Compass Diversified Holdings Reports First Quarter 2018 Financial Results

WESTPORT, Conn., May 2, 2018 /PRNewswire/ -- 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 months ended March 31, 2018.

First Quarter 2018 Highlights

• Generated Cash Provided by Operating Activities of $6.6 million for the first quarter of 2018, and Cash Flow Available for Distribution and Reinvestment ("CAD" or "Cash Flow") of $14.0 million for the first quarter of 2018;
• Reported net loss of $1.6 million for the first quarter of 2018;
• Consummated the accretive platform acquisition of Foam Fabricators, Inc. ("Foam Fabricators");
• Consummated the add-on acquisition of Rimports Inc. ("Rimports") by CODI's subsidiary Sterno Products, LLC ("Sterno Products");
• Completed an offering of 4,000,000 shares of 7.875% Series B Preferred Shares;
• Paid a first quarter 2018 cash distribution of $0.36 per share on CODI's common shares in April 2018, bringing cumulative distributions paid to $16.4352 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 April 2018;
• Subsequent to the end of the quarter, 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% senior unsecured notes due 2026.

"During the first quarter, we grew revenues, generated solid cash flow and provided sizeable distributions, while taking important steps to accelerate the growth and future prospects of our leading middle market businesses," said Elias Sabo, CEO of Compass Diversified Holdings. "With the accretive platform acquisition of Foam Fabricators, a leading designer and manufacturer of custom molded protective foam solutions, we have further strengthened our niche industrial businesses and enhanced our ability to achieve stable and growing cash flows."

Mr. Sabo, continued, "We also continued to reinvest in our leading subsidiaries and capitalize on accretive add-on opportunities. In addition to our investments in a number of our branded consumer businesses in the quarter, we are pleased to have completed the accretive add-on acquisition of Rimports for Sterno Products, further strengthening the Company's leading product offerings. During the quarter, we also took steps to enhance our financial flexibility and diversify our capital structure under favorable terms, without diluting shareholders and without increasing our total debt outstanding. With approximately $500 million in liquidity, we remain well positioned to continue to execute our proven investment strategy, taking advantage of compelling and accretive acquisition opportunities for the benefit of shareholders."

Operating Results

For the quarter ended March 31, 2018, CODI generated Cash Provided by Operating Activities of $6.6 million, as compared to Cash Used in Operating Activities of $1.4 million for the quarter ended March 31, 2017. CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $14.0 million for the quarter ended March 31, 2018, as compared to $14.9 million for the prior year's comparable quarter. CODI's weighted average number of shares outstanding for the quarters ended March 31, 2018 and March 31, 2017 were 59.9 million.

Cash Flow for the first quarter of 2018 reflects year-over-year earnings growth in the Company's Advanced Circuits, Arnold Magnetics, Clean Earth, Sterno Products and Liberty Safe businesses, offset by declines at the Company's ErgoBaby, Manitoba Harvest 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 loss for the quarter ended March 31, 2018 was $1.6 million, as compared to net loss of $21.1 million for the quarter ended March 31, 2017. The quarter ended March 31, 2017 included an $8.9 million impairment charge. 

Liquidity and Capital Resources

As of March 31, 2018, CODI had approximately $46.3 million in cash and cash equivalents, $559 million outstanding on its prior term loan facility and $391 million in outstanding borrowings under its prior 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 its 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% senior unsecured notes due 2026. The Company estimates it has approximately $500 million in net borrowing availability under its new revolver as of the closing date.

In March 2018, the Company completed an offering of 4,000,000 shares of 7.875% Series B Preferred Shares with a liquidation preference of $25.00 per share. CODI raised $96.7 million of net proceeds from the offering, which was used to repay a portion of the outstanding balance of its prior revolving credit facility and for general corporate purposes.

First Quarter 2018 Distributions

On April 5, 2018, CODI's Board of Directors (the "Board") declared a first quarter distribution of $0.36 per share on the Company's common shares (the "Common Shares"). The cash distribution was paid on April 26, 2018 to all holders of record of Common Shares as of April 19, 2018. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $16.4352 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 January 30, 2018, up to, but excluding, April 30, 2018. The distribution for such period was paid on April 30, 2018 to all holders of record of Preferred Shares as of April 15, 2018.

Conference Call

Management will host a conference call on Thursday, May 3, 2018 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 6298636. 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 May 10, 2018. 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 6298636.

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, manufacture and marketing of airguns, archery products, optics and related accessories (Crosman);

• 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); and

• The manufacture and marketing of portable food warming fuels and creative ambience solutions for the hospitality and consumer markets (Sterno Products).

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, 2017 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.

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SOURCE Compass Diversified Holdings