Q4 2022 Cadre Holdings Inc Earnings Call
Please standby were about to begin.
Good afternoon, and welcome to Capri Holdings fourth quarter and full year ended December 31, 2022 conference call. Today's call is being recorded all lines have been placed on mute. If you would like to ask a question at the end of the prepared remarks. Please press. The Starkey then the number one on your Touchtone phone and at this time.
I'd like to turn the conference over to Mr. Matt Berkowitz of the IAG group for introductions and the reading of the Safe Harbor statement. Please go ahead Mr. <unk>.
Thank you and welcome to cadre holdings fourth quarter and full year 2022 conference call.
Before we begin I would like to remind everyone that during today's call we will be making several forward looking statements and we make these statements under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
These forward looking statements reflect our best estimates and assumptions based on our understanding of information known to us today.
These forward looking statements are subject to the risks and uncertainties that face cadre in the industries and markets in which we operate.
More information on potential factors that could affect Congress financial results is included from time to time in Congress public reports filed with the Securities and Exchange Commission. Please note that we have posted presentation materials on our website at www Dot cadre holdings Dot com, which supplement our comments this evening and include.
A reconciliation of certain non-GAAP financial measures.
I'd like to remind everyone that this call will be available for replay through March 29, 2023, starting at eight P. M Eastern time Tonight.
A webcast replay will also be available via the link provided in today's press release as well as on <unk> website.
At this time I would like to turn the call over to cadre is chairman and CEO Warren Ganders.
Good afternoon, and thank you for joining cadre is earnings call to discuss our results for the fourth quarter of 2022.
I am joined today by our President, Brad Williams, and CFO Blaine flowers.
Having now completed our first full fiscal year as a public company.
We continue to make progress capitalizing on the tailwind driving demand for our mission critical equipment.
And building out and implementing the cadre operating model that you are welcome to read more about on our corporate website.
Speaking generally it is well known that police departments around the country are experiencing a higher than typical attrition and retirement rates.
It is also the case that public safety is solidified as a bipartisan political.
Social issue, where significant majorities pulled across almost all political racial and socio and economic groups agree, but more police and better funding for them is the best approach.
These factors contribute to an attractive set of industry dynamics that we expect to support the ongoing development of our business.
Brattain, Glenn will go into the details of our results further in a moment.
But we are proud of the fact that we have been able to deliver on the commitments we made to our investors at the time of our IPO.
And along the way since then.
During 2022, we completed two acquisitions and integrated them seamlessly and without disruption to their various stakeholders.
We believe we have already been able to meaningfully improve each business by bringing to bear in the operating tools and best practices, we employ across all of our businesses.
At the same time, we're generating significant free cash flow that provides capacity to pursue additional acquisitions.
We are exceeding our pricing growth targets to maintain margins in a challenging inflation environment.
And we are pleased to have met earnings expectations set out for us or the equity research analysts that cover our company.
Looking ahead, we are optimistic about our medium to long term outlook.
In addition to the fact that our business model benefits from strong cash flow generation.
Since we successfully completed a follow on equity offering in 2022, our balance sheet is solid and we have substantial capacity to take advantage of a confused M&A environment.
Developing and executing on this element of our strategy is something that we as a team and I personally spend a substantial amount of time focusing on.
To comment on the macros, stating the obvious the rise of interest rates by the fed in response to inflation and substantially impacted psychology around transactions.
Adding to that there is significant uncertainty and concern about various geopolitical risks and the trajectory of the economy.
This reminds us of why we focus on the durability and resilience of our businesses one program prioritizing M&A targets and makes us grateful to be invested in the businesses. We are in now.
It also creates an opportunity for our company since many other potential buyers are there more reliant on robust debt markets were generally frozen by other risk factors or portfolio issues to be active.
Given the lack of M&A activity over the last six to nine months, the pent up backlog of business owners looking to transact continues to build and in my opinion the longer this macro environment persists the better it is for cadre.
