Compass Diversified Holdings (CODI) 2012 Q1 法說會逐字稿

Good morning and welcome to Compass Diversified Holdings 2012 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 David Burke of The IGB Group for introductions and the reading of the Safe Harbor statement. Please go ahead, sir.

Thank you and welcome to Compass Diversified Holdings' first-quarter 2012 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 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 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, 2011 as well as in other SEC filings. In particular, the domestic and global economic environment has a significant impact on our subsidiary companies.

CODI takes 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 like to turn the call over to Alan Offenberg.

Good morning. Thank you all for your time and welcome to our first-quarter 2012 earnings conference call. We are pleased to report strong results for the first quarter of 2012, which exceeded our expectations. For the three months ended March 31, 2012, CODI generated cash flow of $16.6 million, an increase of approximately 16% from the year-earlier period.

During the quarter, we maintained our focus on taking advantage of the relative operating and financial strength of our subsidiaries in order to gain market share in their respective industries and, in certain cases, expand into adjacent markets.

Our results for the quarter were also positively impacted by favorable acquisitions, particularly our CamelBak subsidiary which we acquired in August of 2011. We also benefited from the performance of our newest subsidiary, Arnold Magnetic, our fourth subsidiary acquisition of approximately the past two years.

Based on the strong results across our diverse family of niche leading businesses and future prospects, we paid a cash distribution of $0.36 per share for the first quarter, representing a current yield of approximately 10.5%. Since going public in May of 2006, CODI has paid cumulative distributions of approximately $7.80 per share.

With significant access to capital, we remain committed to taking advantage of both organic and acquisition-related growth opportunities that create long-term value for our owners while providing attractive cash distributions. In further strengthening our financial flexibility, we completed two additional transactions so far in the second quarter.

First, we expanded the size of our term loan facility by $30 million to $255 million and lowered the interest rate by 1.25%. Our amended term loan facility enhances CODI's financial flexibility and lowers the Company's borrowing costs. By taking advantage of a more attractive pricing environment we expect to significantly reduce future interest expense. We appreciate the continued support of our lending group which we believe underscores our strong growth potential.

Second, we made the strategic decision to sell our HALO subsidiary. The opportunity to monetize our interest in HALO increases our liquidity and supports our efforts to maximize value for our owners. With this transaction, we have further enhanced our position as an all-cash buyer of new businesses [while] key competitive advantages in the current environment while reinvesting in our existing subsidiaries to strengthen their future performance.

I would like to note that our liquidity stands currently at approximately $290 million, positioning CODI well for the remainder of 2012 and beyond. I would like to now turn the call over to Elias for an overview on each of our subsidiaries.

Thank you, Alan. I will begin by reviewing our Companies alphabetically, starting with Advanced Circuits.

Advanced Circuits met our expectations in the first quarter as demand for our core quick-turn and prototype production services remain strong. The growth in our leading quick-turn and assembly businesses offset the softness in the production of circuit boards for our defense and aeronautical customers, which has been affected by challenging conditions within the National Defense contracting industry.

Going forward, we will maintain our focus on leveraging ACI's number one market position and the quick-turn manufacturing niche, while pursuing attractive opportunities to further consolidate the industry.

Next, American Furniture performed in line with our expectations as this business reported slightly better than breakeven cash flow for the first quarter. While AFM continues to be adversely affected by the soft retail environment in the furniture industry, we continue to aggressively manage the Company's overhead and working capital requirement. Based on our restructuring efforts over the past year, AFM remains on track to generate positive cash flow in 2012.

Turning to Arnold, which we acquired on March 5, this business met our early expectations. We are excited by Arnold's attractive growth prospects as the Company is a niche industry leader with a strong history of stable cash flows. We plan to drive future performance by further leveraging the Company's superior reputation in the specialty and rare earth magnetic industry and capitalizing on the positive macro trends, including increasing demand from high-growth sectors such as alternative energy.

At CamelBak, which we acquired in August of 2011, revenue increased over 23% on a pro forma basis in Q1, well ahead of our expectations. CamelBak's topline performance reflects the Company's strong brand recognition as an innovator of best-in-class personal hydration products. We are pleased by the considerable progress we have achieved since acquiring this business less than a year ago. Going forward, we remain committed to increasing consumer penetration levels on a worldwide basis by expanding CamelBak's leading product platform and strengthening its global distribution network.

