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Executives

David Burke

Alan B. Offenberg - Chief Executive Officer of Compass Group Diversified Holdings LLC and Director of Compass Group Diversified Holdings LLC

Elias J. Sabo - Partner

James J. Bottiglieri - Chief Financial Officer of Compass Group Diversified Holdings LLC, Principal Accounting Officer of Compass Group Diversified Holdings LLC and Director of Compass Group Diversified Holdings LLC

Analysts

Lawrence Solow - CJS Securities, Inc.

Vernon C. Plack - BB&T Capital Markets, Research Division

Greg M. Mason - Stifel, Nicolaus & Co., Inc., Research Division

Robert Ladyman

John T. G. Rogers - Janney Montgomery Scott LLC, Research Division

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Compass Diversified Holdings (CODI) Q1 2013 Earnings Call May 8, 2013 9:00 AM ET

Operator

Good morning, and welcome to the Compass Diversified Holdings 2013 First Quarter Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Mr. David Burke of the IGB Group for introductions and reading of the Safe Harbor Statement. Please go ahead, sir.

David Burke

Thank you, and welcome to Compass Diversified Holdings First Quarter 2013 Conference Call. Representing the company today are Alan Offenberg, CEO; Jim Bottiglieri, CFO; and Elias Sabo, a Founding Partner of Compass Group Management.

Before we begin, I would like to point out that the Q1 press release, including the financial tables, 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 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 identified -- or 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. 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, 2012, as well as in other SEC filings.

In particular, domestic and global economic environment has a significant impact on our subsidiary companies. 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.

Alan B. Offenberg

Good morning. Thank you, all, for your time and welcome to our first quarter 2013 earnings conference call. We are pleased to report strong first quarter results that exceeded management's expectations. For the 3 months ended March 31, 2013, CODI generated cash flow available for distribution and reinvestment, which we refer to as cash flow, of $20.8 million or $0.43 per share, an increase of more than 25% from the year-earlier period. Our results are primarily due to the combined revenue and earnings growth of our leading branded products businesses, consisting of CamelBak, ERGObaby, Fox and Liberty. These 4 companies, which represent approximately 2/3 of our subsidiary EBITDA, continue to achieve notable success by capitalizing on their market leadership and comparative financial strength to increase market share relative to the competition and create significant operating leverage.

During the quarter, we also benefited from the full inclusion of operating results from our newest subsidiary, Arnold Magnetic, which we acquired in March of 2012, and from the relative stability in the performance of our 3 additional niche industrial businesses: Advanced Circuits, American Furniture and Tridien. Based on the continued application of our business model, we paid a cash distribution of $0.36 per share for the first quarter, representing a coverage ratio of cash flow to distributions paid of approximately 1.2x for the quarter and a current yield of approximately 8.5%. Since going public in May of 2006, CODI has paid cumulative distributions of approximately $9.24 per share.

Our focus remains on leveraging CODI's balance sheet strength to drive future performance and to provide attractive distributions. Last month, we took proactive measures to further strengthen our financial position. Specifically, we expanded the size of our term loan facility by $30 million to $281.9 million and lowered the interest rate by 125 basis points. In addition, we lowered the interest rate for our revolving credit facility by 50 basis points. While Jim will discuss our amendment in more detail, I'd like to note that our liquidity stands currently at approximately $275 million, positioning CODI well to continue to invest in high-return organic growth initiatives while pursuing platform and add-on acquisitions without having to rely on third-party financing.

Currently, the M&A environment for middle-market businesses remains quiet, a continuing trend from the end of 2012 as economic uncertainty has persisted along with relatively low business and consumer confidence levels. Although the timing of any acquisition can be difficult to predict, we remain cautiously optimistic that we will be able to complete at least 1 platform acquisition in 2013.

We expect a modest increase in M&A activity going forward given the continued strength in the overall equity and debt markets as well as a stabilizing economic outlook, which should eventually provide for more high-quality deal flow as we strive to enhance our sourcing efforts. We appreciate the patience of our shareholders as we remain true to our disciplined approach in creating long-term value by acquiring companies with a real reason to exist under favorable terms and valuations that are accretive to cash flow. I will now turn the call over to Elias to review our current group of subsidiaries in more detail.