Putting it in a different context to our predecessor company for cadre them for the last decade with cadre.
I've been in these markets since 1996, and I've lived through many different economic and credit cycles.
I have seen is that some of the best opportunities arise when things are dislocated or choppy.
Today, we continue to see and work on compelling opportunities and we hope to have more to report on that effort. This year.
Speaking about areas of focus as we have previously discussed in addition to acquiring businesses that complement our core.
We are pursuing and prioritizing diversification play is consistent with our focus on safety and.
And we've got an increasing traction on pursuing these types of businesses.
Based on our pipeline and the level of activity. We are devoted to this area. We believe we should be able to acquire one or two businesses. This year, which has the team in place to integrate them quickly and set ourselves up for 2024 and beyond.
I would add that we expect to be able to do this using the credit facilities. We have in place and our bank group is led by PNC and Bank of America. So we do not believe we have risk related to the recent freeze of conditions for regional banks.
Having said all of that we remain patient thorough disciplined.
And thoughtful about our approach as we evaluate deals.
As you probably recall, we hedged a substantial portion of our current borrowings in the beginning of last year. So our blended cost of debt, even with higher interest rates remains slightly below 4%.
Free cash flow generation, we lowered our operating net leverage at the end of the year to approximately one four times and.
And we expect to further delever.
For the year.
All things considered we are comfortable with where we stand on that.
We're excited about our prospects this year and in the long term.
Considering the state of the World, we're confident in the tail winds and favorable industry macros that drive our business.
And we believe we have solid organic drivers for our businesses that maintain a solid foundation to continue pursuing accretive acquisitions.
With that thank you for being with US today, and I will turn the call over to Brad.
Brad over to you.
Thank you Warren.
So moving on to slide four on today's call, we will provide a quarterly update and business overview, including a review of new products and our M&A strategy.
Cover our financial performance in 2023 outlook, followed by a Q&A session will begin on slide five 2022 was a record year for us and we're pleased to have further advanced important strategic objectives in the fourth quarter. Despite the challenging macro environment. Our global teams have done an outstanding.
Job and we continue to work on new innovations to add to the Premier group of cadre product lines that protect law enforcement military and security professionals.
Excited to share an update later on the call regarding three new products, we've launched that demonstrate our commitment to innovation and maintaining the highest level of brand equity.
Once again, we exceeded our 1% price growth target above material inflation in the fourth quarter customers recognize and appreciate the superior quality and performance across various products, enabling us to maintain our premium position with that said, we continue to monitor our position in the market and <unk>.
Right to use material and labor productivity as a means to assist with cost pressures.
Our teams around the globe have done a great job in operating a little better every day and continue to progress with our structured rollout cadre operating model.
Fourth quarter adjusted EBITDA conversion remained strong at 93% and reflects the strength of our low capex model driving significant cash generation.
Turning to product mix, we continued to see improved mix in Q4 related to the first half of the year, which was consistent with our expectation in the fourth quarter better mix was driven by higher duty gear and EOD shipments as a result, Q4 margin gross margins improved 235 basis points.
Excluding the inventory step up impact from acquisitions compared to the same period last year.
Regarding our orders backlog it remains strong as of December 31, 22022, our backlog stood at $117 9 million, while the backlog total decline from the end of Q3. This was anticipated and is reflected in our significant Q4 revenue which increased <unk>.
19% versus the prior year period.
As Warren mentioned M&A as a top priority and we maintain a healthy funnel of opportunities as we navigate the current environment. We remain focused on actively evaluating deals in line with our key criteria Blaine.
Blaine will discuss our M&A strategy and pipeline in greater detail later on the call.
Finally, I'd like to highlight that our strong cash flow generation not only positions us to execute acquisitions, but also consistently return capital to shareholders in February we paid our sixth consecutive quarterly dividend of eight <unk>.
Slide six outlines macro tailwind supporting our long term sustainable growth. These tailwind remain intact and continue to drive demand and visibility for cadre is mission critical products in both domestic and international markets.
