Q4 2023 Cadre Holdings Inc Earnings Call
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Operator: http://www.cadreholdings.com Good afternoon, and welcome to Cadre Holdings' fourth quarter and full year 2023 conference call. Today's call is being recorded. All lines have been placed on mute.
Good afternoon, and welcome to cadre holdings fourth quarter and full year 2023 conference call.
Today's call is being recorded.
All lines have been placed on mute.
Operator: If you would like to ask a question at the end of the prepared remarks, please press the star key, then the number one on your touchtone phone. At this time, I would like to turn the conference over to Matt Berkowitz of the IGB Group for an introduction and the reading of the Safe Harbor Statement. Please go ahead, sir.
If you would like to ask a question at the end of the prepared remarks. Please press the star key then the number one on your Touchtone phone.
At this time I would like to turn the conference over to Matt Berkowitz of the I G. B group for introductions and the reading of the Safe Harbor statement. Please go ahead Sir.
Matt Berkowitz: Thank you and welcome to today's conference call to discuss Cadre's fourth quarter and full year results. Before we begin, I'd 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 and the industries and markets in which we operate. More information on potential factors that could affect Cadre's financial results is included from time to time in Cadre's public reports filed with the Securities and Exchange Commission. Please note that we have posted presentation materials on our website at www.cadre-holdings.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 19, 2024, starting at 8 p.m. Eastern Time tonight.
Thank you and welcome to today's conference call to discuss the cadre is fourth quarter and full year results.
Before we begin I'd like to remind everyone that during today's call we will be making several forward looking statements. We make these statements under the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
These forward looking statements reflect our best estimates and assumptions based on our understanding of information known to us today.
Looking statements are subject to the risks and uncertainties that faced cadre in industries and markets in which we operate.
More information on potential factors that could affect cadre. Its financial results is included from time to time in <unk> public reports filed with the Securities and Exchange Commission.
Please note that we have posted presentation materials on our website at www Dot cadre Dash 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 19, 2024, 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> Web site at this time I'd like to turn the call over to <unk>, Chairman and CEO Warren Ganders.
Warren B. Kanders: A webcast replay will also be available via the link provided in today's press release, as well as on Cadre's website. At this time, I'd like to turn the call over to Cadre's Chairman and CEO, Warren Kanders. Good afternoon, and thank you for joining Cadre's earnings call to discuss our results for the fourth quarter and full year 2023. I am joined today by our President, Brad Williams, and Chief Financial Officer, Blaine Browers. Finishing up the fourth quarter and closing the year strong in 2023
Good afternoon, and thank you for joining cadre is earnings call to discuss our results for the fourth quarter and full year 2023.
I am joined today by our President Brad Williams, Chief Financial Officer, Blaine Broward.
Finishing up the fourth quarter in closing the year strong in 2023.
Warren B. Kanders: I continue to be very proud of the focus and execution of our management, which has demonstrated in achieving record results for annual revenue, adjusted EBITDA gross margin, and adjusted EBITDA margin. Our management teams, consisting of the implementation of the cadre operating, continue to drive this strong performance. The results, in my opinion, are impressive, and we are exceptionally proud of them. Revenues were up 5.4%.
I continue to be very proud of the focus and execution of our management team has demonstrated in achieving record results for annual revenue adjusted EBITDA gross margin and adjusted EBITDA margin.
Our management teams consistent implementation of the cadre operating model continues to drive this strong performance.
The results in my opinion are impressive and we are exceptionally proud of them.
Revenues were up five 4%.
Warren B. Kanders: Gross profit increased 14.2%. Adjusted EBITDA increased 13.3%, and our adjusted EBITDA margin grew from 16.5% in 2022 to 17.8% in 2023.
Gross profit increased 14, 2%.
Adjusted EBITDA increased 13, 3%.
And our adjusted EBITDA margin grew from 16, 5% in 2022.
17, 8% in 2023.
Warren B. Kanders: We have spoken often about the high free cash flow characteristics of our company and those we looked at for M&A, and 2023 bears that out. Net cash from operating activities growing from $46.4 million in 2022 to $73.2 million in 2023, an increase of 57.8%. We as a team are pleased that we have been able to deliver for our shareholders, and we hope to continue doing so. I have commented on prior calls about the macros driving our business. And those remain largely the same today. Looking at the US, it tends to be true that public safety becomes top of mind during presidential elections.
We have spoken often about the high free cash flow characteristics of our company and those we look at for M&A.
At 2023 bears that out.
With net cash from operating activities growing from $46 4 million in 2022.
The $73 2 million in 2023.
An increase of 57, 8%.
We as a team are pleased that we have been able to deliver for our shareholders and we hope to continue doing so.
I have commented on prior calls about the macros driving our business and those remain largely the same today.
Looking at the U S. It tends to be true that public safety becomes top of mind during presidential election years.
Warren B. Kanders: It is also worth highlighting that crime rates, while down somewhat over the last year or so, remain relatively high compared to where they were pre-pandemic. Internationally, geopolitical conditions continue to be tense, and crime rates and internal friction are also higher in many countries in which we operate. Having said that, the ongoing conflicts in Ukraine and the Middle East have still not impacted our businesses in any material way. We do expect, as these events eventually calm down, there may be an opportunity for Cadre to play a larger role for a number of our products, mostly notably through our EOD office. Lastly, I'd like to talk about our M&A program, as I am particularly happy about the recent progress we have made in that effort. We were in a prolonged period characterized by cheap debt finance, which contributed to transaction valuations that seemed out of whack. Following that, as interest rates started to go up, we had a period where business owners of all kinds were hesitant to accept that M&A conditions were changing.
It is also worth highlighting the crime rates, while down somewhat over the last year or so remained relatively high compared to where they were pre pandemic.
Internationally geopolitical conditions continued to be tense.
Crime rates in internal friction are also higher in many countries in which we operate.
Having said that the ongoing conflicts in Ukraine, and the Middle East has still not impacted our business in any material way.
We do expect as these events eventually calmed down there may be an opportunity for cadre to play a larger role through a number of our products, mostly notably through our EOD.
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Lastly, I'd like to talk about our M&A program as I am, particularly happy about the recent progress we have made in that effort.
We were in a prolonged period characterized by cheap debt financing that contributed to transaction valuations it seems out of whack.
Following that as interest rates started to go up we had a period where business owners of all kinds, we're hesitant to accept that M&A conditions were changing.
Warren B. Kanders: Now we seem to be settling into a more normal environment where interest rates are high relative to recent history but only slightly elevated compared to a longer-term look back. This is important for Cadre because this debt environment causes valuations to moderate, and more importantly, it gives Cadre an advantage in pursuing targets given the strength of our balance sheet and our ability to act quickly. We closed the I-Corps transaction in January, which was the letter of intent I referred to on our last call. In the case of Alpha Safety, from the time we went exclusive with the seller until signing, we were able to complete documentation in roughly four weeks based upon the support of our bank group to provide incremental lending and the substantial cash position we had built up over time.
Now we seem to be settling into a more normal environment, where interest rates are high relative to recent history, but only slightly elevated compared to a longer term look back.
This is important for cadre because this debt environment causes valuations to moderate.
And more importantly, it gives cadre and advantage in pursuing targets given the strength of our balance sheet and our ability to act quickly.
We closed the <unk> transaction in January which was the letter of intent I referred to on our last call.
In the case of Alpha safety from the time, we went exclusive with the seller till signing we were able to complete documentation and roughly four weeks based upon the support of our bank group.
Incremental borrowings and the substantial cash position, we had built up over time.
Warren B. Kanders: In each of these cases, being patient and disciplined about our M&A approach paid off, and we were able to buy in quick succession margin-accretive businesses with solid growth prospects. A few more words, in particular about alpha safety, are warranted to highlight our long-term strategy. We have said since our IPO and all along that we would eventually pursue acquisitions of safety-related, highly-engineered technical products that diversify our company and give us additional growth. Alpha Safety is just that.
In each of these cases being patient and disciplined about our M&A approach paid off and we're able to buy in quick succession to margin accretive businesses with solid growth prospects.
A few more awards in particular about Alpha safety safety are warranted to highlight our long term strategy.
We have said since our IPO and all along that we would eventually pursue acquisitions of safety related.
Really engineered technical products businesses that diversify our company and give us additional growth avenues.
Alpha safety is just that.
