Good morning and welcome to the Compass Diversified Holdings 2015 Fourth Quarter and Full Year Conference Call. Today's call is being recorded. All lines have been placed on mute. [Operator Instructions] At this time, I would like to turn the conference over to Scott Eckstein of the IGB Group, for introductions and the reading of the Safe Harbor. Please go ahead, sir.

Thank you and welcome to Compass Diversified Holdings' fourth quarter and full year 2015 conference call. Representing the company today are Alan Offenberg, Chief Executive Officer; Ryan Faulkingham, Chief Financial Officer; and Elias Sabo, a Founding Partner of Compass Group Management. Before we begin, I’d like to point out that the fourth quarter press release, including the financial tables and non-GAAP reconciliation, is available on the company's website at www.compassdiversifiedholdings.com. The company also filed its Form 10-K with the SEC last night. Please note that throughout this call, we will refer to Compass Diversified Holdings as CODI or the Company. Now allow me to read the following Safe Harbor statement. During this conference call, we may make forward-looking statements, including certain 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 on a material basis 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 as filed with the Securities and Exchange Commission for the year ended December 31, 2015, as well as in other SEC filings. In particular, the domestic and global economic environment has a significant impact on our subsidiary companies. 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. At this time, I would like to turn the call over to Alan Offenberg.

Good morning, thank you all for your time and welcome to our fourth-quarter and full year 2015 earnings conference call. During 2015, we generated cash flow or CAD of $82.4 million representing 42% year-over-year increase and reflecting the continued strength of our middle market niche industrial and branded consumer businesses. Complementing this success, we continued the sound execution of our business plan, drawing on our balance sheet strength to capitalize on attractive platform and add-on acquisitions, while opportunistically realizing sizable gains for shareholders. In terms of platform acquisitions, we continue to identify leading niche businesses with strong reasons to exist as evidenced by our July acquisition of Manitoba Harvest, a pioneer and global leader in branded hemp-based foods. Consistent with our previous platform acquisitions of leading branded consumer businesses, Manitoba Harvest possesses several qualities critical for success. Specifically, the company is a leader that operates in a large and expanding marketplace, has a passionate consumer following, an experienced management team, and compelling expansion opportunities. We remain very enthusiastic regarding Manitoba’s growth prospects as the company’s products are the fastest growing in the hemp food market and among the fastest growing in the natural foods industry. Reinvesting in the growth of our subsidiaries remain the core part of our strategy and in the fourth quarter, we worked with Manitoba Harvest to complete the accretive add-on acquisition of Hemp Oil Canada, a leading bulk wholesale producer, private label packager and custom processor of hemp based food products and ingredients. We expect this acquisition to further build on Manitoba Harvest’s already strong growth trajectory through an expanded ingredients business, increased manufacturing capacity and a broader and diversified customer base. In addition to this attractive add-on acquisition, subsequent to the year-end Sterno Products acquired Northern International, an industry leader in flameless candles and outdoor…

Thank you, Alan. I will begin by reviewing our niche industrial businesses. Please note that the revenue and EBITDA numbers I provide for Clean Earth and Sterno Products will be on a pro forma basis as if these businesses were acquired on January 1, 2014. Our niche industrial businesses continued to generate solid free cash flow. We reported a combined revenue increase of 2.6% during the fourth quarter of 2015 as compared to the year-earlier period. EBITDA on a combined basis increased by 3.7% as compared to the year-earlier period while the combined EBITDA margin increased to 17% for the quarter ended December 31, 2015 from 16.8% in the prior year quarter. Advanced Circuits revenue decreased 4% while EBITDA decreased 9.6% year-over-year during the fourth quarter primarily due to lower sales and long lead time PCBs partially offset by growth in assembly and quick-turn PCB. For the year, Advanced Circuits results were in line with management's expectations. Fourth quarter EBITDA margins for this subsidiary were slightly lower at 30.2% compared to 32% in the year-ago period reflecting a shift in sales mix. Looking ahead, we expect to achieve modest growth in this business during 2016. Arnold Magnetic’s revenues were down by 5% for the fourth quarter year-over-year due to lower reprographic sales and lower PMAG European sales as a result of a weaker oil and gas sector. EBITDA increased by 6.4% during the same period and EBITDA margins increased approximately 137 basis points, primarily attributable to increased margins in the PMAG sector due to the favorable impact of European restructuring activities. In regards to PMAG, our European restructuring activities are now fully completed. As a result, we expect that PMAG’s performance going forward will reflect the benefits of this restructuring. Overall, we anticipate revenue to decline slightly due to lower…

