Q4 2024 Cadre Holdings Inc Earnings Call
Speaker Change: Good morning and welcome to Cadre Holdings, 4th quarter of 2024, conference call.
Speaker Change: Thank you and welcome to today's conference call to discuss <unk> fourth quarter and full year results.
Speaker Change: Before we begin I'd like to remind everyone that during today's call will be making several forward looking statements that we make these statements under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Speaker Change: Forward looking statements reflect our best estimates and assumptions based on our understanding of information known to us today.
Speaker Change: These forward looking statements are subject to the risks and uncertainties that faced cadre in industries and markets in which we operate.
Speaker Change: Information on potential factors that could affect <unk> financial results is included from time to time in cartridge public reports filed with Securities and Exchange Commission. Please also note that we have posted presentation materials on our website at www Dot cadre Dash holdings Dot com, which supplement our comments. This morning and include a reconciliation.
Speaker Change: Certain non-GAAP financial measures.
Speaker Change: To remind everyone that this call will be available for replay through March 26, 2025 webcast replay will also be available via the link provided in yesterday's press release as well as our God various web site.
Speaker Change: At this time I would like to turn the call over to <unk>, Chairman and CEO Warren cameras.
Speaker Change: Good morning.
Speaker Change: Thank you for joining cadre is fourth quarter earnings call.
Speaker Change: I am joined today by our President, Brad Williams, and Chief Financial Officer Blaine Broward.
Speaker Change: We're pleased to have reported strong fourth quarter and full year results reflective of cadre is outstanding strategic execution and positive demand trends across our law enforcement first responder military and nuclear markets.
Speaker Change: Results were in line with our full year 2024 guidance driven by an exceptional fourth quarter during which cadre achieved record quarterly revenue gross margin adjusted EBITDA and adjusted EBITDA margin.
Speaker Change: Full year revenue grew 18% and adjusted EBITDA grew 22%, resulting in year over year, adjusted EBITDA margin improvement of 70 basis points.
Speaker Change: The effect in the business of our operating model and resilience of our businesses were again evident in the strong financials.
Speaker Change: Since our IPO cadre has had great success executing against our strategic plan and.
Speaker Change: In delivering on our commitment to building value for customers and shareholders alike.
Speaker Change: Mergers and acquisitions has been a key tenet of the strategy and I am, particularly happy about the recent progress we have made on our M&A program to begin the year.
Speaker Change: In January we announced an agreement to acquire the engineering Division from cars group, which includes multiple best in class brands at the forefront of nuclear safety.
Speaker Change: Consistent with our track record of building value. We view this acquisition as a critical next step in scaling the nuclear safety vertical we established in early 2024.
Speaker Change: We continue to believe in the consistent growth profile of the nuclear sector underpinned by complex and evolving industry needs and macro tailwind that has only grown stronger.
Speaker Change: Importantly, the acquisition expands our international footprint and grows our addressable market with entry into new nuclear areas like automation robotics and nuclear medicine.
Speaker Change: The brands, we have agreed to acquire a complimentary to our existing nuclear business and support mission critical initiatives with blue chip customers in more than 20 countries.
We believe this acquisition will enable additional M&A in the nuclear sector, and we maintain a robust pipeline of targets.
Speaker Change: Overall, we see opportunities across our current verticals, including law enforcement military markets.
Speaker Change: <unk> committed to evaluating transactions in line with our highly selective key criteria.
Speaker Change: As always we will be patient and disciplined.
Speaker Change: In the context of our M&A program I would also like to highlight carjack significant financial flexibility supported by a strong balance sheet.
Speaker Change: In the fourth quarter, we closed on new financing that provides the company upsized $590 million credit facilities with favorable terms and extended maturities enhancing our ability to capitalize on meaningful organic and inorganic growth opportunities ahead.
Speaker Change: Additionally, with our continued strong free cash flow generation, we have capacity to make growing dividend payments, while also supporting our M&A objectives.
In January we increased our quarterly dividend, reflecting our confidence in our business fundamentals and our continued commitment to delivering value for shareholders.
Speaker Change: While our businesses have historically been very resilient across economic political geopolitical and other cycles, Brad in Blaine will discuss later on the call a number of macro factors. We are watching for in 2025, it could affect performance.
Brad Williams: Longer term, we see our overarching thesis holding true that priorities will continue to shift towards public safety spending and ensuring those who protect and service are equipped with the safest and most reliable products.
