• Orders Backlog: $167 million as of September 30th, a $21 million increase from Q2.
• Quarterly Dividends: 12 consecutive quarterly dividends paid, raised to 35 per share on an annualized basis.
• Cyber Security Incident Impact: Approximately five points of gross margin pressure in Q3.
• Inventory Step-Up Amortization: $1.5 million expensed in Q3 for acquisitions of ICOR and Alpha Safety.
• Intangibles Amortization: $900,000 in Q3, creating a 225 basis points headwind compared to last year.
• Net Debt Leverage: 1.3 times as of September 30th.
• Full Year 2024 Guidance: Net sales expected between $560 to $570 million; Adjusted EBITDA between $101 to $107 million.
• Capital Expenditures: Expected to be in the range of $6 to $8 million for the full year 2024.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Cadre Holdings Inc (NYSE:CDRE) reported strong demand for its mission-critical safety products across law enforcement, first responder, military, and nuclear markets.
• The company maintains a robust M&A pipeline, with expectations to announce at least one transaction before the end of 2024.
• Cadre Holdings Inc (NYSE:CDRE) has a strong orders backlog of $167 million as of September 30th, representing a $21 million increase from Q2.
• The company has paid 12 consecutive quarterly dividends since going public and raised its dividend earlier this year to 35 cents per share on an annualized basis.
• Cadre Holdings Inc (NYSE:CDRE) continues to benefit from favorable industry trends related to public safety and has a resilient business model that is not significantly affected by economic, political, or geopolitical cycles.

Negative Points

• Cadre Holdings Inc (NYSE:CDRE) experienced a short-term impact on financial results due to cybersecurity incidents, which created about five points of gross margin pressure in the quarter.
• The company had to modify its full-year guidance for 2024 due to the cybersecurity incidents, with some revenue being pushed into 2025.
• There were incremental expenses related to production in Q4, including overtime, which could impact margins.
• The cybersecurity incidents required Cadre Holdings Inc (NYSE:CDRE) to implement additional countermeasures, indicating potential ongoing costs to improve infrastructure.
• Despite strong demand, the company faces challenges in executing a large Q4, requiring high-level execution from teams to meet revised guidance.

Q & A Highlights

Q: Can you clarify the impact of the cyber security incidents on Q3 revenue and whether it will shift into Q4? A: Blaine Browers, CFO: Some of the revenue affected by the second incident will shift into 2025, which is why we adjusted our guidance. There is no other impact outside of Q3 margins and the revenue shift. We are focused on executing a strong Q4, with supply chains intact and inventory built up during the incidents.

Q: How is the M&A pipeline, particularly for Alpha Safety, and has the cyber incident affected it? A: Brad Williams, President: The M&A pipeline for Alpha Safety is strong, with opportunities in engineered systems and manufacturing products for the nuclear industry. We are also looking at international expansion, particularly in Europe. The cyber incident has not impacted our M&A activities.

Q: Were there any additional security expenses after the second cyber breach, and will there be ongoing costs? A: Blaine Browers, CFO: After the first incident, we implemented countermeasures that minimized the impact of the second breach. We have engaged additional experts to further strengthen our security. While there are costs involved, they are not significant enough to materially affect our financial position.

Q: Can you provide more detail on the sales impact by month during the quarter due to the cyber incidents? A: Blaine Browers, CFO: July was the most impacted, with a ramp-up in August. September was the strongest month despite the second incident, as we had built up production and inventory. The teams were able to continue production during the second incident, minimizing disruptions.

Q: What is driving the sales increase in Q4, and how confident are you in meeting the guidance? A: Blaine Browers, CFO: The increase is driven by armor and duty gear, with pent-up backlog from Q3, and expected strong performance in EOD suits. We have built inventory and are adding production capacity through additional workdays and overtime. We are confident in our ability to execute and meet the guidance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.