Warren B. Kanders: This acquisition substantially increases our TAM in a market with outstanding macro tailwinds that we believe we can build into a sizable platform on par with some of our bigger product areas like duty gear, armor, or EOD equipment. We are actively looking at a number of tuck-ins for alpha, but it's also worth noting that we will continue to look at further diversification plays that are consistent with our strategy and the M&A criteria we have consistently communicated. In conclusion, I am proud of our results for this quarter and the full year.
This acquisition substantially increases our Tam and our market with outstanding macro tailwind that we believe we can build into a sizable platform on par with some of our bigger product areas like duty gear armor or EOD equipment.
We are actively looking at a number of tuck ins for alpha but it is also worth noting we will continue to look at further diversification plays that are consistent with our strategy and the M&A criteria.
We have consistently communicated.
In conclusion, I am proud of our results for this quarter and the full year.
Warren B. Kanders: We are happy to be able to provide our initial earnings guidance for 2024, which includes the impact of our recent acquisition. Looking ahead, we are optimistic about our prospects for 2024, and we expect we will be able to make additional traction on our M&A program this calendar year. With that, thank you for being with us today. And I will turn the call over to Brad. Brad, it is your turn.
We are happy to be able to provide our initial earnings guidance for 2024, which includes the impact of our recent acquisitions.
Looking ahead, we are optimistic about our prospects for 2024, and we expect we will be able to make additional traction on our M&A program. This calendar year.
With that thank you for being with US today, and I will turn the call over to Brad.
Brad over to you.
Brad E. Williams: Thank you, Warren. On today's call, Blaine and I will provide a Q4 update and business overview, including recent trends, M&A developments, and financial performance, followed by a Q&A session. We'll begin on slide 6.
Thank you Warren on today's call Blayne, and I'll provide our Q4 update and business overview, including recent trends M&A developments and financial performance followed by Q&A session, who will begin on slide six.
Brad E. Williams: Strong and recurring demand for our best-in-class, mission-critical safety products, combined with progress implementing our operating model, continue to drive our financial performance during the fourth quarter. Our full-year revenue of $482.5 million and adjusted EBITDA of $85.8 million both exceeded our guidance range. While Q4 product mix was less favorable than previous quarters due to lower EOD volume, as expected, our gross margins were 39.9%, an improvement of 70 basis points year-over-year. We maintained a strong order backlog, which was 126.7 million as of December 31st, an 8.8 million increase since the start of the year.
Strong and recurring demand for our best in class mission critical safety products combined with progress implementing our operating model continue to drive our financial performance during the fourth quarter, our full year revenue of $482 5 million and adjusted EBITDA of $85 $8 million, both exceeded our guidance range.
Our Q4 product mix was less favorable than previous quarters due to lower EOD volume as expected. Our gross margins were 39, 9% an improvement of 70 basis points year over year, we maintained our strong orders backlog, which was $126 7 million as of December.
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And $8 8 million increase since the start of the year.
Brad E. Williams: Importantly, we've also delivered on strategic objectives related to M&A, as Warren mentioned. In January, we acquired I-Corps Technology, a trusted global supplier of high-quality, reliable, innovative, and cost-effective EOD robots. And this week, we announced the completion of our acquisition of Alpha Safety, a leading nuclear safety solutions company. We're incredibly excited to integrate these businesses, both of which support mission-critical initiatives with highly visible, recurring revenue and compelling growth opportunities with insurance customers. Blaine will speak more on these transactions later in the call. But it's important to highlight that with our low capex model, we continue to generate strong free cash flow, enabling Cadre to take advantage of these attractive growth opportunities and explore additional M&A. At the same time, we've paid nine consecutive quarterly dividends since going public.
Importantly, we've also delivered on our strategic objectives related to M&A as Warren mentioned in January we acquired <unk> technology, a trusted global supplier of high quality reliable innovative and cost effective EOD robots and this week, we announced the completion of our acquisition of Alpha safety, a leading nuclear safety solutions.
We're incredibly excited to integrate these businesses both of which support mission critical initiatives with highly visible recurring revenue and compelling growth opportunities with insurance customers Blaine will speak more on these transactions later on the call. It's important to highlight that with our low Capex model, we continue to.
<unk> strong free cash flow, enabling cadre to take advantage of these attractive growth opportunities and explore additional M&A at the same time, we paid nine consecutive quarterly dividends since going public we are committed to returning capital to shareholders and recently raised our dividend to <unk> 35 per share on an annualized basis.
Brad E. Williams: We are committed to returning capital to shareholders and recently raised our dividend to 35 cents per share on an annualized basis, a 9% increase. Turning to slide seven, I'd like to reiterate that the macro tailwinds supporting Cadre's long-term sustainable growth remain intact. Cadre's life-saving mission is more critical than ever as public safety initiatives continue to be prioritized in both the U.S. and abroad.
A 9% increase.
Turning to slide seven I'd like to reiterate that the macro tailwind supporting <unk> long term sustainable growth remain intact countries Lifesaving mission is more critical than ever as publicly public safety initiatives continue to be prioritized in both the U S and abroad cadre is ideally positioned to capitalize on these secular tailwind over the.
Brad E. Williams: Cadre is ideally positioned to capitalize on these secular tailwinds over the medium and long term. On slide eight, you'll see the latest market trends affecting our business. I'll briefly discuss a few and their impacts on Cadre. We have not seen any changes in geopolitical conditions that create a more immediate opportunity for us to contribute safety products and equipment.
Medium and long term.
On slide eight youll see the latest market trends affecting our business I'll briefly discuss a few and their impacts on cadre. We have not seen any changes in geopolitical conditions that create a more immediate opportunity for us to contribute safety products and equipment.
Brad E. Williams: As we have mentioned previously, we still expect, as ongoing conflicts eventually abate, cadre could play a larger role, likely through our various EOD offerings. Turning to our supply chain, we've continued to see improvements, and today, the majority of our supply chain is stable. Before moving to M&A, I'd like to briefly discuss consumer trends and new product introductions. Cadre's commitment to innovation is a key differentiator and allows us to maintain our premium position in our core market. On the consumer side, we saw 24% growth in duty gear sales in Q4 year-over-year, driven by our focus on new products in the space. We continue to hear highly positive feedback on our IncogX holster, which we launched in partnership with Haley Strategic. In January, at the SHOT Show, we introduced APEX, a groundbreaking concealable body armor vest system that redefines the standards of agility and comfort for those who dedicate their lives to safeguarding others.
As we have mentioned previously we still expect as ongoing conflicts eventually abate cadre could play a larger role likely through our various EOD offerings.
Turning to our supply chain, we've continued to see improvements in today. The majority of our supply chain is stable before moving to M&A I'd like to briefly discuss consumer trends and new product introductions country's commitment to innovation is a key differentiator and allows us to maintain our premium position in our core markets.
On the consumer side, we saw 24% growth in <unk> sales in Q4 year over year, driven by our focus on new products. In this space. We continue to hear highly positive feedback on our <unk> ex holster, which we launched in partnership with highly strategic in January at the shot show, we introduced apex groundbait.
Breaking considerable body armor that system that redefines the standards of agility and comfort for those who dedicate their lives to safeguarding others.
Brad E. Williams: Inspired by the evolution of sports performance and designed to meet the dynamic demands of law enforcement, APEX is not just a carrier; it's a paradigm shift in personal safety. At the core of APEX lies a revolutionary four-piece carrier design that seamlessly integrates two side panels with front and rear counterparts. This unique configuration allows for unparalleled articulation, ensuring the armor moves fluidly with the body, offering coverage during every twist and turn of duty.
Inspired by the evolution of sports performance and designed to meet the dynamic demands of law enforcement apex is not just the carrier it's a paradigm shift in personal safety.
At the core of APAC slides, a revolutionary for peace carrier design that seamlessly integrates to site panels with front and rear counterparts. This unique configuration allows for unparalleled articulation, ensuring the armour moves fluidly with the body offering coverage during every twist and turn of duty.
Brad E. Williams: We're very early in the launch of APEX, but the feedback has been overwhelming. Our armor team is focused on spending time training our channel partners and filling many inquiries as we work to get the products into the hands of our customers. I'll now turn the call over to our CFO, Blaine Browers. Thanks, Brad.
Very early in the launch of apex, but the feedback has been overwhelming our armor team is focused on spending time training our channel partners and filling many inquiries as we've worked to get the products into the hands of our customers I'll now turn the call over to our CFO blamed for hours.