Thank you, Elias. Today I will discuss our consolidated financial results for the quarter and the year ended December 31, 2015. I will limit my comments largely to the overall results for our company, since the individual subsidiary results are detailed in our Form 10-K that was filed with the SEC yesterday. My consolidated revenue discussion will exclude FOX, which we believe is a more meaningful discussion due to the restriction on providing discontinued operations reporting for FOX. On a consolidated basis, revenue for the quarter ended December 31, 2015 was $218.1 million, up 12% as compared to $194.6 million for the prior-year period. This year-over-year increase was primarily attributable to contributions from our 2014 acquisitions of Sterno Products and Clean Earth, our 2015 acquisition of Manitoba Harvest, as well as meaningful revenue growth in our Ergobaby, Liberty and Tridien subsidiaries. Revenue for the year ended December 31, 2015 increased to $805.4 million, an increase of approximately $251.5 million or 45.4% compared to $553.9 million for the prior year. The increase in revenue year-over-year is primarily the result of its full year contributions from Clean Earth and Sterno Products acquired in the second half of 2014. Net loss for the fourth quarter was $1.5 million compared to net income of $8.9 million in the year-earlier period. During the fourth quarter of 2015, we recorded a provision of $1.3 million against the previously recorded gain on the sale of CamelBak as a result of working capital true-ups. This business was accounted for as a discontinued operation in our financial statements. In addition, we recorded a loss on the equity method investment in FOX of $5 million during the quarter compared to a gain of $11 million in the prior year fourth quarter. For the year ended December 31, 2015, net income…

Thank you, Ryan. To summarize, in 2015, we generated solid results that were consistent with our expectation, demonstrating the continued strength in leadership of our niche industrial and branded consumer businesses. Utilizing our strong balance sheet, we also consummated the platform acquisition of Manitoba Harvest and the accretive add-on acquisition of Hemp Oil Canada. Subsequent to year's end, we continued reinvesting in our subsidiaries with Sterno completing the add-on acquisition of Northern International in January 2016. In addition, during 2015, we completed the sales of CamelBak and AFM and have now realized approximately $480 million in gain for our shareholders since our IPO in 2006. As Ryan mentioned earlier, on a full year basis, in 2016, we anticipate our CAD absent our redeployment of capital into cash flow accretive acquisitions, will be below our distribution due to the reduction in cash flow, following the sales of CamelBak and AFM, which reduced sizable net proceeds and a net $150 million gain. As a reminder, while these sales certainly provided value for our shareholders, they're never a component of our cash flow calculation. This impact on cash flow following the sales of Camelbak and AFM is consistent with certain divestitures we made in the past. This includes the sale of FOX, after which our annualized cash flow dropped below our distribution until those proceeds plus additional cash were redeployed into the cash flow accretive platform acquisitions of Clean Earth and Sterno Products. We continued to consistently pay our distribution following the FOX sale until we redeployed those proceeds and based on our current balance sheet strength, sizeable liquid and cash flow generating subsidiaries we expect to consistently pay our distribution in 2016. Of course, the timing of capital redeployment is always difficult to predict. However, should we find compelling opportunities to acquire accretive add-on and platform businesses in 2016 and beyond, we would anticipate meeting or exceeding distribution on an annualized basis going forward. I'd like to close by commenting briefly on M&A activity. During the fourth quarter, middle market yield flows ticked down a bit as compared to earlier in 2015, as high valuation levels persisted. Relative to the fourth-quarter, yield flow during the early part of 2016 seems steady. Our focus remains on identifying attractive acquisition opportunities that meet our strict acquisition criteria. Consistent with our strategy, we intend to continue to maintain a disciplined approach to evaluation and diligence seeking profitable companies with a strong reason to exist. At the same time, we continue to reinvest in our current subsidiary to drive further cash flow growth. With approximately $600 million in available capital, we remain confident in our continued ability to execute on this strategy. This concludes our opening remarks and we’ll be happy to take any questions you may have. Operator, please open the phone lines.

[Operator Instructions] The first question is from Larry Solow of CJS Securities. Your line is open.

One thing if you could maybe just my usual question, obviously there is little more concerns over the economy and I think it’s more on the industrial side but maybe Elias or Alan, not both of you, but one of you guys can just sort of take a broad brush overview of how you see things going on in your businesses, although I realize there are some nuances for business-to-business but sort of translate into what you're seeing and the overall view on the economy and the outlook?

Sure. I'll take a stab at it. I think Larry, as you can see our businesses had on balance a pretty solid year and I think that we are certainly aware of why people are concerned with the global economy and certainly share many of those concerns yet those concerns haven't really impacted our group of companies on a consolidated basis as negatively as one might expect considering what you hear in the public from the various commentators et cetera. So we remain cautious about the global economy for reasons that you’re well aware, yet continue to believe that our companies are well positioned to continue their solid performance in 2016 and beyond. So, we are concerned but haven't really seen it impact our group of companies as negatively as one might expect considering the chatter about the economy.

