Cadre (CDRE) - 2022 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Cadre Holdings, Inc as of June 30, 2022 Consolidated Balance Sheets The company's total assets increased to $369.5 million, driven by acquisitions, while shareholders' equity grew due to a secondary offering Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $175,152 | $159,981 | | Total Assets | $369,476 | $311,796 | | Total Current Liabilities | $76,386 | $74,621 | | Total Liabilities | $223,178 | $223,156 | | Total Shareholders' Equity | $146,298 | $88,640 | - Key drivers for the asset increase include a rise in inventories to $76.6 million (from $64.0 million), intangible assets to $55.2 million (from $42.4 million), and goodwill to $78.0 million (from $66.3 million)[19] Consolidated Statements of Operations and Comprehensive Income (Loss) Net sales slightly increased in Q2 2022, but higher expenses led to a net loss of $5.7 million for the first six months Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $118,232 | $114,561 | $222,638 | $225,097 | | Gross Profit | $43,221 | $48,228 | $83,410 | $92,187 | | Operating Income (Loss) | $8,157 | $15,423 | $(6,325) | $30,857 | | Net Income (Loss) | $4,445 | $6,815 | $(5,720) | $13,679 | | Diluted EPS | $0.12 | $0.25 | $(0.16) | $0.50 | - Selling, general and administrative (SG&A) expenses for the six months ended June 30, 2022, rose to $86.7 million from $59.5 million in the prior-year period, a key factor in the net loss[21] Consolidated Statements of Cash Flows Operating cash flow remained steady, while investing activities increased due to acquisitions and financing activities were boosted by a secondary offering Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,018 | $28,707 | | Net cash used in investing activities | $(57,512) | $(1,506) | | Net cash provided by (used in) financing activities | $27,355 | $(14,933) | | Change in cash and cash equivalents | $(4,995) | $12,310 | - Business acquisitions consumed $55.0 million in cash during the first six months of 2022, compared to none in the same period of 2021[27] - The company received $49.7 million in net proceeds from a secondary offering in H1 2022, which significantly impacted financing cash flows[27] Notes to Consolidated Financial Statements The notes detail key events including two acquisitions, a secondary stock offering, debt refinancing, and a DOJ investigation - On June 9, 2022, the company completed a secondary offering of 2,250,000 shares, raising net proceeds of $47.0 million[36][145] - The company completed two accretive acquisitions in 2022: Radar Leather Division S.r.l. on January 11 for $19.4 million and Cyalume on May 4 for $35.7 million[64][71][138] - As of June 30, 2022, the company had $18.4 million in remaining performance obligations, with approximately 63% expected to be recognized as revenue over the next twelve months[77] - The company is involved in a False Claims Act investigation by the DOJ regarding allegations that certain body armor accessory panels were falsely labeled as compliant with NIJ standards[106] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes a six-month net loss to increased stock-based compensation and unfavorable product mix, despite strong liquidity Results of Operations Q2 2022 net sales rose 3.2%, but higher costs and a significant increase in SG&A expenses led to an operating loss for the first half of the year Financial Performance Comparison (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $118,232 | $114,561 | $222,638 | $225,097 | | Gross Profit | $43,221 | $48,228 | $83,410 | $92,187 | | Operating Income (Loss) | $8,157 | $15,423 | $(6,325) | $30,857 | - Product segment sales in Q2 2022 increased by 3.7% due to recent acquisitions and higher armor demand, while Distribution segment sales decreased by 4.8% due to lower retail volume[163] - For the six months ended June 30, 2022, SG&A expenses increased by $27.2 million (45.7%) compared to the prior year, primarily due to $26.5 million in stock-based compensation expense[174] Non-GAAP Measures Adjusted EBITDA declined to $32.6 million for the first six months of 2022, impacted by lower net sales and unfavorable product mix Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $4,445 | $6,815 | $(5,720) | $13,679 | | EBITDA | $11,237 | $18,419 | $94 | $37,348 | | Adjusted EBITDA | $18,386 | $20,451 | $32,605 | $40,697 | - Adjustments to calculate Adjusted EBITDA include adding back restructuring costs, stock-based compensation, LTIP bonus, and amortization of inventory step-up[186] Liquidity and Capital Resources The company maintains strong liquidity with $28.9 million in cash and $97.7 million available under its revolving credit facility - As of June 30, 2022, the company had $28.9 million in cash and cash equivalents and $97.7 million available under its revolving credit facility[195][198] - The company refinanced its credit facilities in August 2021, securing a $200 million term loan and a $100 million revolving credit facility, both maturing in July 2026[197] - Net cash from financing activities in H1 2022 was $27.4 million, primarily from a $49.7 million secondary offering, offset by debt payments and $5.5 million in dividends[215] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Cadre Holdings, Inc is not required to provide the information for this item - The company is classified as a smaller reporting company and is therefore exempt from providing quantitative and qualitative disclosures about market risk[228] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, while integrating recent acquisitions - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period[229] - The company is currently integrating the internal controls of the newly acquired Radar and Cyalume entities[230] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in several legal matters, including a DOJ investigation and a personal injury lawsuit under appeal - The company is subject to various legal proceedings, which are detailed in Note 7 of the financial statements[105][106][233] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in prior SEC filings - There have been no material changes in risk factors from those previously disclosed in the 2021 Form 10-K and Q1 2022 Form 10-Q[234] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including required CEO and CFO certifications and XBRL data files - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and various Inline XBRL documents[237]