Cadre Holdings, Inc. — FY2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021, with comparison to FY2020. Cadre manufactures and distributes safety and survivability equipment for first responders, including body armor, explosive ordnance disposal equipment, and duty gear. It reports Products and Distribution segments. The company completed its IPO on November 3, 2021; its shares began NYSE trading as CDRE that day.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $427.3 million | $404.6 million | +5.6% |
| Gross profit / margin | $170.7 million / 39.9% | $152.9 million / 37.8% | Margin +2.1 percentage points |
| Operating income / margin | $51.7 million / 12.1% | $49.8 million / 12.3% | Income +3.8% |
| Net income / diluted EPS | $12.7 million / $0.44 | $38.5 million / $1.40 | Net income -67.1% |
| Adjusted EBITDA | $71.4 million | $58.0 million | +23.1% |
| Operating cash flow | $40.1 million | $45.4 million | -$5.3 million |
- Adjusted EBITDA less capital expenditures was $68.4 million; the company-reported Adjusted EBITDA conversion rate was 96%. Both are non-GAAP measures.
- Cash and cash equivalents were $33.9 million at year-end, versus $2.9 million in 2020. Capital expenditures were $2.8 million, implying operating cash flow less capital expenditures of approximately $37.3 million.
- Reported debt, net of discounts and issuance costs, was $159.7 million; contractual obligations list $161.7 million of debt, including scheduled principal obligations. The new term loan’s principal balance was $158.6 million. No revolver borrowings were outstanding; approximately $97.0 million of the U.S. revolving facility was available at year-end.
- Current assets were $160.0 million and current liabilities $74.6 million. The company said cash, operating cash flows, and available borrowing capacity should meet liquidity needs for at least 12 months after filing.
- Product segment gross margin rose to 40.9% from 38.6%; Distribution segment gross margin rose to 24.9% from 23.7%.
Material changes versus FY2020
- Revenue growth reflected a large international structural-armor contract, higher international EOD sales, and stronger ammunition and firearms demand in Distribution. International revenue increased to $107.5 million from $68.7 million, while U.S. federal agency revenue fell to $47.6 million from $63.3 million, largely due to contract shipment timing.
- Gross profit improved on higher sales, favorable pricing, and product mix. Operating income rose modestly, but operating margin eased as SG&A grew 7.8%, including incentive-plan and stock-compensation costs.
- Net income fell substantially, chiefly reflecting a $15.2 million loss on extinguishment of debt in the August 2021 refinancing, a $6.5 million income-tax provision versus a $10.6 million tax benefit in 2020, and prior-year gains from an asset sale and Axon earn-out stock. Lower interest expense partly offset these items.
- Orders backlog declined to $113.8 million from $131.8 million, primarily reflecting shipments of large armor and less-lethal contracts and lower prior-year EOD demand, partly offset by Distribution orders.
- The August refinancing established a $200 million term loan and a $100 million revolving facility, both maturing in July 2026. The company raised $78.6 million net from the IPO and used part of the proceeds to repay borrowings.
Outlook, risks, contingencies, and unusual items
- Outlook: No quantitative revenue, earnings, or cash-flow guidance is provided. Management describes plans for new products, international expansion, acquisitions, and ongoing margin improvement. It cites recurring replacement cycles for more than 80% of its product offering.
- Operating risks: COVID-related supply-chain, shipping, labor, and port disruptions raised costs and delayed deliveries; management expected adverse effects to continue. Other key risks include constrained or specialized ballistic-material supply, government budget variability, fixed-price contract cost overruns, export and other regulatory compliance, product liability, and international and foreign-exchange exposure. The filing also discusses potential effects from Russia’s invasion of Ukraine and related sanctions.
- Legal matters: A 2021 jury verdict awarded $7.5 million in a product-liability case; no judgment had been issued, post-trial motions were pending, and the company said any loss was reasonably possible but not probable and would be indemnified by insurance. A DOJ investigation concerns allegations that certain vest accessory panels were falsely labeled as meeting NIJ standards; the company said it could not yet assess the merits or exposure. The FTC matter concerning the VieVu sale was resolved by consent order, with ongoing compliance obligations.
- Other notable items: Cadre acquired Radar Leather Division for approximately $21 million in January 2022. It declared a $0.08 quarterly dividend per share and said it expected to continue the dividend, subject to board approval, financial conditions, and credit-agreement restrictions. A previously disclosed material weakness in journal-entry segregation controls was reported as remediated by year-end; disclosure controls were deemed effective. The auditor issued an unqualified opinion on the financial statements, but neither management nor the auditor provided an ICFR effectiveness opinion under the new-public-company transition relief.
Important facts for investors to verify
- Whether backlog converts to sales on expected timing, given shipment timing, supply-chain delays, and customer cancellation or budget-appropriation terms.
- Debt principal, interest-rate exposure, covenant headroom, and the impact of future cash needs, dividends, and acquisitions on liquidity.
- Resolution and insurance coverage for the $7.5 million verdict, and developments in the DOJ investigation and other product-related claims.
- Whether COVID-related supply constraints, freight and materials inflation, and fixed-price contracts affect future margins and deliveries.
- Post-year-end Radar acquisition price allocation, integration, and contribution; also monitor stock-based and incentive compensation costs.
- Dividend sustainability and the governance implications of the CEO’s majority voting control.