Next is ERGObaby, which met our expectations in the first quarter. Highlighting our performance, revenue increased over 19% in Q1 compared to the same period last year. During the quarter, we benefited from the strategic add-on of Orbitbaby which was acquired by ERGObaby in November 2011 and expands our global presence in the baby durables market. The combination of the two businesses is progressing as planned both financially and strategically.

Turning to Fox Racing Shox, we posted another strong quarter in terms of both revenue and profitability, consistent with our expectations. This business continues to perform at a high level across all market segments, including our core premium mountain bike business in new verticals particularly powered sports. As we continue to leverage Fox's leading reputation for high-performance suspension products and capitalize on the positive demand among market enthusiasts, we remain focused on making significant investments in support of the Company's strong growth.

As for HALO, this business exceeded our expectations in Q1 by posting year-over-year revenue growth for the ninth consecutive quarter. As we announced on May 1, we sold HALO to a strategic buyer for a total enterprise value of $76.5 million. CODI received approximately $66.4 million of the total proceeds from the sale at the closing with respect to its debt and equity interest in HALO as well as the payment of accrued interest and fees. We enjoyed working with HALO over the past five years and wish the company continued success.

Moving to Liberty Safe, this business exceeded our expectations during the first quarter as demand for the Company's premium home and gun safes remained strong. While we continue to increase sales based on our marketing initiatives and brand building efforts, combined with the favorable macro trends, we remain focused on increasing operating efficiencies as we further scale the business.

And finally at Tridien Medical, we reported Q1 results in line with our expectations as demand for the Company's core products remains relatively stable. We continue to invest heavily in new product development in an effort to further strengthen our diverse platform of leading medical support services and create significant value over the long term.

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

Thank you, Elias. Today, I will discuss our financial results for the quarter ended March 31st, 2012, including a review of the operating results of each of our subsidiaries.

On a consolidated basis, revenue for the quarter ended March 31, 2012 increased to $232.4 million as compared to $177.3 million for the prior year period. Net income for the quarter was $0.9 million as compared to a net loss of $6.6 million in the year-earlier period. During the first quarter of 2012 CODI recorded approximately $4.3 million of transaction costs related to its acquisition of Arnold's and reversed approximately $1.5 million of its non-cash supplemental put accruals.

Now turning to our subsidiary results beginning with Advanced Circuits. For the quarter ended March 31, 2012, Advanced Circuits revenue was $19.4 million compared to $20.3 million in the prior year period, mainly due to lower long lead sales partially offset by higher quick-turn and assembly sales.

Income from operations for the quarter were $6.2 million as compared to $7.1 million for the same period in 2011, as a result of lower sales and promotional pricing [in a long lead sector].

Now I would like to turn to American Furniture Manufacturing, or AFM. For the quarter ended March 31, 2012, AFM's revenues decreased to $30.3 million compared to $35.9 million of revenue in the prior year quarter as this business continues to be adversely affected by the challenging environment in the promotional furniture market. AFM reported $0.3 million of operating income for the first quarter of 2012 as compared to the loss from operations of $8 million which included a non-cash impairment charge of $7.7 million in the prior year period.

Turning to our newest company, Arnold Magnetics, which we acquired on March 5, 2012. For the quarter ended March 31, 2012, the Company reported revenue of $34.5 million compared to $32.3 million in the prior year period which were prepared on a pro forma basis as [if] we acquired Arnold on January 1, 2011. This increase was primarily due to higher international sales. The Company had pro forma income from operations of $2.9 million for the first quarter of 2012, as compared to $2.2 million in the same period last year.

Turning now to CamelBak, which we acquired on August 24, 2011. For the quarter ended March 31, 2012, revenue increased approximately 23% to $40.2 million compared to $32.6 million in the prior year period which was prepared on a pro forma basis as if we acquired CamelBak on January 1, 2011. This increase is attributable to higher sales in hydration systems and bottles, and the continued expansion in CamelBak's customer base across its leading product platform.

Pro forma income from operations climbed significantly into $7.1 million for the first quarter of 2012 compared to $4.1 million in the same period last year due to higher sales volumes.

