Compass Diversified (CODI) Q1 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the Compass Diversified Holdings 2016 First Quarter 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' first quarter 2016 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 Q1 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-Q 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 first quarter 2016 earnings conference call. In the 2016 first quarter, our leading middle market businesses generated stable levels of cash flow that were consistent with our expectations. For the three months ended March 31, 2016 CODI generated cash flow available for distribution and reinvestment which we refer to as cash flow or CAD of $13.6 million. Turning to our results for the quarter, at our niche industrial businesses we achieved combined sales and EBITDA growth mainly driven by solid performance at our Sterno Products subsidiary. In addition to continued operational efficiency improvements at Sterno. The Northern International results for the quarter drove strong year-over-year performance. Within our branded consumer businesses; growth was primarily driven by strong performance at our Liberty Safe business, which exceeded our expectations reflecting robust market demand and volume as well as a significant success our management team has had generating continued operational efficiencies. For the first quarter, we paid a cash distribution of $0.36 per share representing a current yield of approximately 9.1%. Since going public in May, 2006 CODI has paid cumulative distributions of approximately $13.56 per share, complementing our solid first quarter performance, we took further steps to strengthen our financial position and liquidity and specifically in March, we capitalized on a compelling opportunity to monetize a fortune of our interest in Fox, realizing total net proceeds of approximately $48 million. With these proceeds combined with debt and equity proceeds from Fox's IPO in August 2013 as well as proceed we received from the Fox's secondary offering in July, 2014 we have now generated total proceeds to-date of over $190 million, while maintaining a 33% ownership in Fox. We continue to be the largest shareholder of Fox and remained enthusiastic about the Company's growth prospects. We also continue to invest in the growth of our current subsidiary during the first quarter, including the accretive add-on acquisition of Northern International for our subsidiaries Sterno products. The addition of Northern International, an industry leader in flameless candles and outdoor lighting products for the retail segment expands Sterno's product offering into complementary categories and channels serving Sterno's primary food service and retail markets, while continuing to build the strength of the iconic Sterno brand. Following the end of the quarter, we completed an accretive add-on acquisition of Phoenix Soil by our Clean Earth subsidiary. Phoenix Soil marks our second add-on acquisition since we acquired Clean Earth in 2014. This transaction bolsters Clean Earth's existing soil treatment capabilities while expanding its presence into New England with a new state-of-the-art facility, where it can accept and treat essentially any non-hazardous contaminated soils. The new facility also features a more centralized location to customers, which will reduce transportation cost and help Clean Earth in serving both the existing and new customers. Adding this highly complementary business strengthens Clean Earth's capabilities while allowing into reach into new markets and enhance the company's growth potential. In summary, our first quarter performance was in-line with our expectations and demonstrated steady cash flow from our existing business. As Elias will discuss momentarily, some of our subsidiary experienced softness quarter-over-quarter. However, in reviewing our full year expectations following the first quarter, our 2016 outlook for our subsidiaries remains consistent with our comments from last quarter's earnings call. Looking forward, we continue to be committed to capitalizing on CODI's financial strength to complete attractive strategic add-on and platform acquisitions that will drive cash flow and build long-term value for our shareholders. I'll now turn the call over to Elias to review the quarterly performance of our current group of subsidiaries.