Turning to the latest market trends affecting our business on slide seven. These two have remained fairly consistent over the last several months. We continued to see signs of increasing spend per officer, given that North American police budgets remained healthy but that said departments are still struggling to fill open positions as we have noted.
In the past, we expect it to take some time for officer head count to return to historical levels.
Additionally related to the war in Ukraine, our expectation is there will be EOD opportunities over and above the orders that we have seen up to this point in terms of timing, we would anticipate additional demand once the conflict escalates.
The next bullets are focused on the supply chain and trends in the labor market during the fourth quarter and the year to date, we have seen less disruptions and delays, but are still experiencing pockets of expanded lead times impacting the flow and availability of various raw materials as we continue to accurately monitor our supply chain. We also.
We remain focused on managing our labor force in the face of certain challenges at this time, we are comfortable with our ability to attract an appropriate labor force to meet our needs, but developments related to near shoring and minimum wage increases in Mexico have made hiring and retaining employees more difficult. While we do not view this as a major.
Hindrance to our business. It is a trend we are watching and Wayne options to address.
In terms of our consumer segment demand remained stable despite broader macro concerns about demand weakness, we continue to monitor trends in this segment along with launching new products is this is a high margin channel for cadre.
Before I turn the call over to Blaine I'd like to briefly highlight three new products recently introduced to the market that we're extremely excited about our company was founded on commitment to innovation, which continues to permeate all that we do.
We've earned leading market share in our product categories and work relentlessly to maintain our premium value position proposition.
On slide eight we present, our latest holster offering safari ball, which began shipping to customers. This month as the needs of law enforcement officers evolved we wanted to create an incredibly durable holster that offers adaptability with design enhancements and improved functionality.
Importantly, this product is consistent with the defining performance that has made our key brands. So far inland the industry leader in farm retention for almost six decades, and we believe has differentiating features that can help us maintain our share position.
Next on slide nine we highlight our new tactical armor platform Hyperx that capitalizes on our strengths and hard armor and soft ballistics technology. This product is aimed at a more niche end market of canine units Swat and special ops teams and was designed to give officers more adjustability customization and comfort.
While eliminating excess material weight in bulk our goal is to grow our share in the tactical armor market and we've seen initial indications of share gain against companies that specialize in this area.
Third we've introduced the <unk> body size, an app called expert fit outlined on slide two slide 10, using proprietary technology and in partnership with <unk> look we developed a digital method to convert two photos into a full <unk> model with over 80 measurement points before the development of this technology.
The industry has spent decades manually measuring first responders with tape measures determining a recommended size and are in industry is extremely important to optimize protective coverage and comfort the process of determining a recommended fit is very time consuming for first responders distributors and our sales representatives.
This fairyland expert fit app can measure fully dressed individuals' with the highest position of accuracy in seconds. We believe this exclusive technology is it different for <unk> and.
In summary, but it's too early to tell the extent to which new products will drive early refresh cycles, we have experienced meaningful wins to maintain our high share positions and have won opportunities in the tactical body armor space, where our share is much lower I will now turn the call over to Blaine.
Thanks, Brian I'll begin my remarks by discussing our M&A strategy and the general acquisition environment.
Slide 11 summarizes the key criteria that drive cadre is M&A process as investors familiar with cadre know well we are focused on adding high margin companies with leading market positions and strong recurring revenues and cash flows that either expand our product and technology offerings enter new markets and or grow our geographic footprint.
Consistent with the strategic focus we successfully added two businesses in 2022 that further expanded cadre is international presence and added multiple growth avenues integration of both businesses has been efficient and we remain on track implementing cadre operating tools to drive further progress in.
In terms of M&A opportunities moving forward, we will remain patient and continue to actively evaluate a robust funnel of targets consistent with our key criteria.
On slides 12, and 13, we detail our fourth quarter and full year 2022 results.
As you can see our strong Q4 capped off a very solid year of financial results evidenced by significantly increased net sales and adjusted EBITDA in 2022 and.
