Monday, August 10, 2009

Compass Diversified Reports Earnings

Just wanted to put together something quick on Compass Diversified (CODI) as they reported earnings this morning. I caught the end of their conference call, and I'll probably add some more commentary after I hear the replay. But here is a little bit from the release:

Second Quarter 2009 Highlights

Generated Cash Flow Available for Distribution and Reinvestment ("Cash Flow" or "CAD") of $7.8 million for the second quarter of 2009;

Reported a net loss of $0.2 million for the second quarter of 2009;

Paid second quarter 2009 cash distribution of $0.34 per share, bringing cumulative distributions paid to $3.9552 per share since CODI's IPO in May of 2006; and

Completed a 5.1 million share offering.

CODI reported Cash Flow (see note regarding use of Non-GAAP Financial Measures below) of $7.8 million for the quarter ended June 30, 2009, as compared to $13.9 million for the prior year period, a period during which CODI owned two additional businesses, both of which were sold in June 2008 for a cumulative gain of more than $73 million.

CODI's Cash Flow decline for the second quarter as compared to the prior year quarter was largely attributable to the sale of the two business segments referenced above, as well as the impact of the economy on the Company's Staffmark subsidiary. CODI's weighted average number of shares for the quarter ending June 30, 2009 was approximately 32.8 million.

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 subsidiary for the periods during which CODI owned them. However, Cash Flow excludes the gains from sales of businesses, which have totaled over $109 million since CODI's initial public offering.

The net loss for the quarter ended June 30, 2009 was $0.2 million, as compared to net income of $73.8 million for the quarter ended June 30, 2008 which included $72.3 million of gains from the sale of Aeroglide Corporation and Silvue Technologies, Inc.

As of June 30, 2009, CODI had $77 million outstanding on its term debt facility, $58.2 million in cash and cash equivalents on hand and a $340 million revolving credit facility that had $0.5 million of borrowing outstanding on the facility. The Company has no significant debt maturities until 2013.

On July 10, 2009, CODI's Board of Directors declared a distribution of $0.34 per share. The distribution was paid on July 30, 2009 to all holders of record as of July 24, 2009.

Commenting on the quarter, Joe Massoud, CEO of Compass Diversified Holdings, said, "During the second quarter, we generated Cash Flow in excess of our expectations. We continued to reduce costs during the period, while retaining the infrastructure necessary to capitalize on future growth opportunities. In addition, at a number of our subsidiaries, we also built market share and succeeded in increasing customer penetration levels. These factors, as well as a general stabilization in business fundamentals, put us on track to meet our previously stated financial guidance for 2009, as well as achieve growth in Cash Flow for 2010, even before the impact of any new platform businesses we may acquire."

Mr. Massoud concluded, "Complementing our quarterly results, we took important steps to further strengthen our balance sheet by completing a 5.1 million share offering, resulting in net proceeds of $42.1 million and underscoring the ongoing support we have received from the capital markets. This offering, combined with our past generation of Cash Flow in excess of distributions and the substantial gains we have produced through monetization of certain of our subsidiaries, has positioned our Company very well to execute our growth strategy in this market. We have a great deal of financial flexibility, including $58.2 million in cash and considerable availability under our revolving credit facility. We intend to use this capacity to our advantage
through the consummation of attractive acquisitions on behalf of our shareholders."

The next acquisition is what shareholders have been anticipating, as its likely to be the key to unlocking further upside here. Although I haven't had time to go through everything here, I really liked the statement that said they are on track for cash flow growth in 2010 even without the next acquisition.

Disclosure: No Positions. I'll likely be buying some shares soon.


Jon said...

Sounds like this guy knows what he's doing. I like that he keeps it simple and does what he understands. One thing I have noticed is that he's not into tech companies, but maybe he figures there's not much proven value there.

Michael said...

I agree, he certainly likes transparency, which is so rare in that type of business, or really anything Wall Street. Their companies are interesting in that they are unrelated, and a few even unusual "niche type" companies. Thats likely a good thing. Their next acquisition should provide the next catalyst for movement in the stock, and that should happen before the end of the year. Thanks for the comment.