Brad Williams: Notwithstanding the uncertainty in 2025, we believe cadre is well positioned to continue to grow our platform and further enhance our market leadership over the long term.
Brad Williams: Wanted by our strong balance sheet robust acquisition pipeline and operating model.
Brad Williams: With that.
Brad Williams: For being with US today, and I will turn the call over to Brad Brad over to you.
Brad Williams: Thank you Warren on today's call Blaine I will provide a Q4 update and business overview, including the recent trends financial performance in 2025 guidance followed by a Q&A session.
Brad Williams: We will begin on slide five.
Brad Williams: 2024, Mark another record year, and we're incredibly proud of our success leveraging the <unk> operating model to drive constant operational improvements, we entered the fourth quarter with a significant backlog recognizing there was a major challenge in front of us to achieve our full year guidance.
Brad Williams: Our teams executed extremely well ultimately, helping us deliver our best quarter as a public company in Q4.
Brad Williams: I'll speak on some of the factors driving uncertainty in the market in 2025, but overall <unk> continues to benefit from the innovative product offering premium brands and leading market positions that enable us to capitalize on strong and recurring demand for our mission critical safety equipment.
Brad Williams: Our mix in the fourth quarter was positive driven by higher due to year volume.
Brad Williams: Orders backlog ended the quarter flat versus the prior year, primarily due to an increase of $27 million from recent acquisitions offset by EOD and armor projects that shipped in 2024.
Brad Williams: Importantly.
Brad Williams: We've also delivered on strategic objectives related to M&A in the year year to date as Warren mentioned the acquisition of the Engineering Division from cars group accomplishes multiple key objectives cadre. These.
Brad Williams: These include added scale to our nuclear vertical a larger international footprint and expanded nuclear tan with entry into exciting new areas like automation robotics and nuclear medicine.
Brad Williams: Wayne will discuss additional highlights in a moment as well as outline other M&A priorities moving forward.
Speaker Change: It is important to underline with our low Capex model, we continued to generate strong free cash flow, enabling the company to support core organic growth and M&A objectives, while also increasing dividend payments, we paid 13 consecutive quarterly dividends since going public and as Warren said recently raised our dividend to <unk> 30.
Brad Williams: <unk> per share on an annualized basis, a 9% increase.
Brad Williams: On slide six we illustrate long term tailwind supporting <unk> growth opportunity across both public safety and nuclear safety sectors, our largest market segment as law enforcement and police protection expenditures have continued to trend upward through the cycles.
Brad Williams: This has led to cadre is consistent and stable growth, regardless of economic political or geopolitical conditions.
Brad Williams: On the nuclear safety side, we believe the long term tailwind is driving growth in that market are best understood by highlighting three key nuclear missions related to environmental safety National security and commercial nuclear energy.
Brad Williams: We continue to seek tailwind in these areas.
Brad Williams: Of note <unk>.
Brad Williams: <unk> modernization and National missile defense are on our defense Secretaries list of critical priorities. We are also seeing the new administration prioritizing domestic energy sources, including nuclear.
Brad Williams: As we have discussed previously our nuclear brands have protected market positions and highly visible revenue that continues to be sort of supported by long term contracts and recurring purchase orders.
Brad Williams: Turning to slide seven I'll take a moment to zoom in on the latest market trends and their impacts on our core law enforcement business.
Brad Williams: While spend per officer remained stable in North America. The important point to highlight is a bipartisan commitment to public safety.
Brad Williams: As the world becomes less safe the importance of cadre Lifesaving mission comes even more clearly into focus we've seen repeatedly then when it comes to funding priorities customers leaned towards the most reliable safety and probability equipment to protect first responders.
Brad Williams: We are proud of the trust that our customers and our end users play some cadre to ensure those who protect and serve us are equipped with the safest and most reliable products.
Brad Williams: Regarding the geopolitical landscape theres, even more unpredictability and uncertainty while we focus on planning contingencies in a rapidly changing environment. Our baseline belief remains the same that is ongoing global conflicts eventually reached the cleanup stage cadre could play a larger role likely through our various vod offerings.
Brad Williams: Consistent with our commitment to constant innovation, we introduced two new products at the shot show in January that we were excited about one is a new safari land armour FX HP level III, a ballistic panels, we have engineered the thinnest and lightest and most protective hybrid ballistic armor on the market with a 20% reduction.