Moving to ERGObaby. For the quarter ended March 31, 2012, revenue increased approximately 19% to $13.7 million compared to $11.5 million in prior-year period, primarily due to sales from the add-on acquisition of Orbit Baby in November of 2011. Income from operations for the first quarter of 2012 was $1.6 million compared to $2.6 million in the same period of last year. SG&A expenses for the first quarter of 2012 included approximately $1.2 million in overhead associated with the acquisition of Orbit Baby.

Turning to Fox Racing Shox. Revenue increased 6.5% to $45.7 million for the quarter ended March 31, 2012, compared to $42.9 million in the prior year period. During the first quarter of 2012 we recorded higher sales to original equipment manufacturers of approximately $2 million. Income from operations was $4.3 million for the quarter ended March 31, 2012, compared to $5 million in the year-earlier period, primarily as a result of higher SG&A expenses to support the Company's continued growth.

Moving on to HALO Branded Solutions for the quarter ended March 31, 2012, the Company's revenues rose approximately 13% to $37.1 million compared to $32.7 million for the same period last year. The increase was due to higher sales from existing customers as well as cells from the acquisition of Logos Your Way in October 2011.

Income from operations for the three months ended March 31st, 2012, was $0.5 million compared to (inaudible) from operations of $0.5 million in the prior year period.

Turning to Liberty Safe, revenue for the quarter ended March 31, 2012 increased to $21.2 million compared to $20.2 million in the prior year period primarily due to higher dealer sales. The Company reported operating income of $0.6 million for the first quarter of 2012 as compared to operating income of $0.9 million in the same period last year.

For the first quarter of 2012, operating results were impacted by startup costs associated with the new [light safe line] production line to meet the strong demand for liberty's niche leading products.

Now on to Tridien Medical. For the quarter ended March 31, 2012, revenue was $13.6 million as compared to $13.9 million for the same period last year due to lower sales of non-power product offerings. Income from operations for the first quarter was $0.9 million compared to $1.2 million in the same period of 2011 as a result of continued pricing pressures from customers and investments in new product development.

Turning now to the balance sheet. We had $22.4 million in cash and cash equivalents and had net working capital of $170.3 million as of March 31, 2012. We also had $224.4 million outstanding under our term debt facility and $80 million of borrowings outstanding under our $290 million revolving credit facility as of March 31, 2012, with no significant debt maturities until October of 2016. We had borrowing availability of approximately $209 million under our revolving credit facility at March 31, 2012.

As mentioned earlier, we sold HALO in the second quarter and used the total proceeds from the sale of approximately $66.4 million to repay outstanding debt under our revolving credit facility. In addition, on April 2 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 its six-year term loan facility to approximately $255 million. We utilized the net proceeds from the increased borrowings also to reduce borrowings under our revolver.

Concurrent with this increased term loan are ways we amended the pricing terms of the loan facility. Under the terms of the amendment the amounts borrowed, their interest at LIBOR plus the margin of 5% as compared to the previous margin of 6%. In addition to LIBOR, floor was reduced to 1.25% as compared to 1.5%. All other terms of the credit agreement remain unchanged.

During the first quarter of 2012 we incurred approximately $2.6 million of maintenance capital expenditures as compared to $2.3 million in the year-earlier period. For the full year 2012 we anticipate maintenance capital expenditures of between $12 million and $14 million as we remain focused on ensuring the long-term health of our current subsidiaries.

We also incurred approximately $0.8 million of growth capital expenditures during the first quarter that were largely spent at Liberty Safe to increase production capabilities. For 2012, we expect to incur growth capital expenditures between $5 million and $7 million largely for completing Liberty's production capacity and growth initiatives at Arnold. I will now turn the call back to Alan.

Thanks, Jim. We are pleased by our strong start to 2012. The notable performance across our family of niche market leaders combined with our balance sheet strength bodes well for CODI's future prospects as we remain on track to achieve modest year-over-year growth in CAD for 2012 even after taking into account the recent sale of HALO. We plan to continue to invest in high-return organic growth initiatives and pursue accretive acquisitions of companies with a real reason to exist under favorable valuations and terms.

We also intend to provide our owners with attractive cash distribution as we have consistently done in the past.

