Generates Solid Revenue and Cash Flow, Exceeding Management’s ExpectationsBranded Consumer Segment Generates Strong Results, Highlighted by 5.11 Tactical’s Double-Digit Revenue GrowthWESTPORT, Conn., Oct. 30, 2019 (GLOBE NEWSWIRE) — 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 September 30, 2019.Third Quarter 2019 HighlightsReported net sales of $388.3 million;Reported net loss of $26.5 million inclusive of $33.4 million non-cash impairment charge at Velocity and $4.9 million loss on the sale of Tilray shares;Reported non-GAAP Adjusted EBITDA of $63.8 million;Reported Cash Provided by Operating Activities of $22.9 million, and Generated non-GAAP Cash Flow Available for Distribution and Reinvestment (“CAD”) of $30.2 million for the third quarter of 2019;Paid a third quarter 2019 cash distribution of $0.36 per share on CODI’s common shares in October 2019, bringing cumulative distributions paid to $18.5952 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 and $0.4921875 per share on the Company’s 7.875% Series B Preferred Shares in October 2019;Received approximately C$64 million of deferred consideration from the sale of Manitoba Harvest, comprised of cash and Tilray shares.“During the third quarter our group of leading and diversified businesses generated solid revenue and cash flow, exceeding our expectations,” said Elias Sabo, CEO of Compass Diversified Holdings. “We are especially pleased with the performance of our branded consumer businesses, driven by 5.11 Tactical’s double digit revenue and EBITDA growth. 5.11 continues to exceed our expectations, as the company successfully expands into a consumer lifestyle apparel business. During the third quarter, 5.11 continued to invest in its omni channel consumer strategy, adding experiential retail stores and enhancing its online capabilities. We are pleased with 5.11’s progress and believe in its transformational potential for CODI, as 5.11 expands to meet the needs of its passionate and highly engaged customer base.”Mr. Sabo continued, “Following the two opportunistic divestitures in the first half of 2019, we received C$64 million in deferred consideration from the sale of Manitoba Harvest in the third quarter of 2019. During the third quarter, we sold all of our shares in Tilray received as part of the consideration, and have now successfully monetized all of the proceeds from the Manitoba Harvest sale and realized a gain of $121.7 million on our investment. The sales of Manitoba Harvest and Clean Earth in 2019 have resulted in significantly less financial leverage and greatly enhanced liquidity, positioning CODI with the strongest balance sheet in our history. Since going public in 2006, we have now realized gains for our shareholders in excess of $1 billion, and we have paid a sizeable and consistent distribution to our common shareholders, now reaching nearly $18.60, or 124% of our IPO price. Based on the strength of our third quarter financial results, we now expect our fourth quarter results to exceed our original expectations.”Operating ResultsNet sales for the quarter ended September 30, 2019 were $388.3 million, as compared to $360.3 million for the quarter ended September 30, 2018. The September 30, 2018 net sales do not include net sales attributable to Ravin prior to CODI’s ownership.Net loss for the quarter ended September 30, 2019 was $26.5 million, as compared to net income of $5.8 million for the quarter ended September 30, 2018. CODI recorded a $33.4 million impairment at our Velocity Outdoor subsidiary during the quarter ended September 30, 2019.Adjusted EBITDA (see Note Regarding Use of Non-GAAP Financial Measures below) for the quarter ended September 30, 2019 was $63.8 million, as compared to $57.9 million for the quarter ended September 30, 2018. Adjusted EBITDA does not include the results of Ravin prior to CODI’s ownership.CODI reported CAD (see Note Regarding Use of Non-GAAP Financial Measures below) of $30.2 million for the quarter ended September 30, 2019, as compared to $26.4 million for the prior year’s comparable quarter. CODI’s CAD 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, CAD excludes the gains from monetizing interests in CODI’s subsidiaries, which have totaled over $1 billion since going public in 2006. The increase in CAD over the prior year quarter is primarily the result of 5.11 Tactical’s improved operating performance, lower maintenance capital expenditures at our existing businesses, offset by the loss of cash flow from our two divestitures in the first half of 2019.Liquidity and Capital ResourcesFor the quarter ended September 30, 2019, CODI reported Cash Provided by Operating Activities of $22.9 million, as compared to Cash Provided by Operating Activities of $23.5 million for the quarter ended September 30, 2018.CODI’s weighted average number of shares outstanding for the quarters ended September 30, 2019 and September 30, 2018 were 59.9 million.As of September 30, 2019, CODI had approximately $285.8 million in cash and cash equivalents, $298.8 million outstanding on its term loan facility, $400 million outstanding in 8.00% Senior Notes due 2026 and no outstanding borrowings under its revolving credit facility. In July 2019, CODI repaid $193.8 million on its term loan facility.The Company has no significant debt maturities until 2023 and had net borrowing availability of $596.4 million at September 30, 2019 under its revolving credit facility.Concurrent with the June 2019 sale of Clean Earth, Compass Group Management volunteered to waive the management fee on cash balances held at CODI, commencing with the management fee due for the quarter ended June 30, 2019 and continuing until the quarter during which the Company next borrows under its revolving credit facility.Third Quarter 2019 DistributionsOn October 3, 2019, CODI’s Board of Directors (the “Board”) declared a third quarter distribution of $0.36 per share on the Company’s common shares. The cash distribution was paid on October 24, 2019 to all holders of record of common shares as of October 17, 2019. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $18.5952 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 “Series A Preferred Shares”). The distribution on the Series A Preferred Shares covered the period from and including July 30, 2019, up to, but excluding, October 30, 2019. The distribution for such period was paid on October 30, 2019 to all holders of record of Series A Preferred Shares as of October 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 July 30, 2019, up to, but excluding, October 30, 2019. The distribution for such period was paid on October 30, 2019 to all holders of record of Series B Preferred Shares as of October 15, 2019.Conference CallManagement will host a conference call on Wednesday, October 30, 2019 at 5:00 p.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 3219678. A live webcast will also be available on the Company’s website at https://www.compassequity.com/.A replay of the call will be available through November 6, 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 3219678.Note Regarding Use of Non-GAAP Financial MeasuresAdjusted EBITDA is a non-GAAP measure used by the Company to assess its performance. We have reconciled Adjusted EBITDA to Net Income (Loss) on the attached schedules. We consider Net Income (Loss) to be the most directly comparable GAAP financial measure to Adjusted EBITDA. We believe that Adjusted EBITDA provides useful information to investors and reflects important financial measures as it excludes the effects of items which reflect the impact of long-term investment decisions, rather than the performance of near term operations. When compared to Net Income (Loss), Adjusted EBITDA is limited in that it does not reflect the periodic costs of certain capital assets used in generating revenues of our businesses or the non-cash charges associated with impairments, as well as certain cash charges. This presentation also allows investors to view the performance of our businesses in a manner similar to the methods used by us and the management of our businesses, provides additional insight into our operating results and provides a measure for evaluating targeted businesses for acquisition. We believe Adjusted EBITDA is also useful in measuring our ability to service debt and other payment obligations.CAD is a non-GAAP measure used by the Company to assess its performance, as well as its ability to sustain quarterly distributions. We have reconciled CAD to Net Income (Loss) and Cash Flow from Operating Activities on the attached schedules. We consider Net Income (Loss) and Cash Flow from Operating Activities to be the most directly comparable GAAP financial measures to CAD.CAD 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. We believe that CAD provides investors additional information to enable them to evaluate our performance and ability to make anticipated quarterly distributions.Neither of Adjusted EBITDA nor CAD is meant to be a substitute for GAAP measures and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.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 eight 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);The design and marketing of wearable baby carriers, strollers and related products (Ergobaby);The design and manufacture of custom molded protective foam solutions and OE components (Foam Fabricators);The design and manufacture of premium home and gun safes (Liberty Safe);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); andThe design, manufacture and marketing of airguns, archery products, optics and related accessories (Velocity Outdoor).This press release may contain certain forward-looking statements, including expectations for our fourth quarter results and other 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.
(1) Includes cash from discontinued operations of $4.6 million at January 1, 2019 and $4.2 million at January 1, 2018.
(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) Excludes growth capital expenditures of approximately $4.3 million and $4.7 million for the three months ended September 30, 2019 and 2018, respectively, and $10.7 million and $17.5 million for the nine months ended September 30, 2019 and 2018, respectively.
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