Brad Williams: Wait and a 20% increase in ballistic performance. This product is available in male and female unstructured styles within additional female structured option for precise tailored protection.
Brad Williams: On the <unk> side, we've introduced balanced our most advanced duty rated holster for law enforcement professionals with enhanced functionality shaped by decades of feedback and design improvements. We see this holster offerings superior safety adaptability and usability for modern law enforcement and tactical application.
Brad Williams: <unk>.
Brad Williams: <unk> unique design conceals a current opportunities as far inland duty radial rated holster lie.
Speaker Change: Been very pleased with the initial positive feedback ricard and will continue to work to get these products in the hands of the customers.
Speaker Change: Before I turn it over to Blaine I would like to provide an update on the operating environment as we navigate a number of macro uncertainties in 2025 as.
Speaker Change: As the U S government focuses on downsizing and international relations shift there or potential delays in transactional processes within certain federal agencies, which could change the rhythm of how these organizations have traditionally operated.
Speaker Change: We're tracking these developments very closely that is there's still quite a bit of uncertainty that we are assessing the current climate as such have establish wider guidance ranges for 2025.
Speaker Change: I'll now turn it over the call over to CFO blame growers.
Speaker Change: Thanks, Brad I'll turn to guidance shortly but we'll kick off my comments with a review of our M&A strategy.
Speaker Change: As Warren and Brad mentioned, we've begun 2025 with positive momentum in regard to M&A, having announced an agreement to acquire the engineering Division from cars group in January.
Speaker Change: To recap the transaction highlights on slide nine.
Speaker Change: When we established our position in the nuclear market last year acquiring Alpha safety, we saw a path forward for significant built in growth as well as attractive opportunities for additional M&A in the space.
Speaker Change: Consistent with this approach we've identified the engineering Division is our top nuclear target and are very pleased to have reached an agreement to add these industry, leading brands to our portfolio.
They include village Miller cars MSN.
Speaker Change: <unk> engineering and W. Total engineered solutions and new vision engineering, all of which are highly complementary to cadre is existing nuclear safety business.
Speaker Change: In combination with our current expertise in the material handling manufacturing and radiation protection, we believe the new divisions cutting edge technologies, particularly in remote handling and robotics uniquely positions cadre to deliver unparalleled capabilities to our global customer base.
Speaker Change: The Engineering Division brings geographic scale by having 80% of revenue outside the U S.
Speaker Change: Products make up over 90, 95% of the revenue split with the remaining 5% being services.
Speaker Change: These businesses generated revenues of approximately 51 million British pounds for the fiscal year ended August 31, 2024 with margins that are within the range of what we look for in a target acquisition.
Speaker Change: Moving forward, we expect to leverage our operating model to achieve exceptional results as we begin integration following the expected close during the second quarter. After we received final regulatory approval.
Speaker Change: This transaction represents an important next step in scaling our nuclear products category, and we anticipate additional opportunities to augment growth through select acquisitions.
Speaker Change: Our overall funnel is robust spanning both nuclear and core law enforcement targets as always we intend to remain patient and disciplined and are committed to evaluating M&A consistent with our key criteria are focused on companies with strong margins, leading and defensible market positions as well as recurring revenues and cash flows.
Speaker Change: Turning now to a summary of cadre is financial performance slides 11, and 12 detail, our Q4 and full year results.
Speaker Change: As you can see on slide 11, we delivered our full year guidance of double digit top and bottom line growth in 2024, driven by high level of execution in Q4, which represents cadre its best quarter of financial results as a public company fourth quarter.
Speaker Change: Net sales of 176 million net income of $13 million and adjusted EBITDA of $38 5 million were all time records in significant increases year over year.
Speaker Change: At the same time fourth quarter gross margin and adjusted EBITA margin improved by 530, and 400 basis points versus last year's Q4.
Speaker Change: Illustrate on slide 12, as net sales and adjusted EBITDA growth year over year, including our new 2025 guidance, which I'll discuss in more detail in a moment at its midpoint. This outlook implies full year revenue and adjusted EBITDA growth next year of 3% and 5% respectively.
Speaker Change: On slide 13, we present, our capital structure as of December 31, 2024 prior to the agreement to acquire the Engineering Division.
Speaker Change: While we've taken our time with M&A over the last 12 months cadre continue to accumulate cash on the balance sheet, giving us flexibility to pursue the acquisition and maintain what we believe to be a responsible pro forma net leverage of around one 7% to five times when the deal closes.