Blaine Browers: I'll kick off my comments with a review of our M&A strategy and two recent acquisitions. As investors familiar with Cadre know, we're committed to a patient and disciplined approach to M&A and use our very selective criteria as we evaluate our pipeline. Our targets are niche businesses with high costs of substitution, high margins, leading market positions, and recurring revenue profiles. We review potential transactions within three categories, those that will expand our suite of core safety products, those that will grow our geographic footprint, and those that will enable us to enter new adjacent verticals. Our acquisition of Alpha Safety, which I'll cover on slides 11 to 14, falls into the third category. We've long signaled our intention to diversify Cadre's platform by targeting leading manufacturers of mission-critical safety products in attractive verticals. Acquiring Alpha Safety accomplishes this strategic objective and is consistent with the established M&A criteria we prioritize.
Thanks, Brad ill kick off my comments with a review of our M&A strategy and two recent acquisitions.
As investors familiar with cards right now we're committed to a patient and disciplined approach to M&A and use our very selective criteria as we evaluate our funnel our targets our niche businesses with high cost of substitution high margins, leading market positions and recurring revenue profiles.
We view potential transactions within three categories those that will expand our suite of course safety products those that will grow our geographic footprint and those that will enable us to enter new adjacent verticals our.
Our acquisition of Alpha safety, which I'll cover on slides 11 to 14 falls into the third category, we've long signaled our intention to diversify contracts platform by targeting leading manufacturers of mission critical safety products in attractive verticals acquiring off with safety both accomplish the strategic objectives and is consistent with the established M&A.
M&A criteria, we prioritize with its leading niche market position high cost of substitution strong brand recognition and resiliency through market cycles. It's an ideal cadre business also I would like to underscore the alpha safety is defensible recurring revenue and highly visible growth prospects its partnership with.
Blaine Browers: With its leading niche market position, high cost of substitution, strong brand recognition, and resiliency through market cycles, it's an ideal cadre business. Also, I'd like to emphasize that Alpha Safety has defensible, recurring revenue and highly visible growth prospects. Its partnership with key customers is approaching 40 years with high-margin revenues tied to contracts and committed purchase orders. In 2023, revenues were $44 million, and EBITDA margins exceeded $20. Alpha Safety's suite of highly engineered technical products and services focused on radiation protection are outlined in slide 12. These include engineered containers, ventilation and contamination, field services, and maintenance. Advanced Transportation Containers, Specialty Filters, and Radiometric Instrumentation
Key customers are approaching 40 years with high margin revenues tied to contracts and committed purchase orders.
<unk> 2023 revenues were $44 million and EBITDA margins exceeded 20%.
Alpha safety suite of highly engineered technical products and services focused on radiation protection are outlined on slide 12. These include engineered containers ventilation contamination field services and maintenance advanced transportation containers specialty filters and radiometric instrumentation.
Blaine Browers: Their diversified portfolio of products and services spans the nuclear value chain and is best understood by highlighting the three key nuclear missions they serve. First and largest by revenue, is environmental safety. Approximately 50% of ALFA's 2023 revenues relate to this mission, and ALFA provides advanced engineered containers, ventilation and containment solutions, and analysis services for the cleanup initiatives that relate to decades of U.S. nuclear material processing and handling. These include Department of Energy mission-critical and mandated cleanup efforts spanning numerous sites from decades of nuclear weapons development and government-sponsored nuclear energy research.
They're diversified polio.
Portfolio of products and services spans the nuclear value chain and are best understood by highlighting the three key nuclear missions they serve.
First in our largest by revenue as environmental safety approximately 50% of Alpha is 2023 revenues relate to this mission and Alpha provides advanced engineered containers ventilation containment solutions and analysis services for the cleanup initiatives that relate to decades of U S nuclear materials processing and handling.
These include Department of energy and mission critical and mandated cleanup efforts spanning numerous sites from decades of nuclear weapons development and government sponsored nuclear energy research.
Blaine Browers: Second is the National Security Mission, which reflects ongoing and expanding national defense initiatives. For ALTA safety, this involves advanced engineered container solutions and specialty filters as the U.S. ramps up plutonium pit production. Third, related to nuclear energy, this key mission includes the decommissioning and decontamination of legacy nuclear power plants. Alpha provides engineered container solutions and ventilation containment systems. Increasing global demand for sustainable energy sources will drive demand for both legacy and new nuclear power.
Second is natural national security missions, which reflect ongoing and expanding national defense initiatives for Alpha safety. This involves advanced engineered container solutions and specialty filters as the U S ramps its plutonium production.
Third related to nuclear energy. This key mission includes the decommissioning and decontamination of legacy nuclear power plants also provides an engineered container solutions and ventilation containment systems, increasing global demand for sustainable energy sources will drive demand for both legacy and new nuclear power.
Blaine Browers: As a reminder, Alpha does not transport or take into custody nuclear material. Turning to slide 13, you'll see that this acquisition immediately expands Cadre's total addressable market. Combined with Cadre's serviceable addressable market in our core categories, this now represents an opportunity of up to $8 billion. Based on complex and evolving industry needs and macro tailwinds, nuclear safety presents an opportunity for consistent organic growth and upside through additional evidence.
As a reminder, alpha does not transport themselves are taking a custody nuclear materials.
Turning to slide 13, Youll see that this acquisition immediately expands cadre is total addressable market combined with cadre is service all serviceable addressable market in our core categories. This now represents an opportunity of up to $8 billion.
Based on complex and evolving industry needs and macro tailwind nuclear safety presents an opportunity for consistent organic growth and upside through additional M&A.
Blaine Browers: Specifically, we're excited about the platform that exists to pursue add-ons that realize synergies, enhance capabilities, and expand the customer base. In summary, we're very pleased to acquire Alpha Safety and look forward to executing on our growth plans. It has a leading market position across all of the key product lines and a large total addressable market with long-term industry tailoring. Its financial profile is strong, highlighted by highly visible and predictable revenues supported by long-term contracts and recurring purchase orders. Protected products and limited competition drive even margins greater than 20% fraud.
Specifically, we are excited about the platform that exists to pursue add ons that realized synergies enhanced capabilities and expand the customer base. In summary, we're very pleased to acquire Alfa safety and look forward to executing on our growth plans has a leading market position across all of its key product lines and a large total addressable market with long term industry tailwind.
<unk> financial profile is strong highlighted by highly visible and predictable revenue supported by long term contracts and recurring purchase orders <unk>.
<unk> products and limited competition drive EBITDA margins greater than 20% for Alpha.
Blaine Browers: Next, let me take a moment to discuss our recent acquisition of I-Corps technology announced in December. As you'll see on the right side of slide 15, this was another transaction that checked many of the boxes we look for in acquisitions. I-Corps is a trusted global supplier of EOD robots with a leading market position, strong brand recognition, compelling macroeconomic trends, resiliency through cycles, recurring revenues, and I-MARS. The business, in its most recent fiscal year and during the summer, achieved approximately 19 million in revenues with EBITDA margins in excess of 20%. Headquartered in Ottawa, Ontario, I-Corps is strategically located near the national headquarters of the Canadian Department of National Defense and the Royal Canadian Mounted Police and is also in close proximity to Cadre's EOD business, MedEng, which is also based in Ottawa.
Next let me take a moment to discuss our accretive acquisition of Ichor technology announced in December as Youll see on the right side of Slide 15. This was another transaction that checked many of the boxes, we look for in an acquisition target.
<unk> is a trusted global supplier of EOD robots with a leading market position strong strong brand recognition compelling macroeconomic trends resiliency through cycles recurring revenues and high margins the business in its most recent fiscal year ended during the summer achieved approximately $19 million of revenues with <unk>.
EBITDA margins in excess of 20%.
Headquartered in Ottawa, Ontario, <unk> strategically located near the National headquarters of the Canadian Department of National Defense and the Royal Canadian Mounted police and is also in close proximity to cadre is EOD business net edge, which is also based on Ottawa.
The addition of ichor meaningfully expands our ability to provide mission critical EOD robots to law enforcement agencies and military organizations, which is an area that we are intimately familiar we expect to be able to take advantage of cadre of scale and extensive sales channels to further penetrate <unk> key markets.
