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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 8-K
 
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 1, 2018
 
 
 
COMPASS DIVERSIFIED HOLDINGS
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
001-34927
 
57-6218917
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
 
 
 
COMPASS GROUP DIVERSIFIED
HOLDINGS LLC
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
001-34926
 
20-3812051
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
301 Riverside Avenue
Second Floor
Westport, CT 06880
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (203) 221-1703
 
 
 
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o




Section 2     Financial Information
Item 2.02    Results of Operations and Financial Condition

On August 1, 2018, Compass Diversified Holdings and Compass Group Diversified Holdings LLC (NYSE: CODI) (collectively “CODI”) issued a press release announcing its consolidated operating results for the three and six months ended June 30, 2018. A copy of the press release is furnished within this report as Exhibit 99.1.


Section 9     Financial Statements and Exhibits
Item 9.01    Financial Statements and Exhibits
(d)    Exhibits.
99.1 Press Release of CODI dated August 1, 2018





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: August 1, 2018
COMPASS DIVERSIFIED HOLDINGS
 
 
 
 
By:
 
/s/ Ryan J. Faulkingham
 
 
 
 
 
 
Ryan J. Faulkingham
 
 
 
Regular Trustee
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: August 1, 2018
COMPASS GROUP DIVERSIFIED HOLDINGS LLC
 
 
 
 
By:
 
/s/ Ryan J. Faulkingham
 
 
 
 
 
 
Ryan J. Faulkingham
 
 
 
Chief Financial Officer



Exhibit


Exhibit 99.1
https://cdn.kscope.io/4aedb75d822fb92445cc8cb1209ad143-codilogof2a18.jpg

Compass Diversified Holdings
Ryan J. Faulkingham
Chief Financial Officer
203.221.1703
ryan@compassequity.com 
Investor Relations and Media Contact:
The IGB Group
Leon Berman
212.477.8438
lberman@igbir.com
Compass Diversified Holdings Reports
Second Quarter 2018 Financial Results

Generates Revenue Growth at Nine Subsidiaries; Provides Shareholders with Stable and Growing Cash Flows and a Sizeable Distribution

Westport, Conn., August 1, 2018 - 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 June 30, 2018.
Second Quarter 2018 Highlights
•
Generated Cash Provided by Operating Activities of $28.7 million for the second quarter of 2018, and Cash Flow Available for Distribution and Reinvestment (“CAD” or “Cash Flow”) of $30.3 million for the second quarter of 2018;
•
Reported net income of $0.5 million for the second quarter of 2018;
•
Announced the add-on acquisitions of ESMI Companies ("ESMI") and MKC Enterprises, Inc. ("MKC") by CODI’s subsidiary, Clean Earth, Inc. ("Clean Earth");
•
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;
•
Paid a second quarter 2018 cash distribution of $0.36 per share on CODI’s common shares in April 2018, bringing cumulative distributions paid to $16.7952 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.
“During the second quarter, our leading industrial and branded consumer businesses generated strong results,” said Elias Sabo, CEO of Compass Diversified Holdings. "We are pleased to have grown revenues at nine of our subsidiaries, while providing shareholders with solid and growing cash flows and a sizeable distribution.”

Mr. Sabo continued, “During the first six months of 2018, we continued to capitalize on compelling market opportunities, while reinvesting in our leading middle market businesses and implementing important measures aimed at further strengthening CODI’s long-term growth potential. Complementing this success,




