Compass Diversified Holdings (CODI) 2013 Q4 法說會逐字稿

Good day, everyone, and welcome to the Compass Diversified Holdings Q4 2013 earnings conference call. Today's call is being recorded.

(Operator Instructions)

At this time, I would like to turn the conference over to Mike Cimini for introductions, and the reading of the Safe Harbor statement. Please go ahead, sir.

Thank you, and welcome to Compass Diversified Holdings fourth-quarter 2013 conference call.

Representing the Company today are Alan Offenberg, CEO; Brian Faulkingham, CFO; and Elias Sabo, a Founding Partner of Compass Group Management.

Before we begin, I would like to point out that the Q4 press release, including the financial table, is available on the Company's website at www.compassdiversifiedholdings.com. The Company also filed its Form 10-K with the SEC last night.

Please note that, throughout this call, we will refer to Compass Diversified Holdings as CODI or the Company. And now I will 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 intended to identify forward-looking statements.

These 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 SEC for the year ended December 31, 2013, as well as in other SEC filings.

In particular, the 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.

Good morning. Thank you all for your time, and welcome to our fourth-quarter 2013 earnings conference call.

During the fourth quarter and full year 2013, we continue to leverage the leadership position in comparative financial strength of our subsidiary businesses. Our ongoing efforts to increase their relative market share and expand into adjacent markets enabled CODI to generate cash flow available for distribution and reinvestment, which we refer to as cash flow or CAD of $73.5 million for the year.

Throughout the year, we continue to invest in the long-term performance of our existing family of businesses, increasing the year-over-year amount of capital expenditures by more than 10%, which Ryan will discuss in more detail later on in the call.

Another important initiative to note for 2013 is the success we achieved in taking advantage of the favorable credit market conditions, enabling CODI to enhance its financial flexibility and reduce overall borrowing costs. Specifically, we expanded the size of our term loan facility by $30 million, and reduced the interest rate by 125 basis points.

We also expanded the size of our revolver by $30 million, and lowered the interest rate for this facility by 50 basis points. Although cash flow for the fourth quarter and full year 2013 was reduced year over year, due in large part to the exclusion of the results from our Fox subsidiary upon the completion of its IPO in August 2013, CODI generated substantial debt and equity proceeds from this offering, while maintaining a 54% ownership in Fox common stock.

The successful IPO by Fox, the first subsidiary in CODI's history to go public, demonstrates the considerable strength and flexibility of our business model, and the ability to unlock significant value for our owners.

CODI generated total net proceeds, including the repayment of intercompany debt of approximately $142.4 million from this IPO, with the potential for additional upside, due to our continuing ownership in Fox. As a reminder, CODI acquired a controlling interest in Fox in January 2008 for approximately $80 million.

For the fourth quarter, we paid a cash distribution of $0.36 per share, representing a current yield of approximately 7.9%. As we had anticipated, our cash flow per share was reduced to a level below our current distribution per share, as a result of Fox's IPO. Our Board, however, made the decision to maintain CODI's current level of distribution, given the significant proceeds generated from this transaction, which further enhanced our strong liquidity position.

Since going public in May of 2006, CODI has paid cumulative distributions of approximately $10.32 per share. Additionally, we have realized gains to date of more than $270 million from the monetization of our interest in CODI subsidiaries, including Fox, which have never been included in our calculation of CAD. CODI has built a strong track record, delivering a steady stream of cash distributions without ever decreasing the quarterly distribution at any point in the Company's history, and we are well-positioned to continue this tradition in 2014.

Before I turn the call over to Elias to review the quarterly performance of our current group of subsidiaries, I would like to provide some commentary regarding the annual results. For the year ended December 31, 2013, our branded product businesses achieved both revenue and EBITDA growth on a combined basis of approximately 10.5% and 12%, respectively, as compared to the year ended December 31, 2012.

These four businesses also reported a combined EBITDA margin for the year ended December 31, 2013 of approximately 19.6%, an increase as compared to 19.3% for the year ended December 31, 2012. Please note that Fox's results will continue to be consolidated with the results of our other subsidiaries, until our ownership percentage drops below a controlling interest.

