Cadre Holdings, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports annual results; it does not provide a clear standalone fourth-quarter income statement. Cadre manufactures and distributes safety and survivability equipment for first responders, including body armor, explosive ordnance disposal equipment, duty gear, and third-party products.
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $457.8 million | $427.3 million | +7.1% |
| Gross profit / gross margin | $175.7 million / 38.4% | $170.7 million / 39.9% | Margin down about 1.5 percentage points |
| Operating income / margin | $16.7 million / 3.7% | $51.7 million / 12.1% | Operating income down 67.7% |
| Net income / diluted EPS | $5.8 million / $0.16 | $12.7 million / $0.44 | Net income down 54.0% |
| Adjusted EBITDA (non-GAAP) | $75.7 million | $71.4 million | +6.1% |
| Operating cash flow | $46.4 million | $40.1 million | +15.8% |
Adjusted EBITDA conversion rate, defined by the company as Adjusted EBITDA less capital expenditures divided by Adjusted EBITDA, was 94% (96% in 2021). Capital expenditures were $4.7 million. The filing does not provide a directly comparable GAAP free-cash-flow measure.
At year-end, cash and cash equivalents were $45.3 million. Debt was $149.7 million net of discounts and issuance costs ($149.1 million scheduled principal); no U.S. revolving borrowings were outstanding, and $97.6 million of that facility was available after letters of credit. Current assets were $197.0 million and current liabilities were $78.9 million. The term loan matures July 2026; its reported interest rate was 6.14% at year-end. The company had a $100 million U.S. revolving facility and an undrawn Canadian revolving facility.
Changes versus 2021
- Sales growth reflected acquisitions and stronger agency demand for hard goods in Distribution, partly offset by prior-year large armor and international bomb-suit orders.
- Product segment sales rose 6.4%; its gross margin declined to 40.3% from 40.9%, including acquisition inventory step-up amortization. Distribution sales rose 7.8%, while segment gross margin fell to 21.1% from 24.9%, primarily from channel mix.
- SG&A increased 33.3% to $153.3 million, chiefly reflecting a $31.9 million increase in stock-based compensation and $6.9 million of acquisition-related expense. The company recognized $22.1 million of compensation expense after modifying its phantom share plan.
- Interest expense declined to $6.2 million from $16.4 million following the 2021 debt refinancing and debt repayments. The prior-year $15.2 million debt-extinguishment loss did not recur.
- Operating cash flow increased, but investing cash use rose to $59.6 million, principally for the Radar and Cyalume acquisitions. Cash from the 2022 secondary offering contributed to $24.5 million of financing cash inflow.
Outlook, commentary, and risks
- Management describes demand as supported by recurring equipment replacement and modernization, product innovation, and international expansion. Year-end orders backlog was $117.9 million, up from $113.8 million; some orders may be subject to appropriation or cancellation, and backlog is not a guarantee of sales.
- No numerical revenue or earnings guidance is provided. Management said cash, operating cash flow, and available borrowing capacity should cover liquidity needs for at least the 12 months following the filing.
- COVID-era supply-chain and transportation disruptions, labor shortages, inflation, and higher freight costs affected operations; management expected some adverse effects to continue, but could not estimate their duration or magnitude.
- Key risks include government budget variability, dependence on certain ballistic-material suppliers, fixed-price contract cost overruns, product liability and warranty exposure, export-control and other regulatory compliance, international and currency risks, cybersecurity, and acquisition integration. The company also disclosed that 55% of Distribution segment sales in 2022 were under fixed-price contracts, versus less than 10% in the Product segment.
- A 2021 jury verdict awarded a plaintiff $7.5 million in a product-liability case. The company appealed; it considered a loss reasonably possible, not probable, and stated that any loss would be indemnified by insurance under applicable policies. Other ordinary-course proceedings were not expected to have a material adverse effect beyond insurance coverage.
- Cadre acquired Radar for $19.4 million and Cyalume for $36.2 million, net of cash acquired. Cyalume’s purchase-price allocation remained preliminary. The company paid $11.5 million in dividends during 2022 and expected to continue quarterly dividends of $0.08 per share, subject to board approval, financial conditions, and credit-agreement restrictions.
- The company reported effective disclosure controls and effective management-assessed internal control over financial reporting. Cyalume was excluded from the assessment while integration continued. The auditor issued an unqualified opinion on the financial statements but was not engaged to audit internal control.
Important facts for investors to verify
- Whether the acquisition-driven sales growth and backlog convert into sustained organic growth, and how much backlog is cancellable or dependent on government budgets.
- Whether gross-margin pressure, elevated SG&A, and the unusually high stock-based compensation expense persist; review the company’s non-GAAP Adjusted EBITDA exclusions alongside GAAP earnings.
- Debt service, floating-rate exposure, covenant headroom, and the effect of the 6.14% year-end term-loan rate; assess liquidity after acquisitions, dividends, and future capital needs.
- Outcome and insurance coverage of the product-liability appeal, and any changes in product claims, warranty costs, or insurance availability.
- Final Cyalume purchase accounting and integration results, including whether expected acquisition synergies materialize.