Speaker Change: This includes cars adjusted EBITDA contributions based on our last 12 months.
Speaker Change: We believe the strength of our balance sheet will give us the ability to continue to be acquisitive during 2025 and beyond.
Speaker Change: We provide new 2025 guidance on slide 14, we expect net sales to be between $572 million and 601 million, our adjusted EBITDA guidance range of between $105 million and $115 million implies adjusted EBITDA margins of 18, 8%.
Speaker Change: These widened net sales and adjusted EBITDA ranges reflect the uncertain environment that Brian alluded to earlier.
Speaker Change: The guidance indicates a 2% organic growth on revenue at the midpoint and 5% on the high end of the range with organic adjusted EBITDA at 5% in the midpoint and 10% on the high end.
Speaker Change: I note that our guidance does not include any impact from the recently announced or implemented U S. Tariffs nor does it include the cars acquisition. The currently announced tariffs on an annualized basis would have an impact in the range of $18 million to $22 million not building any offsetting mitigation.
Speaker Change: Due to the timing lag between tariffs, becoming effective in the turnaround time for actions. We estimate that are offsets to tariffs will lag about three months.
Speaker Change: But as we've all seen tariff policy continues to evolve in real time, which makes it difficult to forecast and comment on specific impacts in countermeasures, we are considering.
Speaker Change: Overall, we believe cadre is well positioned to navigate the near term challenges based on our track record of effectively addressing supply chain disruptions in the past and consistent high level of execution in line with our strategic objectives.
Speaker Change: We are prepared with a long list of actions and will continue to proactively strategize in terms of which are most viable as the environment changes to mitigate tariffs.
Speaker Change: As we've discussed before certain products in our portfolios have projects that can move our revenue timing around in any given year.
Speaker Change: In 2025, we expect revenue and adjusted EBITDA to be stronger in the second half of the year driven by EOD duty here at armor project timing, which is in line with our expectations prior to the new administration.
The expected profile of the year looks very much like what we experienced in 2023.
Speaker Change: We do expect Q1 to be about 20% of revenue for the year due to project timing with adjusted EBITDA margins in the range of 12% to 14% driven by volume leverage.
Speaker Change: Unfavorable mix with adjusted EBITDA margins, returning to the high teens for the remainder of the year.
Speaker Change: Now I'll turn it back to Brad for concluding comments.
Speaker Change: Thank you Blayne in closing while there is significant uncertainty in the market. We continue to follow our road map for profitable growth capitalizing on the strong market demand for cadre is best in class mission critical safety equipment.
Speaker Change: Ability to deliver innovative solutions to our customer customers remains a key driver of our success and we believe we remain well positioned to sustain this momentum.
Speaker Change: Beyond our core organic growth initiatives, we are actively evaluating compelling M&A opportunities that align with our selective key criteria is playing outlined we're.
Speaker Change: We're excited to continue to deliver on our strategic objectives and enhance our market leadership over the long term with that operator, please open up the lines for Q&A.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Speaker Change: Your first question comes from the line of Larry Solow with CJS Securities.
Speaker Change: Please go ahead.
Larry Solow: Great. Good morning, Congrats on a good quarter.
Larry Solow: And that might get lost in the shuffle, a little bit, but good operating leverage there so I guess.
Larry Solow: Just on the guidance I know you mentioned, it's a wider than normal.
Larry Solow: At the hub at the high end of the range still seems a little bit less than we would have thought with some of the.
Larry Solow: Roll over from the cyber security breach benefiting this year.
Speaker Change: Are you still even at the high end assuming that there is some impact.
Speaker Change: From <unk>.
Larry Solow: <unk> and the government spending.
Speaker Change: Yes.
Larry Solow: Hi, and Larry that puts us up at that 5% organic which is kind of right, where we communicated we did have some rollover from 2024, but not a significant amount. The teams did a really fantastic job of executing on Q4, and where we're able to shift quite a bit.
Larry Solow: In that quarter, and really deliver to our customers. So it's not as significant as we initially thought back in.
Larry Solow: October November.
Larry Solow: Right.
Larry Solow: The impact is it obviously about 20% just from a high level of your revenue goes directly into from federal government.
Larry Solow: Greater than 50 is from state is there is this.
Larry Solow: Concern more at the federal level and it sounds like it's more just the rhythm of orders and the transaction processes. You don't feel like there's any mid term or longer term reduction in demand or or or.