In terms of our niche industrial businesses, we continue to generate predictable and strong free cash flow. For the year ended December 31, 2013, these four businesses posted combined revenue growth of approximately 5.6%, while the combined EBITDA was essentially flat, as compared to the corresponding year earlier period.

In addition, they produced a lower combined EBITDA margin of 13.6%, as compared to 14.5% for the year ended December 31, 2012. All references to combined revenue and EBITDA and EBITDA margin for our niche industrial businesses were prepared on a pro forma basis, as if we acquired Arnold on January 1, 2012.

We believe the positive fundamentals and future prospects for our diverse mix of leading middle market businesses, combined with a strong balance sheet, position CODI well for 2014 and beyond, as we remain focused on taking advantage of both organic and acquisition-related growth opportunities that drive long-term shareholder value.

I will now turn the call over to Elias.

Thank you, Alan. I will begin by reviewing our branded products businesses.

During the fourth quarter, our branded products businesses produced both revenue and EBITDA growth on a combined basis of approximately 3.3% and 8.6%, respectively, over the year earlier period. In addition, the combined EBITDA margin increased to 17.3% for the quarter ended December 31, 2013, from 16.5% for the quarter ended December 31, 2012, for these four subsidiaries on a combined basis.

For the fourth quarter, Ergobaby delivered strong EBITDA growth at 10.5% over the year earlier period. Including Q4, this business has now posted double-digit earnings growth on a year-over-year basis for five out of the past six quarters. Our ongoing efforts to expand the Company's domestic and international distribution channels and strength in Ergobaby's brand recognition, combined with a strong infrastructure and management team, position this business well for continued growth.

At Liberty, this business posted year-over-year revenue growth of 21% for the fourth quarter, while earnings increased slightly by approximately 2%. We are pleased by Liberty's record sales and profits for the full year 2013, representing an unprecedented period of growth for the Company, however, we experienced a more normalized level of demand for Liberty's premium gun and home safe towards the end of the fourth quarter. The high level of demand experienced in 2013 was driven by external factors discussed on previous calls, and while macro trends for this business remain favorable, we expect revenues to return to more normalized levels in 2014. Booking levels for 2014 are below 2013 levels, and at this point, we expect lower revenue in EBITDA for Liberty in 2014, as compared to 2013.

At Fox, this business had another strong quarter, in terms of both revenue and profitability in the fourth quarter. As Alan mentioned earlier, Fox's results will continue to be consolidated with the results of our other subsidiaries until CODI's ownership percentage drops below a controlling interest.

Finally, at CamelBak, the year-over-year comparison for the fourth quarter was adversely affected by the fulfillment of a contract with the US Marine Corps that was completed in the first quarter of 2013. The year-over-year fourth-quarter revenue impact related to the Marine Corps contract was approximately $6 million. In addition, CamelBak was impacted by the reduced demand from the US military resulting from the continued drawdown of combat troops.

While Q4 revenue in EBITDA declined approximately 23% and 35%, respectively, the Company's underlying fundamentals and long-term growth prospects remain intact. We continue to focus on increasing consumer penetration levels worldwide for CamelBak's superior portfolio of personal hydration systems, and launching new products in 2014.

I would like to add some color regarding our expectations for 2014 results at CamelBak. We anticipate top line growth for CamelBak in 2014, as compared to 2013, however, the shift of sales from military to recreation that we have experienced this past year will continue in 2014.

As a result of this mix shift, we expect a similar EBITDA in the full year of 2014, as was earned in the full year of 2013, excluding the one-time Marine Corps contract that expired in the first quarter of 2013.

Next I will turn to our niche industrial businesses, which we are pleased to have produced combined revenue growth of approximately 12% during the fourth quarter of 2013, as compared to the year earlier period. EBITDA on a combined basis was the same year over year, however, the combined EBITDA margin declined to 12.4% for the quarter ended December 31, 2013, from 13.9% for the quarter ended December 31, 2012.