Thank you, Alan. I will begin by reviewing our niche industrial businesses, which continued to generate solid cash flow. We reported a combined revenue increase of approximately 10% during the first quarter of 2016 as compared to the year earlier period. EBITDA on a combined basis increased by 1.5% as compared to the year earlier period, while the combined EBITDA margin was 14.2% for the quarter ended March 31, 2016 compared to 15.4% in the prior year quarter. For the first quarter, Advanced Circuits results were in-line with management's expectations. Revenue was flat on a year-over-year basis while EBITDA increased 3.9%, primarily due to growth in quick-turn PCBs and assemblies, offset by a decline in long lead time PCB. First quarter EBITDA margins for this subsidiary were slightly higher at 31.9% compared to 30.8% in the year ago period reflecting the current sales mix. Arnold Magnetics results for the first quarter were in-line with our expectations. Revenues were down 12% year-over-year due to lower reprographic sales, lower PMAG European sales as a result of weaker oil and gas sector and decreased sales in precisions and metals. EBITDA declined by 25.9% during the same period primarily attributable to lower margins as a result of lower sales volumes in the quarter as well as a one-time charge related to its Switzerland Pension Plan. Clean Earth results for the first quarter, which is seasonally their slowest quarter, were in-line with our expectations. Revenue increased 9% for the first quarter, while EBITDA declined approximately 13%. Revenue growth was primarily due to higher sales in soil and hazardous waste. The decrease in EBITDA was primarily attributable to sales mix, notwithstanding the minor year-over-year decline in earnings in Q1, Clean Earth remains on track for a solid year in 2016 and in-line with our expectations. Sterno Products generated strong first quarter results ahead of our expectations. During the 2016 first quarter, revenue increased approximately 54% and EBITDA increased approximately 68% compared to the year prior period, primarily from the Northern International add-on acquisition in January, 2016. EBITDA margins increased by approximately 124 basis points reflecting increased manufacturing efficiencies and lower raw material prices. Turning to Tridien, first quarter results were in-line with our expectations. First quarter sales at Tridien decreased 11% compared with the prior year period due to the previously discussed fourth quarter contract termination of one of Tridien's major customers and the associated loss of revenues. This was partially offset by improved power product sales resulting from new product introductions during 2015. EBITDA margins for the first quarter of 2016 declined due to certain manufacturing and efficiencies continuing into the early part of the first quarter of 2016 resulting from a facility move in the 2015 fourth quarter. Next I'll turn to our branded consumer businesses, which include Liberty Safe, Ergobaby and Manitoba Harvest. Please note that the revenue in EBITDA numbers I provide for Manitoba Harvest will be on a pro forma basis, as if this business was acquired on January 1, 2015. Our branded consumer businesses achieved solid results for the first quarter of 2016 combined revenue increased 8.7% compared to the year earlier period and EBITDA increased 13.7% compared to the first quarter of last year. First quarter results at our Liberty subsidiary once again exceeded our expectations reflecting strong demand and continued operational efficiencies. For the first quarter of 2016, revenue increased over 12% to $29 million compared to year ago period. EBITDA grew approximately 85% compared to last year's first quarter. First quarter 2016 EBITDA margins grew to 20.5% compared to 12.4% in the year ago period. EBITDA margin continued to improve this quarter due to greater operating efficiencies and lower raw material cost. As many of you know, the second quarter is typically a seasonally slow quarter for Liberty. Additionally, we are investing and manufacturing improvements which will negatively impact our gross margins in the second quarter. However these improvements are necessary to continue to grow this business. For the first quarter of 2016, our Ergobaby subsidiaries revenues decreased [ph] by $1.3 million or 6% year-over-year as a result of lower international carrier sales. Offset slightly by an increase in sales of baby carrier and accessories to national and specialty retail accounts. EBITDA decreased 15.3% from the prior year due to the timing of certain marketing initiatives as well as increases in staff and cost and professional fees. International sales decreased primarily as a result of strategic changes in our distribution model resulting in Ergobaby reporting on one-time charge of approximately $600,000. In addition, certain international distributors slowed orders in advance of the launch of the company's newest products the ADAPT baby carrier, which has garnered several industry awards. We continue to remain optimistic about the company's future prospects. Lastly, first quarter revenues for Manitoba Harvest, which we acquired on July 10, 2015, increased 29% to $13.7 million compared to the prior year period. This was due to the acquisition of Hemp Oil Canada, which we acquired in December, 2015. EBITDA for Manitoba Harvest was flat compared to the prior year. We're reflecting our continued investment in marketing and advertising for this business. For 2016, we expect solid top-line growth on a constant currency basis. However, as we've mentioned previously we will continue to invest in this business to facilitate long-term growth at the expense of near-term EBITDA growth. I would now like to turn the call over to Ryan to add his comments on our financial results.