we enhanced our liquidity position and capital structure under favorable terms and remain in a strong position to implement our proven and disciplined investment strategy.”
Operating Results
For the quarter ended June 30, 2018, CODI generated Cash Provided by Operating Activities of $28.7 million, as compared to Cash Provided by Operating Activities of $37.3 million for the quarter ended June 30, 2017. CODI reported Cash Flow (see Note Regarding Use of Non-GAAP Financial Measures below) of $30.3 million for the quarter ended June 30, 2018, as compared to $25.5 million for the prior year’s comparable quarter. CODI’s weighted average number of shares outstanding for the quarters ended June 30, 2018 and June 30, 2017 were 59.9 million.
Cash Flow for the second quarter of 2018 reflects year-over-year earnings increases at the Company's Advanced Circuits, Arnold Magnetics, Clean Earth and Manitoba Harvest businesses, offset by declines at the Company's Liberty, ErgoBaby 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 income for the quarter ended June 30, 2018 was $0.5 million, as compared to net loss of $2.7 million for the quarter ended June 30, 2017.
Liquidity and Capital Resources
As of June 30, 2018, CODI had approximately $37.5 million in cash and cash equivalents, $498.8 million outstanding on its term loan facility, $400 million in Senior Notes and $92.0 million in outstanding borrowings under its 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 the 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 has approximately $508 million in net borrowing availability under its revolver as of June 30, 2018.
Second Quarter 2018 Distributions
On July 5, 2018, CODI’s Board of Directors (the “Board”) declared a second quarter distribution of $0.36 per share on the Company’s common shares (the “Common Shares”). The cash distribution was paid on July 26, 2018 to all holders of common shares as of July 19, 2018. Since its IPO in May of 2006, CODI has paid a cumulative distribution of $16.7952 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 April 30, 2018, up to, but excluding, July 30, 2018. The distribution for such period was paid on July 30, 2018 to all holders of record of Preferred Shares as of July 15, 2018.
The Board also declared a quarterly cash distribution of $0.74 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 covers the period from and including March 13, 2018, the original issue date of the Series B Preferred Shares, up to, but excluding, July 30, 2018. The distribution for such period was paid on July 30, 2018 to all holders of record of the Series B Preferred Shares as of July 15, 2018.





Conference Call
Management will host a conference call on Thursday, August 2, 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 7092917. 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 August 9, 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 7092917.

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.




Compass Diversified Holdings
Condensed Consolidated Balance Sheets
 
 
 
 
 
June 30, 2018
 
December 31, 2017
(in thousands)
(Unaudited)
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
37,456

 
$
39,885

Accounts receivable, net
272,707

 
215,108

Inventories
300,263

 
246,928

Prepaid expenses and other current assets
37,656

 
24,897

Total current assets
648,082

 
526,818

Property, plant and equipment, net
212,610

 
173,081

Goodwill and intangible assets, net
1,398,312

 
1,112,206

Other non-current assets
12,292

 
8,198

Total assets
$
2,271,296

 
$
1,820,303

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued expenses
$
221,844

 
$
191,411

Due to related party
10,247

 
7,796

Current portion, long-term debt
5,000

 
5,685

Other current liabilities
4,749

 
7,301

Total current liabilities
241,840

 
212,193

Deferred income taxes
77,263

 
81,049

Long-term debt
963,851

 
584,347

Other non-current liabilities
18,310

 
16,715

Total liabilities
1,301,264

 
894,304

Stockholders' equity
 
 
 
Total stockholders' equity attributable to Holdings
916,292

 
873,208

Noncontrolling interest
53,740

 
52,791

Total stockholders' equity
970,032

 
925,999

Total liabilities and stockholders’ equity
$
2,271,296

 
$
1,820,303

 
 
 
 





Compass Diversified Holdings
Condensed Consolidated Statements of Operations
(Unaudited)

 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
(in thousands, except per share data)
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Net sales
$
429,757

 
$
307,381

 
$
790,450

 
$
597,373

Cost of sales
279,075

 
197,661

 
513,657

 
393,320

Gross profit
150,682

 
109,720

 
276,793

 
204,053

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative expense
100,407

 
79,575

 
198,272

 
158,298

Management fees
11,011

 
8,183

 
21,860

 
16,031

Amortization expense
19,019

 
14,779

 
31,718

 
25,089

Impairment expense
—

 
—

 
—

 
8,864

Operating income (loss)
20,245

 
7,183

 
24,943

 
(4,229
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(13,580
)
 
(8,418
)
 
(19,766
)
 
(15,554
)
Loss on investment
—

 
—

 
—

 
(5,620
)
Amortization of debt issuance costs
(953
)
 
(1,003
)
 
(2,051
)
 
(1,936
)
Other income (expense), net
(2,205
)
 
952

 
(3,586
)
 
930

Income (loss) from continuing operations before income taxes
3,507

 
(1,286
)
 
(460
)
 
(26,409
)
Provision (benefit) for income taxes
4,139

 
1,454

 
1,793

 
(2,194
)
Net loss from continuing operations
(632
)
 
(2,740
)
 
(2,253
)
 
(24,215
)
Gain on sale of discontinued operations, net of tax
1,165

 
—

 
1,165

 
340

 Net income (loss)
533

 
(2,740
)
 
(1,088
)
 
(23,875
)
Less: Income from continuing operations attributable to noncontrolling interest
1,441