Blaine Browers: The addition of I-Corps meaningfully expands our ability to provide mission-critical EOD robots to law enforcement agencies and military organizations, which is an area that we are intimately familiar with. We expect to be able to take advantage of Cadre's scale and extensive sales channels to further penetrate I-Corps' key market. Regarding both acquisitions of I-Corps and Alpha Safety, we're in the initial phases of integration. Our top priorities include working with teams related to finance, accounting, IT, legal, and compliance. We look forward to implementing core cadre operating tools in the coming months.
Regarding both acquisitions of <unk> Alfa safety, we're in the initial phases of integration. Our top priorities include working with teams relate to finance accounting legal and compliance we look forward to implementing Cora cadre operating tools in the coming months.
In terms of our M&A expectations for the remainder of the year, we continue to be pleased with the uptick in activity in M&A markets and we are working diligently through our funnel to find other businesses that fit well within our criteria.
Turning now to a summary of <unk> financial performance Slide 17, 18 detailed detail. Our Q4 results as you can see on slide 17 fourth quarter net income of $9 6 million or <unk> 25 per share increased 45% as compared to last year's Q4 for the full year revenue adjusted EBITDA gross.
Blaine Browers: In terms of our M&A expectations for the remainder of the year, we continue to be pleased with the uptick in activity in the M&A markets, and we are working diligently through our funnel to find other businesses that fit well within our criteria. Turning now to a summary of Cadre's financial performance, slides 17-18 detail our Q4 results. As you can see on slide 17, fourth-quarter net income of $9.6 million, or $0.25 per share, increased 45% as compared to last year's Q4. For the full year, revenue, adjusted EBITDA, gross margin, and adjusted EBITDA margin were all the highest since inception.
Margin and adjusted EBITDA margin were all the highest since inception.
As we continue to rollout our operating model and manage the positioning of our portfolio of premium products, we've made significant progress driving margin expansion.
Illustrated on slide 18, as net sales and adjusted EBITDA growth year over year, including our 2024 guidance, which I'll discuss more in a moment.
At its midpoint this outlook implies full year revenue and adjusted EBITDA EBITDA growth.
16, 5% and 23, 5% respectively. This follows a year in which we increased revenue about 6% and adjusted EBITDA, 13%.
Blaine Browers: As we continue to roll out our operating model and manage the positioning of our portfolio of premium products, we've made significant progress driving margin expansion. Illustrated on slide 18 is net sales and adjusted EBITDA growth year over year, including our 2024 guidance, which I'll discuss more in a moment. At its midpoint, this outlook implies full-year revenue and adjusted EBITDA growth of 16.5% and 23.5%, respectively. This follows a year in which we increased revenue by about 6% and adjusted EBITDA by 13%. On slide 19, we present our capital structure as of December 31st. While the M&A market was quiet for the last 12 to 18 months, Cadre continued to accumulate cash on the balance sheet, allowing us to close these two transactions in Q1 and still have what we believe to be a responsible pro forma net leverage ratio of around two times. This includes both Acquisitions Adjusted EBITDA contributions based on their last 12 months. We provide new 2024 guidance on slide 20. We expect next year's sales to be between $553 million and $572 million. Our adjusted EBITDA guidance range of between $104 million and $108 million implies adjusted EBITDA margins of 18.8%.
On slide 19, we present, our capital structure as of December 31.
While the M&A market was quiet for the last 12 months to 18 months contract continued to accumulate cash on the balance sheet, allowing us to close these two transactions in Q1 and still have what we believe to be a responsible pro forma net leverage ratio of around two times.
This includes both acquisitions adjusted EBITDA contributions based on their last 12 months.
We provide new 2024 guidance on slide 20, we expect net sales to be between $553 million and 572 million, our adjusted EBITDA guidance range of between $104 million and $108 million implies adjusted EBITDA margins of 18, 8%.
This will be a continuation of our strong margin performance and substantially beat our record 2023, adjusted EBITDA margins of 17, 8%.
Right now we expect quarterly revenue splits to be similar to 2023 with Q2 and Q3 being our strongest revenue quarters, but please keep in mind. This can be impacted by our customers and their demand timing outside.
Outside of transaction expenses, we expect SG&A to be fairly level through the year.
We do expect a stronger margin and revenue in Q1 compared to Q4 as our mix normalizes.
Please note this excludes any impact from inventory step up related to acquisitions, which will create some headwind on margins and net income.
I'll now turn it back to Brad for concluding comments.
Thank you Blayne, we are highly pleased with our strategic execution in 2023, which is reflected in our strong fourth quarter and full year financial results. Our teams have done an outstanding job and these stellar results are a testament to their hard work and commitment to cadre lifesaving mission.
Blaine Browers: This will be a continuation of our strong margin performance and substantially beat our record 2023 adjusted EBITDA margins of 17.8%. Right now, we expect quarterly revenue splits to be similar to 2023, with Q2 and Q3 being our strongest revenue quarters. But please keep in mind this can be impacted by our customers and their demand timing. Outside of transaction expenses, we expect SG&A to be fairly flat through the year.
Looking forward the recent M&A that we've executed to acquire ichor in Alpha safety sets up 2024 to be another record year based on the ongoing implementation of our operating model. We are confident that the team's relentless focus on constant improvement and optimize results will drive margin expansion and increased prop.
Blaine Browers: We do expect a stronger margin and revenue in Q1 compared to Q4 as our mix normalizes. But please note, this excludes any impact from inventory step-up related to acquisitions, which will create some headwinds on margins and net income. I'll now turn it back to Brad for closing. Thank you, Blaine.
The ability as we continue to grow our business.
Supported by a robust acquisition pipeline as well as macro tailwind related to increasing public safety budgets and favorable industry dynamics. We believe cadre is ideally positioned to continue to expand our platform and further enhance our market leadership over the long term with that operator. Please open.
Brad E. Williams: We are highly pleased with our strategic execution in 2023, which is reflected in our strong fourth quarter and full year financial results. Our teams have done an outstanding job. And these stellar results are a testament to their hard work and commitment to Cadre's life-saving mission. Looking forward, the recent M&A that we've executed to acquire I-Corps and Alpha Safety sets up 2024 to be another record year. Based on the ongoing implementation of our operating model, we are confident that the team's relentless focus on constant improvement and optimized results will drive margin expansion and increased profitability as we continue to grow our business. Supported by a robust acquisition pipeline as well as macro tailwinds related to increasing public safety budgets and favorable industry dynamics, we believe Cadre is ideally positioned to continue to expand its platform and further enhance its market leadership over the long term. With that, Operator, please open up the lines for Q&A. At this time, I would like to remind everyone, in order to ask a question, please press star 1.
It up the lines for Q&A.
At this time I would like to remind everyone in order to ask a question. Please press star one.
Your first question comes from Jeff Van <unk> with B Riley. Please go ahead.
Good afternoon, everyone and let me just say congratulations on the strong reported metrics and on your recent acquisitions.
I realize it's early but I'm just wondering your thoughts on the new apex. That's product is it possible that could drive some sort of an upgrade or replacement cycle.
Yes, great Great question, Jeff and thanks for the comments.
Terms of replacement cycles.
Since going public we've had quite a few new products that we've launched to the market, we've talked about new products tripping potentially those replacement cycles and to date, whether its been body armor or holster or other products, we have not seen even products with strong value propositions in that premium position typically arent tripping.
Jeffrey Wallin Van Sinderen: Your first question comes from Jeff Van Sinderen with B. Reilly. Please go ahead. Good afternoon, everyone.
Brad E. Williams: And let me just congratulate you on the strong reported metrics and on your recent acquisitions. I realize it's early, but I'm just wondering your thoughts on the new Apex Best product. Is it possible that could drive some sort of an upgrade or replacement cycle? Yeah, great, great question, Jeff. And thanks for the comments.
One of our customers from that current cycle that we're in so we'll see but at this point, we don't expect that trend to change but.
But the innovation is definitely being accepted as we continue to take it out to customers.
Okay. Good to hear and then I know you mentioned targeting completion I think you said one more acquisition. This year at least and then just wondering if you would be more inclined to lean into a deal.
That may be alpha had in its pipeline or if there are other deals that you have in your own pipeline.
Brad E. Williams: In terms of replacement cycles, you know, since going public, we've had quite a few new products that we've launched into the market. And we've talked about, you know, new products potentially disrupting those replacement cycles. And to date, whether it's been body armor or holsters or other products, we have not seen even products with strong value propositions in that premium position that typically aren't tripling, you know, one of our customers from that current cycle that we're in. So we'll see.