Thank you, Elias. Today I'll discuss our consolidated financial results for the quarter ended March 31, 2016. I'll limit my comment largely to the overall results for our company since the individual subsidiary results are detailed in our Form 10-Q that was filed with the SEC yesterday. On a consolidated basis, revenue for the quarter ended March 31, 2016 was $208 million up 16% as compared to $179.4 million for the prior year period. This year-over-year increase was primarily attributable to contributions from our 2015 acquisitions at Manitoba Harvest and Hemp Oil Canada add-on, as well as notable revenue growth in our Liberty, Clean Earth and Sterno subsidiaries. Sterno's results include the acquisition of Northern International in January, 2016. Net loss for the first quarter was $15 million compared to a net loss of $25.3 million in the year earlier period. The lower net loss was primarily due to an impairment recorded in the prior year associated with our Tridien subsidiary. Cash flow available for distribution on reinvestment, which we refer to CAD for the quarter ended March 31, 2016 was $13.6 million compared to $15.5 million for the prior year period. A decline in cash flow for the first quarter of 2016 reflects the loss of cash flow from the CamelBak and AFM businesses sold during 2015. Partially offset by our acquisitions of Manitoba Harvest in July 2015 and a debt on Hemp Oil Canada in December, 2015. Turning now to balance sheet, we had $72.6 million in cash and cash equivalents in networking capital of $190.2 million as of March, 31, 2016. We had approximately $319 million outstanding on our term debt facility and no outstanding borrowings under our revolving credit facility as of March 31, 2016. We have no significant debt maturities until 2019. In addition, we had net borrowing availability of approximately $396 million under our revolving credit facility at quarter end. Additionally, our $12.1 million shares of Fox which are recorded as an equity method investment on our balance sheet, at a value of $191.4 million at March 31, 2016. Turning now to capital expenditures, during the first quarter of 2016 we incurred $3.7 million of maintenance CapEx compared to $4.3 million in the prior year period. The decrease is primarily attributable to lower level of maintenance CapEx associated with Clean Earth as compared to the prior year quarter. For the full year 2016, we estimated our maintenance CapEx will be between $14 million and $18 million and growth CapEx will be between $2 million and $3 million as we continue to invest a long-term health of our subsidiaries. I will now turn the call back over to Alan.

Thank, Ryan. Our first quarter performance reflects stable cash flow generation from our family of niche leading businesses that was consistent with our expectations. Complementing the solid performance, we continue to strengthen our financial positions realizing $48 million in proceeds from partially monetizing our interest in Fox. Including our Fox secondary sale in March impact opportunistic sales of subsidiaries, we have now realized gains for shareholders of over $520 million. We also continue to reinvest in the growth of our subsidiary by completing two recent accretive add-on acquisitions. As we move ahead in 2016, we remain focused on identifying attractive middle market platform acquisition opportunities that meet our strict acquisition criteria. In addition, we continue to pursue opportunities for strategic add-on acquisitions to enhance the growth trajectories of our current subsidiaries and to include cash flow growth. With over $500 million in available capital, we're well positioned to continue executing on this core investment strategy. I'd like to close by commenting briefly on M&A activity. During the first quarter, middle market deal flow was down to compared to both the first and fourth quarter 2015. As persisting high valuation levels continue to be driven by the availability of debt and equity capital with favorable terms, and financial and strategic buyers seeking to deploy available capital. Before I open up the lines for Q&A, I would like to announce that we will be hosting our 2016 Analyst/Investor Luncheon at the St. Regis Hotel on Thursday, June 16. In addition to presentations from members of CODI Senior Management team, Chris Dods the CEO of Clean Earth and Mike Fata, the CEO of Manitoba Harvest will be presenting as well. We hope to see many of you in attendance at this event. 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] your first question comes from the line of Larry Solow with CJS Securities. Your line is open.