Elias J. Sabo

Thank you, Alan. I will begin by reviewing our branded businesses. As Alan mentioned, we continue to post strong growth across our branded businesses, which produced combined revenue and EBITDA growth of approximately 19% and 33%, respectively, for the first quarter of 2013 over the year-earlier period. EBITDA margins also expanded to 21.2% for the quarter ended March 31, 2013, from 18.9% for the quarter ended March 31, 2012, for these 4 subsidiaries on a combined basis.

All of our branded businesses grew revenues and EBITDA in the first quarter, the majority by double digits, led by Liberty, which increased revenue approximately 41% over the year-earlier period. This business posted a record quarter in Q1 as we continue to experience robust demand for the company's premium home and gun safes. In addition to the positive top line trends, our ongoing efforts at Liberty to increase operating efficiencies contributed to a substantial increase in EBITDA of more than 87%. At ERGObaby, we posted another strong quarter in terms of both revenue and profitability, each of which increased approximately 19% as compared to the year-earlier period.

We continue to leverage ERGObaby's superior brand for child mobility and transport products and expand customer penetration levels in both the U.S. and internationally.

At Fox, revenues and EBITDA grew by approximately 20% and 38%, respectively, even though the first quarter has historically been the company's weakest quarter due to seasonality factors.

Finally, at CamelBak, revenues and EBITDA increased by 6% and 21%, respectively. During the first quarter, we fulfilled our contract with the U.S. Marine Corps to supply a new hydration system for use in training and combat operations. We also benefited from changes in the timing of certain product deliveries ahead of schedule, which we expect will reduce our performance in the second quarter. Going forward, we will maintain our focus on expanding CamelBak's leading product platform and strengthening its global distribution network.

Next I will turn to our niche industrial businesses, which posted results in line with our expectations as they continue to generate predictable and strong free cash flow. Revenue on a combined basis for the first quarter of 2013 was essentially flat and EBITDA declined approximately 7%. Please note that all references to combined revenue and EBITDA for our niche industrial businesses were prepared on a pro forma basis as if we acquired Arnold on January 1, 2012.

Advanced Circuits delivered year-over-year revenue growth of approximately 12% in the first quarter due to the add-on acquisition of Universal Circuits. While demand for the company's core quick-turn production services remained stable, we continue to experience softness in our defense and aeronautical business.

Our newest subsidiary, Arnold Magnetic, posted first quarter results consistent with our expectations. Revenue and EBITDA declined year-over-year by approximately 12% and 18%, respectively. This is primarily a result of an unusually strong first quarter in 2012. However, EBITDA increased sequentially by approximately 8% from the fourth quarter of 2012. We are pleased with the progress this business has achieved since acquiring it just over a year ago and remain excited by Arnold's future prospects in the specialty and rare-earth magnetic industry.

At Tridien, this business performed slightly ahead of our expectations in Q1. Revenue increased year-over-year by more than 10% while EBITDA declined by approximately 9%, as anticipated. On a sequential basis, EBITDA for the first quarter increased approximately 10% from the fourth quarter of 2012. We continue to invest in R&D and remain on track to launch new innovative products by the end of 2013 in order to further strengthen Tridien's diverse platform of leading medical support services.

And lastly, AFM met our expectations in the first quarter as both revenue and EBITDA increased year-over-year. The improvement in operations reflect the proactive measures we have taken at AFM, including reducing the company's cost structure and working capital requirements, in light of the challenging retail environment in the furniture industry. We are confident this business is well positioned to benefit from an eventual recovery in the overall economy and housing market, and we expect AFM to generate, at a minimum, breakeven cash flow in 2013.

I would now like to turn the call over to Jim Bottiglieri to add his comments on our financial results.

James J. Bottiglieri

Thank you, Elias. Today I will discuss our consolidated financial results for the quarter ended March 31, 2013. I will limit my comments largely to the overall results for our company, since the individual subsidiary results are detailed in our Form 10-Q for the quarter that was filed last night.

On a consolidated basis, revenue for the quarter ended March 31, 2013, was $241.6 million as compared to $195.3 million for the prior year period. This increase was attributable to the full inclusion of our Arnold Magnetic subsidiary, which we acquired in March 2012, and double-digit revenue increases at ERGObaby, Fox and Liberty.

Net income for the quarter was $3.6 million as compared to net income of $0.9 million in the year-earlier period. The year-over-year increase reflects double-digit growth in each of net sales, gross profit and operating income. During the first quarter of 2013, we recorded a noncash supplemental accrual expense of $6.4 million based on a periodic review of current cash flow generation levels of CODI subsidiaries and anticipated market multiples for those businesses in the event that they were to be sold in the current environment, reflecting the increase in value of our subsidiaries.