Maybe in other verticals, just I guess any other thoughts around kind of maybe what you might wait into targeting this year.
Yeah, So Jeff I would say overall everything is on the table. When you look at the funnel we have a good mix within the categories that you mentioned.
We are especially keen on the Alpha acquisition, and we've talked a lot about the solid macros within the three.
Categories that Blaine just walked through.
Next week is the largest show within the Alpha.
Brad E. Williams: But at this point, we don't expect that trend to change. But the innovation is definitely being accepted as we continue to take it out to customers. Okay, good to hear. And then I know you mentioned targeting completion; I think you said one more acquisition this year, at least. And then just wondering if you would be more inclined to lean into a deal that maybe Alpha had in its pipeline, or if there are other deals that you have in your own pipeline, maybe in other verticals, just, I guess, any other thoughts around kind of maybe what you might lean into targeting this year. Yeah, so Jeff, I would say overall, everything's on the table. When you look at the funnel, we have a good mix within the categories that you've mentioned.
Market segment waste management symposium in Phoenix, and I'll be there at that show and we'll be walking the show and spending time within their acquisition funnel that.
They basically walked us through through the diligence process. So we're pretty excited about potential opportunities there, but we also have other opportunities within the funnel that we'll just see and capitalize on those when we get the chance.
Okay. Thanks for taking my questions I'll take the rest offline. Thank.
Thanks, Jeff.
Your next question comes from Jordan <unk> with Bank of America. Please go ahead.
Hey, good afternoon, and thank you for taking the question.
On the.
Police budget growth.
Brad E. Williams: You know, we're especially keen on, you know, the alpha acquisition. And, you know, we've talked a lot about the solid macros within the three different categories that Blaine just walked through. You know, next week is the largest show within the alpha market segment, the Waste Management Symposium in Phoenix. And, you know, I'll be there at that show, and we'll be walking the show and spending time within their acquisition funnel that they basically walked us through during the diligence process.
I guess the trend is real when we think about the.
The headlines on retirements from officers, how does that change how you guys are bundling products looking for that growth going forward.
Theres just less officers holster, if it's looking at bundling.
So that way there is more products going through their own refresh cycle.
<unk>.
Yes. So good I appreciate the question so from a bundling perspective within the end market segment.
Especially within law enforcement, where we have as you know quite a bit of share you don't necessarily see.
Bundling of products. Okay. So there is even though you have law enforcement agency, a the decision makers and influencers within that agency can be different depending on the product categories. So typically you'll have.
Brad E. Williams: So we're pretty excited about, you know, potential opportunities there, but we also have other opportunities within the funnel that we'll just see and capitalize on when we get the chance. Okay, thanks for taking my questions. I'll take the rest offline.
<unk> body armor contracts that come up you'll have holster contracts that come up and theres different decision makers, which and within each of those categories. So.
Brad E. Williams: Thanks, Jeff. Your next question comes from Jordan Lyonnais with Bank of America. Please go ahead. Hey, good afternoon.
Even though head count has been down through Covid and defund. The police we've seen head count stabilized as they've continued to recruit and add folks within the organization. So as we've said before we consider.
Jordan J Lyonnais: Thank you for taking the question, on police budget growth. I guess the trend is real. When we think about the headlines on retirements from officers, how does that change how you guys are bundling products looking for that growth going forward? If there's just less officers per holster, or if it's looking at bundling, so that way there are more products going through there on a refresh cycle. Yeah, so good.
The increase of head count as a long term headwind or tailwind for us as we go forward pushing us along so as that head count continues to be field, there's opportunities for new equipment for those folks.
Got it Okay, and then just a follow up too.
So the acquisition with safety.
Safety.
It being.
As such.
Brad E. Williams: We appreciate the question. So from a bundling perspective, within the in-market segment, especially within law enforcement, where we have, as you know, quite a bit of share, you don't necessarily see a bundling of products. Okay. So, you know, even though you have law enforcement agency A, the decision makers and influencers within that agency can be different depending on the product categories. So typically, you'll have, you know, you'll have body armor contracts that come up, you'll have holster contracts that come up, and there are different decision makers within each of those categories.
<unk>.
Drastic change.
Industry. They go into I can appreciate that it hits all of the strategy.
<unk>.
Should we expect.
Another branch off into a totally different industry than.
Police gear nuclear.
Supply.
Going forward.
Yes, I mean time frame to be determined but absolutely that's that's in the cards.
When we think about cadre, we think about really a diversified highly engineered safety company. So we don't think about it as a military and law enforcement only company, yes, it's certainly where our roots on them are proud and happy to serve those markets, but the core what underlines in what we believe makes cadre special is.
Brad E. Williams: So, you know, even though headcount has been down through COVID and defunding the police, you know, you've seen headcount stabilize as they've continued to recruit and add folks within the organization. So, as we've said before, we consider the increase in headcount as a long-term headwind or a tailwind for us as we go forward, you know, pushing us along. So as that headcount continues to be filled, you know, there's opportunities for new equipment for those folks. Got it, okay.
The way, we operate and the way we operate is agnostic when it comes to end markets.
You think about a good portion of management staff here didn't grow up in the law enforcement military markets and have joined and been able to be successful and we have a great marriage of folks that are very familiar with the operating model and then folks that haven't really deep expertise in industry and we feel like to add is a great marriage and really allows us to be successful in the market by kind of pull on that.
Brad E. Williams: And then just to follow up on the acquisition with Alpha Safety. It being just such a drastic change in industry to go into, I can appreciate that it hits all of the strategic components of it. Should we expect another branch off into a totally different industry than police gear, nuclear, and Apply, going forward? Yeah, I mean, time frame to be determined, but you know, absolutely, that's, that's in the cards. You know, when we think about Cadre, we think about, you know, really a diversified, highly engineered safety company. So we don't think about it as a military and law enforcement only company.
Best of both worlds.
So we have the nuclear vertical now, but absolutely we'll continue to look at other verticals now and in the future.
Great. That's helpful. I appreciate it thank you guys. Thank.
Thank you.
Your next question comes from Matt Koranda with Roth MTM. Please go ahead.
Hey, guys. Good evening, thanks for taking the questions.
Just wanted to explore the 24 outlook a little bit more if I could.
Just any help in terms of thinking about what ichor in alpha would contribute to that revenue outlook.
And then maybe just how much like for like growth. If we were to kind of compare them to what they did in 2003 are we counting on much growth.
Brad E. Williams: Yeah, it's certainly where our roots are, and we're, you know, proud and happy to serve those markets. But, you know, the core, what underlines, and what we believe makes Cadre special is, you know, the way we operate, and the way we operate is agnostic when it comes to the end market. If you think about, you know, a good portion of the management staff here didn't grow up in the law enforcement or military markets and have joined and been able to be successful. We have a great marriage of, you know, folks that are very familiar with the operating model and then folks that have really deep expertise in the industry. We feel like that is a great marriage and really allows us to be successful in the market by, you know, kind of taking the best of both worlds.
From those acquisitions on sort of a like for like basis.
And then just wanted to also make sure I'm clear I think I know the answer but.
You mentioned a potential acquisition I assume that is not embedded in the guidance for the full year.
So maybe starting in reverse order, yes. The guidance is only what we've what we own today, so alpha <unk> as well as the core.
Cadre business.
When it comes to guidance, Matt, we're taking a pretty conservative view right. These both these acquisitions are within the last 60 days right. It closed within the last 60 days.
It really holding them flat too.
What we've disclosed previously for both revenue and margins. So we wanted to take a pretty conservative view here. It is.
Brad E. Williams: So we have the nuclear vertical now, but absolutely, we'll continue to look at other verticals now and in the future. Great, that's helpful. I appreciate it. Thank you, guys. Thank you. Your next question comes from Matt Koranda with Ross MKM. Please go ahead. Hey guys, good evening.
Early days right workplace mentioned, we're just working on really the back office integration as we move through the year and get more comfortable in the teams get more comfortable with US we'll continue to.
To reevaluate guidance, but we thought it best to be prudent at this point on the on the guidance and we'll continue to evaluate.
Matthew Butler Koranda: Thanks for taking the questions. I just wanted to explore the 24-hour outlook a little bit more, if I could. Any help in terms of thinking about what I-Corps and Alpha would contribute to that revenue outlook? And then maybe just how much like for like growth if we were to kind of compare them?