Advanced Circuits posted revenue for the quarter that was essentially flat, as compared to the year earlier period. While demand for the Company's core PCB production services remain stable, we continue to experience softness in ACI's defense and aeronautical business. Looking ahead, we expect Advanced Circuits to achieve similar results in 2014 versus 2013, led by our quick turn and assembly business, while preserving ACI's attractive margins.

Our newest subsidiary, Arnold Magnetic, performed in line with our expectations in the fourth quarter, with revenue and EBITDA increasing approximately 10% and 5.5%, respectively. We are pleased by the progress Arnold has achieved in both growing sales and enhancing profitability, as we maintain our focus on leveraging the Company's leadership position in the specialty and rare earth magnetic industry.

At Tridien, revenue increased year over year by approximately 7%, while EBITDA declined approximately 5%. On a sequential basis, EBITDA increased slightly by approximately 1.5%. We intend to continue to bring new innovative products to market, in order to strengthen Tridien's diverse platform of leading medical support services and drive future growth.

Finally, AFM exceeded our expectations in the fourth quarter, as revenue increased 34%, compared to the year earlier period, representing the second consecutive quarter that sales have posted strong double-digit growth on a year-over-year basis, and the fourth consecutive quarter that sales have increased year over year. In addition, this business generated positive cash flow in the fourth quarter, as well as the full year 2013 as anticipated.

For 2014, we expect this business to build upon the positive cash flow generated this past year, as we seek to benefit from a more cost effective cost structure, and maintain AFM's recent positive sales momentum.

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

Thank you, Elias.

I will now discuss our consolidated financial results for the quarter and the year ended December 31, 2013. On a consolidated basis, revenue for the quarter ended December 31, 2013 was $232.7 million, as compared to $218.2 million for the prior year period. This increase was attributable to the double-digit revenue increases at Arnold's, AFM, Fox and Liberty, offset by the decrease in revenue at CamelBak.

Revenue for the year ended December 31, 2013 climbed to $985.5 million, from $884.7 million for the prior year. The net loss for the quarter was $5.1 million, as compared to a net loss of $5.2 million in the year earlier period.

For the quarter ended December 31, 2013, we recorded a non-cash impairment charge of approximately $12 million for CODI's Tridien subsidiary, primarily as a result of the decline in their operating results relative to expectations during the latter part of 2013, as well as a reduction in their 2014 budget. For the year ended, excuse me -- for the year ended December 31, 2013, net income was $78.8 million, which included a $61.3 million supplemental put expense reversal in connection with a previously announced termination of supplemental put agreement. As a result of the termination, CODI no longer accrues any supplemental put expense in its financial status.

Net income for the year ended December 31, 2012 was $4.3 million. Cash flow for the quarter ended December 31, 2013 was $9.9 million, as compared to $14.9 million for the prior year period. Cash flow for the fourth quarter of 2013 reflects year-over-year growth in our Ergobaby and Arnold Magnetic businesses, offset by the lower performance at CamelBak, as well as the adverse impact on cash flow from the IPO of Fox.

As mentioned earlier on this call, this business is no longer included in our CAD calculation following the successful completion by Fox of its IPO in August 2013. In addition, during the fourth quarter, we expensed approximately $900,000 at corporate in connection with an unsuccessful acquisition attempt that negatively impacted our quarter by $0.02 per share.

The acquisition attempt ended in the late stages of due diligence, and it was a result of our acquisition team maintaining their disciplined approach with respect to valuation that we believe our investors appreciate and expect. Further, our fourth quarter was negatively impacted by $1.5 million or $0.03 per share, as the result of incurring higher maintenance capital expenditures than we had anticipated.

For the year ended December 31, 2013, cash flow was $73.5 million, as compared to $77.7 million for the prior year.

Turning now to the balance sheet, we had 132, or excuse me -- $113.2 million in cash and cash equivalents, and net working capital of $269 million as of December 31, 2013. We also had $279.8 million outstanding on our term debt facility, and no borrowings outstanding under our revolving credit facility as of December 31, 2013, with no significant debt maturities until 2017. We had borrowing availability of $318 million under our revolving credit facility at December 31, 2013.