Importantly, these were in line with the guidance, we laid out earlier in the year sequentially Q3 to Q4. This year. We saw improved net sales net income and adjusted EBITDA illustrating our resilient operating model and the more favorable Q4 mix that Brian mentioned earlier.
The 19% fourth quarter increase in net sales reflects our strong orders backlog and was driven by double digit percent increases for armour duty gear and crowd control products. In addition to the impact of recent acquisitions. This was partially offset by project timing in our EOD products in our distribution segment. The increase was driven by agency.
Demand for hard goods.
Gross profit margin was 39, 2% for the fourth quarter consistent with our expectation that second half 2022 margins would be similar to the strong margins. We saw in the first half of 2021.
We note that full year gross profit margin was 38, 4% as compared to 39, 9% last year, excluding the amortization of inventory step up on the silo and radar acquisitions full year 2022 gross profit margin was $39 three.
2022, net income was $5 8 million as compared to net income of $12 7 million last year, primarily as a result of increased stock based compensation expense.
Partially offset by an increase in net sales and the loss on extinguishment of debt related to the August 2021 debt refi.
Fourth quarter, and full year EBITDA conversion of 93% and 94% respectively was in line with our guidance range. This is a strong indication of our ability to produce free cash flow.
Turning to next slide we illustrate cadre is net sales and adjusted EBITDA growth over the last three years from 2020 through 2022, we achieved a CAGR growth rates of six 4% and 14, 3% for net sales and adjusted EBITDA, respectively, notably our 2022 net sales and adjusted EBITDA were all time highs.
Based on the mid points of our guidance range, which I'll discuss in a moment, we expect approximately 4% annual organic growth for both full year net sales and adjusted EBITDA in 2023.
Slide 14, we present, our capital structure as of December 31.
Our net debt was $104 4 million and we believe that our net leverage at one four times provides significant financial flexibility to grow organically and more importantly, inorganically through acquisitions.
We provide our 2023 guidance on slide 15 as.
As we look ahead, our outlook reflects an uncertain macro environment and some downward pressure on EOD due to the natural cycle of this business as we mentioned before there are a limited number of users of EOD products and the timing of their refresh cycles can create year over year swings, both up and down in any given year.
Our guidance reflects around $8 million of revenue headwind driven by that refresh timing.
Despite this pressure we are optimistic about that our armor and duty air products can offset this will continue to push price and productivity to drive margins up and offset inflation and the mix pressure as we've mentioned before our ongoing capex needs are about 1% of revenue, which is true for 2023, but we are also making two strategic investments that will enable future growth.
First we're investing in and expanding our Jacksonville duty gear facility due to their continued growth we have a one time need for more space, which is exciting for us and the team.
The facility Hasnt seen any major investments for many years and we currently have about three times as many people in the building today as we did five years ago.
We're also making investment in moving some of our locations to cloud ERP solutions next year.
<unk> expects to generate net sales in 2023 between $463 million and $493 million and adjusted EBITDA in 2020.
In 2023 of between $76 million and $82 million. Additionally, we expect adjusted EBITDA conversion to be between 87% and 90% for the full year 2023.
Now I'll turn it back to Brad for concluding comments.
Thank you Blayne I'd like to conclude by reiterating that 2022 was an outstanding year for cadre against the backdrop of persistent supply chain disruptions and inflationary pressures our team's execution was excellent and we held.
We held our insurance positions in law enforcement first responder and military markets cadre exceeded our 1% pricing growth target above inflation, each quarter and generated record full year net sales and adjusted EBITDA. We are pleased to have been able to deliver on commitments. We made to investors at the time of our IPO and sub.
Sequencers, including two accretive acquisitions completed in 2022.
As we look ahead, we are confident in our business strategy and prospects and believe cadre is ideally positioned to further enhance our leadership in providing mission critical safety and survivability equipment.