One thing, if you could just, I think you had a call not too long ago. So perhaps just discuss a couple of the largest segments, holdings I mean. So just on Ergobaby you just had a great run for the last five years or so, it sounds like this quarter was pretty much timing related slow down in a one-time charge there. How do you see this going forward? Do you still think it could be high single-digit grower on the top-line and maybe better on the bottom line?

Yes, so Larry, this is Elias. I would say, your categorization of the quarter is correct and we did make a change with a distributor where we're filling direct to the Canadian market, so that was the change in the international distribution model that we referenced and we took back, the inventory that was there. So that clearly held back sales and profit growth and the charge that we have referenced was in respect to that. I think in general, we feel really good about this business in its prospect as you know, we don't guide to specific numbers but I would say our outlook for this business in terms of continued growth both in top and bottom line it hasn't changed. We still think there's a lot of opportunity, we're still launching great new innovative products, the latest which is the ADAPT carrier, which is you know again won a lot of awards from the industry. So we feel really good about the business in its prospect notwithstanding there was a little bit of, I would say just kind of one-time thing that occurred in this quarter and more timing related.

And then Liberty is obviously put up some great numbers to last several quarters. It looks like it’s sort of head of that run rate that you refer back to and I think 2011 and 2012 and 2013 before the pull back because things kind of heated up a little too much and there was little bit too much inventory in the channel. Do you think these numbers are sustainable or are we getting, how do things look at the retail level or things heating up again too fast, do we run that risk again as we go forward?

Larry, I'll try to answer these components of your questions. I think first and foremost, I certainly wouldn't guide you towards suggesting that the first quarter performance is sustainable. It was an outstanding quarter on a lot of levels as evidenced by not only cash flow of the margin level and so, while we still anticipate a very strong very for the company. Please do not take that quarter's performance and extrapolate it into what we anticipate full year performance to be, as referenced in some of the prepared remarks. We will expect to see a softer second quarter for the reasons described, but notably due to some investments in maintaining the machinery which will resolve in a little bit of downtime in the plant, which will reduce some of those efficiencies that we see, but that's by design and make sure that for the rest of the year other company remains well positioned as it is today. I think there's a always a risk that things could be heating up too quickly but from what we see as the company and from the company arguably more importantly receives from its customers it doesn't deal like this is the same type of run up that we saw last time. I think, through inventory and retail does not appear to be nearly as high as it was during the last call it uptick in demand and so I think, all participants in the industry both the manufacturers and the retailers seeing to have that getting still their near-term memory, so as to not hopefully repeat the issues that the industry went through just now, not even a couple years ago. So I think it feels better than that but time will tell and often times election cycles can have impact on this business because it does have correlation to the firearms industry as we discussed in the past. Again, company doesn't deal with, although that's what driving right now but it's probably a little too early for us to have a real great clear view on what's driving it, other than just a good time right now demand for firearms is high and with its demand for [indiscernible]. And on top that the Company has done a great job over the years throughout it's time as one of our subsidiaries of investing in its brand building, investing in marketing and we believe that it will continue to take market share in this industry. So we're all very positive about Liberty, what's happened in the recent past certainly have us cautious about things overheating too quickly it deals very different taste on what we can see in the industry, but all that said it should be a really nice year for the Company.

Okay and just lastly on Arnold, it was I don't know, internally what you guys expected for the quarter. It was, somewhat less than my expectations. What's the outlook there? I know it's more of a longer term thing, do you still see perhaps 2017, 2018 as potential inflection point of the business.

It's very hard to predict what the timing is for an inflection point, in terms of when some of these longer term initiatives are going to present themselves. We certainly think that they remain plausible and possible and that the company is doing what it needs to do to capitalize on the various initiatives. I think right now in terms of 2016, we think it's going to be a steady year, could it be up a little bit, down a little bit, perhaps but largely I think consistent or close to consistent with prior year performance. So we don't see anything that's going to be a catalyst for material outperformance in 2016 and we're hopeful that in the future, we will see those developed into the opportunity that we believe, exists out there. But it's very difficult to give you any sense of certainty with respect to what is the specific catalyst that leads to that inflection point that leads to material outperformance relatively to current levels of performance.

Okay, fair enough thanks. Alan, I appreciate it.

Your next question comes from the line of Leslie Vandegrift with Raymond James. Your line is open.

I know obviously you had big sales last year, big realizations and you talked upon this past, really good guidance, we knew that we were going to come and look at our beloved [ph] dividend, if we can. How long are we looking to be able to maintain that while we're out looking for good acquisitions not just anything? And before, we really start looking at dividend policy.

I think that, with all respect referenced one of your analyst peers from another firm, who contemplated this question in one of his write-ups. And I think the question, if I understand it correctly is, to the extent we have a gap in our current level of CAD. How long would be able to say to sustain the current level of distributions? And this is just going to be directionally correct because it was written a little while ago, so if I get it a little bit wrong forgive me but we can certainly follow-up with you after the call for the specifics. But I think the analysis went something along the line of quantifying the gap between anticipated level of CAD in our current level of distribution and it really kind of held everything else in a vacuum meaning the performance of the other company. And I think the estimate was based on the availability of cash flow that we have or sources of cash that we have by gain as well as availability under our credit facility, that we could sustain our level of distribution for 15 years or 20 years before, if became an issue. And this is really something that we've been trying to do in our investor presentation as well as in our one-on-one really communicate to the market that the nature of our business will drive CAD to be at times below, at times to be above just depending on where we're at, but historically when it's gone below its typically been because we've opportunistically divested a subsidiary which generated a large gain. So while we lose the cash flow until those gains are redeployed, we do in fact have a gain that theoretically those proceeds could be used to sustain the distribution. You know the money is fundable, so I don't want to zero in on any particular source of what could help fill that gap, but the point is, it's a long time a very, very long time for us to have the type of concerns that I think you're alluding to meaning with the board we need to reconsidered our distribution policy. We are always conscious about closing that gap as soon as we can by using our available capital to make accretive acquisitions of add-ons as well as new platforms. But because of the analytics that I just walked you through, we really don't feel a need to compromise our disciplined, patient approach to our investment strategy to fill that gap because we really got plenty of runway before we even come close to considering needing to make those changes. And all of those comments are of course made in the context of nothing that catastrophically affects our economy such that, all of our subsidiaries go to the year same time, do I think that's possible? Not really, but it's certainly things can happen that are unforeseen, so I just want to put that blanket comment out there, just to make myself feel better.

Of course, in respect with that, such larger cushion, even as you under earn [indiscernible] to have to know that you have cushion going out for 10, 15 years as it maybe. What's the outlook for the possible selling maybe some of the underperformers and even though you're currently under earning, you wouldn't be forced to hold such as Tridien even though maybe it's factor what you expect for the year after that customer leaving. Would you still be willing to look to offload the less performing businesses this year?

Yes, I think that with respect to any of our subsidiary companies, we'll always consider opportunistically divesting them. So I think that we really do look at that little independently our level of CAD and relative to our level of distribution for the reasons, we've just discussed. So I don't think that our current level of CAD is impact really at all, how we look at opportunistically divesting any of our subsidiary companies.

Okay, all right. Perfect. Thank you.

[Operator Instructions] your next question comes from the line of Brian Hogan with William Blair. Your line is open.

Question on actually a follow-up to that last question. In Tridien its contributions are quite small to the overall picture. I guess the question is, is it worth your time in whole scheme of things?

I'll make some comments and then probably have Elias share some comments as well. Look, I think the team at Tridien is working really hard to build its business and we're certainly by their side trying to help them as we are with every other subsidiaries. Sometimes, initiatives are more successful, sometimes are less successful. I think Tridien has really in the face of some difficult challenges over the last couple of years done some really good things to maintain its level of cash flow and it's absolutely a smaller company relative to our others. But at the same time, it's not a company that I believe takes a disproportionate share of our team's effort. So I think that it is company that we're pleased to own as we are with all of our subsidiaries and if opportunistic divestitures present itself for Tridien or any other subsidiary. We'll certainly consider it, but Elias, if you have anything to add to that. No, I think Elias felt as though, that was sufficient. Well I'm happy to expand if you have any follow-up questions to that one.

No that's good on that question, I appreciate the commentary. Next question is on Ergobaby obviously disappointment from our perspective and yours build expectation. The question is, why change of distribution models. I guess it was in Canada internationally and do you intend to do that in other markets and why the change in strategy?

Yes, so first I don't think just to clarify the first quarter wasn't a disappointment in our mind and our met with our expectations, where I would say in any of our businesses the quarter-to-quarter performance can shift a little bit, especially when you have some large distributors that you may work with Ergobaby being one that does have some large international distributions. But we feel, on a lot of metrics that business is actually performing really well and in-line with what our expectations are. So just want to make that point. In terms of the Internationals distribution model, we really have to we look constantly and are working very closely with all of our international distributors. Some which are stronger than others, which all again businesses I would say incur that, in this instance and specifically in Canada. I think there are few reasons that made up determined it was beneficial to go direct into that market one just given its geographic proximity to the US and our ability to handle that market, made a lot of sense. The second thing is, the distributor up there was financially not able to support at the same level, we would be able to support some of the new product launches, some of the marketing initiatives that we'd like to do there and we felt that it was better to convert into a different arrangement with that distributor rather than having them be a distributor for us. And there are other distributors globally that we would look at doing this with, although I would say our largest distributors internationally are great partners to us. But some of our smaller distributors that maybe struggling to gain, or [ph] that we believe in the market or not investing in the proper inventory that is going to be required or the sales force or the marketing initiatives. We look at all of those continually and we make assessment as to whether it would be better for us to control the market and to be going into it, but by in large, this is not a wholesale appending of a distribution model that has worked internationally, extremely well for us. It will be targeted and selected when we do this and there is another distributor that will be going direct in the second quarter and we're in the process of converting that now, but beyond that I would say maybe we'll see one or two, but it's not a wholesale change to our model.

How long does this disruption from the change?

Well so the end market disruption to the customer is virtually non-existing because we handle that I think reasonably well. We make sure that our retail partners in the specific markets have sufficient inventory on hand to be able to continue to sell through to the end customer. The disruption is really the Ergobaby's results because the distributor will have some inventory on hand, that inventory and doing this in a process that make sense because we don't want the product just to be distributed at all cost. So we will typically buy that product back. When you take that product back it becomes a negative revenue and that's what you saw with the $600,000 charge that we add, that was product that came back from our predominantly Canadian distributor and that we had a charge to our financial statement. So I would say from a market disruption standpoint, we don't view it as material at all from an Ergobaby financial statement disruption it typically is a month or two and then we get to something where we actually feel pretty quickly, we build and build more strength and then you have obviously, the cost you're going to incur, but you're reaping the benefits of the direct margins versus distributor margins which are significantly higher and more than offset any of the cost, that we're investing in. So we think a month or two of financial statement disruption to Ergo, but then benefit following that.

You said, significant that was actually going to be my next question, whether the savings from doing that model, but how much is significant is it, how much on the margin, how much basis points?

It's I mean we don't typically give out specific detail at that level. I would say, our - if you think about a distributor, we have to sell through a distributor at a margin that is obviously below what we would sell to a retail partner direct because then they handle all of the sales, marketing and distribution that's required, right? So typically you got to build in something for a distributor now across industries distributors work on different margins, but you could take a guess at kind of what the margin for a distributor in this industry is. We clearly now by going direct in that market will be able to sell out the wholesale cost to the retailer, rather than selling to our distributor at a distributor pricing. So our cost of sale on the good is generally the same regardless of whether we go direct to the retailer or whether we sell through a distributor and therefore, you see the margin gap. Now offsetting that though, just to be clear is now we will pick up the sales and marketing expenses and we will pick up the distribution expenses, the logistic expenses. In a market like Canada, again because it's geographically closed to us and it's something that we can cover and the way that we made our arrangement with the distributor. We think that will net-net be accretive going forward to EBITDA for our business after we get through the change in distribution model.

All right and then, Ergobaby you mentioned the new product launch in maybe some pullback in sales. When is the timing of that launch and going little more details on that please?

Yes, sure. So the launch is occurring now as we speak, it was launched in the US I believe in April when we started filling with our distribution partners, our retail partners internationally. We'll be throughout the quarter and so far so good. I think, what we are hearing back from all of our partners both retail partners as well as distribution partners, is a great product continues to expand and then fill in the line for any gaps that we may have and it's got great market potential again another product that is has got a lot of positive industry support behind it. So we feel really good about it, but it's in full launch right now.

All right, the organic growth at Sterno and Manitoba could you elaborate on that please, I mean, they obviously had some nice growth to do the acquisitions, but just kind of the underlying trends?

Yes, so I think probably some of this data will be available in 10-Q or you'd be able to probably get back to it. In terms of Sterno, it's very consistent organic growth is top-line kind of low single digit. It runs right with US GDP and so there is no major change there. I think that kind of follows where food service is, that's on the Sterno brand. It’s south. I think the Northern International brand we believe given the emergence of the category has the ability to grow much faster but given that we've only owned it now for a month and half or for a couple months I guess in the quarter, that's a little too early to start to comment on. But the main Sterno brand kind of is growing with GDP organically. Clearly, well you know as we said in the written remarks the business continues to have a strong emphasis on manufacturing efficiencies and we're continuing to find ways to manufacture more and more efficiently quarter-by-quarter. So the EBITDA margin and EBITDA leverage that we're getting is significantly greater than that, but our revenues kind of are growing in-line with GDP just like food service. Manitoba Harvest as you know we've talked about before has really been a strong business. It's growing extremely rapidly throughout 2015. The first quarter Manitoba Harvest growth was not as strong as we had anticipated organically. I think when you go through the numbers, you'll see that Manitoba was down marginally year-over-year, again this has a lot to do with timing of promotions and distributors orders. We work with all the major US and Canadian retail partners and especially in the organic and natural channels. And if we're running promotion in one quarter versus not doing in the next, it can have a pretty major effect on the business especially given the relatively small size of it. We don't look at this as any indication of weakness in the overall trends. We look more closely at data on bookings that are coming in because and we look very closely at what the sales at the register are and we get a lot of the data through spends and so we feel pretty good about the data. The company still continuing to have strong sales at the counter some of our retailer partners maybe adjusting their inventory levels a little bit or doing promotions here or there that will change timing and that will affect our sales, but and we look at kind of are just bookings will also will smooth out a little bit and we feel that's running reasonably well right now and showing growth.

All right and then last question. We have a bigger picture question. In what areas which businesses are you looking to make add-ons? Obviously you've made some of like with Clean Earth and Sterno and like what businesses are still?