Okay Fair enough and then I guess the.
If we hold it flat I guess the implied growth in the core business is still pretty healthy I just wanted to see if you could touch on sort of.
Core pricing dynamics that youre seeing across due to Gary the body armor.
Blaine Browers: to what they did in 23. Are we counting on much growth from those acquisitions on sort of a like for like basis? And then just wanted to make sure I'm clear. I think I know the answer, but you mentioned a potential acquisition. I assume that is not embedded in the guidance for the full year. Maybe start in reverse order.
Just any change in sort of the stated growth algorithm and pricing algorithm.
<unk> had historically for 2024.
Yes, I'd say, it's a core what we strive format has not changed which is getting getting a price that we believe the products deserve making sure we're fighting the inflationary pressures.
Blaine Browers: Yeah, the guidance is only what we've got what we own today. So Alpha, I-Corps, as well as the Corps, Cadre business. When it comes to guidance, Matt, we're taking a pretty conservative view, right? Both these acquisitions are within the last 60 days, right? It's closed within the last 60 days.
That really has not changed as we look out.
The.
Productivity component has gotten.
Much more intense focus I think the team's done a really great job, that's probably one area, whereas we look into 2024 will be one of the stronger years, we've had and the team. This is really goes out to the <unk> and all the folks in the plant operations of getting really focused on that daily management part of who we are and the operating model and continue to get a little.
Blaine Browers: So we're really holding them flat, too. Unknown Speaker Oh, we thought it best to be prudent at this point in the guidance. Okay, fair enough. And then I guess if we hold it flat, I guess the implied growth in the core business is still pretty healthy. Just wanted to see if you could touch on sort of core pricing dynamics that you're seeing across duty gear, EOD, body armor, and just any change in sort of the stated growth algorithm and pricing algorithm that you've had historically for 2020. You know, I'd say at the core, what we strive for, Matt, has not changed, which is, you know, getting the price that we believe the products deserve and making sure we're fighting the inflationary So, you know, that really has not changed as we look out. The Productivity Component has gotten, you know, a much more intense focus. I think the team did a really great job.
Better each day that that's probably the single biggest improvement I think we've been most pleased with this year as folks really kind of diving into that that side of that world doing it really well we had a great exit in the back half of last year and momentum is really just continued.
Growth dynamics. It continues to be I would say the same as what we've communicated.
The police protection budget still at that kind of three ish plus or minus <unk>.
<unk> growth.
And pricing.
I would say, it's kind of the same that we talked about in the back half inflation inflationary pressures are still there certainly a lot less than post COVID-19, but more in line with what we saw last year, certainly nothing below or above that.
Okay, great and if I could sneak one in just near term.
Blaine Browers: That's probably one area where we look into 2024 as one of the stronger years we've had in the team. Really goes out to the VPs, GMs, and all the folks in the plant operations for getting really focused on that daily management, you know, part of who we are in the operating model and continuing to get a little bit better each day. That's probably the single biggest improvement I think we've been most pleased with these folks really kind of diving into that side of that world and doing it really well. We had a great exit in the back half of last year, and momentum's really just, growth dynamics. It continues to be, I would say, the same as what we've communicated. The police protection budget is still at that three-ish plus or minus percent growth rate.
I know you helped out with seasonality blayne, but.
Maybe just any thoughts on the first quarter in terms of top line growth I noticed in the release you guys mentioned and this happens around the time you just given the nature of the business, but the EOD.
Business may have had a little bit of spillover or timing.
Challenges in the fourth quarter. So maybe just how to think about any contribution that that would bring to the first quarter and how we should think about modeling growth at least topline for the first quarter.
Yes, we absolutely had some EOD projects that moved out from Q4 into Q3, so that our sorry Q4 to Q1 and that is.
That is included in that.
Comment I have around Q1 of 2020 for being up.
Blaine Browers: In pricing, I would say it's kind of the same that we talked about in the back half. Inflationary pressures are still there, certainly a lot less than post-COVID, but more in line with what we saw last year. Certainly nothing below or above that. Okay, great. And if I could sneak one in just near term, I know you helped out with seasonality, Blaine, but maybe just any thoughts on the first quarter in terms of top line growth? I noticed in the release you guys mentioned, and this happens from time to time, just given the nature of the business, but the EOD business may have had a little bit of spillover or timing challenges in the fourth quarter. So maybe just how to think about any contribution that that would bring to the first quarter and how we should think about modeling growth, at least on the top line for the first quarter. Yeah, we actually had some EOD projects that moved out from Q4 into Q3.
Upfront from 2023, Q4 sequentially and that's both on.
Top line as well as margin rates, so we're seeing that mix normalize getting back to.
More margin similar to we saw prior prior to Q4 last year.
Okay very helpful. Thanks for the question I think you guys. Okay, yeah, absolutely. Thank you.
I appreciate it.
Your next question comes from Sheila <unk> with Jefferies. Please go ahead.
Okay.
Sheila.
We can't hear you if you're on.
Sorry, guys and good afternoon, everyone.
Thanks for the time and congratulations on the momentum you've had so far.
Wanted to see if you guys could walk us to our margin bridge for the year.
Just looking at the Incrementals at the mid point of the 'twenty One guide.
25% versus the 40% you did in the past year and maybe if you could just walk us through the moving pieces of margin on mix price productivity assumptions, and obviously acquiring alpha filtering Ann Taylor.
Blaine Browers: So that or sorry, Q4 into Q1. And that is, that is included in the comment I have around Q1 of 2024 being up from 2023 Q4 sequentially. And that's both on the top line, as well as margin, right? So we're seeing that mix normalize, getting back to more margins similar to what we saw prior to Q4 last year. Okay, very helpful.
Yes, we can talk through it at a high level, we don't get granular individual drivers, but yes.
Maybe kind of starting with productivity.
Offsetting our labor and other variable inflation with with some contribution to the bottom to the margin at that point.
Price meeting our expectations in the market so offsetting material inflation.
Blaine Browers: Thank you, guys. Okay. Yeah, absolutely. Appreciate it. Your next question comes from Sheila Kahyaoglu with Jeffreys. Please go ahead. Sheila, we can't hear you if you're on.
And then mix is a small contributor but mix is really more relevant to Q4 than Q4 to Q1 sequentially more so than for the full year because on the full year. When we think about the drivers of the higher margin product lines due to year end <unk>.
Sheila Karin Kahyaoglu: Sorry, guys. Good afternoon, everyone. Thanks for the time and congratulations on the momentum you've had so far. I wanted to see if you guys could walk us through a margin bridge for the year. You know, just looking at the incrementals at the midpoint of the 24 guide, it implies 25% versus the 40% you did in the past year. So maybe if you could just walk us through the missing pieces of margin on mix, price, productivity assumptions, and obviously I-Corps and alpha filtering in too. Yeah, we can talk through it at a high level, Sheila; we don't, you know, get too granular on individual drivers.
They are both slightly up but it's not significant enough to drive significant margin improvement mix one.
The elements in here that we haven't spent a ton of time talking about it is when you think about our two segments products and distribution. The distribution margins are they are in the low twenties.
This product is in the low <unk> in these two businesses. We bought have similar margin profiles to the rest of that product segment in fact slightly higher so thats driving some of that margin expansion. But then you have a portfolio mix impact as you think about distribution getting smaller just a few years ago distribution was about 25%.
Blaine Browers: But yeah, maybe kind of starting with, you know, productivity, offsetting our labor and other variable inflation, you know, with some contribution to the bottom of the margin at that point, you know, price meeting our expectations in the market. So offsetting material inflation. And then Mix is a small contributor, but Mix is really more relevant to Q4 than Q4 to Q1 sequentially, more so than for the full year, because on the full year, when we think about the drivers, you know, the higher margin product lines of Doodyear and MedEng, you know, they're both slightly up, but it's not significant enough to drive significant margin improvement mix. You know, one of the elements here that we Distribution margins are in the low 20s, whereas product is in the low 40s.
Our revenue in a given year now, it's getting closer to 20 and as that happens over time will naturally pick up some favorable mix as we get down to EBITDA.
Okay, others, and then I have no significant FX sorry gotcha.
No no sorry.
Yes sure.
No significant FX pressure, one way or the other that we're considering.
Okay.