As we seek to execute our strategic objectives and build significant value. We also continue to look for opportunities to achieve cost structure operating leverage and drive margin expansion over time lastly.
Lastly, while we have discussed the challenges of navigating the current M&A environment. We are focused on actively evaluating deals in line with our key criteria in maintaining our disciplined approach we continue to pursue compelling opportunities and hope to have more to share later this year with that operator, please open up the.
The lines for Q&A.
Thank you Ms Williams, ladies and gentlemen at this time do you have any question simply press star one and if you find that your question has already been addressed you can remove yourself from the queue by pressing star one again, we will take our first question. This afternoon from Daniel <unk> of Stephens.
Hey, guys. This is Joe <unk> on for Daniel Thanks for taking our question.
Hey, Joe how are you doing.
Good good thank guys.
Looking at SG&A dollar growth came in higher than our expectation for the quarter was there anything one time, there and could you maybe provide some thoughts on how growth this quarter should compare to next year.
Sure maybe ill start with the second part of your question when we think about next year.
Yes.
The I think similar timing that we saw this year will more will reflect next year as well.
<unk> and Thats, not something I'd kind of hold onto forever right that our timing is very dependent on just larger projects that move moves the needle and that we're just seeing it next year stack up very similar to to this year.
No real meaningful one timers.
In the quarter for SG&A.
So thats reflected just around commissions and volume, but other than that very normal.
That's helpful. Thank you.
Follow up within Europe , you've added some acquisitions there in the last couple of years, how is the organic growth been in that market recently or how fast are you accelerating organic growth of these acquired businesses.
Yes, the organic growth for both our European businesses.
Really different drivers in different stories, so we think about the.
The armor business. This our U K facility out with a waning of facility.
<unk> experienced significant share gains in Australia, as well as they've done well in the UK. So they've seen I would say solid organic growth.
Smaller businesses, though in a single customer can have an outsized impact.
With radar the Italian holster their growth I think it was in line with what we expected for this year, but there continue to be opportunities and there is some.
<unk> unique cross selling opportunities, we didn't necessarily bank on as we've looked at the acquisition due to.
Paula Pedro the the owners of former owners of radar and their connections with the Italian police agencies and departments of corrections and et cetera. So very excited about the future there going forward and continue to drive that the operating model operating model deeper into the organization.
Super helpful. Thank you guys.
Thank you.
And we will take our next question now from Elizabeth Greenfell of Bank of America.
Hi, good evening.
I just wanted to dive into the organic growth a little bit more did you break out what organic growth specifically in the fourth quarter.
Yes, we haven't we haven't disclosed the size of acquisitions.
Yep.
But.
Certainly the year over year growth is not completely driven by the acquisition, that's pretty clear and.
The what we saw in Q4 on a year on year basis was strong performance in the Arbor business.
On a year over year basis, as well as the <unk> business.
And those are really the organic drivers that we saw in Q4.
Okay, and then as we think about 2023.
It implies I think for the top line somewhere between one and two 8% top line growth.
So that's excluding any M&A, you're talking about doing is that that's below the 3% to 5% target on the low end. So I was just curious what sort of what are the factors driving the low and the high end there.
Sure Yeah on the low end.
The things we're watching for in particular is really.
Around the all star head counts replacements.
And that pull through for both the RMR due to gear businesses.
While consumer isn't huge for us.
As favorable margin and a drop on the consumer side. It does have an outsized impact on margins.
Yeah on the higher end of the Scott that's really driven by two main things one would be the new products.
<unk> talked about in the future or on the call in the past is.
The market itself is slow to adopt new technologies and so the assumption is not huge adoption rates in the year. There is the possibility. We're certainly excited by the feedback we've gotten so far on both new products or all three new products that did accelerate faster than we expected that could.
As those projects as they come in better timing wise and we expected that between those two could certainly drive us to the island.
Got it thank you very much.
Thank you.
Yeah.
And we'll hear next now from Scott Forbes of Jefferies.
Hey, guys. Thanks for taking my question.