During the fourth quarter of 2013, we incurred $4.3 million of maintenance CapEx, an increase as compared to maintenance CapEx of $3.7 million for the quarter ended December 31, 2012. For the full year of 2013, we incurred maintenance CapEx of $14.2 million, as compared to maintenance CapEx of $11 million for the prior year, representing an increase of 29%.

For 2014, we expect to incur maintenance CapEx between $10 million and $12 million, as we remain focused on investing in the long-term health of our subsidiaries. This maintenance CapEx range excludes Fox.

We also incurred $1.5 million of growth CapEx during the fourth quarter, as compared to growth CapEx of $5.4 million in the prior year period. For the full year 2013, we incurred $6.2 million of growth CapEx, as compared to growth CapEx of $7.5 million for the year ended December 31, 2012.

For 2014, we expect to incur growth CapEx between $5 million and $7 million, primarily for our initiatives at our CamelBak and Liberty subsidiaries. This growth CapEx range also excludes Fox.

I will now turn the call back over to Alan.

Thank you, Ryan.

To close, I would like to add some commentary on acquisition activity. Currently, the M&A environment for middle market businesses remains competitive, due to the continued availability of low cost debt capital, combined with the prevalence of strategic and financial buyers actively seeking to deploy their capital.

As a result, valuation levels are relatively high. We are cautiously optimistic that deal flow for higher quality companies will increase in 2014, although the timing of any acquisition can be difficult to predict.

With substantial liquidity, we remain committed to acquiring new platform businesses utilizing our disciplined approach to valuation and diligence, and appreciate the patience of our shareholders in our pursuit to add profitable companies to our family of businesses, which have a real reason to exist.

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?

Thank you.

(Operator Instructions)

Our first question today is from Larry Solow with CJS Securities.

Hello, good morning.

Good morning, Larry.

Just a couple of the subsidiaries that surprised me. The first one would be Arnold. I thought it had been showing some improvement the last few quarters. And was this quarter more just a timing related or a seasonal slowdown, or what happened this quarter? And if you could give an outlook for -- you did give an outlook for a few of the names, so if you can give us an outlook for Arnold for 2014 that would be great.

Yes. Sure, Larry. Arnold, I would say by and large, performed in line with our expectations certainly for the year. With respect to the quarter, this business can be a little lumpy. So your comment referring to timing I think is appropriate. We think it of a little bit more in lumpiness. Sometimes the orders, you can just have a long cycle. And so, I really think that is the answer to the fourth quarter. But there is nothing about Arnold's business activity in the fourth quarter that gives us any pause whatsoever as we enter into 2014.

Okay. And then, would you expect growth in 2014? Because I know you had seemingly been a little more positive the last couple of quarters, you added some -- (multiple speakers).

Yes. No, I think we do anticipate growth in 2014 for Arnold.

Okay. And then, just moving on, Liberty, I think the slowdown was coming was a well-predicted slowdown. Just out of curiosity, sales actually still grew 20%, but EBITDA was flat. Was there anything in there that of skewed that profit or profitability up?

Liberty, as you know had unprecedented demand for their products throughout the year, and with that came a very challenging environment to run the factory to meet the levels of demand. And so, I think there were some, what is uncharacteristic for Liberty in particular, inefficiencies that led to some challenges with respect to margins. So I think that if there is any benefit to the slowdown which we are incurring, is that it does give them a little breathing room to address some of the inefficiencies that they have experienced.

And in fact, we are seeing already improvement in that, and so, I think that is a silver lining to Liberty's situation right now. But I would say that that represents the bulk of what would have led to margin deterioration. There was not a situation, Larry, where they were discounting products or anything like that. It was --

Right.

So I think that the business, again in historical context remains really strong. But coming off of the year that was truly unprecedented, it is very difficult to expect that there would be growth as we've talked about in previous calls. The slowdown, as you said, was expected and anticipated.

And I think it is one of the things where, as it came about it really stopped -- stopped is the wrong word -- it presented itself on short notice, I guess is the best way to put it. And many customers found themselves with sufficient levels of inventory, that they just did not need to continue to order at the rates that they were ordering at in earlier parts of 2013.

Okay. And just lastly, just on one of your other larger holdings, Advanced Circuits, been flat, slightly down the last few years. And given government spending and whatnot, the declines, it is not a surprise. As government spending hopefully starts to flatten out and the economy slowly starts to improve, what is going to, what could take this back up to the mid single-digit top line grower that it historically has been?

Elias, would you like to take that?

Yes, sure. Larry, so I think you are correct in saying that a lot of the slowdown has been driven by the reduction in government spending broadly, most specifically in our defense spending.

Right.

I think as, just that levels off, we will see a resumption of growth. But because it is a reasonably large component of our business, if you have one piece of your business that is just flat, to achieve even low levels of growth is a pretty big achievement on the rest of the book of business. In order to get to mid single-digit, high single-digit type growth rates again, I believe we are going to need to see some improvement in defense spending.

I think it is beyond just the change in sequester that we had a couple of months ago. I think we actually have to see actually improving defense spend. So our outlook is muted coming into the year. I think we view 2014 as being similar to 2013, which given the environment, we think is positive. And as you know, the company produces tremendous levels of cash flow which really helps to get through this period. But I do believe to get back up to higher levels of growth, we are going to need to see defense spending really resume.

Got it. Okay, great. Thanks.

(Operator Instructions)

We will go next to Greg Mason with KBW.

Hello, great. Good morning, everyone.

Good morning, Greg.

First you talked about -- good morning -- you said that Liberty was going to go back to normal levels of revenue. What do you consider normal? Is that 2012 run rate, or a little more guidance there?

Yes, Greg. That is a great question, and it is a question that is -- I will get to you, but I just want to put some context in it. In addition to the external events which we referred to on previous calls that drove Liberty's business, the company as you may recall had also undergone a real marketing transformation, and it had begun some marketing efforts that it had never undertaken previously, and we are seeing real success in that. So we don't really want to attribute the 2013 performance to that in any great measure, because it is very hard to quantify. But we were seeing results from those efforts, that were boosting not only Liberty's product awareness, but also raising category awareness for the safe industry.

And I think that I would expect it to be higher than 2012 levels. But understanding and figuring out what that new normal is for Liberty, is really fluid and hard for us to pin down exactly. And it is also difficult for the management team to do that, and it is something that we spend a lot of time discussing and trying to figure out. And while it sounds very reactive, I think part of understanding what that new normal is going to be, is going to just simply involve living it. I think that the company has made some very strategic moves, investing in its manufacturing capability, as you have heard us describe previously to really position itself as the premium, made in the USA safe company.

And so, we think that we are in a position to even increase marketshare going forward. But the new normal, is really something that we hope to see established this year. But I personally would expect it to be, and I think our team and the team at Liberty would expect that to be higher than 2012.

Great. Perfect color. And then, staying with Liberty on the gross profit margins, you have talked a lot in the past about how the increased demand, you have had to outsource manufacturing and other things. As we look at 24% gross profit margin in 2013, versus 26% in 2012, as we return to a more normal level of revenue, and these operating efficiencies you have talked about, where do you think that gross profit number can go to?

Yes. I think that over time, to the extent that the company is manufacturing more of its product here and not importing its product, we would expect to see its gross margins improve. However, we do, with the slowdown, we do have a level of import inventory that we are still working through, that may continue to put some pressure on margins throughout 2014 as we monetize that inventory.

The timing of when we are through that process is a bit unclear at this time. So it might be, we will not see an immediate return to those higher levels of margin in 2014, as we get through that import inventory. However, I would expect over a longer period of time to see the company's margins return to the levels that you referenced.