I guess at least a couple of your subsidiaries are getting some benefit on raw material side right?

Yeah. No for sure, to the extent there are certain commodity prices that are lower that are absolutely helping our companies yet as you heard in the opening remarks there are some currency headwinds that are working in the other direction. So, in total, again on a consolidated basis I think we feel really pretty good yet obviously take a conservative view towards the future yet believe our companies are well positioned.

Just one or two questions on the subsidiary, some particular, at Advanced Circuits, actually one of your larger subsidiaries post the sale of CamelBak, it sounds like your outlook for next year remains – you still see some modest growth, I think Elias mentioned. Pretty decent sized drop in the quarter is that you know mentioned some drop in the long run but was that more timing related, I guess the full year did wound up okay, so is that more of a timing related issue than anything else?

Yeah, Larry it was – there is no trend that was developing during the fourth quarter. I would say, it was just kind of quarter-to-quarter timing. As you saw throughout the year, some quarters we had nice year-over-year growth, some quarters we were down a little bit. I would say, unlike in prior years where the business has seen more of a consistent level of either growth or unfortunately there has been times of more consistent declines, this was a year that was a little choppier. We would have growth and a little of decline on balance. It was, as you said, a solid slightly up year. So we look at 2016 as kind of starting out similar to 2015 in that same manner and that's why kind of our current view is this business will have kind of a very modest growth from 2015.

Got it. Okay, great. Thank you.

Thank you. And the next question is from Leslie Vandegrift of Raymond James. Your line is open.

All right. Good morning guys.

Good morning.

Hi. Just wanted to do get a check up on obviously you talked about Tridien in your prepared remarks a little bit, sales fixed charge coverage ratio at 12/31, talked about a waiver in the K as well as just kind of color on that and the cost in the fourth quarter and kind of outlook for keeping that on the books possibly searching for a way to divest that in the coming year.

Yeah, so Tridien obviously had a fourth quarter, I think we were throughout the year forecasting that in the fourth quarter we would have a large customer that was ending our long-term relationship and during the fourth quarter, we had a number of costs some of which ran through kind of some inventory write-downs as well as some other charges that we took some of which were very one time in nature. And so I would say that the business struggled more than we anticipated with the loss of that customer. It was a material customer, one of our top three and trying to - there were a number of factors that were going on during the fourth quarter we were downsizing one of our facilities to account for the lower revenue level. We were moving some of these products to Midwestern facility. There was a lot of operational friction that ended up occurring and during that there were some inventory charges and other charges that were more unique and one-time and unexpected. I would say, the level of loss that we incurred in the fourth quarter which was an outright EBITDA loss is not expected and as a 2016 event on a full year basis. So we do expect this business to be producing positive EBITDA. In terms of whether this is something that we will keep on our books, it’s obviously a small business for us at this point. It doesn’t really have a lot of impact on our cash flow one way or another. That being said, we are seeking to have this business produce gains again in both revenue and cash flow and have positive trend so that at a time when we do seek to exit the business, it will achieve the best valuation possible for our shareholders.

Okay. And just a quick question on, I guess the reversal of part of the recorded gain of CamelBak. Can you just give a little bit of color on the $1.3 million?

Yeah, sure, Leslie. In a normal course, post an acquisition, we go through working capital true ups where there is some fluctuation in our estimates. So that was in the acquirer’s favor and our detriment of about $1.3 million. We expect to finalize that in 2016, so it's possible that moves a little bit more in Q2 or Q3, but that’s normal course.

Okay, all right. That’s all from me. Thanks.

Thank you.

Thank you. The next question is from Vernon Plack of BB&T Capital Markets. Your line is open.

Yeah, hi, thanks. I was looking for some color on how the integration with Hemp Oil and Manitoba has been going?

Yeah, Elias will comment on it more specifically, but at a high level so far so good. Elias?

Yeah, Vernon, it’s going really well so far. I mean we're excited about the business and as we said on the call, the currency headwinds were different than anybody anticipated and we see the Canadian currency continue to devalue, so that will be from an operational standpoint a headwind that we are facing, although it did recently pick up a little bit in February from January’s levels notwithstanding currency has been a struggle. The HOCI -- the Hemp Oil Canada, we refer to it as HOCI, but Hemp Oil Canada acquisition. What really, well, we think is a great add-on for this business, gets the company into the bulk wholesale business, which was a line of business that’s growing really rapidly and we think one that positions the company really well. There is a lot of manufacturing and supply opportunities here, which we’re really excited about. And so we think strategically, this was a wonderful transaction, and so far, the integration of Hemp Oil into Manitoba Harvest has gone exceptionally well from an operational standpoint. So we are pleased so far. It wasn’t actually something we had on our radar when we did Manitoba Harvest that this acquisition would be so quick from Hemp Oil. But this was a very pleasant surprise that the opportunity came about, and as I said, think it really strengthens our strategic positioning within this industry.