I wanted to ask one top line question just on the.
Nuclear vertical versus the state law enforcement.
Thank you said nuclear is growing at <unk> the rate for the six versus law enforcement Cuda for kind of can you just talk about.
With selling priority, how you think about the growth of those markets.
If price different.
And either of those markets and maybe if you could just expand on the addressable market growth.
So I think the best way to look at the nuclear side of things. She lives within the three categories that <unk> talked about that at this point really our focus area with the team.
Blaine Browers: And these two businesses we bought have similar margin profiles to the rest of that. Product segment, in fact, slightly higher, so that's driving some of that margin expansion. But then you have a portfolio mix impact as you think about distribution, you know, getting smaller. You know, just a few years ago, distribution was about, you know, 25% of our revenue in a given year. Now it's getting closer to 20.
When you look at the macro is behind each of those so on the <unk>.
Environmental side of things as Blake said in the prepared comments about 50% of the overall revenue there.
Which is a big part of the driving force behind the business. So that's one focus area for the team overall.
The second focus area is around <unk>.
And department of defense side of things so.
Blaine Browers: And, you know, as that happens over time, we'll naturally pick up some favorable mix as we get down to EBITDA. Okay. And then I wanted to... No significant aspects. Sorry about you.
Any of the National nuclear security type increases in budgets that we've seen over there is an increase those are really two important drivers to the to the macros in the business that we see.
Blaine Browers: No, no. Back to you. Sorry.
Okay, great. Thank you.
Brad E. Williams: Other than that, no significant FX pressure one way or the other that we're, Okay. I wanted to ask a top line question just on the, you know, nuclear vertical versus, say, law enforcement. You know, I think you said nuclear is growing at 2x the rate of four to six versus law enforcement, two to four. Kind of, can you just talk about selling priorities, you know, how you think about the growth of those markets. Is price different in either of those markets?
Your next question comes from Mark Smith with Lake Street Capital markets. Please go ahead.
Hi, guys you've hit on some of these a little bit but just.
Want to hit as the business is more diverse now with multiple international domestic kind of local agencies.
You talked a bit about police budgets anything else as we think about this new vertical of nuclear as we think about budgets, there as well as international and domestic kind of military budgets any changes that youre seeing are things that we should be looking for.
Brad E. Williams: And maybe you could just expand on the addressable market growth. So I think the best way to look at the nuclear side of things, Sheila, is within the three categories that Blaine talked about. That's at this point really our focus area with the team when you look at the macros behind each of those. So on the environmental side of things, as Blaine said in the prepared comments, about 50 percent of the overall revenue there, which is a big part of the driving force behind the business.
No not that we've seen I mean to me.
Mark the macros have been.
But I know, we keep repeating that over and over and over we haven't seen any large.
Shifts or changes from a macro perspective, both in law enforcement and then also any any conflicts that are going on.
Outside the U S internationally.
So we continue to keep our ear to the ground as you know we have our company know distribution that Blaine just talked about where we have a.
Brad E. Williams: That's one focus area for the team overall. The second focus area is around the DOE and Department of Defense side of things. So any of the national nuclear security type increases in budgets that we've seen over there as an increase, those are really two important drivers of the macros in the business that we see. Okay, great. Thank you. Your next question comes from Mark Smith with Lake Street Capital Markets. Please go ahead.
A lot of sales folks there to they are working with in agencies on a daily basis, and then we have our safari land selling team that not only manages our third party distributors in that channel, but there are folks that are.
Within end user agencies also on a daily basis, and as we keep our ear to the ground, we're not seeing any major major changes there which is good but what we do see is just continued spin.
Spend per officer continues to be very solid across the board and then our new products that we've talked about quite a bit.
Mark Eric Smith: Hi guys. You've hit on some of these a little bit, but just wanted to hit, you know, as the business is more diverse now with multiple, you know, international, domestic, and local agencies. You've talked a bit about police budgets, anything else, you know, as we think about, you know, this new vertical of nuclear energy as we think about budgets there, as well as international and domestic kinds of military budgets, any changes that you' No, not that we've seen.
Whether its hyper X in the tactical side of things are new.
Sumer Holster line, our new vault series, and then now the new apex product.
That's where you continue to either maintain or drive that share growth in some of these pockets of areas, where our shares are lower.
Okay.
And then we asked about it every once in a while here.
Theres any update on blast sensors, and similarly are there any other contracts that you see coming up domestically and internationally for any of your businesses that may be present.
Brad E. Williams: I mean, you know, Mark, the macros have been, you know, the same. And I know we keep repeating that over and over and over. We haven't seen any large, you know, shifts or changes from a macro perspective, both in law enforcement and then also any conflicts that are going on outside the US, internationally. You know, so we continue to keep our ear to the ground. As you know, we have our company of distribution that Blaine just talked about, where we have a lot of sales folks there that are working with agencies on a daily basis. And then we have our Safariland selling team that not only manages our third-party distributors in that channel, but they're folks that are, you know, within end user agencies also on a daily basis.
Future growth opportunities.
So on the sensor side of things, we're still sitting where we were.
At the last.
Earnings call, which is we talked about originally theres four phases of the <unk> program with last sensors. We are in the fourth phase and we've delivered on the fourth phase in what we've been told is we will get feedback.
Sometime here in the fourth quarter or the first quarter on that program overall now keep in mind. This program has gotten kind of pushed and pulled as we went along so as long as the schedule remains that on their side of things and we get that feedback then we'll figure out what the next steps are they will actually tell us what the next steps are.
Brad E. Williams: And, you know, as we keep our ear to the ground, we're not seeing any major changes there, which is good. But what we do see is just, you know, continued spin for officers continues to be very solid across the board. And then our new products, you know, that we've talked about quite a bit, you know, whether it's HyperX on the tactical side of things, our new consumer holster line, our new vault series, and then now the new Apex product, you know, that that's where you continue to either maintain or drive that share growth in some of these pockets of areas where our share is lower. Okay.
And then in terms of any new contracts or any additional contracts.
Those are always coming in and coming out when you look at us globally.
There's various opportunities there that we're all we always have in our sales funnel and always have a mix of what we call larger orders in.
Nothing is as decline from a large order perspective in that mix and then we continue to see a good heavy.
Recurring mix of our smaller return recurring type business maybe.
One way to think about it too is domestically with the high market shares.
Really very few if no single projects.
Our large contracts that would really drive the business one way or the other.
Brad E. Williams: And then, you know, we ask about it every once in a while here, just if there's any update on the blast sensors. And similarly, are there any other, you know, contracts that you see coming up domestically or internationally for any of your businesses that maybe present, you know, future growth opportunities? So, on the BlastSensors side of things, we're still sitting where we were at the last earnings call, which is, you know, originally, we talked about there being four phases of the SOCOM program with BlastSensors. We are in the fourth phase, and we've delivered on the fourth phase, and, you know, what we've been told is that we will get feedback sometime here in the fourth quarter or the Now, keep in mind, you know, this program has gotten kind of pushed and pulled as we've gone along, so, you know, as long as the schedule remains on their side of things and we get that feedback, then we'll figure out what the next steps are. They'll actually tell us what the next steps are.
One of the things maybe to kind of share that was I think we were pleased with and excited as Bryan just recently got back from a couple of site visits in Europe in particular focused.
Radar and spent some time with the team there and then also up in the UK and spent some time with with them in one of the things that became apparent as those teams for us It was really exciting to see the Lithuanian team.
The UK team in the Italian team working together and this is one of the synergies we've kind of mentioned before really around having a presence in Italy that having these three teams together and having the expertise and the Italian market has started to open up some opportunities when it comes to body armor in Italy, which has not been a place we've historically.
Competed.
These are going to be.
It's not going to be 2% growth for the overall company, but they are meaningful ways for us to grow our share in Europe with that collaboration and Youre, having that additional footprint and there has been fantastic.
Great I think Brian and I, both left really energized to see how well the teams are really collaborating and working together to find solutions.
Brad E. Williams: And then in terms of any new contracts or any additional contracts. You know, those are always coming in and coming out when you look at us globally, and, you know, there's various opportunities there that we all always have in our sales funnel, and we always have a mix of what we call larger orders. And, you know, nothing has declined from a large order perspective in that mix. And then, you know, we continue to see a good heavy, you know, recurring mix of our smaller return recurring type business. Yeah, maybe, you know, one way to think about it, too, is domestically, with the high market shares, you know, there's really very few, if any, single projects, you know, or large contracts that would really drive the business one way or the other.