Okay. That's great. And then, on just the broad M&A environment, I appreciate your prepared comments. Could you talk a little bit about what caused the acquisition attempt to fall through? Was it price or diligence, and just as you are looking at the pipeline for new deals, do you think the biggest issue is finding quality companies, or is it much more the price that you are willing to pay?

Yes, I will take the question about the failed diligence or acquisition attempt. In a lot of ways, price and diligence and all those things all come together at some point. But as you can tell by the amount of dollars that Ryan referenced in his comment, we were obviously at a very late stage in the process. And really, in that specific context, we had a very specific targeted level of performance that our offer was conditioned upon, and the company did not achieve that level of performance.

We remained very interested in the company. In some cases, you are able to revisit pricing and adjust for that level of performance. Unfortunately in this case, the seller was unwilling to revisit price, and we did not feel good about consummating that transaction, given the shortfall in the company's performance, relative to the expectations we had when we put the company under letter of intent. And really it is unfortunately that simple.

Okay.

With respect to the new deal environment, we have seen good quality opportunities in 2014 already, and towards the latter part of 2013. I think that finding the right balance between price and solid companies is really the line we are trying to walk right now. There have been several opportunities that we have been very excited about, that we have simply just been priced out of, and there are others that we are more competitive on. And so, we are frustrated as we enter 2014, relative to what we dealt with in 2013. However, we are going to continue to plug away and find our spots hopefully.

But to your question specifically, I think price is the greater challenge, as opposed to good opportunities. Our deal flow has been solid, I do think activity is picking up. But 2013 activity as you may recall, throughout the middle market was down. And so, it is not necessarily up relative to a robust year. And so, we will what see the entire year brings. But so far, there is optimism in terms of the deal flow, and now it is just a function of finding the right company at the right price.

Great. And then, one just final quick modeling question. You said CamelBak, expect 2014 EBITDA to be flat excluding the Marine contract. I have in my notes that the Marine contract was like $2 million to $2.5 million in 1Q13. Is that consistent?

I think that is consistent, yes.

Okay. Great. Thanks.

We will take our next question from J.T. Rogers with Janney Capital Markets.

Hello, good morning. Thanks for taking my question.

Good morning, J.T.

Just on, the only question I really had, on Tridien I was wondering how new product introduction was going? I know that there was, it looks like an impairment there, just what are the trends there?

Elias, would you like to answer that one?

Yes. So J.T., the new products have started to launch. We have launched some products in Q4. We expect that to carry through into 2013, and we also have products for launch coming into early in mid-2014. So we feel relatively bullish about those products, how they have launched, how they have been received into the market. The margin that we are now starting to achieve as we, at least the ones we have launched already, as we get some manufacturing efficiencies scaled up on those. So that is going reasonably well.

The overall environment I would say, remains a little bit challenged. The change in healthcare law has really created a bunch of uncertainty amongst the end consumer. This product is predominantly still purchased, the products that we make, in the hospital and acute care settings, and those are settings that the administrators are still uncertain as to how the full implementation of the new healthcare law will affect what their earnings power is.

And so, in the near-term, we think that it is having a dampening effect on capital expenditures within that setting. Longer-term, we do believe that it is a tailwind and a positive, as you are going to see more individuals driven through the healthcare system, which will obviously increase usage and require more CapEx. But we think getting through this period will be a little bit more challenging. It is one of the reasons that we reduced our outlook, notwithstanding that we do have new products that are coming into the market. We slightly reduced the outlook for that business, and as Ryan mentioned that drove an impairment based on the reduction in the 2014 budget.

So I would say, all in all, it is slightly below what our expectations would be, just given where it seems end demand is. I would say that 7% growth in the fourth quarter exceeded what our expectations were. We were quite pleased with that, and we think we are carrying some momentum over. Unfortunately, the mix shift trend that we have talked about a lot, because of this uncertainty in the end buyer continues. And so, we are seeing the product that has the lowest margin being purchased more readily, than the more advanced, higher-margin product. And so, as that shift has occurred, it is obviously had an effect on what our margin potential has been. But I would say, the outlook is somewhat muted right now and a little bit mixed. But long-term, we still feel that this is a positive growth industry.

