WESTPORT, Conn., May 12 /PRNewswire-FirstCall/ -- Compass Diversified Holdings (NASDAQ:CODI), a leading acquirer and manager of middle market businesses, announced today its consolidated results of operations for the quarter ended March 31, 2008.
CODI increased cash flow available for distribution and reinvestment ("CAD") to $9.9 million for the quarter ended March 31, 2008, compared to $6.4 million in the prior year quarter. For the 12 month period from April 1, 2007 through March 31, 2008, CODI reported CAD of $49.8 million, or approximately $1.64 per share, yielding a coverage ratio of approximately 1.3x on the four quarterly distributions paid through April 25, 2008. During this 12 month period, CAD exceeded shareholder distributions by $9.6 million. CAD and CAD per share are measures 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 cash flow patterns, with the first quarter typically being the lowest cash flow producing quarter of the year. Accordingly, the Company believes that the most appropriate measure of its performance is over a trailing or expected 12 month period.
CAD for 2008 included the operating results from Fox Factory since being acquired by CODI on January 4, 2008 and from Staffmark Investment LLC since being acquired by CODI's subsidiary, CBS Personnel Inc. on January 21, 2008.
Based on the strength of the Company's performance, on April 8, 2008, CODI's Board of Directors declared a distribution of $0.325 per share, which was paid on April 25, 2008 to all CODI shareholders of record as of April 22, 2008. The Company intends to continue to declare and pay regular quarterly cash distributions on all outstanding shares.
Commenting on the quarter, Joe Massoud, CEO of Compass Diversified Holdings, said, "We are off to a good start for 2008 with each of our businesses performing well in the first quarter, particularly against an uncertain economic backdrop. This past quarter represents the third full quarter for which we have had a prior year comparison since our initial public offering in May of 2006. We are proud to note that CODI has shown meaningful growth in cash flow for each of those comparative periods.
Notwithstanding the economic environment, we expect our consolidated business to show growth in cash flow in 2008. One of the advantages of acquiring and owning a diverse set of well managed, niche leading businesses is that we are able to enjoy the benefits of strong growth in certain of our subsidiaries, even while others experience normal declines in cash flow due to their economic cyclicality. We invite our shareholders to compare the performance of each of our businesses to that of their industry competitors. We believe this sort of inspection will further reveal the strength of each of our companies.
For the first quarter of 2008, the performance of our businesses in aggregate exceeded our expectations. In particular, Advanced Circuits, Aeroglide, Anodyne and Fox all delivered strong revenue and operating income growth. We anticipate continued growth for each of these businesses in 2008, as well as for Halo, which recently completed the acquisition of Goldman Promotions.
CBS Personnel, on the other hand, is our most economically cyclical business, and so we were not surprised to see a revenue decline on a pro forma basis in the first quarter. We are, however, very encouraged by CBS Personnel's progress towards its goals with regard to its integration of Staffmark, as well as a strong performance relative to its publicly traded industry peers. We believe that, just as in the 2000-2002 recession, the current economic downturn will enable CBS Personnel to gain market share in its core geographic markets from smaller competitors and less committed national competitors, and that CBS Personnel will move into the next economic cycle as a stronger and more profitable company as a result.
American Furniture also declined in the first quarter, partially as a result of economic softness, but mostly due to the fire it suffered at its facility in February. We are pleased and proud to report that American Furniture quickly returned to production, and that while its cash flows will likely be impacted somewhat by the economy in the short term, its long term future is unaffected. As we noted at the time, our thesis upon acquiring the business in late 2007 was that American Furniture would thrive through the shake-out associated with any economic downturn, and as with CBS Personnel, we expect the softness in the economic environment to impact American Furniture's smaller and weaker competitors disproportionately. We are optimistic about the opportunities that this may bring for American Furniture.
On May 8, 2008, we entered into an agreement to sell our subsidiary, Silvue, to Mitsui Chemicals, Inc. This divestiture will produce a net gain of between $37.5 million and $40.0 million for our shareholders, and is the second such sale for us. The first, the sale of Crosman Acquisition Corporation in the first quarter of 2007, produced a net gain of approximately $36 million, which was the major component of the $36.9 million of net income recorded for the first quarter of fiscal 2007. We believe these two transactions are evidence of the substantial level of embedded value existing within CODI's family of subsidiary companies. We will use the capital received by CODI from the Silvue divestiture to repay existing debt outstanding on our revolving credit facility and create additional capacity for further accretive acquisitions.
Turning specifically to the current acquisition environment, we continue to see a number of attractive opportunities for accretive transactions, including both platform and add-on acquisitions. We believe that we are in an ideal position, particularly as compared to private equity firms, given the current conditions in the credit markets. Unlike the overwhelming majority of financial buyers, who rely on the credit markets to fund individual acquisitions, our permanent capital and parent level financing structure gives us a decisive advantage in terms of our ability to quickly finance and close transactions. We currently have over $200 million in availability under our revolving credit facility and have no maturities until the fourth quarter of 2012.