During the first quarter of 2012, we reversed approximately $1.5 million of the noncash supplemental accrual and expensed approximately $4.3 million of transaction costs related to the acquisition of Arnold.

Cash flow for the quarter ended March 31, 2013, was $20.8 million as compared to $16.6 million from the prior year period. This year-over-year increase of approximately 25.2% was due to the full inclusion of Arnold and the strong performance in our branded product businesses, as was mentioned before. Partially offsetting these factors, cash flow for the first quarter of 2013 excluded the operating results from HALO, which we sold in May of 2012.

Turning now to our balance sheet. We had approximately $16.5 million in cash and cash equivalents, and had net working capital of $152.9 million as of March 31, 2013. We also had approximately $251.9 million outstanding under our term debt facility and $27 million of borrowings outstanding under our $290 million revolving credit facility as of March 31, 2013, with no significant debt maturities until 2017. We had borrowing availability of approximately $261 million under our revolving credit facility as of March 31, 2013.

On April 3, we exercised an option under our credit agreement, dated as of October 27, 2011, to increase the term loan facility by $30 million, increasing CODI's aggregate outstanding borrowings under the 6-year facility to approximately $281.9 million. We utilized the net proceeds from the incremental term loan, which was issued at par value, to repay borrowings under our revolver. As a result, there were no borrowings outstanding under the revolving credit facility at closing. We have $50 million outstanding under our revolving credit facility as of today.

Concurrent with this increased borrowing, we amended the pricing terms of our term loan facility. Under the terms of the amendment, amounts borrowed now bear interest at either LIBOR plus a margin of 4% as compared to a previous LIBOR margin of 5%, or base rate plus a margin of 3% as compared to the previous base rate margin of 4%. In addition, the LIBOR floor was reduced to 1% from 1.25%.

We also amended the pricing terms of our revolving credit facility. Under the terms of the amendment, amounts borrowed now bear interest based on a leverage ratio defined in the credit agreement as either LIBOR plus a margin ranging from 2.5% to 3.5% as compared to the previous margin that ranged from 3% to 4%, or at a base rate margin plus a margin ranging from 1.5% to 2.5% as compared to the previous margin that ranged from 2% to 3%.

In addition, the unused fees for the revolving credit facility was reduced to 75 basis points from 1% and leverage is lower than the defined ratio, and in addition, the maturity date for the revolver was extended to April 2017. All other terms of the credit agreement remain unchanged.

We are pleased to have capitalized on the favorable credit market conditions for the second time over the past year. By amending both of our credit facilities under favorable terms, we have enhanced CODI's financial flexibility and reduced the company's borrowing cost. We appreciate the continued support of our lender group, which we believe underscores our strong growth potential.

During the first quarter of 2013, we incurred $2.3 million of maintenance capital expenditures as compared to maintenance capital expenditures of $2.6 million for the quarter ended March 31, 2012. For the full year of 2013, we anticipate maintenance capital expenditures of between $11 million and $13 million as we remain focused on investing in the long-term health of our companies. We also incurred approximately $1 million of growth capital expenditures during the first quarter, an increase compared to the growth capital expenditures of $0.8 million in the prior year period. For the current year, we expect to incur growth capital expenditures between $7 million to $9 million, largely for our initiatives at CamelBak, Fox and Liberty subsidiaries.

I will now turn the call back over to Alan.

Alan B. Offenberg

Thanks, Jim. We are pleased by our strong start to 2013. The notable performance across our family of leading middle-market businesses, combined with our substantial liquidity, bodes well for CODI's future prospects as we remain on track to achieve solid year-over-year growth in CAD for 2013, excluding the impact of any acquisitions or dispositions. We plan to continue to capitalize on both organic and acquisition-related growth opportunities that create significant value for our owners, while providing a steady stream of cash distributions, as we have consistently done throughout our 7-year history as a public company. I would like to thank everyone again for joining us on today's call. We'll be happy to take any questions you may have. Operator, please open the phone lines.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Larry Solow with CJS Securities.

Lawrence Solow - CJS Securities, Inc.