I would like to thank everyone again for joining us on today's call. We will be happy to take any questions you may have. Operator, please open the phone lines.

(Operator Instructions). Vernon Plack, BB&T Capital Markets.

Couple of questions, just in terms of some more color on the pro forma companies, if you could. I know that AFM the first quarter and including April is, typically from a seasonality perspective, their strongest period. Just some thoughts in terms of what type of starts they were off to this year and what that says for the rest of the year. So I guess what I am asking, have we -- should we expect results to continue to trend down from here for the rest of the year given that this is seasonally the strongest period?

Yes, I think that your comments about AFM seasonality are accurate in the first quarter is traditionally its strongest. The fourth quarter would be the next strongest. The second quarter would be that third strongest and the third quarter would be the slowest quarter. We don't expect that those patterns should be different this year than it has been in previous years.

I think the Company had a really strong first quarter. Production was slow, due to the delay of shipments of kits from China this year that not only plagued American Furniture but plague others in the furniture industry. We think that the delay in those shipments did not allow us to satisfy all the demand that was available to us in the first quarter.

So we remain very encouraged by the first quarter particularly from a margin perspective as the Company begins to reap the benefits of the actions taken in 2011. So, even with the decline in the revenue quarter over quarter -- sorry on a year-to-year basis, you know, first quarter versus first quarter you saw the Company still able to maintain better margins this year, despite the sales decrease.

We believe American is positioned to deliver better marketing performance than it has over the past several years. And so, we -- as we mentioned in our comments -- believe the Company remains on track to generate positive EBITDA for the year. I wouldn't expect a difference in seasonal patterns from a revenue standpoint as we described and, hopefully, that addresses your question.

Yes. I guess what I'm asking is if I look at what EBITDA was for the -- let me let's ask it a different way. Just in terms of EBITDA for the first quarter was I think $414,000. Can we expect the rest of the year to break even or are you expecting some slippage and essentially hoping to break even and be positive for the entire year?

Based on seasonal patterns, historical seasonal patterns, the first quarter should represent the highest level of EBITDA that the Company (technical difficulty). That is not to say that the Company would not generate positive EBITDA in other quarters particularly the fourth quarter, again based on historical, seasonal patterns. So again, I think that based on our comment that we believe the Company to be on track to generate positive EBITDA for the entire year, you may see in the future quarters, certain quarters that are certainly lower that -- or actually we would expect perhaps all of the quarters to be lower than the EBITDA generated in the first quarter, but we do believe that we are on track to be positive for the balance of the year.

So I -- again I hope I am answering your question. I'm just not --.

You have. I was just looking for some color and obviously these are estimates so I understand. That is very helpful. And the second Company I was hoping to get a little more color on and this was explained a little bit by Elias as well as Jim, but CamelBak was above expectations. And was it particular products? Was it the distribution expansion or the distribution channels? I'm curious in terms of why the upside versus where you thought they were going to come in, as well as what this, perhaps, says about the type of year that they will have.

Yes, CamelBak really should have strength across its packs, both on the recreational users as well as military users and [models]. So it was pretty broad-based. I would say that the past performance and the model performance were ahead of our expectations and it was just a particular strong quarter with respect to both of those products. But I think that the pack performance probably exceeded our expectations more so than the models.

And with respect to the rest of the year, Jim, I don't know particularly with respect to guidance, I don't know that -- we believe that CamelBak the demand for their products, their product positioning, the distribution that they have presently positions them to continue to have a strong year.

Okay. That's helpful. Thank you very much.

Troy Ward, Stifel Nicolaus.

Just to follow up a little bit behind Vernon here on the seasonality in the portfolio. Can you briefly speak of any seasonality in some of the newer businesses. Some of the older ones we are pretty familiar with but if we can talk just about Liberty, Camel, and Arnold as we think about our models and seasonality in those three businesses.

Sure. CamelBak demonstrates some modest seasonality as you might expect, given the focus on hydration products. I think that the second and third quarters are typically their strongest quarters as compared to the first and the fourth quarters. But I wouldn't classify that seasonality as dramatic as, say, AFM's seasonality. But it is a modestly -- has some modest cyclicality in those two quarters. While with respect to Arnold --.