Penetrate some of these these home market so.
Hopefully it Alex.
It does thank you.
Excellent.
Okay.
Your next question comes from Bert Subban with Stifel. Please go ahead.
Oh, Hey, thanks for the question.
<unk> just to start with a clarification you said margins go up from <unk> to <unk> and then sorry, I missed the last part of that to date sequentially rise or they get back down and then go back up later there.
We didn't I didn't talk so much about the rest of the year just more about I think we would expect them to be fairly steady this year, but that Bert. That's one we'll have to continue to monitor its very mixed driven as we saw in 2023, but right now it looks fairly flat for the year.
Got it okay.
Just a follow up I know you've got a few questions on this but like if I do some back of the envelope math just from what you've disclosed.
Blaine Browers: You know, one of the things, you know, maybe to kind of share that we were pleased with and excited about is, you know, Brad and I just recently got back from a couple of site visits in Europe, you know, in particular focused on radar, and we spent some time with the team there and then also up in the UK and spent some time with them, and one of the things that became apparent is that those teams, for us, it was really exciting to see This is one of the synergies we've kind of mentioned before, really around having a presence in Italy, that having these three teams together and having that expertise in the Italian market has started to open up some opportunities when it comes to body armor in Italy, which has not been a place we've historically competed.
Probably adding 55 to potentially just under $60 million pro forma sales.
And so if you do the math on that relative to what you did in 2003.
That implies youre going from a lower single digit organic growth profile to a mid single digit profile, but it sounds like there is some conservatism in that can.
Can you just walk through I mean is that.
Incrementally new projects improvement in EOD are there certain things that are happening outside of just price because it sounds like that's fairly stable and it doesn't sound like volumes are changing dramatically on the police side. So I'm just curious if you could sort of walk through that change in profile from 'twenty three to four.
Yes, the biggest single one that sticks out burden you mentioned the beginning is really EOD and particular, yet that is the one not core cadre business.
Blaine Browers: These aren't going to be 2% growth for the overall company, but they are meaningful ways for us to grow our share in Europe with that collaboration, and having that additional footprint there has been fantastic, and it was just great. I think Brad and I both left really energized to see how well the teams are really collaborating and working together to find solutions and penetrate some of these home markets. Hopefully, that helps. Excellent. Yep, it does. Your next question comes from Bert Subin with Stiefel. Please go ahead.
That can't be cyclical in nature, but cyclical really just just because of the size of the orders.
We do expect them to be significantly up material for them up over the year.
And the other the other place where we're really looking at growth in the.
<unk> business. So when we look at that that's above expectations.
When we think about kind of that core.
Bert William Subin: Hey, thanks for the question. Blaine, just to start with the clarification, you said margins went up from 4Q to 1Q and then, sorry, I missed the last part of that. Do they sequentially rise, or do they dip back down and then go back up later in the year?
2% to 3% growth there both of those businesses are quite a bit above that overall average and thats really whats changing that.
That implies kind of mid single digit growth versus low singles.
Okay and just on that on the duty side, then is that something temporary or you're seeing like that.
Blaine Browers: We didn't talk so much about the rest of the year, just more about, I think we'd expect them to be fairly steady this year, but that's one we'll have to continue to monitor. It's very mixed, as we saw in 2023, but right now, it looks fairly flat for the. Okay. Um, just to follow up, I know you've got a few questions on this, but, like, if I do some back of the envelope math, just from what you've disclosed, you're probably adding 55 to potentially just under 60 million, just pro forma sales. And so if we do the math on that relative to what you did in 23, that implies you're going from a lower single-digit organic growth profile to a mid single-digit profile, and it sounds like there's some conservatism in that.
<unk> mid amount of refresh or is that.
A combination of what you talked about on share gain which I think was a little more body armor, but I don't know if there is an opportunity there too.
Yes. This is really driven by some large international projects that team has done a great job on winning or having a line of sight to and then also the commercial growth.
Yes, Brad has talked about it but that there are new product innovation in 2023 was really outstanding Brad mentioned that 24% growth for <unk> in the consumer channel in Q4, which is just fantastic in a market that the team has really been focused so between those two that's really driving that due to your growth.
Blaine Browers: Can you just walk through it? I mean, is that, you know, incrementally new projects, improvement in EOD? Are there certain things that are happening outside of just price? Because it sounds like that's fairly stable, and it doesn't sound like volumes are changing dramatically on the police side. So I'm just curious if you could sort of walk through the change in profile from 23 to 4. The biggest single one that sticks out, Bert, and you mentioned in the beginning, is really EOD in particular.
You'll get market share gains do you think about U S patrol.
Those are really tough to come by with our with our highest share but on the commercial side in international we have real opportunities.
Got it Brad I'll end with one for you.
I think we've talked previously about Mexico.
More near shoring and that was driving some inflation there and I know you got the plant in Tijuana. It doesn't sound like that's impacted margins just curious if there's an update there if youre able to.
Blaine Browers: That is the one not core cadre business that can be cyclical in nature, but cyclical really just because of the size of the orders. So we do expect them to be significantly up, material for them, up over the year. And the other place we're really looking at growth and the Duty Gear business. So when we look at that, that's above expectation. When we think about kind of that core.
Relocate some production or if you're just offsetting that with price.
Yes, no I appreciate the question. So I had mentioned before in some of the previous earnings calls we were working on various.
Inflation mitigation types type activities and those arent necessarily in the pricing realm.
The norm that we've talked about in the past so.
Blaine Browers: We said 2% to 3% growth there. Both of those businesses are quite a bit above that overall average, and that's really what's changing that, that, you know, imply kind of mid-singles, digits growth versus low-singles. Okay, and just on that, on the duty gear side, then is that something temporary? You're just seeing a disproportionate amount of refresh?
We've looked at various opportunities too.
Kind of diversify some of that.
Product portfolio and some other different facilities to mitigate that risk, which we do in quite frankly in our larger parts of the business anyway. So those activities continue.
As the teams went forward on that project and we're continuing to do well on it overall and it's keeping pace to what we expected.
Blaine Browers: Or is that, you know, a combination of what you talked about with share gain, which I think was a little more body armor, but I don't know if there's an opportunity there too. Yeah, this is really driven by some large international projects. The team has done a great job winning or having line of sight to, and then also commercial growth.
Great. Thank you both appreciate it.
Yes, Thank you Maria.
Yes.
There are no further questions at this time I will now turn the call back to Brad Williams for any closing remarks.
Blaine Browers: Brad talked about it, but their new product innovation in 2023 was really outstanding. Brad mentioned that 24% growth for duty gear in the consumer channel in Q4, which is just fantastic in a market that the team's really been focused on. Between those two, that's really driving that duty gear growth.
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.
This concludes today's conference call. Thank you and have a great day.
Please wait the conference will begin shortly.
[music].
Blaine Browers: Again, market share gains, and if you think about U.S. patrol, those are really tough to come by with our high share, but on the commercial side, international, we have a real opportunity. Got it. Brad, I'll end with one for you. I think we talked previously about Mexico and, you know, seeing more nearshoring, and that was driving some inflation there. And I know you got the plant in Tijuana, but it doesn't sound like that's impacted margins.
Yes.
Okay.
Yes.
Okay.
Brad E. Williams: Just curious if there's an update there, if you're able to, you know, relocate some production, or if you're just offsetting that with prices. Yeah, no; I appreciate the question. So, you know, I've mentioned before in, you know, some of the previous earnings calls, we were working on, you know, various inflation mitigation activities. And, you know, those aren't necessarily in the pricing realm, outside the norm that we've talked about in the past.
[music].
Brad E. Williams: So, you know, we've looked at various opportunities to, you know, kind of diversify some of that product portfolio and some other different facilities to mitigate that risk, which we do, quite frankly, in our larger parts of the business anyway. So those activities continue, as the teams go forward on that project, and, you know, we're continuing to do well on it, overall, and it's keeping pace with what we expect. Great. Thank you both. I appreciate it. Yep.
Yes.
[music].
Okay.
[music].
Bert William Subin: Thank you, Bert. There are no further questions at this time. I will now turn the call back to Brad Williams for any closing remarks. 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.
Operator: This concludes today's conference call. Thank you, and have a great day! Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly.