Cadre Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Cadre manufactures and distributes safety and survivability products for law enforcement, first responders, and military customers through Products and Distribution segments.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $118.2 million | $114.6 million | $222.6 million | $225.1 million |
| Gross profit | $43.2 million | $48.2 million | $83.4 million | $92.2 million |
| Gross margin | 36.6% | 42.1% | 37.5% | 41.0% |
| Operating income (loss) | $8.2 million | $15.4 million | $(6.3) million | $30.9 million |
| Net income (loss) | $4.4 million | $6.8 million | $(5.7) million | $13.7 million |
| Adjusted EBITDA | $18.4 million | $20.5 million | $32.6 million | $40.7 million |
Q2 sales rose 3.2%, led by acquisitions and higher armor demand, partly offset by lower large structural armor and crowd-control sales. First-half sales fell 1.1%, reflecting prior-year federal duty-gear and crowd-control shipments, partly offset by acquisitions. Q2 diluted earnings per share were $0.12 versus $0.25; first-half diluted loss per share was $0.16 versus earnings of $0.50.
Margins weakened amid higher material and labor costs, unfavorable product and channel mix, and inventory step-up amortization. Pricing partly offset manufacturing cost inflation. First-half SG&A rose 45.7%, primarily due to $26.5 million of stock-based compensation, including a $22.1 million charge tied to modification of the executive compensation plan. Interest expense declined year over year following refinancing and debt repayments.
Cash flow, liquidity, and debt
- First-half operating cash flow was $25.0 million, compared with $28.7 million in 2021. Investing cash outflow was $57.5 million, including $55.0 million net cash for the Radar and Cyalume acquisitions and $2.5 million of capital expenditures.
- Financing cash inflow was $27.4 million, including $49.7 million of net proceeds from the June share issuance, offset partly by debt payments, employee-stock taxes, and dividends. Cash declined $5.0 million to $28.9 million.
- At June 30, cash was $28.9 million; current assets were $175.2 million and current liabilities were $76.4 million. Net carrying debt was approximately $152.6 million. The term loan matures in 2026; no revolving borrowings were outstanding, and $97.7 million of U.S. revolver availability remained after letters of credit.
- Debt covenants include a minimum fixed-charge coverage ratio of 1.25:1 and a maximum net leverage ratio of 3.75:1 through September 2022, then 3.50:1, subject to specified acquisition provisions. Management said cash, operating flows, and available facilities should meet liquidity needs for at least 12 months.
Material developments, outlook, and risks
- Cadre acquired Radar, an Italian duty-gear business, in January for $19.4 million net of cash acquired, and Cyalume, a chemical-illumination products business, in May for $35.7 million net. Purchase-price allocations remained preliminary; acquired revenue was included from the respective acquisition dates.
- Orders backlog was $126.4 million at June 30, up from $113.8 million at year-end. Management cited acquisitions and higher soft-armor and other orders; backlog may include orders subject to appropriation or cancellation. Separately, remaining performance obligations were $18.4 million, with about 63% expected to be recognized within 12 months.
- The filing gives no formal revenue or earnings guidance. Management cited supply-chain disruption, logistics delays, inflation in materials and shipping, and the ability to offset cost increases through pricing and productivity as risks.
- Cadre completed a 2.25 million-share issuance in June for $47.0 million net. In July, after quarter-end, underwriters bought another 300,000 shares for $6.6 million net. The filing also reports a $2.0 million offering-related payment to a company controlled by the CEO and a $1.0 million acquisition-related payment to that company.
- Legal matters include a DOJ investigation concerning alleged false labeling of body-armor vest accessories; the company said it could not yet assess merits or exposure. A product-liability jury verdict of $7.5 million was on appeal; Cadre said loss was reasonably possible, not probable, and expected applicable insurance indemnification. The FTC consent order related to a prior transaction remains subject to compliance reporting.
Key facts for investors to verify
- Whether pricing, mix, and cost actions stabilize gross margins as inflation and supply-chain pressures continue.
- Acquisition contributions, integration progress, and final purchase-price allocations for Radar and Cyalume.
- Expected future stock-based compensation expense and the impact of related-party fees and arrangements.
- Debt covenant headroom, floating-rate exposure, and liquidity after acquisitions and dividends.
- Conversion of backlog into sales, including cancellation or appropriation risks, and developments in the DOJ inquiry and product-liability appeal, including insurance coverage.