CDRE - Earnings call transcript Q3 2024

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Operator

Good afternoon, and welcome to Cadre Holdings Third Quarter 2024 Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Matt Berkowitz of The IGB Group for introductions and the reading of the safe harbor statement. Please go ahead, sir.

Matthew Berkowitz

Thank you, and welcome to today's conference call to discuss Cadre's third quarter results.

the would will remind statements, Reform be make statements I today's that and Act begin, of these we provisions call, making under of we XXXX. like Securities everyone to during we the Before Private harbor Litigation safe several forward-looking These reflect estimates our and our based on forward-looking of today. information statements understanding known best assumptions to us and which to These risks and Cadre are we face in markets subject the the statements and forward-looking that industries operate. uncertainties factors affect with Cadre's Cadre's potential and is that from time in results Commission. on time included public information More could Exchange the financial to filed reports Securities measures. I'd we that to this that will this note at and at remind www.cadre-holdings.com, be materials supplement call replay through p.m. available have starting Please financial on XXXX, evening our of website November like posted presentation X:XX reconciliation XX, include everyone comments our a for which non-GAAP certain Time Eastern tonight. available press time, as link will Cadre's replay the provided Warren via Chairman webcast like and would I Cadre's today's in call on turn CEO, to also over A the to well as website. At be Kanders. release this

Warren Kanders

Good Chief results the President, quarter afternoon, earnings XXXX. joining for by of today am Financial and for Officer, I joined Blaine Brad third discuss to Williams; and our you call thank our Cadre's Browers.

we and driving and profitability Cadre progress military to nuclear excited about the optimize overall our markets. continue the processes further and operating with demand quarter, grow. is remain for margin increased pleased objectives. Implementation we potential stated our model expansion responder, first the Cadre's strategic we of business, ongoing, consistent as continued team's strong the to and throughout the to see across We've During enforcement, mission-critical safety law products execution, with been

the growth our as we there macros long-term incidents, While result well to a supported favorable industry the trends positions in in strong, of short-term as which by operate cybersecurity markets a public affected consistency the see entrenched financial U.S. Cadre's are and related cycles, to through context will business underscore attractive geopolitical business by on opportunities resilience continue and of Cadre's financial this the significantly like to results we not quarter expect be impact this our as case. was political, we economic, to the other of and been Historically, the and safety. In continue results have election, I'd cycles.

that recent enforcement. police As know, multiple climate decades, safety law recessions become you political there budgets has police, party market domestic the and an refund in commitment protect who are the despite and police is products. and industrial and with equipped oscillated. In a there serve and most is us expectation major spending reliable grown law And defund those safest all segment expenditures protection the and to a be largest public is years, our regardless office, ensuring of will and have enforcement financial has that which over

our Looking key these complementing to core M&A to organic component capitalize ahead, accelerate growth. growth is a headwinds, on long-term program Cadre's initiatives

enhance to call transaction the and maintaining to before positioned we and potential we sheet today, with evaluate that, and while thank our targets in to our to act an I and our advantage at market strength tracking the well for on grow aggressively continue and We and to ability you. being over patience the quickly. Based end robust through balance to further our maintains of platform the are discussions, Brad, announce seeing turn transactions a Cadre over of of leadership well opportunities XXXX status M&A. pipeline given us we are will believe discipline. With of still Brad. pursuing active you are the one least

Brad Williams

Q&A see session. and continued quarter objectives safety and you, QX provide during update to made including trends business on by and third strategic X. begin equipment. a financial recent will and I and We'll overview, mission-critical a Slide the strong Warren. our today's best-in-class On demand Thank progress recurring our performance call, We Blaine executing followed for

principles is the to organization. our remain driving leading responder, perspective, innovative and enforcement, Cadre the the day teams brands markets. across broader nuclear pricing model, premium throughout Cadre to military every which benefit of improvement operating From and offering, demand committed product from positions continues an law Our growth first a and

as neutral. We in from QX, represents XX. $XX This a backlog, Safety ICOR. mix was strong quarter Alpha third million which was excluding a maintain million the orders of increase Our $XXX September and

M&A continue free also to our $X.XX we raised priorities to M&A cash remains CapEx will in minimal this about be our strong. strong shareholders. Warren capital with model on earlier takeaway of an Blaine but our to generation prioritize dividend Cadre's and is on going to annualized flow support funnel XX our are detail, while company needs, year primary objectives, enabling quarterly evaluating. Based per the consecutive the asset-light excited basis. actively continues As greater since dividends outline the business M&A mentioned, we that our return the public also to share paid opportunities We