Okay. Thanks for the update.

[Operator Instructions] The next question is from Brian Hogan of William Blair. Your line is open.

Good morning. Similar question to the last one, but can you go through that kind of synergies and rationale, strategic rationale for the Northern International acquisition?

Absolutely.

Yes, so I think it will be a little bit in the Manitoba and Hemp Oil acquisition. There is probably a little bit more overlapping opportunities from a manufacturing synergy and some of the duplicative costs and supply chain. I think it will be a little bit less here with Sterno and Northern International in terms of kind of duplicative, kind of overlapping cost and savings in that manner, because the product lines are likely different, plus, the product line we think is a great add-on to what Sterno is doing. A lot of Sterno’s business really is, think about Sterno’s business, it’s primarily the flame lit or the flame heat for buffet tables and other mobile applications where you want to provide heat, but then there is a large part, which is flame decorative. So if you think about going to a fine dining establishment where they have an actual candle with a flame that’s using a typically liquid wax, a paraffin wax that is likely a Sterno Product. One of the products that continues to make inroads and acts different typically today, lower price points within dining, are flameless candles. And so the decorative lighting channel, which is where Northern International participates is a natural product line extension for Sterno. And in fact, Sterno had created a relationship with Northern International almost a year ago starting to carry some of their product line prior to the acquisition into the food service industry. So we think it’s a natural in terms of product line extension and there is also some retail opportunities that the companies have where we’re each working with certain retailers, where we think we can probably cross-sell some of our products into each other’s customer basis. But that would really be the rational and we think this is a great product line extension and we would seek similar type of opportunities like this as we continue to build out the Sterno portfolio of products.

I don’t recall, did you give a revenue number for Northern and then margins, and how does that compare to the Sterno?

Yes, so I have that handy, Elias. Within the press release that we had published back in January Brian, we had Canadian revenue, CAD118 million, EBITDA with CAD7 million, and being that it’s an add-on acquisition and the size of it being immaterial, we traditionally don’t disclose any prior financials, because we don’t have to with the SEC.

All right. Going back to Alan, you mentioned the acquisition opportunities and then then deal flow being down on 4Q and steady in 1Q, what have you seen from a multiple perspective, and then competition for deals?

Yeah. I think that remains consistent. The multiples remain quite robust. There is still a lot of available capital to be invested into mid-market M&A and so we haven’t really seen any changes whatsoever between the valuation expectations of seller as we sit here in the early part of 2016 relative to 2015, notwithstanding the volatility in the public markets. So there does appear to be some dislocation there. Time will tell as to whether or not that eventually does impact the middle market M&A valuations but for now, remains very robust and competition remains very fierce.

All right. And then previously, we talked about the Clean Earth backlog and pipeline and obviously it came in as expected for the year, can you give any color on the Clean Earth backlog and pipeline, obviously, first Q is always seasonally soft due to weather and related things, but can you kind of give a pipeline there please?

Yeah. I think at the macro level, Clean Earth is well positioned with respect to visibility on its results for the early part of this year, so we’re pretty confident as we said in the prepared remarks that Clean Earth is poised for modest growth in 2016 and everything we see as we sit here today, certainly supports that view.

I know you discussed the economy earlier, but do you see differences in the industrial businesses versus the consumer?

I would say that, let me take that a couple of different ways. I think first and foremost from a performance standpoint, I think that the enthusiast consumer businesses do tend to outperform when times can be a little bit less certain due to the passion of the customers acquiring those products, such that it may have less direct correlation to just global or even more specific North American economic outlooks, whereas the industrials I think are more specifically impacted by general economic conditions. Yet, our industrial companies continue to perform well. From a valuation standpoint, in terms of the private M&A market, the consumer companies historically certainly have earned larger multiple, typically as a result of their growth prospects than the industrial. The industrial segment in our view has gotten a bit more competitive over the last, call it, six months or so, where we’ve seen some valuations for industrial companies that we’ve pursued, pick up a bit, where that has made that segment, maybe a little bit harder to get our arms around from a valuation standpoint. So I think that, but in terms of the overall performance, I think that our consumer businesses and our industrial businesses are performing largely in line with our expectations and that as we’ve said, historically, our consumer businesses tend to be faster growing businesses than our industrial businesses. So I think that we’ve not seen any real change in that broad statement over the last year or as it relates to the current economy, we wouldn’t really change that view as we look at our group of subsidiary companies.

All right. Thanks for your time.

Thank you. And at this time, I’ll turn the conference back over for closing remarks.

I’d like to thank everyone again for joining us on today’s call and following the CODI story. We look forward to sharing our progress with you in the future. Thanks a lot.