You've talked about some of the extended lead times and raw materials, continuing just as we think about what's baked into 2023 guidance. How do you think about the supply chain within that.
Yes, I think on the supply chain one of the areas. We're seeing increased demand is around our hard AMR products.
We're also seeing some supply chain constraints and hard armor as that demand has picked up.
So I think we're taking up our guidance, we're taking a realistic view on kind of both sides of the outcome we're not.
We're not assuming I would say holistically that it gets worse, but.
But we would say we're hard armours today, Theres incremental volume next year, and they will likely face some increase constraints, but on the whole our view on supply chain as it kind of stays the way it is.
It's gotten worse as data and to be clear when I say stays the way. It is we're thinking more really the last quarter or two not if we went back into the first half of the year, where we saw significantly more constraints.
And then maybe just on the blast sensor opportunity any update on how that's progressed through the quarter and where that stands today.
Okay.
Yeah, Hey, this is Brad I can give you an update on it so.
A few things going on there we finished up phase III testing that concluded in October and overall, we're pleased with the results of the testing by our customer.
That testing that went through.
We're currently in phase three with a couple of deliveries of sensors due to the customer in April .
To support blast testing and human factors type testing.
And then so com has 180 days to complete that phase III testing, which would be really no later than October type timing.
There is some additional funding.
Discussions that have happened with this project with so comp.
And what we've learned recently is that the house committee has required that so comp permit.
<unk>.
The findings.
For the blast sensor project before funding will move forward. So overall for the project, we're looking at potentially a push from 2024 to 2025.
Regardless of that funding overall.
So that's where we're at today.
Thank you we'll go next to Jeff Van <unk> at B Riley.
Hi, everyone and I know you touched on some of these things in your prepared comments, but just wanted to see if theres more maybe to add on the new Hollister platform launch how that's gone so far and at this juncture. What do you think the potential is for that to drive the upgrade cycle and then also if you could maybe speak a little bit more about the latest you're seeing in the new.
New lightweight tactical armor.
That provides a more custom fit how thats being received just wondering if theres more to characterize there.
And speak about potential market share gains.
Yeah, absolutely so.
We officially launched the Safari vault products, our new holster line at the shot show in January and then we started shipping with some of the clock fits this month so.
We are definitely here out of the gates. What's been interesting is we've had some major agencies do some testing of the product and.
We do write ups for that testing and how the weapon draws out of the holster because we've made a change in moving the locking mechanism inside the holster so that.
It doesn't snag and there is not potential damage that can happen to that AOS theyre, giving great feedback on that theyre, giving great feedback on.
The opened into the holster where bras.
Can get lodged in court, we have an agency that that's been an issue with new recruits and training and if that happens you can't re holster. The weapon. If you have brass down inside the holster. So that's been a big positive.
The guiding of the weapon.
Stable stabilization of the weapon into the holster is also significant improve what's been a great feedback point so.
It's very very early in the game here, but we're getting some really good initial indications from customers now the question is going to be will it trip the refresh cycle.
We don't know yet is the short answer we will see as we go forward, we'll see if these additional features and benefits that we've added to the product will trip that cycle.
And then on the Hyperx product that product has been out longer than the new Safari vault product and we've had great results so far.
Customers that we've not been in with our tap.
Tactical armor product for special ops teams Swat teams canine units, we've been able to win.
We have also reorganized a bit and pulled a resource out so that we.
We have one resource that all he does is spend a 100% of his time focused on this product category and he is making great strides in the marketplace. So we're very pleased with these two products as we've gotten out of the gate.
It's Greg here.
And then just regarding kind of the latest you're seeing out there on the acquisition fraud.
If you can maybe characterize.
I guess kind of the tone out there are sellers are adjusting their thinking on price tomorrow realistic levels as the broader backdrop applying pressure to the point, where you may be able to take advantage of compelling acquisition opportunities sooner rather than later.
Yeah, we havent havent seen it massively change from what we talked about the end of last year.