In evaluating potential acquisition opportunities, we continue to focus on five basic criteria: (1) targets must be profitable businesses that are leaders in their specific industry niches; (2) target businesses must have 'reasons to exist,' or fundamental competitive advantages that are difficult to replicate and which are evidenced by selling prices, gross profit margins or operating margins that are favorable in comparison to their industry; (3) we must understand the fundamentals of the target business, which must not be susceptible to technological change or obsolescence; (4) existing management of the target business must be motivated and have a strong track record of success; and (5) the valuation and terms of the acquisition must be attractive to our shareholders. Adherence to these tenets in the past is allowing us to perform well in this period of economic softness, and continued adherence going forward will serve to ensure that this success continues."
Management will host a conference call this morning 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 (877) 627-6585 and the dial-in number for international callers is (719) 325-4881. The access code for all callers is 7893429. 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 25, 2008. To access the replay, please dial (888) 203-1112 in the U.S. and (719) 457-0820 outside the U.S., and then enter the access code 7893429.
About Compass Diversified Holdings ("CODI")
CODI was formed to acquire and manage a group of middle market businesses that are headquartered in North America. CODI provides public investors with an opportunity to participate in the ownership and growth of companies which have historically been owned by private equity firms, wealthy individuals or families. CODI's disciplined approach to its target market provides opportunities to methodically purchase attractive businesses at values that are accretive to its shareholders. For sellers of businesses, CODI's unique structure allows CODI to acquire businesses efficiently with no financing contingencies and, following acquisition, to provide its companies with substantial access to growth capital.
Upon acquisition, CODI works with the executive teams of its subsidiary companies to identify and capitalize on opportunities to grow those companies' earnings and cash flows. These cash flows support distributions to CODI shareholders.
Subsidiary Businesses Aeroglide Holdings, Inc. and its consolidated subsidiaries, referred to as Aeroglide, is a designer and manufacturer of industrial drying and cooling equipment, primarily used in the production of a variety of human foods, animal and pet feeds, and industrial products. Aeroglide is based in Cary, NC. AFM Holdings Corporation and its consolidated subsidiaries, referred to as American Furniture, is a low-cost manufacturer of upholstered stationary and motion furniture with the ability to ship any product in its line within 48 hours of receiving an order. American Furniture is based in Ecru, MS. Anodyne Medical Device, Inc. and its consolidated subsidiaries, referred to as AMD, is a manufacturer of medical support surfaces and patient positioning devices, primarily used for the prevention and treatment of pressure wounds experienced by patients with limited or no mobility. AMD is based in Los Angeles, CA. CBS Personnel Holdings, Inc. and its consolidated subsidiaries, referred to as CBS Personnel, is a provider of temporary staffing services in the United States. CBS Personnel is headquartered in Cincinnati, OH and operates 435 branch locations in 35 states. Compass AC Holdings, Inc. and its consolidated subsidiaries, referred to as Advanced Circuits, is a manufacturer of low-volume quick-turn and prototype rigid printed circuit boards ("PCBs"). Advanced Circuits is based in Aurora, CO. Fox Factory, Inc. and its consolidated subsidiaries, referred to as Fox, is a designer, manufacturer and marketer of high-end suspension products for mountain bikes, all terrain vehicles, snowmobiles and other off-road vehicles. Fox is based in Watsonville, CA. Halo Lee Wayne LLC and its consolidated subsidiaries, referred to as Halo, is a distributor of customized promotional products and serves more than 30,000 customers as a one-stop-shop resource for design, sourcing, management and fulfillment across all categories of its customers' promotional products needs. Halo is based in Sterling, IL. Silvue Technologies Group, Inc. and its consolidated subsidiaries, referred to as Silvue, is a developer and manufacturer of proprietary, high-performance coating systems for polycarbonate, glass, acrylic, metals and other substrate materials used in the premium eyewear, aerospace, automotive and industrial markets. Silvue is based in Anaheim, CA.
To find out more about Compass Diversified Holdings, please visit www.compassdiversifiedholdings.com.
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 10K filed by CODI with the Securities and Exchange Commission for the year ended December 31, 2007 and other filings with the Securities and Exchange Commission. 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 (unaudited) (in thousands) March 31, December 31, 2008 2007 Assets Current assets: Cash and cash equivalents $14,033 $119,358 Accounts receivable, less allowances of $6,453 and $3,313 182,762 125,043 Inventories 51,406 38,339 Prepaid expenses and other current assets 47,860 16,501 Total current assets 296,061 299,241 Property, plant and equipment, net 39,581 28,743 Goodwill 354,657 267,141 Intangible assets, net 305,331 204,298 Deferred debt issuance costs, net 9,451 9,613 Other non-current assets 14,138 18,966 Total assets $1,019,219 $828,002 Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued expenses 168,592 $90,229 Deferred revenue 8,394 10,756 Due to related party 1,188 814 Current portion of supplemental put obligation 8,000 - Current portion of long-term debt 44,654 4,814 Total current liabilities 230,828 106,613 Long-term debt 152,500 148,000 Supplemental put obligation 16,294 21,976 Deferred income taxes 69,887 69,230 Other non-current liabilities 46,684 21,607 Total liabilities 516,193 367,426 Minority interests 83,644 27,726 Stockholders' equity Trust shares, no par value, 500,000 authorized; 31,525 shares issued and outstanding 433,459 443,705 Accumulated comprehensive loss (2,427) - Accumulated deficit (11,650) (10,855) Total stockholders' equity 419,382 432,850 Total liabilities and stockholders' equity $1,019,219 $828,002 Compass Diversified Holdings Condensed Consolidated Statements of Operation (unaudited) Three Months Three Months Ended Ended (in thousands, except per share data) March 31, 2008 March 31, 2007 Net sales $372,755 $176,319 Cost of sales 286,854 133,703 Gross profit 85,901 42,616 Operating expenses: Staffing expense 25,070 14,012 Selling, general and administrative expenses 43,745 17,790 Supplemental put expense 2,318 1,393 Management fees 3,864 2,184 Amortization expense 6,912 3,831 Operating income 3,992 3,406 Other income (expense): Interest income 316 600 Interest expense (4,690) (1,486) Amortization of debt issuance costs (485) (270) Other income, net 335 12 Income (loss) from continuing operations before income taxes and minority interests (532) 2,262 Provision for income taxes 553 1,337 Minority interest in net income (loss) (290) 42 Income (loss) from continuing operations (795) 883 Gain on sale of discontinued operations, net of income taxes - 36,038 Net income (loss) $(795) $36,921 Basic and fully diluted net income (loss) per share $(0.03) $1.81 Weighted average number of shares outstanding - basic and fully diluted 31,525 20,450 Cash distributions paid per share $0.325 $0.30 Compass Diversified Holdings Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Three Months Ended Ended (in thousands) March 31, 2008 March 31, 2007 Cash flows from operating activities: Net income (loss) $(795) $36,921 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on sale of Crosman - (36,038) Depreciation and amortization expense 9,191 4,745 Amortization of debt issuance costs 485 255 Supplemental put expense 2,318 1,393 Minority interests (290) 42 Stockholder notes and option costs 366 (568) Deferred taxes (1,445) (536) Other 161 79 Changes in operating assets and liabilities, net of acquisition: Decrease in accounts receivable 19,623 3,829 Decrease in inventories 812 409 (Increase) decrease in prepaid expenses and other current assets (18,286) 793 Increase (decrease) in accounts payable and accrued expenses 18,032 (4,927) Other (10) - Decrease in supplemental put obligation - (7,880) Net cash provided by (used in) operating activities 30,162 (1,483) Cash flows from investing activities: Acquisition of businesses, net of cash acquired (164,221) (120,045) Crosman disposition - 119,856 Purchases of property and equipment (4,764) (823) Net cash used in investing activities (168,985) (1,012) Cash flows from financing activities: Net borrowing of debt 44,307 10,740 Debt issuance costs (327) (277) Distributions paid (10,246) (6,135) Other (66) - Net cash provided by financing activities 33,668 4,328 Net increase (decrease) in cash and cash equivalents (105,155) 1,833 Foreign currency adjustment (170) (147) Cash and cash equivalents - beginning of period 119,358 7,006 Cash and cash equivalents - end of period $14,033 $8,692 Compass Diversified Holdings Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment ("CAD") (unaudited) Three Months Three Months Ended Ended (in thousands) March 31, 2008 March 31, 2007 Net income (loss) $(795) $36,921 Adjustment to reconcile net income (loss) to cash provided by operating activities: Gain on sale of Crosman - (36,038) Depreciation and amortization 9,191 4,745 Amortization of debt issuance costs 486 255 Supplemental put expense 2,318 1,393 Stockholder notes and other 525 (489) Minority interest (290) 42 Deferred taxes (1,445) (536) Changes in operating assets and liabilities 20,170 (7,776) Net cash provided by operating activities 30,160 (1,483) Plus: Unused fee on credit facilities (1) 729 488 Staffmark integration expenses 1,575 - Changes in operating assets and liabilities (20,170) 7,776 Less: Maintenance capital expenditures (2) 2,416 360 Estimated CAD $9,878 $6,421 Distribution paid in April 2008/2007 $10,246 $6,135 (1) Represents the commitment fee on the unused portion of the Credit Facilities. (2) Represents maintenance capital expenditures that were funded from operating cash flow and excludes approximately $2.3 million and $0.5 million of growth capital expenditures for the three months ended Mar. 31, 2008 and Mar. 31, 2007, respectively.
Source: Compass Diversified Holdings