diversified Holdings |
Condensed Consolidated Statements of Operations
|Three Months Ended |
|Year Ended |
|(in thousands, except per share data)||2018||2017||2018||2017|
|Cost of sales||304,832||222,468||1,117,485||822,020|
|Selling, general and administrative expense||97,323||79,382||392,501||318,484|
|Other income (expense):|
|Interest expense, net||(20,112||)||(5,124||)||(55,577||)||(27,623||)|
|Loss on investment||—||—||—||(5,620||)|
|Amortization of debt issuance costs||(927||)||(1,062||)||(3,905||)||(4,002||)|
|Other income (expense), net||(3,241||)||(316||)||(6,335||)||2,634|
|Income (loss) from continuing operations before income taxes||(4,160||)||10,454||3,500||(7,407||)|
|Provision (benefit) for income taxes||2,401||(38,677||)||6,548||(40,679||)|
|Net income (loss) from continuing operations||(6,561||)||49,131||(3,048||)||33,272|
|Gain on sale of discontinued operations, net of tax||93||—||1,258||340|
|Net income (loss)||(6,468||)||49,131||(1,790||)||33,612|
|Less: Income from continuing operations attributable to noncontrolling interest||711||3,129||3,912||5,621|
|Net income (loss) attributable to Holdings||$||(7,179||)||$||46,002||$||(5,702||)||$||27,991|
|Basic income (loss) per common share attributable to Holdings|
|Basic weighted average number of common shares outstanding||59,900||59,900||59,900||59,900|
|Cash distributions declared per Trust common share||$||0.36||$||0.36||$||1.44||$||1.44|
|Compass Diversified Holdings |
Summarized Statement of Cash Flows
|(in thousands)||December 31, 2018||December 31, 2017|
|Net cash provided by operating activities||$||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||$||39,885|
|Compass Diversified Holdings |
Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment
|Three Months Ended |
|Year Ended |
|Net income (loss)||$||(6,468||)||$||49,131||$||(1,790||)||$||33,612|
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:|
|Depreciation and amortization||32,697||21,392||120,575||110,051|
|Gain on sale of businesses, net||(93||)||—||(1,258||)||(340||)|
|Amortization of debt issuance costs and original issue discount||1,080||1,286||4,483||5,007|
|Unrealized (gain) loss on derivatives||2,398||(1,826||)||(2,251||)||(648||)|
|Loss on investment in FOX||—||—||—||5,620|
|Noncontrolling stockholder charges||1,281||2,075||8,975||7,027|
|Excess tax benefit on stock compensation||—||—||—||(417||)|
|Provision for loss on receivables||(26||)||(346||)||433||3,964|
|Changes in operating assets and liabilities||26,700||(16,045||)||(6,250||)||(40,394||)|
|Net cash provided by operating activities||55,680||22,535||114,452||81,771|
|Unused fee on revolving credit facility||348||713||1,630||2,856|
|Successful acquisition costs||348||214||5,343||2,050|
|Integration services fee (1)||563||375||2,719||3,083|
|Realized loss from foreign currency effect (2)||2,719||268||4,083||—|
|Excess tax benefit on stock compensation||—||—||—||417|
|Changes in operating assets and liabilities||—||16,045||6,250||40,394|
|Maintenance capital expenditures (4)||5,425||6,855||27,246||20,270|
|Payment of interest rate swap||339||914||1,783||3,964|
|Changes in operating assets and liabilities||26,700||—||—||—|
|Realized gain from foreign currency effect (2)||—||—||—||3,315|
|Preferred share distributions||3,781||2,457||12,179||2,457|
|Earnout provision adjustment||4,800||4,736||4,800||4,736|
|Estimated cash flow available for distribution and reinvestment||$||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|
(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.
|Compass Diversified Holdings |
Ryan J. Faulkingham
Chief Financial Officer
|Investor Relations and Media Contact: |
The IGB Group