Hi.
I would say more often than not.
We're not seeing.
Not seeing companies really interested in selling really early I think there is still the.
Especially in the case, where they have pro forma adjustments there they are leaning more towards laying those pro forma has fallen to the trailing 12 and get try to get paid on them that way rather than take a discount upfront.
But I'd say the level of activity is good. So I think there's there's plenty of companies out there that are going to turn it is just.
A matter of when.
Yeah, and as Warren said earlier right. This is yes. It is.
The long game, we want to be careful.
We can make the returns work for ourselves first and be real careful in how we're spending our capital.
As you should be okay. Thank you for taking my questions and I'll jump back in the queue.
Thank you.
And we will go next map to Matt Koranda at rock in Cannes.
Hey, guys. Good evening, thanks for taking the questions.
Just curious if theres anything you can do on your end to kind of compress EOD refresh cycle I know you called out $8 million headwind that youre assuming in the guide so is there any scenario under which you actually.
Get the whole $8 million or a portion of that that you are assuming in 2023.
Yes.
I wouldn't see this replacing that whole headwind, but something that could help offset it would be stronger Ukraine demand than we currently have eight in our guidance.
That could certainly lifted up if.
We get to a point, where there's a much larger focus on creating safe safe areas are great.
Craig safe areas for civilians to to enter that would certainly drive it.
Yes, we can.
Can't predict kind of where the military goes but other than that it would probably take a pretty unexpected change in the refresh cycle.
For it to be significant there.
Okay, that's fair.
Just any help maybe blayne on revenue cadence or seasonality. This year, just given that we have a couple of acquisitions that were not part of the organization and last year are not meaningful to it yet.
For Q1.
Anything you can help us in terms of calling out seasonality or does it change anything should we be thinking about.
Thank you guys qualitatively said radar is kind of more back half weighted type.
Revenue stream, but just help us kind of think about the cadence of the code.
Yeah silo southern right are very different businesses. When it comes to that timing xylem has generally been a much more evenly spread business quarter to quarter.
And when we say no seasonality and theres not that tends to not be any major differences between the quarters.
It was radars back half when we think about the cadence for 2023.
Looks very similar to 2022, so that's certainly a heavier back half than first half.
And that will change as we kind of go through the year. That's one thing that tends to move a little bit sometimes you'll see those projects that are project out in Q4 coming early so it's something we always watch, but it looks very similar to what we saw in 2020 are we expected to be very similar to what we saw in 2022.
Okay, Great and then just if I could sneak one more in on just I.
I think about the midpoint of the guide it looks like it's pretty much flattish on EBITDA margin, but just asked the question that was asked kind of more likely before but just any color around what eats into that 1% kind of price above material inflation that you guys. Usually have just curious if it's a mix thing or if it's more kind of material and labor headwinds that youre assuming.
Just any help you can put a finer point on that that would be helpful.
It's much more about the next component on.
So.
All the businesses in the guide we have that 1% achieved in there that 1% above material inflation, so and we don't feel like there is.
A serious risk there or anything that changes our view on that coming into coming into the year, but the EOD products are one of our more profitable.
Profitable margin lines and so as we.
We lose that volume there and we southern elsewhere in particular in armor.
Yes.
Unfolds unfavorable mix for us.
Okay Super helpful. Thanks, guys.
Absolutely.
And just a reminder, ladies and gentlemen star one pleased for questions. We will go next now to Mark Smith of Lake Street capital markets.
Hi, guys, you spoke a little bit about that and I know this question's probably early but as we look at some of the new products that were launched any indication that maybe this pulls forward some demand kind of above kind of the typical replacement cycle.
We will see Mark.
It's still too early.
Yes.
Too early.
Especially on the wholesale side of things.
<unk>.
We're not getting rid of our <unk> line of <unk>.
Seven series of Pollsters they are there.
A product Thats currently.
Our position in the marketplace and then we'll have the new product the new line of Safari bolt and we'll see what happens but.
We'll see if that drives premature replacement cycles.
Okay, and then any thoughts on kind of R&D spend and your new product development pipeline.
I know you can't really tell us anything thats not out there, but how do you feel your level of confidence around new products that you have in this pipeline.
Good good it will be consistent with.
With what we've talked about before in terms of our R&D spend.
We can't get into the details at this point, but we've got other.
Other products in these major categories that are under development right now and there's a couple of them that I'm really excited about as we go forward just keep in mind in the duty gear side of things at least in for example, the U S marketplace.
Things that we do there innovation wise are really there to maintain that high share position that we have we want to continue to keep that spot that we've earned over 55 years Thats, where the company started and then other categories, where we have lower share those products are there to position ourselves.
Sales to to gain share and pulled away from others.
We feel good about what we have.
Excellent. Thank you.
Thank you.
We'll go next now to alert Stephen at Stifel.
Hey, good afternoon, and thank you for the questions.
In your prepared remarks, Brad you highlighted the police hiring remains a challenge are you seeing any areas from a geographic standpoint, we're hiring is improving or at least that you get the sense is there a way to correlate that with.
How your product volumes are ebbing and flowing in certain categories.
Yes. There is there is in the south is the short answer.
In terms of head count improving but don't.
Don't think that Thats from they are doing a better job in southern states of.
Necessarily getting new recruits on board a lot of what we're hearing anecdotally there transfers happening from northern states going south and recruiting that's happened there with bonuses and things like that to attract folks.
What we have seen an increase in the opposite direction as some international customers that we have today in countries.
Also having issues recruiting talent.
And some of the projects and business that they have that recurring with us so not anything that I would say overall material to the business.
Based on how we are diversified across product lines and around geographies, but it is a new one that's popped up more than what we've seen in previous quarters.
Got it and just just a follow up on the EOD side. It sounds like Thats trending in line with your previous expectations for 'twenty three trough, how should we think about the cadence of that trough and how fast could that snapback could could this be material growth area in 'twenty four or is it sort of.
Trough out in 'twenty, three and things sort of slowly step back up.
Okay.
It's difficult to kind of go too far out on that but yes, I think were 2020 threes kind of near the bottom at that point. It becomes really kind of project based and there is a couple R&D projects that have been that the teams have been working on for a number of years that when they go into production, we will drive that in.
Yes, as we all kind of know determining when they pull the trigger is difficult so that could be a 2024 pick up could be a 2025% or 26 pickup just depends on the demand by the customer but.
I wouldn't expect this to continue to trail down.
For them, becoming coming years.
Got it and just one last quick one you know theres been a lot of discussion on the M&A side back. When you guys. First went public you noted you wanted to double your international footprint is that is that still your view.
Yes, that's when you look at our high shares in product categories, they're typically in for armor and.
Duty gear, they're typically in the U S space and then some other other smaller product lines. So for us our lower shares in those major categories are outside the U S. So we can.
Continue to want to fine.
Assets in those regions now we've also been very selective we've gotten a lot of looks at various assets over the last 12 to 18 months and as we look at various companies we've.
We stepped away from quite a few.
Not liking the makeup and the margin profiles and the fit with us overall so.
They are out there we'll continue to cultivate those and we are but we've got to make sure. They are a good fit for us overall.
Like we felt like radar was as a holster company was definitely in that price point position that we'd like the type of culture that we like the type of operation that we like the team.
You name it and it is positioned well in the marketplace.
Thanks Bradley.
Thank you. Thank you.
Okay.
And gentlemen, it appears we have no further questions. This afternoon, Mr. Williams, I'll hand things back to you for any closing comments.
Okay. Thank you operator, I'd like to thank everyone again for joining us on today's call and for your continued interest in cadre.
Operator.
Thank you, ladies and gentlemen that will conclude Capri Holdings Q4, 2022 earnings conference call. Thank you all so much for joining us and wish you all a great remainder of your day Goodbye.
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