Cadre Holdings, Inc. (NYSE:CDRE) Q4 2024 Earnings Conference Call March 12, 2025 10:00 AM ET Company Participants Matt Berkowitz - Investor Relations, IGB Group Warren Kanders - Chief Executive Officer and Chairman Brad Williams - President Blaine Browers - Chief Financial Officer Conference Call Participants Lawrence Solow - CJS Securities Jeff Van Sinderen - B. Riley Securities Sheila Kahyaoglu - Jefferies Matt Koranda - ROTH Capital Mark Smith - Lake Street Capital Markets Operator Good morning and welco ...

FOURTH QUARTER 2024 FORWARD-LOOKING STATEMENTS Please note that in this presentation we may use words such as "appears," "anticipates," "believes," "plans," "expects," "intends," "future," and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve a numb ...

Financial Performance - The company reported a net income of $6.1 million for the year ended December 31, 2024, compared to a net loss of $16.1 million in 2023, indicating a turnaround in profitability[326]. - Net income for 2024 was $36,133, a decrease of 6.5% compared to $38,641 in 2023[328]. - Basic earnings per share for 2024 was $0.90, down from $1.03 in 2023, while diluted earnings per share also decreased to $0.90 from $1.02[395]. - The total provision for income taxes for 2024 was $18.1 million, up from $14.3 million in 2023, indicating a year-over-year increase of 26.5%[484]. - The effective tax rate for 2024 was 33.4%, significantly higher than 27.0% in 2023, primarily due to changes in state income taxes and permanent items[484]. Revenue and Sales - Net sales for 2024 reached $567,561, an increase of 17.6% compared to $482,532 in 2023[328]. - Total net sales for the year ended December 31, 2024, reached $567,561, an increase of 17.7% compared to $482,532 in 2023[413]. - Gross profit for 2024 was $233,481, reflecting a gross margin of 41.1%, up from $200,726 in 2023[328]. - The gross profit for 2024 was $233.5 million, compared to $200.7 million in 2023, reflecting a gross margin improvement from 41.6% to 41.1%[502]. Assets and Liabilities - As of December 31, 2024, the company reported total assets of $652.7 million, an increase from $431.2 million in 2023, representing a growth of approximately 51.3%[326]. - Long-term debt increased significantly to $211.8 million in 2024 from $127.8 million in 2023, which is an increase of 65.7%[326]. - The company’s total shareholders' equity increased to $311.5 million in 2024 from $197.2 million in 2023, reflecting a growth of 57.8%[326]. - The company reported a significant increase in intangible assets, which rose to $107.5 million in 2024 from $43.5 million in 2023, representing a growth of 147.5%[326]. - The company's total long-term debt increased to $211,830 as of December 31, 2024, compared to $127,812 in 2023, reflecting a significant rise of 65.6%[428]. Cash Flow and Investments - Cash flows from operating activities were $31,777 in 2024, down from $73,209 in 2023[332]. - The company reported a net cash used in investing activities of $147,426 in 2024, significantly higher than $6,520 in 2023, primarily due to business acquisitions[332]. - Cash and cash equivalents increased to $124.9 million in 2024 from $87.7 million in 2023, reflecting a growth of 42.5%[326]. - Cash and cash equivalents at the end of 2024 totaled $124,933, an increase from $87,691 at the end of 2023[332]. Acquisitions - The company completed the acquisition of ICOR Technology Inc. for total consideration of $41,508, which included $40,350 in cash paid[403]. - The acquisition of Alpha Safety Intermediate, LLC was completed for total consideration of $102,531, with cash paid amounting to $107,138[409]. - The Company entered into a share purchase agreement to acquire Carr's Engineering Limited and Carr's Engineering, Inc. for approximately $91.5 million[503]. - The acquisition targets provide engineering solutions, including manufacturing and technical services[503]. Debt and Financing - The company has $225.0 million in outstanding floating rate debt, with an interest rate of 4.38% plus 1.75% as of December 31, 2024[310]. - The Company entered into an Incremental Facility Amendment to the 2021 Credit Agreement for an incremental term loan of $80,000 to fund the acquisition of Alpha Safety on March 1, 2024[432]. - The term loan outstanding principal balance was $225,000, with an interest rate of 6.13%[443]. - The Company recorded a loss on debt modification of $139 for the year ended December 31, 2024, in connection with the refinancing[440]. Shareholder Information - The company declared dividends of $0.0875 per share in 2024, totaling $13.948 million, compared to $12.006 million in 2023, representing an increase of approximately 16.2%[334]. - The Company completed a secondary offering on March 19, 2024, issuing 2,200,000 shares at $35.00 per share, resulting in net proceeds of $72,813 after expenses[460]. Research and Development - Total research and development costs for the year ended December 31, 2024, were $8,380 million, compared to $6,954 million in 2023 and $7,086 million in 2022, indicating a year-over-year increase of approximately 20.4% from 2023 to 2024[379]. Operational Metrics - The company operates 20 manufacturing plants across multiple countries, including the U.S., Mexico, Canada, the UK, Italy, France, and Lithuania, enhancing its global distribution capabilities[337]. - The Company established a warranty reserve at the time of sale to cover estimated costs based on historical warranty repairs and replacements[372]. - The ending accrued warranty expense increased to $1,760 million in 2024 from $1,610 million in 2023, reflecting a rise of approximately 9.3%[373].

Financial Performance - Cadre achieved annual net sales of $568 million for 2024, with a gross margin of 41.1% and net income of $36 million[1][4][5]. - For Q4 2024, net sales were $176 million, up from $124.6 million in Q4 2023, driven by recent acquisitions and strong demand for Armor and Duty Gear[3][4]. - Adjusted EBITDA for 2024 was $104.8 million, with an adjusted EBITDA margin of 18.5%, compared to $85.8 million and 17.8% in the prior year[10][11]. - The company expects full-year 2025 net sales to range from $572 million to $601 million and adjusted EBITDA between $105 million and $115 million[19]. - Cadre's gross profit margin for Q4 2024 was 43.9%, compared to 39.9% in Q4 2023, reflecting higher shipment volumes[7][10]. - Cadre's gross profit for the year was $233.5 million, up from $200.7 million in 2023, driven by increased sales and favorable pricing[6][9]. - Net sales for Q4 2024 reached $175,984, a 41% increase from $124,583 in Q4 2023[28]. - Gross profit for the year ended December 31, 2024, was $233,481, up 16.3% from $200,726 in 2023[28]. - The company reported a net income of $36,133 for the year 2024, a decrease of 6.5% from $38,641 in 2023[29]. - Basic net income per share for 2024 was $0.90, down from $1.03 in 2023[28]. - Net income for Q4 2024 was $12,983,000, an increase of 35.5% compared to $9,594,000 in Q4 2023[32]. - EBITDA for Q4 2024 reached $29,002,000, up 74.8% from $16,570,000 in Q4 2023[32]. - Adjusted EBITDA for the year ended December 31, 2024 was $104,840,000, representing a 22.1% increase from $85,818,000 in 2023[32]. - Adjusted EBITDA margin improved to 21.9% in Q4 2024, compared to 16.6% in Q4 2023[32]. Cash Flow and Assets - Cash and cash equivalents increased by $37.2 million to $124.9 million as of December 31, 2024, while total debt rose to $223.2 million[15][16]. - Cash and cash equivalents at the end of 2024 were $124,933, up 42.5% from $87,691 in 2023[29]. - Total current assets increased to $327,571 in 2024, compared to $245,843 in 2023, reflecting a 33.2% growth[27]. Debt and Liabilities - Long-term debt increased significantly to $211,830 in 2024, compared to $127,812 in 2023, marking a 65.7% rise[27]. - The company’s total liabilities rose to $341,198 in 2024, up from $234,017 in 2023, indicating a 45.8% increase[27]. Investments and Acquisitions - The company announced the acquisition of Carr's Engineering Division for an enterprise value of £75 million, enhancing its nuclear safety business and international presence[17]. - The company invested $141,813 in business acquisitions during 2024, significantly impacting cash flows from investing activities[29]. - The company incurred a contingent consideration expense of $1,185,000 related to the acquisition of ICOR for the year ended December 31, 2024[32]. Expenses - Interest expense for Q4 2024 was $2,191,000, significantly higher than $804,000 in Q4 2023[32]. - Provision for income taxes in Q4 2024 was $9,733,000, compared to $2,820,000 in Q4 2023, indicating a substantial increase[32]. - Restructuring and transaction costs for the year ended December 31, 2024 totaled $7,757,000, up from $3,192,000 in 2023[32]. - Stock-based compensation expense for the year ended December 31, 2024 was $8,369,000, down from $9,368,000 in 2023[32]. - The company reported a depreciation and amortization expense of $16,420,000 for the year ended December 31, 2024, compared to $15,737,000 in 2023[32]. Dividends - A quarterly cash dividend of $0.095 per share was declared, representing an 8.6% increase over the previous annualized dividend[18]. Strategic Focus - The company is focused on expanding its market presence through both organic growth and strategic acquisitions[2][17].

Group 1 - Cadre Holdings, Inc. (CDRE) is part of the Industrial Products sector, which consists of 201 individual stocks and holds a Zacks Sector Rank of 11 [2] - The Zacks Rank system highlights stocks with strong earnings estimates and revisions, with Cadre Holdings currently holding a Zacks Rank of 2 (Buy) [3] - Over the past three months, the Zacks Consensus Estimate for CDRE's full-year earnings has increased by 3.3%, indicating improved analyst sentiment and a stronger earnings outlook [3] Group 2 - Year-to-date, Cadre Holdings has gained approximately 3.3%, while the average return for the Industrial Products sector is -0.9%, demonstrating that CDRE is outperforming its peers [4] - Insteel Industries (IIIN), another stock in the Industrial Products sector, has a year-to-date return of 7% and a Zacks Rank of 1 (Strong Buy) [4][5] - Cadre Holdings is part of the Security and Safety Services industry, which includes 18 companies and currently ranks 75 in the Zacks Industry Rank, with an average loss of 1% this year [5] Group 3 - Insteel Industries belongs to the Wire and Cable Products industry, which has three stocks and is currently ranked 183, with a year-to-date decline of 9.7% [6] - Investors interested in Industrial Products stocks should monitor both Cadre Holdings and Insteel Industries for potential continued strong performance [6]

Group 1 - Cadre Holdings, Inc. (CDRE) is part of the Industrial Products sector, which includes 201 companies and ranks 10 in the Zacks Sector Rank [2] - The Zacks Rank system focuses on earnings estimates and revisions, with CDRE currently holding a Zacks Rank of 2 (Buy) [3] - Over the past three months, the Zacks Consensus Estimate for CDRE's full-year earnings has increased by 3.3%, indicating improved analyst sentiment [4] Group 2 - CDRE has returned 11.3% year-to-date, outperforming the average gain of 2.3% for the Industrial Products sector [4] - Cadre Holdings is part of the Security and Safety Services industry, which consists of 18 companies and ranks 35 in the Zacks Industry Rank [6] - The average return for the Security and Safety Services industry so far this year is 1.6%, showing that CDRE is performing better than its peers [6] Group 3 - Investors should continue to monitor Cadre Holdings, Inc. and Halma as they are expected to maintain solid performance in the Industrial Products sector [7]

Group 1 - Cadre Holdings, Inc. (CDRE) is currently outperforming its peers in the Industrial Products sector with a year-to-date return of 20.5%, compared to the sector average of 15.6% [4] - The Zacks Rank for Cadre Holdings, Inc. is 2 (Buy), indicating a positive earnings outlook, with the consensus estimate for full-year earnings having increased by 2.9% over the past 90 days [3] - The Security and Safety Services industry, to which Cadre Holdings belongs, has an average year-to-date gain of 8%, further highlighting CDRE's strong performance [5] Group 2 - The Industrial Products group is ranked 12 within the Zacks Sector Rank, which evaluates 16 different groups based on the average Zacks Rank of individual stocks [2] - Another notable stock in the Industrial Products sector is UniFirst (UNF), which has achieved a year-to-date return of 32.5% and also holds a Zacks Rank of 2 (Buy) [4][5] - The Uniform and Related industry, where UniFirst operates, is ranked 17 and has seen a year-to-date increase of 2.6% [6]