Okay, thanks for that detail. And then, just one last question. I think you touched on the M&A market and the availability of new deals, at least on the platform side. What about on the add-on side, is there anything out there that you are looking at? It might not be a large acquisition, but it might accelerate the growth in some of your existing platforms?

Yes, we continue to look on an add-on acquisition opportunities for many of our subsidiaries, and there is opportunity for several of them to pursue that, and we are working on it diligently. Not anything that I can really comment on specifically. But yes, we are working on add-on acquisition opportunities and will continue to do so.

Okay. Thanks a lot, Alan. Appreciate it.

You bet, J.T.

We will take our next question from Vernon Plack with BB&T Capital Markets.

Thanks very much. I am trying to get a sense for the magnitude of the improvement at AFM. I know in 2012 -- there was a EBITDA loss of a little over $1 million in 2013. It was over $300,000. Just based on what you know today, could this be a couple million dollar EBITDA contributor in 2014?

Well, I guess anything is possible, Vernon. (laughter). I think that we would, as we said, we expect American Furniture to continue its improvement. I think that is not out of the question in 2014, that they could contribute a couple million dollars of EBITDA. And I think that they are certainly trending in the right way. The management team there has done a tremendous job of new product development, diversification of its customer base, enhancing, in addition to its sales representation force. We are really very, very pleased with everything that they are doing.

I think that one of the things though, I just always like to point out with respect to AFM's improvement -- again which we are extremely pleased about -- is that the ultimate consumer that buys the American Furniture product is a consumer with less discretionary income, and a consumer that remains under significant pressure in this economy. And so, while certain higher-end furniture companies may see an improvement with a rebound in housing and an improved economy, I think that that trend will eventually trickle down to American Furniture. But I think that right now, American Furniture's improvement is really not in the context of a growing promotionally priced furniture market.

I think that their improvements are attributable to marketshare gains and improved products in the marketplace. Whereas future growth beyond what we just talked about in 2014 can certainly be achieved by hopefully, the ability to continue to execute as they are now, and take more market share. But more meaningful growth beyond that, is probably going to require an improved economy that trickles down to help that consumer with less discretionary income.

So I just want to set, not just 2014 expectations, but just highlight at least what in my opinion are some of the key elements towards an even greater improvement in that business going forward. Things that would need to happen for that improvement to occur.

Okay. That is helpful. And given the markets and given the challenges with finding new companies, has there been any thought or effort underway to perhaps modify or change or increase your marketing efforts, or the way that you are sourcing deals?

We, interestingly, and particularly over the last 18 months, we have asked ourselves that question many times. And in fact, have engaged third-parties to assist us, in terms of evaluating what we have seen, relative to what a database prepared by a third-party says we should have seen given our criteria. We are very pleased by the results of that. And what that did for us, was it gave us a good degree of comfort that our marketing efforts were in fact yielding results that we had hoped for. That is not to say that we are not always looking to refine our marketing efforts, we are.

But I think that we believe that we are getting access to the opportunity that we hope to and expect to get access to. So while we constantly are evaluating our marketing efforts, I am pretty comfortable that we are doing the right things, and really don't attribute much if any of our challenges in 2013, as it related to adding new subsidiary companies to our marketing efforts. I think that we are seeing good opportunities, but it is something that we are always talking about and working on. And I think that, one of the things that we are trying to do a bit more of than we have done historically, is reach out to some companies directly, companies that have a vast holding of different types of companies, and trying to see if there are any non-core divisions that they may be willing to consider divesting.

But the markets are so efficient, Vernon, that if we thought of it, chances are others have thought of it as well. And it is very hard to envision the type of company that is going to get our interest, not having some type of intermediary involved in that process. So while we are trying to work hard to get that ever-elusive true proprietary transaction, it has proven to be elusive despite our efforts. But that is something that we are trying to do a little bit more of. Although again, I would temper your expectations relative our ability to do that, just given how efficient the markets are for these high quality companies.