X. Turning familiar highlight that the briefly market long-term with tailwinds Cadre know investors I'll to well. Slide

demand nonpartisan As we fueling increasingly has for a public see our mission-critical favorable safety macro become issue, global trends equipment.

similar very has growth. is highly delivering business safety a political we consistent long-term and were reason area of with contracts geopolitical attributes position and and as stable Cadre's core always to military revenue stable Alpha supported and purchase business been economic, law and primary conditions. A growth the a visible Safety by recurring shares regardless mentioned, Warren acyclical, drawn As has organic market protected it enforcement nuclear orders.

supporting sector to nuclear in think a back safety look long-term growth about market we of nuclear step a whole, at take X tailwinds as we the key terms and like As missions.

by environmental related expanding mandated are defense DOE X national which driven efforts mission-critical underpinned first The security national programs. and cleanup is to and safety, by

for of how business in to Third increase the our on is opportunities fleet, intensifies be reactor we growing the opportunities growth recognize and is globally. We current resemble nuclear become win of operational, supplies number safety to modular will energy, of with pipeline. energy focus reactor those area will interest sustainability Once business. nuclear of global which conjunction commercial of for see future an as new their there the nuclear small SMRs the us requirements a

for and see to particularly existing containment outage demand do reactors. expect ventilation, during products, like shielding We much cycles, with we

business American Slide products unchanged and We X to Safety, of the market remained related despite acquisitions see the North Blaine represents in landscape that outline X. enforcement, which to to have X% sales Turning of Trends geopolitical I'd after last the our continued to trends demand highlight impacting new market latest mostly we've in weakness. I'll current to a over the basis. on call the more law Zooming months. channel, like contract now Browers. consumer approximately broader solid our CFO, and ICOR Alpha our turn on

Blaine Browers

our Brad. Thanks, strategy. of my I'll review kick a M&A comments with off

selective opportunities military. platform evaluate with our highly to Slide our safety criteria our The to see build law for transactions enforcement potential out robust, products continue on We as core suite consistent well X. as and nuclear to is expand key pipeline we listed actionable and of

effect Slide detail financial Slides of Cadre's see to discuss short-term our our of a the the you'll results. and XX XX XX, incidents performance. cybersecurity summary performance. now QX On us on financial Turning

million in this step-up the incidents we've margin ICOR In is the expensed the $X.X for X Safety. to and at amortization acquisitions best related QX, of Our estimate cyber quarter. created Alpha about time inventory pressure of points gross

in net more Combined, intangibles present and Slide last growth to year our our addition, XX, guidance, adjusted on cost midpoint, and XX% In goods basis XX. QX. At September year. Illustrated capital sold XXXX in and sales discuss $XXX,XXX was which implies full over amortization of XX%, is respectively. On XX XXX and a its of points in growth created year structure this as we this outlook this I'll including EBITDA detail year-over-year, adjusted headwind compared moment. revenue Slide EBITDA of of updated

remains net ample dry leverage with of acquisition pursue X.Xx powder available Our to continue opportunities. to debt low

took Before remediate provide last cybersecurity turning with update to In experts. I'd to of on we help incident full incident, an we immediately on slide, the incident steps the our the to to guidance the like response outside reported July quarter. year the next

the steady-state transitioning incident we we During affected the as experienced a of a were systems, process technology reinstating to environment. second cyber

established, work would that take in August had how remain customer and strong. to the on to Fortunately, time at to with to important and It's we we external act and to and date, able countermeasures improve infrastructure, our the countermeasures we'll already data. Full disruption. quickly additional number systems to many diligently resume our as experts with to and cyber internal To us cybersecurity normal estimate internal it and based teams operations. implementing year were minimize highlight of relationships continue long was teams we the supplier countermeasures a have guidance our protect implemented available information

favorable now million said, into on which million While the XX. mission-critical continue To both year of impact has adjusted performance, operating Brad million. we've point million teams overall is Cadre short-term expects XXXX, guidance $XXX $XXX account the and sales leveraging drive demand constant range Cadre's reflected have for taking to in trends Cadre reiterate organizational these made, categories. pleased and improvement. With progress $XXX and safety EBITDA in that generate the range that incidents, best-in-class for company been our of execution, financial effectively, our an Slide see with modified our the $XXX have incidents we being full equipment up a cyber to net to had its ramped on the across to model to

concluding of expenditures in turn it for Brad $X We million. I'll comments. expect back range be $X to the now to to capital million