I think that we certainly will contemplate add-on opportunities for virtually all of our subsidiary companies, but I think that the ones that I would say have opportunities to consider just based on the markets that they operate in and what the competitive landscape looks like. I would say that in no particular order, Sterno has opportunity, Clean Earth has opportunities, Ergo has opportunities, Advanced Circuits has opportunities. I would say less for Tridien, for Liberty and you know Arnold will probably fall somewhere in the middle. I think that they have some opportunities but not as many as the others that I referenced is having opportunity. So again, if things can be also sometimes present themselves where you didn't expect them to. So we'll consider them for all but as we said in the past. We are very happy to support both acquisition-related growth and investments to fuel organic growth and we don't force neither business model on any of our subsidiaries rather we look to see what the best opportunities are for the subsidiaries and pursue them accordingly.

All right, thanks for your time.

Your next question comes from the line of Kyle Joseph with Jefferies. Your line is open.

Sorry, I hopped on late. So I apologize if this was already addressed, but I know it's.

It's little early out there, Kyle.

And we spoke about two months ago and since then we've seen broader equity markets recover substantially. Can you just give us a sense for what you're seeing in terms of middle market evaluation since the last time, we spoke?

Our middle market evaluation I believe we motioned it last time. I don't think [indiscernible] in terms of middle market private M&A. So that did not seem to be or I should rephrase that, there seem to be dislocation between what was happening in the public markets, as it relates to middle market, M&A values. So we didn't really see them come down and I would say, we certainly haven't seen them come down at all. So they remained pretty robust as they have been for now quite some time.

Okay and is there still sort of that spread between the consumer businesses and the industrial still relatively more attractively valued?

Interesting. I think industrials have seen some price pressure upward price unfortunately. Whereas I think several months ago, I think on a risk adjusted return basis we felt definitely that there were perhaps some opportunities on the industrial side that were more compelling than on the consumer side. I think that while the multiples might not necessarily be equal to each other. I think we've seen the industrial multiples for good solid companies probably tick up a little bit and I think, one of the reasons that might be the case is. As we mentioned in the prepared remarks the activity levels meaning number of deals in the middle market M&A space were down both sequentially and year-over-year with some industry publication estimating that level of activity as compared to both periods was down upwards of 30%. So there is really in this first quarter been a real reduction in the amount of opportunities. Such as when the good companies come through almost regardless of which industry they are participating in prices are being driven off for these premium assets given the amount of capital that is out there to be deployed into the type of investing . So it's just a theory Kyle, so I don't want to put that out there is being definitive answer. But it seems as reasonable explanation at least of I can think of. And so we don't think there are great opportunities in both segment, but it remain competitive and it remains a market in which a full and fair value will likely be required to make an acquisition. I do believe that as evidenced by some of our recent add-on acquisitions that we had some really good success in that space making acquisition at, again I don't want to call them steals because I don't think in this market you can do that but at the same time at valuation levels that we are far more comfortable with than we've seen on the platform side. But we continue to pursue aggressively opportunities across all spectrums and see some good opportunities, but at the same time we've also been outbid in some cases and whereas been competitive and in other cases where maybe it's been a more direct conversation just been unsuccessful based on the valuation expectation of the seller.

That's great color, thanks a lot for answering my questions.

You bet, thank you.

Your next question comes from the line of Vernon Plack with BB&T Capital Markets. Your line is open.

Allan, I was looking for a little more color on the sort of the rationale and the logic between the two recaps that you did, one during the quarter which was Liberty and then after the quarter Advanced Circuits.

Vernon I think that with every recap that we do with our subsidiary company is really a function of them paying down their intercompany debt owed to us to a level that is meaningfully below market levels of leverage or companies of this type. So it's really simply a reflection of bringing the Company's strong performance would led to the pay down of debt to a level way below market level and simply bringing that leverage up to not high level but to a more market level for the business.

Okay, all right. Thank you.

Sure.

I'm showing no further questions at this time. I would now like to turn the conference back over to Mr. Alan Offenberg

Thank you everybody for joining us on today's' call and following the CODI story. We look forward to sharing our progress with you next quarter. Thank you.