Maybe just clarify that. Although the first quarter was very strong stuff I wouldn't say the second and third quarters are going to be stronger than the first-quarter results.

Or for CamelBak. Yes, CamelBak had an unusually strong quarter. That's a good clarification, Jim. With respect to Arnold Magnetic, it doesn't really have cyclical business. There may be quarter-to-quarter performance differences based on normal business operations or certain orders or certain customers. But it doesn't demonstrate a cyclical pattern like some of our other businesses. And the last business --.

Liberty. Liberty is also relatively flat. Though I would point out that the first quarter was heavily impacted by the start-up costs that I've mentioned for the new small safe line. It impacted the first quarter's operating results. (multiple speakers).

On the margins.

On the margins. Right. But the revenues are somewhat flat.

Okay. Great. That is very helpful color. Thanks. And then as we think about the sale of HALO. Couple of questions.

First, I know that it was coming up or just actually surpassed its five-year anniversary under CODI ownership. And so first of all, you have a contribution-based profit allocation 8 into the supplemental put. Can you just talk about what changes if any are going to -- we are going to see in the supplemental put because of the HALO transaction?

Yes that was a relatively small number. It was about I believe it's like $600,000, $500,000, $600,000 for the contribution. Based on the results from April on top of some sales bonuses that were paid to the management team, we virtually wiped that out in April. So we do not anticipate paying any profit allocation for HALO.

Okay and then can you just speak broadly --? Well I guess first one of the questions is, you said it was a strategic acquisition. Candlelight Investment, I think was the name that was put out there as the buyer. Can you just speak to who that is and where in the industry they play?

I believe we refer to it as a strategic decision on our part. (multiple speakers)

So it was a financial buyer?

Correct.

Okay. And can you just lead us down the path of how you came tp that decision and why? I guess, to me, it looked like HALO was sold at a breakeven cost over a lot of years. Can you just briefly describe your relationship over the years with HALO and why you decided to exit?

Yes, we did sell it for more than we purchased it for. We -- as you mentioned recently celebrated our fifth year anniversary with HALO. And I think that we believed, when looking at HALO, that it was an opportunistic transaction for us that really allowed us to not only expand our liquidity but, also with that liquidity, allow us to provide a capital to make acquisitions that we believe would create more value for our shareholders over the long haul.

And we are very pleased with the efforts that we had in HALO. We think we did some great things there with the existing management team. But we just felt that we were -- we could serve our shareholders better by taking the opportunity to strategically sell the business and redeploy that capital into other opportunities.

Okay. And then as we think about where you look for new acquisitions going forward, as I have always thought about HALO, it really I don't know if you have ever referred to it as this but I've always looked at it as a roll-up strategy. You just -- you constantly were buying and little players in the space and trying to be the biggest player in the space and eventually you would sell. And that is what happened.

Now if you look at what I think are maybe some of your most recent purchases, whether it be CamelBak or ERGObaby and Liberty, it doesn't feel like it is the same type of model. Going forward, would you focus more on kind of the Liberty CamelBak kind of model where you take the leading product and you expand distribution and you expand the footprint of the product versus a roll-up? Or would you still be open to roll-up strategies after the HALO experience?

Look, I think we will remain open to looking at transactions that we think are compelling and that can create value for our shareholders. I do think that we are always interested in making add-on acquisitions to existing or future subsidiaries to the extent that that makes sense. I think that the companies that you referenced probably are indicative of the type of opportunities that we found both compelling to date.

I wouldn't want to automatically rule out the notion of pursuing what the reference to a roll-up strategy, but I would say that we have gravitated more recently to the types of companies that you describe and we find those companies to be compelling. But I think that, again, I think we have a lot of success with the roll-up strategy at HALO and I think we and they work together very effectively pursuing that strategy. So I wouldn't say necessarily that that is not a strategy that we would ever pursue again.

Okay and then one final one on the acquisition front. Can you just give us some broad strokes on what you are seeing out there with relationship to pricing and willingness of sellers? And do you think that will be impacted at all -- I play a lot in the middle market with business development companies and the talk about how the tax changes are going to impact M&A volumes. Can you just be probably about the market and what you're seeing in the acquisition front?