Just a few quickies. It sounds like a pretty good quarter. I guess the CamelBak was probably mostly timing related, but clearly a couple of the other -- all your other branded businesses did pretty good. Is it fair to say that you're more positive today than you were a couple of months ago? I guess your Q4 call wasn't too long ago, so.

Alan B. Offenberg

Yes, look, Larry, I think it goes without saying that we're extremely pleased with the performance of all of those businesses in the first quarter. And we remain optimistic that they're well positioned and poised to have a strong 2013. So I don't know if it's necessarily something I would classify as more optimistic than I was a quarter ago, versus having 1 quarter into the year and having that good performance, just feeling better about that year given that we've got 1 quarter behind us. So I think we were very optimistic about their prospects at the end of last year and remain so. Just with the first quarter performance, it only enhances our outlook for those businesses in 2013.

Lawrence Solow - CJS Securities, Inc.

Okay. And I realized Fox, just in particular, which is really not going to cover up the ball for several quarters in a row. Seasonally slow quarter but pretty good growth and rapid growth the last few years, and I guess, inevitably, it has to slow a little bit. But does the good growth in a seasonally slower quarter, does that -- is it skewed by the seasonality or is it -- wasn't really -- or is it truly an as-is quarter that good?

Alan B. Offenberg

Yes, I'll let Elias comment with more detail but, obviously, Fox had a great quarter. They've been a extremely strong performer for several years now, and we think that they're just really well positioned. But with respect to your specific question, I'll let Elias comment on Fox more specifically.

Elias J. Sabo

Yes, Larry, it is a -- Q1 is our seasonally -- one of our seasonally weakest periods. Q4 and Q1 are typically the 2 slower periods, driven largely by bike, which is Q2 and Q3 when we're launching the new model year and why we get such a boost in those periods. I would say Q1, if you just -- if you look at the percentages, was extremely strong in terms of top line, and we were able to generate good bottom line leverage off of that as well. As we stand today, I'd say it's -- it was a good first quarter and there's nothing that would suggest that Fox's first quarter is out of line with where this company thinks it will be for the year. So -- it was a positive first quarter and we're -- it has been a great last couple of years, so it's -- it continues just to execute extremely well.

Lawrence Solow - CJS Securities, Inc.

Just one on Arnold. I realize that some of the quarterly year-over-year down on a pro forma basis, maybe was a little bit exacerbated by timing. But what's your sort of outlook? If I had to pick out a sore thumb or a business that's sort of at least not beat expectations since you acquired it, what's your outlook there and what's hampering the business and where we stand going forward?

Alan B. Offenberg

Well, I think, Arnold, first and foremost, we remain really excited about Arnold's, not only current performance, but its future prospects. So I think that looking -- as we've mentioned on previous calls, Arnold can be a somewhat lumpy business, particularly as compared to other businesses within our subsidiary group. Arnold's first quarter really was interesting in that they comped to an extraordinarily strong first quarter in the prior year. So they did suffer a little bit in that the last -- last year's first quarter, in the context of a lumpy business, was just a phenomenal quarter for them. So this first quarter of performance was really in line with our expectations. And, more specifically, if you were look at the Arnold individual lines of business, again, their largest subsidiary being PMAG, followed by FlexMag and then Rolled Products, what you saw last year was the Rolled Products business having an exceptional performance, whereas I think as we've also mentioned on previous calls, the Rolled Products business is undergoing a period of weakness and we've taken steps to address that business. We've got new leadership in place there, which we're very excited about. And again, think that, that is a segment of the business that will come around over a period of time. But if you really peel back the business, what you'll find is PMAG performing at or even above prior-year levels. You've got FlexMag down slightly but poised to regain some business that was lost last year. Again, on prior calls, I think we mentioned a customer that they had lost, that they've now gotten back, as well as just gaining traction in their business, generally. And the Rolled Products business is the one that's struggling a little bit but we're very comfortable that we and management at Arnold are taking the appropriate steps to remedy the challenges that business has encountered over the last years -- over the last year, pardon me. So we are really excited about Arnold. We think that they're positioned this year to perform in line with their performance that they achieved last year. And again, quarter-to-quarter, there could be some fluctuations in the context of it being lumpy. But the sequential growth that the company demonstrated in the first quarter versus the fourth quarter of 2012 is very encouraging, and we are hopeful that Arnold will continue to perform in line with our expectations.

Operator

We'll take our next question from Vernon Plack with BB&T Capital Markets.