 
1,372

 
2,161

 
1,842

Net loss attributable to Holdings
$
(908
)
 
$
(4,112
)
 
$
(3,249
)
 
$
(25,717
)
 
 
 
 
 
 
 
 
Basic income (loss) per common share attributable to Holdings
 
 
 
 
 
 
 
Continuing operations
$
(0.12
)
 
$
(0.53
)
 
$
(0.20
)
 
$
(1.14
)
Discontinued operations
0.02

 
—

 
0.02

 
0.01

 
$
(0.10
)
 
$
(0.53
)
 
$
(0.18
)
 
$
(1.13
)
 
 
 
 
 
 
 
 
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

 
$
0.72

 
$
0.72

 
 
 
 
 
 
 
 




Compass Diversified Holdings
Summarized Statement of Cash Flows
(Unaudited)


 
 
 
 
 
Six Months Ended
(in thousands)
June 30, 2018
 
June 30, 2017
Net cash provided by operating activities
$
35,312

 
$
35,868

Net cash used in investing activities
(454,715
)
 
(44,386
)
Net cash provided by financing activities
415,358

 
8,532

Effect of foreign currency on cash
1,616

 
(499
)
Net decrease in cash and cash equivalents
(2,429
)
 
(485
)
Cash and cash equivalents — beginning of period
39,885

 
39,772

Cash and cash equivalents — end of period
$
37,456

 
$
39,287

 
 
 
 




Compass Diversified Holdings
Condensed Consolidated Table of Cash Flows Available for Distribution and Reinvestment
(unaudited)
 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2018
 
June 30, 2017
 
June 30, 2018
 
June 30, 2017
Net income (loss)
$
533

 
$
(2,740
)
 
$
(1,088
)
 
$
(23,875
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
34,198

 
31,187

 
57,131

 
62,582

Impairment expense
—

 
—

 
—

 
8,864

Gain on sale of businesses, net
(1,165
)
 
—

 
(1,165
)
 
(340
)
Amortization of debt issuance costs and original issue discount
971

 
1,261

 
2,324

 
2,460

Unrealized (gain) loss on derivatives
(999
)
 
1,497

 
(3,900
)
 
1,268

Loss on investment in FOX
—

 
—

 
—

 
5,620

Noncontrolling stockholder charges
2,614

 
1,798

 
5,165

 
3,250

Provision for loss on receivables
(230
)
 
9

 
98

 
3,327

Other
312

 
384

 
135

 
704

Deferred taxes
1,069

 
(4,305
)
 
(3,242
)
 
(11,940
)
Changes in operating assets and liabilities
(8,634
)
 
8,191

 
(20,146
)
 
(16,052
)
Net cash provided by (used in) operating activities
28,669

 
37,282

 
35,312

 
35,868

Plus:
 
 
 
 
 
 
 
Unused fee on revolving credit facility
403

 
696

 
855

 
1,473

Successful acquisition costs
158

 
1,473

 
2,347

 
1,473

Integration services fee (1)
938

 
875

 
1,594

 
1,750

Realized loss from foreign currency effect (2)
908

 
—

 
2,247

 
—

Changes in operating assets and liabilities
8,634

 
—

 
20,146

 
16,052

Other
1,073

 
—

 
791

 
—

Less:
 
 
 
 
 
 
 
Maintenance capital expenditures (3)
8,296

 
4,338

 
14,268

 
9,068

Payment of interest rate swap
380

 
1,026

 
1,086

 
2,115

Changes in operating assets and liabilities
—

 
8,191

 
—

 
—

Realized gain from foreign currency effect (2)
—

 
1,260

 
—

 
1,650

Preferred share distributions
1,812

 
—

 
3,625

 
—

Other (4)
—

 
8

 
—

 
3,366

Estimated cash flow available for distribution and reinvestment
$
30,295

 
$
25,503

 
$
44,313

 
$
40,417

 
 
 
 
 
 
 
 
Distribution paid in April 2018/ 2017
$
—

 
$
—

 
$
21,564

 
$
21,564

Distribution paid in July 2018/ 2017
21,564

 
21,564

 
21,564

 
21,564

 
$
21,564

 
$
21,564

 
$
43,128

 
$
43,128


(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 $8.3 million and $6.5 million for the three months ended June 30, 2018 and 2017, and $14.5 million and $10.4 million for the six months ended June 30, 2018 and 2017, respectively.
(4) 
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.