Sure. I think that the deal flow continues to be solid. I wouldn't say it's overwhelming but it's steady. The pricing expectations, I think, are always a challenge but I think pricing is pretty robust right now for acquisitions and I think that despite some ups and downs along the way, I think that the lending market remains very supportive of buyout transactions.

There continues to be a lot of cash available to deploy, both by companies and financial buyers. We have heard some of the same talk that you heard with respect to changes in tax laws being a potential motivator for an increase in transaction activity over the balance of this year. Which really is what happened last year as well. Two years ago, I'm sorry. Where we -- where there was speculation that there would be changes in tax law.

So we have seen that before and we are hearing the talk about it happening again. At this point, it remains somewhat speculative. It is probably a little early to see that type of flood in terms of getting transactions done before the end of the year. But I would say if that is going to happen, it would probably -- we would probably see evidence of that tax-driven increase in deal flow over the next two to four months.

Okay, great. And then just one quick last one on the impact of potential European issues and how that may impact any of your businesses. Just any thoughts there on your exposure to the European economies?

I think across our portfolio, there are subsidiaries that have different levels of exposure to the European economies. Some that have more international sales than others include Fox, include CamelBak, ERGObaby. These are companies -- Arnold. Those are the companies that jump out from our group of subsidiaries that have international exposure. I think, like everyone, we remain concerned and cautious about what's happening in Europe. It is, I would say through the first quarter, our results have not been reflective of a weakening of business within Europe.

However, the events of the last week certainly have created more and more concern broadly about the direction in Europe. And so we pay attention to it, obviously. It is very, very hard to predict how it might impact our businesses going forward. We remain concerned and are concerned -- however, we get performance to date is encouraging. So we try to balance evaluating performance to date versus how it might impact us going forward. But it is really impossible for us to predict and obviously something that we remain cautious about and the management teams at the subsidiaries that I mentioned really as well as all of our subsidiaries are keenly focused on this and paying attention and doing what they need to do, to not only grow their businesses in that region but to protect their business in that region, if necessary.

Robert Dodd, Raymond James.

If I could go through the portfolio companies again a little bit more. Starting off with Liberty. I mean you mentioned the -- in the Q, etc., the new production line and it mentioned that hitting expenses but also in the Q there's a note that it prohibited you meeting full demand. How much of an impact was that in Q1? Can you give us a bit more color? And then secondly on Liberty, last time we had an election year that was a lot of activity in the firearms market. I mean are you seeing any preliminary pickup in demand related to that kind of thing?

Yes, I will start on the first one and Robert. I will probably answer your question a little bit more qualitatively than quantitatively. So the first-quarter demand in the new production line, how did those things interact? The first -- let me say, the demand was broad based across Liberty's production line. Be it on the smaller safes which come off the new production line to the larger safes which come off their existing [roll form] production line.

The -- we had hoped that the new line would be operating at a greater level of efficiency earlier in the quarter than it has. Now, the good news is that our efficiency has increased each month in this first quarter and it is rapidly approaching where we want it to be. But th edemand across all product remains so robust that we need all of our lines working. We added an extra shift. I mean, we are doing things that everything we can to do to ramp up our production to keep up with demand. But in the world of problems we refer to this one as a high-class problem, the demand continues to just be extremely robust.

So I would say that even if the new light line had been more efficient than it was, and it was quite efficient. I don't want to paint the wrong picture but if it had been producing where it was, where they had hoped it would be, we still would have not been able to satisfy all of the demand for our products. And so, I think it is where I would say more of the production line getting up to speed, I think, reflects itself more so on our bottom line and on our margins. Because we did experience some manufacturing efficiencies during that quarter.

So, I think that we would expect that efficiency to improve over time and, accordingly, the margins from that associated with the products off of that line to improve over time. But we are going to do everything we can to meet demand over the balance of the year. The folks at Liberty are working round-the-clock to make that happen and are doing an incredible job. And we would expect that it will be a good year for Liberty, say, from the topline perspective with an improving bottom line as the year moves forward.

With respect to the Presidential election, you are right. There is a lot of action around firearms and, again, this is really speculative similar to the comments that I made earlier about tax law changes driving deal flow over the balance of the year.

One of the things that people are talking about with respect to firearms is the election, obviously, and the notion that the current administration perhaps if given a second term would be more assertive regarding their views on gun control. More assertive than they have been previously because, understandably, that's a touchy issue and may not be helpful in getting a second term.

I don't know if speculation around that will lead to more gun sales. But it is certainly possible. And if it does, we believe that that is good for Liberty's business. It has been historically. We are, again, based on the demand that we see now through the balance of the year, we are very confident that Liberty will have a strong topline regardless of the outcome of the election. But that dynamic could in fact help Liberty safes.

The other dynamic that, again, is impossible to quantify but people talk about as it relates to Liberty is just the notion of discontent and an unhappy population. And to the extent people are unhappy or nervous or concerned, that can also lead to sales of Liberty safes for perhaps similar reasons.

So all of those things are very hard to quantify, impossible to quantify, but historically have helped drive demand for safes and Liberty safes.

Very helpful color. Couple more. On CamelBak you mentioned, you -- obviously Q1 was very strong and as a reference basically packs being strong, gloves being weak. I mean is this [as you say], and that obviously helped margins, etc. Is that a permanent shift you think or is that just an nominalist mix in the first quarter?

I think that the strength in the packs and the bottles are representative of the business we see as moving forward. I think the gloves is a smaller component of the business and will always have probably a bit more lumpier profile in terms of its business being up or being down. But I think that that -- we would expect the mix of business as you think about bottles, packs and gloves to, I think the first quarter is fairly representative of how we see the balance of the year.

Okay. Great. And then the last one for me on Advanced Circuits. Obviously, there's been some promotional activity. That has been going on for a little while, some discounting, new longer-term contracts. And is that a more aggressive competitor and you expect some of these trends to continue throughout the year? I mean, when do we start lapping some of the long-term contract renewals? And should we at this point be expecting to see to have a down year?

Well, we don't have long-term contracts. So we won't expect to have a runoff of those. This is -- a lot of the work is there's some project work that goes on and the Defense work, but given the vast majority of the businesses on the quick-turn and quick-turn production and prototyping side, most of that doesn't lend itself to longer term contracts.

So, we don't really see any concerns with contract lapses. In terms of what we see year over year, I think that we have said and kind of would maintain that we believe there's growth in our assembly business, that the quick-turn part of the circuit board business is kind of a flattish to maybe up a little bit. And then, there are significant pressures on some of the longer lead, higher tech stuff that is going mostly into the Defense market.

So, if you put that all together we kind of are looking at right now a flattish type year. And this is a company that is extremely well at getting the maximum amount of efficiency out of their revenue. So I would say, Robert, we think of it as flattish on topline, probably flat also in terms of EBITDA.

And a lot of this I think will depend on what we see out of going forward. When the ship will turn will be based on what we are saying out of the military market. Unfortunately right now, because of the uncertainty that has been created on the looming cuts that are coming, a lot of the projects that normally would be well in advance of projects getting put into full service, that is really where we work more on the R&D side of that. Those things are being delayed until there is a little more certainty.

I would hope as the year goes on, and that as we get closer to 2013 that there starts to become more clarity around what military spending will be and in what areas. And that will start to open up the purse strings in terms of new R&D projects.

(Operator Instructions). Mark Hughes, SunTrust.

Thank you very much. My questions have been answered. Appreciate it.

Martin Perlman, Martin Perlman Associates.

I just went to make sure I heard right. I believe you said that you are looking for modest CAD growth even after the sale of HALO. Now does that compare -- and the absence of Staffmark?

That's correct. So our projection for CAD for the full year 2012 is expected to show a modest increase over the CAD that was generated in 2011.

Thank you very much.

[J.T. Rogers], Janney Capital Markets.

Good morning. I had a question again on the segments. I guess, first of all, on Tridien which you guys have been spending, seeing increased spending in R&D in this segment for a while now. I was wondering if there are any new product or any significant new product rollouts that might be on the horizon, that could potentially offset some of the pricing pressure you have been seeing there? Or maybe drive some increased growth?

Yes, I would say the R&D pipeline is quite full right now. And so we have got a number of projects that are advancing through. We would expect right now to see some new products introduced at the latter part of this year and then, really, to have a pretty nice progression in 2013 of new product introductions. So there we would expect some modest contribution at the back end of the year from some of the new products. But really this is a 2013 rollout of a lot of these products and we think we are well on track to meet some of the 2013 expectations here.

So I wouldn't put a lot -- expect a lot in 2012 contribution. If anything it will just be a little bit from a couple of products that roll in the fourth quarter.

Great. And on a bottom-line base, could you get back to a 2010 or 2009 type EBITDA number with these rollouts?

I mean I think, you know, look, our goal -- we made a lot of investment in the business and you guys are seeing that come through in terms of increased SG&A spend. A lot of things I think come into play with what you said there. We do believe that we have got a business -- just broadly, we believe we have a business that is very well positioned in terms of demographic trends and overall tailwinds behind it.

Clearly, we suffered some margin compression that we need to offset going forward. And we got some new products that will be rolling that we think will -- because of their proprietary nature and the IP that we have built into those -- will command better margins. All of that put together leads us to believe over a reasonable period of time will regain our profitability.

But this is a process. And it is not something I would guide you to, say, 2013 should be expecting to fully recover back to our peak years of 2010. But we do feel very good about the efforts that are ongoing there and the general industry, and think this is a company that over time should be able to regain its profitability levels.

Great, thanks. And then on ERGObaby, just wondering if you had some more detail on the expansion of their core baby carrier business. When you back out the contribution of Orbit Baby, growth is -- has -- is down year over year and is essentially flat quarter over quarter. Just wondering what is going on here. And then I know you've mentioned something about the distribution channel, but sort of backing out now how is the expansion of the baby carrier progressing?

We are really excited about what is going on at ERGObaby. I think domestically we have expanded our distribution and we are now folding in Babies R Us and we have -- we are on some Target and so in their online. And we feel that we are starting to get much broader distribution here domestically.

We are also working on international distribution and getting new distributors qualified and up and running, and we have markets in Europe and in Asia that are coming on and showing some nice growth. And so, we are very bullish and positive about the expansion of the distribution channel that's occurred under our ownership and continues to occur. I think the numbers that you are referencing, which are correct, it is kind of flattish outside of Orbit Baby year over year. It's a function of timing of shipments that we have to some of our larger international distributors.

And so, what you'll see here is that because of the international, especially our Asian distributors, can be rather large in terms of their buying patterns it is about them sometimes getting some inventory in and then selling through that. You know, it doesn't always follow quarter to quarter when they are going to be placing orders. Last year, we may have gotten a huge order from one of our distributors and this year that may have fallen into Q2.

So, I think we are very pleased at the trends that we are seeing in the business and the -- what our expectations are broadly across both the international and domestic for the soft structure carrier side. And we think that when you go over a kind of longer period of time six months, nine months, a year and do comparisons, you will find -- and that will smooth out some of the lumpiness of international orders. I think you'll find that the growth is materializing reasonably well here.

Okay. Great. Thanks a lot.

Troy Ward, Stifel Nicolaus.

Just real quick on the comment where you expect your CAD expectations this year to have modest growth over next year. Does that assume any additions to business segments throughout 2012?

It does not assume any acquisitions.

Great. Thank you.

Jim Stone, PSK Advisors.

Good morning. I'm wondering if we step back from the Company and look broadbrush at it, and look at the year-over-year performance where we've had the shareholder equity decline, earnings have improved but they are still not positive. I'm wondering -- and we look at the total economy and what has happened to it over the last year, I'm wondering if this suggests that maybe we ought to be altering some of our strategies and what it's telling you?

I think perhaps our perspective is a little bit different than what you laid out. I think we see our Companies doing quite well and so maybe we need to be a bit more granular on some of the numbers in support of your opening remarks. But I think that we remain very confident in our group of subsidiaries, in their performance, as well as in our strategy. So I'm happy to discuss further, but I think again we remain quite confident in our strategy as well as very encouraged by the performance of our subsidiary companies.

Okay. Thank you. Thank you for the clarity on that.

My pleasure.

With no further questions in the queue, I would now like to turn the call back to Alan Offenberg for any additional or closing remarks.

Thank you all for joining us today. We really appreciate your time and we look forward to speaking with you next quarter. Take care.

And ladies and gentlemen, that does conclude this call. We thank you for participating today.