Vernon C. Plack - BB&T Capital Markets, Research Division

Jim, I wanted to make sure that I understood what you were saying as it relates to the revolver. Now, you paid the revolver off. Do you -- what was the number that -- how much do you have outstanding on the revolver today?

James J. Bottiglieri

As of today, we have $15 million.

Vernon C. Plack - BB&T Capital Markets, Research Division

15, 1-5?

James J. Bottiglieri

1-5. We borrowed to fund our quarterly distributions. It's just timing of cash flows.

Vernon C. Plack - BB&T Capital Markets, Research Division

Okay. Can I assume then if you have $15 million outstanding, do you have $275 million in availability on the revolver right now?

James J. Bottiglieri

Approximately. There are some letters of credit. Approximately, yes.

Vernon C. Plack - BB&T Capital Markets, Research Division

Approximately, $275 million. All right. And it looks -- was looking through the Q, did you -- did Tridien take on some debts, intercompany debts, for a particular reason?

James J. Bottiglieri

Yes, we did. Tridien had no intercompany debt, and we did a recap where we've redeemed some internal preferred stock that was owned by us and some minority holders and, basically, recapitalized into company debt. I think it was $17 million of intercompany debt we did.

Vernon C. Plack - BB&T Capital Markets, Research Division

Yes. Okay, great. And Alan, just a question about -- I was hoping for a little more information just in terms of the pipeline. You mentioned that there's a possibility that you may be adding a platform acquisition in '13. And curious in terms of what you're seeing out there right now. I know that things have been slow across capital markets in terms of opportunities. And just was trying to get a better sense for the fact that you're now -- that you are cautiously optimistic.

Alan B. Offenberg

Emphasis on the word, cautiously. Yes, we are seeing -- as you mentioned, we're seeing exactly what you said, which is a relatively quiet period with respect to high-quality opportunities for M&A in the middle market. We've seen a -- we've seen some opportunities more recently that I think are in line with the types of opportunities we are interested in pursuing. And based on conversations we have with various participants in this industry, be it intermediaries or people that have access to sellers and how they're thinking about their businesses, there seems to be an overriding sense of cautious optimism about an increased level of activity. And so we believe that combined with -- combining that with our sourcing efforts, which I believe are as good as they've ever been, we're just hopeful that we'll be able to uncover an opportunity that makes sense for CODI to pursue. We haven't, historically, been specific about the pipeline. So I don't think I'm going to go there in great detail. But I do think it's fair to say that, over the last month or so, there have -- we're starting to review some opportunities that are potentially exciting for us. But again, very early stage, Vernon. So it's one of those things where we could talk in 3 weeks and I could tell you that none of those things are interesting to us at that time. So I don't want to leave you with anything other than, based on the macro factors that we just discussed here, we're are cautiously optimistic that we'll be able to achieve something. But beyond that, it's always hard to predict and time will tell. But I can promise you that we are out there every day looking for those opportunities and hope that we'll be successful in finding one and consummating that type of acquisition.

Vernon C. Plack - BB&T Capital Markets, Research Division

No, that provides a clarification for me. And just one follow-up. I'm curious in terms of the opportunities that you're seeing, are these attractive opportunities that are just too expensive or are you just not seeing perhaps a whole lot of really attractive opportunities at any price?

Alan B. Offenberg

Yes, I think that for -- what I'm referring to right now is it's hard to comment about price because we're not really at a stage yet where I can tell you that we are missing out on things that have been just "too expensive" for us. That has happened at times during the year. And it's a great market. I mean, given the availability of debt and equity capital out there, it is a market that can see premium valuations for premium assets. But I would characterize my comments more in the context of a low volume of high-quality opportunities as opposed to a great many opportunities that we're just not getting to because of price considerations.

Operator

We'll take our next question from Greg Mason with KBW.

Greg M. Mason - Stifel, Nicolaus & Co., Inc., Research Division

First on CamelBak. Can you talk to us about the potential drop-off from the exploration of the main Marine hydration contract? What should we be thinking about next quarter with that now being out of the numbers, the impact from that?

James J. Bottiglieri

Q1 probably had an impact of somewhere between $2 million and $2.5 million of EBITDA included in Q1 for the Marine contract. On a trailing 12-month basis, it was probably close to somewhere between $9 million and $11 million of EBITDA.

Greg M. Mason - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then for ERGObaby, in the Q, you talked about international stroller sales were down, essentially due to inventory timing. What could be -- should we expect that to come back and is that a meaningful part of the business?

Elias J. Sabo

Well, as you know with international distributors, because they do make rather large orders, it can be somewhat lumpy. And a lot of times, what we're looking at is the sell-through of the product to gauge health of the business, which sometimes doesn't match up 100% in a quarter with the shipments we make to the international distributors. I would say, with respect to the stroller side of the business, today, it represents kind of a 20%, roughly, of the overall business, stroller and related accessories. And we remain very confident in the business. It's a very strong, recognized brand both domestically and internationally. And we feel good about not only the products we have, but new products that we'll be launching as well. So there's nothing right now with that side of the business that gives us any kind of pause.

Greg M. Mason - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Great. And then a couple final questions on CAD cash flow. Looks like you've hit the 5-year anniversary on Fox and you're going to get a $5.6 million performance-fee payment. How does that impact the CAD number in the second quarter when that gets paid?

James J. Bottiglieri

It doesn't. It's not a component of our cash flow generation number, nor is the realized gains from the sale of businesses.

Greg M. Mason - Stifel, Nicolaus & Co., Inc., Research Division

Got it. Okay, great. And then also, did the Tridien essentially recap impact the cash flow CAD number this quarter at all?

James J. Bottiglieri

It really doesn't. I mean, obviously, the transaction is -- acts as a tax shelter in that there's some interest expense now generated at the Tridien level that should reduce cash income taxes. Outside of that, it has really no impact on CAD.

Operator

[Operator Instructions] We'll take our next question from Bo Ladyman with Raymond James.

Robert Ladyman

On Liberty, very good quarter out of Liberty. Was there some onetime inventory pushed out the door there or is this level a pretty good go-forward base to go on?

Alan B. Offenberg

There was no onetime inventory pushed out. I think that, obviously, with a record quarter that corresponds with, what I would say, unprecedented demand for their products. And so relative to what's happening right now in the market that Liberty serves, I think that what you're seeing in the first quarter is a good representation of actual demand and performance. I think that, to be fair, when we think about Liberty and we think about its history and its future, right now, recent current events as well as the political environment are, undoubtedly, factors driving demand for Liberty's products. Historically, and by that I mean over the last year or so, they've also done an incredible job of marketing their product and their brand, and driving additional demand even beyond that. So it's hard to know when this business will settle in to something that isn't as current-events driven but more just driven by the business, its branding and what I'll call a more consistent, normalized level of demand. We don't see anything changing right now in the current environment. So I don't make those comments to caution you in the very near term. However, if we're going to -- as you think about Liberty longer term, that's something that we think about and the company's management thinks about. But for right now and for the near term, we think that the first quarter is really representative of the current state of the business as it will exist this calendar year.

Robert Ladyman

So booking levels there have remained quite strong?

Alan B. Offenberg

Yes, they have.

Robert Ladyman

Okay. Wonderful. And then one on the sequester. Something, it was touched on last quarter. From other companies, we've heard that it really was a nonevent. Is that the same for you or have you seen any impact to particularly your defense-exposed companies?

Alan B. Offenberg

I would say that at a consolidated level, it hasn't been material, so to speak. However, at the individual company level, there have been some businesses that have and continue to feel an impact from the sequester. I would say most notably our subsidiary, Advanced Circuits, in their defense and aerospace related segment of their business, has seen some softness, as we talked about last quarter, that we attribute to the sequester. But on balance, beyond that, I -- it's hard to point to any of our other subsidiaries where it's as pronounced as it is there. But as you can see with Advanced Circuits' performance, even that -- even with that softness associated with the sequester, their performance continues to be extremely solid. And so it's a situation there where we don't think we've lost any business, it's just a function of having that business ramp back up. We certainly think we'll be the beneficiaries of that. But so it hasn't been a complete nonevent, but on a consolidated basis, it hasn't been a material negative impact to us. Jim or Elias, would you add anything to that? Okay.

Elias J. Sabo

The only thing I would add, Alan, is the -- we started experiencing at Advanced Circuits a lot of the talk of the sequester pushing down orders really as early as kind of Q3 of last year and into Q4. There's been no additional stress since the sequester went into effect. But I think what a lot of companies did experience that are doing work in the defense industry was, in anticipation of that, just a real slowdown. And that's kind of just now held steady. But there's been no further degradation since implementation of the sequester.