Brad Williams

are confident in Thank favorable positions for Cadre's on leading you, industry Complementing to execution leadership. execute Supported complementary entrenched driving we law profiles. the strategic and businesses by add military line that, nuclear in evaluating revenue organic objectives market with initiatives, core excited margins, trends responder, to and actively strong summary, trends continue attractive mission-critical Q&A. superior and and market our on lines market positions track end for markets, capitalize demand open strong and enforcement, are please our safety further our and equipment. defensible forward growth record Cadre's across Blaine. opportunities up build Operator, to of first with recurring outlook enhance best-in-class With we our we In M&A Cadre's and favorable the our

Operator

comes Our Instructions] Sinderen [Operator Jeff first Securities. Van Riley the with from line B. question of

Jeff Van Sinderen

clarify bit a to cybersecurity. little just And on wanted the I

timing that this no few just revenue then orders? other QX? And shipping did Regarding to business at your future also, booking impact point revenue any the fair that it of than say of there's a really to then not to there shift that impact in timing? was QX, it all occur into the QX, other order in is or And does timing

Warren Kanders

Yes.

which XXXX, is The So of QX, inside QX change the reason made contained some then the not Jeff, the supply as -- other the ensuring it's that of outside large no for the and incidents, incident, point for we're revenue only the chains the coming point, is teams thanks the into shifting There during I great second to well. intact the out. executing focused impact and And the At get does up, guidance. this incidents, revenue a have just margins question. with allowing done were in on inventory of here. QX during but us be to on for back job QX build a pushed prepared

Jeff Van Sinderen

around And Alpha maybe broader that you is a might incident. there's mind of seeing correct? Can I at Is Safety give that emphasize sounds moment think little a where this sense, folks. mentioned And the an and bit you like since talk what us pipeline? then I stands no for area Alpha's that certainly to more just of you're about you it M&A top acquisitions? And from cyber your how pipeline impact guess,

Brad Williams

Jeff, correct. That's that one. I'll it's take Brad.

on, overall, say, what's the solid solid, at would of the as than Alpha things. for is going nuclear we Safety side on I So more look definitely funnel been

both similar in that providers type that from end we're companies funnel U.S. would systems solutions So for for the customers, the in are that engineered-type are and then those are the also large be that products industry everything certain in where with companies looking in and funnel the And manufacturing very interested repeated Alpha nuclear funnel products in to the for supplied. internationally. also companies are

most the but those just see the in internationally. in, U.S. So are that not the X we also opportunity

you the outside our Alpha strategies geographically to Europe. If U.S. with expand was one remember, Safety into of of

on acquisitions also that. into And keen we're that so fit

Operator

comes Our Lawrence the next question with of line Solow from Securities. CJS

Lawrence Solow

now -- beat to happen the guys guess it breach, -- of question, any, it reoccurring not a after security is you've this? to more there guess forward, just, was won't I or breach? related going kind de or expenses it a horse Or pretty like you again. with I second sounds to any so just feel -- second Was that there did dead any anything any expenses there have but increase And security but confident little minimis? you the is

Blaine Browers

out appreciate we measures we additional I question. had of put of place. number the a Larry, security the Coming incident, and countermeasures first in

that, because the The of incident. second of it impact minimized -- second the

and that the So teams job incident. great of then a first second that executing did on minimizing

an a in out impact of the more was scope place. and absolutely measures and put experts Coming of group to much different it incident, had outside continue additional we've So that to second in additional company. countermeasures since engaged we we to place, put

money And and are that a items then this a that This to of to back you didn't done. and related July, about no short be there's nature apply cost improvement we continue environment long-term both and term guarantee do ensure harden any list second time On incurred then about to is longer-term can't our environment. the And we'll medium-term robust company how list, much we're we our the we we'll better. while is -- So but this prevent project. it incident can a I not and a events, material get view going assure more There's other or than can there a than significant we early we those. of list, was when to continue any and will think earnings. to in weren't we part the different continuous execute costs in basis, resources, we talk future

that wouldn't I but externally. view of would something, because this changing we financial as position So materially amount discuss certainly It not countermeasures. our costs these an it's

Lawrence Solow

face bit that I'm you -- think you sales. -- And to second actually I got you little the you of the declining Blaine, it incident. kind temporary of higher you guided significantly. curious, I -- up stay you I a had because number pretty missed sales, able so SG&A cut thought sales because in in would But just because were thought a just of the was SG&A blip the

that of incentive color there? So Or -- just any comp? is some that

Blaine Browers

evaluated year-on-year that, was and basis, look incentive the Larry, comp. certainly appropriate you absolute, comp A numbers of headwind Yes. on we the portion -- good when and a it's structure adjustments at made incentive there's Obviously, on some results. the there, based QX

Lawrence Solow

markets brush. we last and doing really little get specific doesn't just don't sounds feel rapidly then doing the dramatically pretty It sounds the results there going anything just And It into talk your but change it a the -- that. to without end question, they're anything anyhow, broad changes. like -- like all U.S. can detail or of in election steady consistent well like or offline, but change like is because more is no and

level, So a anything top just the high macro. aware level we should from be of on

Brad Williams

what we've line at with macro-wise Not everything Larry. is seen. I mean This in Brad. is all,

the you love of durability it. overall, the just As know, we that's business why

police" "Defund industrial or like it's major we recessions, it, or elections changes financial you any So COVID haven't or recessions, name seen that. the whether

So nothing there to report.

Operator

line comes Koranda from Our ROTH with next Matt Capital. the question of

Matt Koranda

was us trying at impact hit down can month quarter? and to the constrained, the Maybe then bit just kind quarter? was to maybe of the July sort would there of of so back -- in question sent characterize given X the incidents of I a Was September shape to a and may sales cybersecurity any assume a it sort in negative. of positive way. different the of in by you quarter any production the get it way bunch understand how little in But the they just way just then like recovered we the have incident August to give Is

Blaine Browers

quarter got second prior was up month of a to had In was It bit severely the started August in August, ramp quite the -- half and month so impacted teams despite the shipped and Yes. was production actually the up built to that July of the the in the back the most because incident. quarter. strongest inventory in incident second we September

The able we were other were is -- by systems teams teams second the were that to incident. still the Matt, down, good produce during able impacted news, the being

were on businesses But systems of out place other in coming first businesses XXX% production. XX%, they that to Some incident XX%. the XX%, maybe had that immediately continue

a for cash well the September, And in it can balance which wasn't statement and were teams case also but QX. like did inventory So sheet, see position where you outages build significant there call out, the of first. in flow us helps and it the the I'll

Matt Koranda

think we Alpha incident from quarter, third from about but any on the noise cut within there's cyber ICOR got I then you the if just quarter? the -- in that rough And know the and contribution

Blaine Browers

basis, on I ICOR what was we revenue last with saw a pretty assume consistent quarter.

little their Alpha through spread So loaded And evenly again, they a projects. a over of on timing back-end fairly based is business the to tends are -- be $XX the million, year. then

for QX QX completely pretty XX%, ramped significantly, the incidents, it, a they XX% So neither Again, them, were to sequentially. impacted. unrelated ramp up from into those of call businesses

Matt Koranda

Yes.

Okay. get I then to it's the lastly, that quarter And want it of just us a but quarter, like, any of just the other Maybe have a low shipments something I little call on ramp we how a around also would sort for we it get hear. quarter the the pushed use the steep of benefit just, got of revenue, bit of incrementals. XX% fourth ramp comfort the costs? EBITDA of be bunch my pretty sort sort of fourth in which to done. guidance, give well head guys associated in if hey, you that's SG&A ahead guide. pure just in we No, whole speak to the without just around margin midpoint would the of guess, a that of have sort Is we get just Maybe into the delayed, kind good of

Blaine Browers

Yes.

SG&A. expect production similar down margins So we we cetera. for to incremental EBITDA -- QX, rate expenses QX are that we leverage around incur really the going to lower, to really going We're gross The up overtime, be kind in in of et level on break QX, when it a pick is to on a rate QX in Matt, basis.

of in obviously, quarters inventory expect We kind And I will in we or a of be the teams than SG&A QX. one We build output. said, QX did it be our saw like place. really our what to But rather with in output more production from line bigger have QX. plans in the revenue

So have but with on the gone we're frankly, outlook plans, teams quarter, quarter detailed be a will we're comfortable our QX the and and the for bullish tough record a through year.

Operator

Our comes Jefferies. Kahyaoglu Sheila question line next of the from with

Sheila Kahyaoglu

I questioning, Maybe it's that at the as line implied quarter. of well, then on think about rate XX% of if you're through run XX% just look last the and you margins QX the

trending 'XX do into is that with despite exit guidance quarter well? as think what's the line gives cadence in rate and happened? you guess How in the confidence that we So like how -- about that? So I what QX

Blaine Browers

we into So QX. already are

the I thanks question. guess, So Sheila, of a couple for things, and

go it a inventory very final go steps to relatively First, looks ready coming sitting that ready and be the or inventory made. with to the really number, large revenue position to some but of like is out,

at We're the at schedules. The is incremental we're days, second piece OT. looking looking

by capacity. added physical X So to, think that days postponing a they're get incremental at on X/XXs inventories we've or again, and X/XXs, about week, X-day there. when businesses days looking X that work we Also, are

week, up, additional small if are there. XX% things, to a capacity So running adding but you all when you're them day start you're an these add

X gives another right? you days X% have You in That add the on you production capacity, inventory quarter, shelf. the

comfortable teams, but start out to add execute. certainly but the we're to weren't, will do put if the the And it's -- with have we in while And they we're execution team's So in up. guidance, big a it. we're wouldn't require from high-level we confident ability number,

Sheila Kahyaoglu

picture like complexity of we M&A the and think plus in do of about the and cadence of And the underlying the along the line the then 'XX business basis annual you that to second accretive potential stepping the in continues XXXX back, as just for for given points XX bigger the just for how keep items pushing onetime half, margin roll in maybe expansion. maybe the

could we business you about underlying if about how complexities maybe talk think ex the onetime So the us. or for just remove

Blaine Browers

Yes.

inventory So what We kind Sheila, back. I think margin is step-up, think in it's should about about which we we pressure approximately of million this year, the the one-timers $X that next talked pressure X-point with of bounce had QX, of outside would say consistent range the is which X% law the that be us. the on for expect historically, and part now The side. market for military far quarterly would for to think to more timing. seen side, tough grows us out nuclear It's in we've enforcement X% about pretty X%

year. -- little will we'll pacing the really QX But the on we into mind, changed step-up. XXXX and really of inventory a as are has well that pressure $X as the and outlook. margin just provide in through our timing guidance, nothing We as more with And one-timers the million in my the announce get the clarity

Operator

Lyonnais the Bank of America. of Our next line from question Jordan with comes

Jordan Lyonnais

increase? the a Is give sales? ordinance it us the you For it growth by underlying XQ, sense segment? sales about devices? commercial What's driving what's Is could explosive

Blaine Browers

the -- I It's businesses largest backlog of the as sequentially, is I'd out QX inventory. they're duty pent-up Jordan, definitely armor as have Yes. really larger mean say you're X areas, thinking if some gear. of well X coming and

are drivers. we suit be us business the a bomb the on for incident. to side, to it those expect The prior So big QX the EOD

be it'd -- there. are bigger for the drivers for really those; quarter a in them. still of those that's X So the And big absence so

and that gear QX So then duty backlog. the incident more and by big in EOD driven suits, as armor pent-up expected,

Operator

line Markets. comes Our of next with Capital the from Mark question Smith Street Lake

Mark Smith

of on kind nuclear business. a question First off, broad just the

how kind of runway benefit of it kind And see are takes guys what opportunities new maybe seeing? plants, Just from new long recognize start-up for and projects, you of we some start-ups? look to as at

Brad Williams

Brad. Yes. Mark, it's

mind and So from to coming lot maybe a of out reactors about where start-up around modular information obviously up small and the our of plants us, remarks. there from starting type you're with talked running, create is, are be specifically in a in currently and as the we there for reaction thing keep process. they're new The perspective Safety is those Alpha to there's in cycle would waste once type

that's So where tend kick in. to begin products our to

think of plant it So of being as is if in a don't built, beginning that our process. products involved part are the

Mark Smith

maybe I talked think of here And Warren kind had to also see kind that of today, you the wanted yesterday, outlook? But from of impact give can tariffs us any changes that broadly last business. results or election? in election the then about any consistency any I you reminders on on of kind the results know just potential of night, exposure, long-term the

Warren Kanders

in changes Actually, -- go we forward we terms don't see perspective. that any we changes of any from foresee don't as or

in sit, there's whether Republicans a enforcement invest Democrats learnings think for areas. to and of needs in I been or you the continuing lot it's law of those wherever terms

So the big know, have that you part a that's as of business today. core we

on don't for the don't -- expect, Democratic We expect things extremely side demand that side will to we commercial transition uptick in that from it's about we us, expect of based things. the side remain business of remain X% the same of and office a though the on it strong. large Republican consumer large So even will in

at over for a where we're sticking which Supply the our supply that talked Innovation pipeline. where know, standpoint is to status key, close lengthy, the is don't and be sitting, us things are extends with good by stay mind, manufacturing is quo, to is pretty chain that continuing not it. of products innovated Most And some as in Mark, others us. that much and to continue regional, a us, be to especially which we're supply that have has about as the we've the into of forward we So the last very, game a lot you for Asian countries, couple very gives being keep to great. and years ability it's move a from chain in potential of chain-wise, affected about. and been of

Operator

We will back questions no call at any comments. closing now the further this for time. to turn I over Brad have Williams

Brad Williams

your lot. you, Thank for like a I'd on interest us in for call joining everyone continued again Thanks Operator. and Cadre. today's to thank

Operator

conference concludes great have day. This call. Thank you, and today's a

Cadre (CDRE) 6 Nov 242024 Q3 Earnings call transcript