Company Insights - Cadre Holdings (NYSE: CDRE) is expanding into the nuclear industry, which presents significant growth potential for the company [1] - The analyst has a beneficial long position in CDRE shares, indicating confidence in the company's future performance [3] Industry Trends - The nuclear industry is evolving, and companies involved in this sector may experience substantial growth opportunities [1] - There is a focus on small to mid-cap companies with disruptive technology, suggesting a trend towards innovation and technological advancement in investment strategies [2]

THIRD QUARTER 2024 FORWARD-LOOKING STATEMENTS Please note that in this presentation we may use words such as "appears," "anticipates," "believes," "plans," "expects," "intends," "future," and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve a numbe ...

Financial Data and Key Metrics Changes - The company reported a net sales range of $560 million to $570 million for the full year, reflecting over 17% growth year-over-year, while adjusted EBITDA is expected to be in the range of $101 million to $107 million, indicating over 21% growth [27][24] - The company experienced approximately 5 points of gross margin pressure in Q3 due to cybersecurity incidents, with a total of $1.5 million related to inventory step-up amortization and $900,000 in intangibles amortization impacting financial performance [23][26] Business Line Data and Key Metrics Changes - The company maintained a strong orders backlog of $167 million as of September 30, representing a $21 million increase from Q2, excluding acquisitions [15] - The armor and duty gear segments are expected to drive significant sales increases in Q4, alongside a strong performance from the explosive ordinance devices (EOD) business [52] Market Data and Key Metrics Changes - The company noted that demand for mission-critical safety products remains strong across law enforcement, first responder, military, and nuclear markets, with favorable macro trends supporting growth [17][8] - The consumer channel, representing approximately 8% of contract sales, has continued to see solid demand despite broader market weaknesses [20] Company Strategy and Development Direction - The company is focused on organic growth initiatives and an aggressive M&A program to enhance market leadership, with expectations to announce at least one transaction before the end of 2024 [11][12] - The company aims for continuous improvement through the Cadre operating model, which is designed to optimize processes and drive margin expansion [8][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the business through economic and political cycles, expecting consistent growth regardless of external factors [9][10] - The company anticipates favorable long-term growth opportunities in the nuclear safety sector, particularly with the rise of small modular reactors [19] Other Important Information - The company has paid 12 consecutive quarterly dividends since going public and raised its dividend to $0.35 per share on an annualized basis earlier this year [16] - Management has implemented numerous countermeasures to enhance cybersecurity following recent incidents, ensuring minimal disruption to operations [25][34] Q&A Session Summary Question: Clarification on cybersecurity impact on revenue - Management indicated that some revenue would shift into 2025 due to the second cybersecurity incident, but there are no other significant impacts outside of Q3 margins [29] Question: Update on Alpha Safety's M&A pipeline - The M&A pipeline for Alpha Safety remains solid, with opportunities in engineered systems and manufacturing products for the nuclear industry being actively pursued [30] Question: Security measures post-breach - Management confirmed that additional security measures were implemented after the second breach, with ongoing efforts to enhance cybersecurity [34] Question: SG&A expenses in light of declining sales - A significant portion of the SG&A reduction was attributed to adjustments in incentive compensation based on Q3 results [36] Question: Market conditions and election impact - Management noted that market conditions remain stable and consistent, with no significant changes expected due to the election results [37] Question: Monthly sales performance during the quarter - July was the most impacted month due to the first incident, with a recovery in August and strong performance in September despite the second incident [41] Question: Contribution from Alpha and ICOR in Q3 - ICOR's revenue remained consistent at over $20 million, while Alpha experienced a significant sequential ramp-up in Q3 [42] Question: Confidence in Q4 guidance - Management expressed confidence in Q4 guidance due to strong inventory levels and planned production increases [46] Question: Opportunities in the nuclear business - The company sees potential in small modular reactors, with products becoming relevant once these plants are operational [55] Question: Long-term outlook post-election - Management does not foresee changes in long-term outlook due to election results, emphasizing the importance of continued investment in law enforcement [57]