Robert Ladyman

Okay. Wonderful. And then on -- taking a different look at the acquisition front, are there any of your companies right now -- I guess given the multiples in the market that you're seeing, are there any particular companies right now that you would consider selling at this point?

Alan B. Offenberg

Historically, we haven't really commented on that. I'd say the following: We have some very attractive subsidiaries, as you know. And I think it's fair to say that from time to time, we do get tapped on the shoulder, so to speak. People ask about kind of what we're thinking about the future of our subsidiaries and what is our interest level in perhaps selling them. I think that when you look across our group of subsidiaries at the time, even in the context of some companies that have performed not only incredibly well this first quarter but over a series of quarters and even years, that we believe that there's still room for many of these companies, if not all of them, to continue to grow and create even more value for our shareholders. And I think that, when we look at our own plans, one of the things we always ask about our companies is, "Where are they, where can they go and do we think we can help them get there?" And we believe that these companies have a lot of opportunity. And really, also as a reminder, we are -- while we sell our companies from time to time, we're really structured and positioned and acquire all of these companies with the intention of owning them forever, and building them and having them generate cash flow. So I think that while we will always, opportunistically, consider options to sell our companies if that is what's in the best interest of our shareholders, right now, what we're really focused on is building our companies, acquiring additional companies and growing our cash flow.

Robert Ladyman

Okay. Great. And then one more, if you could just remind me, you hit the 5-year anniversary on the Fox acquisition. You're getting the performance fee. Do you have the option to receive that only for a specified time period after the 5-year mark or can you receive that at any time after the 5-year mark?

James J. Bottiglieri

It's on the fifth year anniversary and then after that, it's every year thereafter.

Robert Ladyman

Okay. And do you happen to know, of the companies that you currently own, how much you have paid out in cash on -- I think there are 3 other companies that you've owned for more than 5 years?

James J. Bottiglieri

I believe the only other one was Advanced Circuits, $6.5 million, somewhere around there.

Operator

We'll take our next question from JT Rogers with Janney Capital Markets.

John T. G. Rogers - Janney Montgomery Scott LLC, Research Division

I have a quick question on Liberty margins. I think you guys put in a price increase. And also in the Q, talked about seeing manufacturing efficiency benefits as well as a favorable product mix. Just wondering when in the quarter the price/mix was put into place. If you can sort of quantify what kind of benefit that has had. And then maybe how much further we have to go in terms of manufacturing efficiencies benefiting gross margins.

Alan B. Offenberg

Yes, JT, the price increase was put into place in March of this year. And as you might expect, the company, given the level of demand, is adding employees, adding shifts. And while their factory is run as good as any factory that I've ever seen, they certainly are actually struggling even with some inefficiencies due to getting new people ramped up, getting things going smoothly as they look to satisfy the demand. So I think that they have the ability, as they adjust to serving this level of demand, to see some manufacturing efficiencies going forward. I think at this stage, it is hard to quantify. So I really don't want to necessarily give you a target as to where I think the margins can increase due to -- purely to manufacturing efficiencies. But the team at Liberty is doing an incredible job of running their facility at a time, as I said, of unprecedented demand and production levels that they've never seen before. So I -- even maintaining exactly the levels of margin that they have now at this level of production would be an incredible accomplishment. I believe so strongly in their capabilities that I'm comfortable making the comment that I think we could see some efficiencies going forward. But I really don't want to commit to that as part of a set of expectations going forward for the rest of the year.

John T. G. Rogers - Janney Montgomery Scott LLC, Research Division

Okay, that makes sense. Would you expect, I mean, I guess if there was a sequential decline in gross margins, would you expect the price increase to offset maybe some of the operational inefficiencies you talked about going into the -- once you get a full quarter of benefit?

Alan B. Offenberg

Yes, I think that's a fair expectation. Yes.

John T. G. Rogers - Janney Montgomery Scott LLC, Research Division

Okay. Great. And then switching gears a little bit. Tridien, looks like sales there were pretty strong on new products. See they were mostly powered Support Services, but margins got hurt on product mix. Just wondering what the pricing differential is between the powered Support Services versus nonpowered and maybe why a more -- what I assume would be a more highly engineered product would carry lower margins?