Okay. Well, that is helpful. Thank you very much.

Sure. Thank you, Vernon.

We will now take a follow-up from Larry Solow with CJS Securities.

Just quickly on the maintenance Caps or the acceleration, is there anything in particular you are spending on? And I see it is falling back to normal levels, but I guess that also doesn't include Fox anymore, so it seems to be a little higher. Anything that stands out or that you could add color to?

I would say year-over-year, Larry, the driver of the CapEx spend, as you will see in the 10-K was really Advanced Circuits. And as you know, we take a pretty conservative approach to what is growth and what is maintenance, and ACI actually put in some really new nice machines for building their assembly business that we did not consider growth, we considered maintenance. So I would say that that has been a big driver of the increased year over year.

So Larry, as you know we are committed to investing in our businesses, and each business has its own subsidiary level Board of Directors. And when the management teams of those subsidiaries bring capital expenditure requests through those Boards, they are all evaluated independently, and also analyzed in a manner that you would expect them to be analyzed. And while the number was higher in the fourth quarter, we believe every one of those dollars was money well spent on each of these subsidiaries in ensuring its current market position, but also positioning it for future growth and profitability.

So it is something that certainly puts strain on the quarterly results, but not something at all that I would ever suggest our companies defer or put off, in just the context of helping us on a quarterly performance measurement. So I think these are great long-term investments in our businesses, and it is something that we will continue to do going forward for all our subsidiaries as we have in the past.

And Larry, one other piece of information I would add is on Liberty. Given their growth in 2013, their machines were working pretty hard throughout the year, and required more maintenance than we had anticipated.

Right. Okay, that is a high class problem in that case.

Yes.

Okay. Just any thoughts on -- I never thought I would be asking this on the call, but the new CamelBak water pitcher?

(laughter) Yes, well, I am glad you noticed. Just last week CamelBak introduced a new product called the Relay pitcher. It is a water filtration pitcher that is a really exciting new product for CamelBak. I am a proud owner of the Relay pitcher, and will attest to just how great this product is. But it is a great product extension for CamelBak.

They are, as you know, committed to hydration, and to providing its customers with all forms of water, be it bottled, be it through a hydration pac, be it filtered. And this is really an extension of their filtered water initiatives, and think that it addresses a need in the marketplace. It has new technology that allow us the user to fill this pitcher at a substantially faster rate than leading competitors, yet provides all the same levels of filtration. It also hits a pretty good sized market, the domestic market that CamelBak was focused on initially.

Management estimates it to be in excess of $250 million, single-digit, solid single-digit growing industry. And with some good fortune, if CamelBak's technology is well-received and the product is well-received, we are hoping that the growth of this product can exceed that industry level of growth. But it is a competitive market. There are some large well-established competitors in the business. And so, it remains to be seen how the product will perform, but the management team along with everyone at CODI are very excited about this market, and think that it potentially represents a great new segment of business for CamelBak to drive future growth.

Okay, great. Thanks.

Thanks, Larry.

Gentlemen, with no other questions in queue, I will turn it back to you for closing remarks.

Just wanted to thank everyone again for participating on the call. I think, just a couple closing comments that I want to make, because it didn't necessarily come up specifically in Q&A, is that just to reiterate, our cash flow available for distribution in 2014, as we mentioned excluding Fox and assuming no new acquisition activities, will be below our distribution level in 2014. But as mentioned on the previous call, with the significant gains achieved in the Fox IPO combined with our current level of liquidity, we have maintained our level of distribution, and believe that we are well-positioned to continue to do that throughout 2014.

And the other thing that we talked about is, maybe just to help you with -- we talked a bit about expected performance in 2014. But with respect to cash specifically, we expect that our first quarter for 2014 CAD to be similar to what you saw in Q4 of 2013. So just wanted to give you those two points of data, just to assist in your evaluation of the business. I want to thank you all for participating on today's call. We really appreciate your support and interest, and we look forward to speaking with you again next quarter. Thanks.

Ladies and gentlemen, thank you for your participation. This does conclude today's conference.