Cadre Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Cadre manufactures and distributes safety and survivability products for law enforcement, first responders, military customers, and related markets. Figures below are in U.S. dollars; financial amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $125.1 | $111.6 | $357.9 | $334.2 |
| Gross profit | $53.6 | $43.7 | $151.0 | $127.2 |
| Gross margin | 42.8% | 39.2% | 42.2% | 38.0% |
| Operating income | $16.7 | $10.3 | $43.8 | $4.0 |
| Net income (loss) | $11.1 | $4.9 | $29.0 | $(0.8) |
| Diluted EPS | $0.29 | $0.13 | $0.77 | $(0.02) |
| Adjusted EBITDA | $23.7 | $20.7 | $65.1 | $53.3 |
- Q3 sales rose 12.2%; nine-month sales rose 7.1%. Operating margin was approximately 13.4% in Q3 versus 9.2%, and 12.3% year to date versus 1.2%.
- Q3 Product segment sales increased 17.0%, led by domestic armor demand and international crowd-control orders; Distribution sales fell 6.9%. For the nine months, Product sales rose 9.8% and Distribution sales rose 1.0%.
- At September 30, cash was $69.4, current assets $236.7 and current liabilities $89.7. Current ratio was about 2.64. Debt, net of discounts and issuance costs, was $143.6, implying net debt of about $74.1. Debt was primarily the term loan; no revolver borrowings were outstanding, and $97.4 of revolving availability remained (with $2.6 of letters of credit).
- Nine-month operating cash flow was $46.3, versus $29.5 in 2022; capital expenditures were $4.2. Cash increased $24.1 to $69.4. Inventory increased $12.3 from year-end, a notable use of operating cash. Dividends distributed were $9.0.
Changes, outlook and notable items
- Compared with 2022, nine-month profitability improved substantially, reflecting higher sales and gross margins and lower stock-based compensation expense. SG&A fell 10.8% year to date, largely because stock-based compensation declined by $22.3; Q3 SG&A increased 14.4%, primarily from employee compensation, benefits and commissions.
- Management attributed margin improvement to pricing, product mix and productivity, partly offset by inflation, manufacturing costs and Mexican-peso pressure. Nine-month sales also benefited from acquisitions; prior-year international explosive-ordnance-disposal orders partly offset current growth.
- Orders backlog was $126.2 at September 30, up $8.3 from December 31, 2022. Management describes backlog as an indicator of potential sales, but some orders may be subject to appropriations or cancellation clauses and timing depends on fulfillment.
- No specific earnings or revenue guidance is provided. Management stated cash, operating cash flow and available credit were expected to cover liquidity needs for at least the 12 months following the filing. Future capital needs may depend on acquisitions and facility or equipment investments.
- The term loan matures July 2026 and is subject to financial covenants, including fixed-charge-coverage and maximum-net-leverage requirements. The company transitioned its credit agreement and swaps from LIBOR to SOFR in May 2023. Interest-rate swaps cover $150.0 of notional principal; management estimated a 100-basis-point rate change would affect annual interest expense by $1.4 before swaps and immaterially after swaps.
- A $7.5 product-liability verdict was affirmed on appeal, but the insurer fully indemnified the company and the judgment was released in September 2023; the matter is closed. The company reports other ordinary-course legal matters and says reasonably possible losses beyond insurance are not expected to materially affect it. A Canadian subsidiary’s 2018 and 2019 tax returns are under examination.
- Management identified risks including working-capital and capital availability, supply-chain delays, inflation, competition, customer and supplier relationships, foreign currency, cybersecurity, acquisitions and the ability to maintain dividends. No material risk-factor changes were reported. Disclosure controls were assessed as effective; no material change in internal control was reported.
Key facts for investors to verify
- Whether backlog converts into revenue on expected timing, given cancellation and procurement provisions.
- Whether margin gains persist as inflation, labor and material costs, currency movements and product mix change.
- Cash conversion and working-capital trends, especially inventory growth, alongside dividend payments and debt service.
- Debt covenant headroom, floating-rate exposure after swaps, and the 2026 maturity and repayment schedule.
- The contribution and performance of acquired businesses and the extent to which reported earnings comparisons reflect lower stock compensation and other adjustments in Adjusted EBITDA.