Elias J. Sabo

Yes, so the powered business carries a significant premium in price. And as you can imagine, there's a number of different SKUs in both the powered and the nonpowered, so I can't give you exact numbers. But it's typically a significant premium and can be multiples of what it costs in the nonpowered on a per-SKU-unit basis. As you referenced, the margins on those products are typically better because they are highly engineered. One of the things that I would say though, and caution, just like as Liberty was ramping up their production, there are some inefficiencies. And when there's new products that are being launched, there's certain learning curves that are coming up and certain inefficiencies that occur. And you expect, generally, as you get into more of a -- kind of up the manufacturing curve on some of these new products that those start to kind of abate and you get to the full margin potential on the products. And I would say that's squarely where Tridien was in the Q -- in the first quarter.

John T. G. Rogers - Janney Montgomery Scott LLC, Research Division

Okay. Great. And then just one last question. On ACI, I guess, you're saying that you're seeing it's really getting no worse there. I was wondering if there's any sign of a benefit as you get into the second quarter and maybe you're looking out to the third and fourth quarter.

Elias J. Sabo

Yes, we're seeing stable demand right now. I would say that the business looks very stable compared to where we were in the fourth quarter and the first quarter. And the numbers largely have kind of flattened out here in the last 6 to 9 months. I -- we have not seen any deterioration, which I think is positive because there was a lot of fear with sequester implementation, whether that would push down the overall business. But it's still too early to see any meaningful pickup. Longer term, we remain highly confident in this business, and I would continue to say that this is a company that performs extremely well and generates great cash flow. A lot of the competitors, especially the smaller ones, are really finding it difficult operate in this environment. And we think over the longer term, that will inure to the strong players, kind of this weak market environment now as the industry consolidates, of which Advanced Circuits is clearly one of them. But it's a little bit too early to see any kind of demand growth that's starting to come back. But I'd say we're looking out into this year right now and we kind of think of this as flat from where we are to Q1, and then beyond that, we'll have to see. But for right now, everything looks kind of very flattish.

Operator

We'll take our next question from Mark Hughes with SunTrust.

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Any way to kind of broadly characterize the end market that you're looking at in terms of your acquisition pipeline, the types of businesses that you're looking at now, kind of how that fits into your longer-term strategy of building up the operation?

Alan B. Offenberg

Sure. Broadly, we remain interested in looking at companies that fit into the existing platforms that we have, meaning branded enthusiast products and niche industrial businesses. And so we remain interested in growing our business in both of those verticals. And so I would say that is where we are trying to spend the bulk of our time. Again, opportunistically, there are situations that we'd be pleased to take a look at as well. But I would think building on the existing platform that we have in branded products and niche industrial remains our focus in the areas that we have the most interest in pursuing.

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

You might have touched on this I think, but the price expectations of sellers, how do they stand now versus 6 months ago? Is it more the reasonable expectations that has you enthused about some of these opportunities?

Alan B. Offenberg

I think that the expectations are probably pretty similar. Because in this period of time that we referenced, the -- there's been a really -- a bit of a lack in our opinion, of high-quality opportunities. And so when the high-quality opportunities present themselves, they tend to not only attract a crowd but the sellers of these businesses know that they have a high-quality property, so their expectations, I would say, are full. I wouldn't say that we've encountered too many situations. I can think of one -- that we haven't encountered very many situations where the expectations were extraordinary as to be unreasonable. I would say that the sellers that we're seeing today are -- again, if you're thinking about a range of valuations that they consider, they're probably towards the upper end of those ranges, but not in a way that makes conducting business impossible.

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

And then refresh me on how you view accretion as you look at the pipeline; how quickly do you expect the -- any incremental deal to make a positive addition to EPS?

Alan B. Offenberg

We would expect new transactions and new acquisitions to be accretive to our cash flow immediately.

James J. Bottiglieri

Mark, on EPS, that's a little bit different because typically these purchase prices have a lot of amortizations associated with it. So from a net income point of view, there will not be a lot of accretion to EPS. But Alan is referencing cash flow or cash...

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Cash flow for [indiscernible]

James J. Bottiglieri

Yes.

Operator

It appears there are no further questions at this time. I'd like to turn the conference back to Mr. Alan Offenberg for any additional and closing remarks.

Alan B. Offenberg

Just want to thank everybody for joining us today. We appreciate your support of CODI, and we look forward to speaking with you all next quarter. Thank you.

Operator

That does conclude today's conference. We thank you for your participation.

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