Larry Solow: Excess pricing that may get impacted or anything around those areas.
Speaker Change: No Larry that so we can we think of it. This way. So there is the underlying business setting aside any anything that's going on today with those in downsizing in the U S government et cetera. So we've set that aside for a second.
Speaker Change: No change in the underlying sentiment around law enforcement.
Speaker Change: Our military protected products and what we've seen over the long term.
Speaker Change: Same on nuclear at the waste management Symposium show. This week is just one of the biggest the nuclear chosen.
Speaker Change: Being on the ground here continuing to listen to customers here in folks that are in the industry same thing on the nuclear side.
Speaker Change: In fact, the world nuclear nuclear news put out in a recent article that talks about the tech Giants that really pledging support of our goal of at least tripling global nuclear capacity by 2050, and that's companies like Amazon Google matter. So we look at it we look at multiple.
Speaker Change: Demand drivers there and we think things are definitely solid so now let's move over to what's going on with the government side, you mentioned about 20% of the business breaks down that way that would be the area that we think it's more of a termed it a rhythm offset so as folks are either being shifted around are losing their jobs, etc.
Speaker Change: That could affect transaction things that typically we would see being processed a lot faster we actually saw this during COVID-19.
Speaker Change: During and after Covid work.
Speaker Change: So if the government quite a while to get their legs under them around.
Speaker Change: Doing sign offs, who's cutting deals and things like that so we look at it as more of a rhythm.
Speaker Change: Offset than anything at the moment.
Speaker Change: Okay, and then just the tariff I appreciate that the line in the sand that giving us a little bit of a number of potential impact and clearly it's a big moving target and I guess countermeasures can't really you can't start doing those until you know that tower will tariffs will actually be but curious you said it would lag three months from when you start putting.
Speaker Change: Measures and if you had to but that sounds like if you had to and if you had more clarity on what tariffs we're going to be you could actually move relatively fast and loose stone some of that to knock off some of that potential impact is that kind of fair to say.
Speaker Change: Yeah, absolutely fair to say.
Speaker Change: Think for those that know us and closer elsewhere.
Speaker Change: We're a group of folks that execute right.
Speaker Change: We executed extremely well and we've shown that we've got a track record of it so even though there is theres not significant clarity.
Speaker Change: There is some timing clarity in front of US there has not been.
Speaker Change: Great depth of definition around quote unquote, the word tariffs, there's a lot of details behind the things that go along with that as Thats been figured out that doesn't mean, we've frozen and we're just sitting around waiting for that to happen. So we've done our work and we started that work at the beginning of the year. So.
Speaker Change: We'll be doing everything that.
Speaker Change: Anything that everybody else or most companies.
Speaker Change: In the world are going to be looking at and in doing so we've got everything from.
Speaker Change: Call it realistic price type type opportunities that will take we've already taken a look at all the way through like we did in Covid, where we've got 20 facilities around the world. So it gives us an opportunity to potentially shift product lines around and some fill facilities as needed and then we have some outstanding partners that we've been.
Speaker Change: Working with also.
Speaker Change: Let's see what happened through Covid at times, and it gives us that ability to be as flexible as possible and so we're working on everything from a to Z.
Speaker Change: Even things like accelerating productivity. So that we can make sure that we offset any kind of tariffs that we do end up experiencing.
Speaker Change: Got it great I appreciate all that color. Thanks.
Speaker Change: The next question comes from the line of depth than syndrome with <unk> Securities.
Speaker Change: Please go ahead.
Speaker Change: Hi, good morning, everyone.
Speaker Change: Just wanted to ask you a little bit more about what's baked in your guidance for the year realize there's some uncertainty there but.
Speaker Change: Just considering the recent acquisitions what level of SG&A should we be considering for 25 and then also did you say that cars was not included in your guidance at all so I'm just wondering.
Speaker Change: How much we might on a layer and for cars for second half.
Speaker Change: Yes, so cars Thats correct, Jeff cars is not in our guidance at this point.
Speaker Change: If things go as expected and we close in Q2, we will provide updated guidance at that time.
Speaker Change: On the SG&A level.
Speaker Change: Really looking at Q4, and if you Peel apart the transaction expenses related to cars, that's really I would say the baseline and then from there.
Speaker Change: Coming off Q3 last year, we're adding an incremental.
Speaker Change: About $3 million.
Speaker Change: And increased spend around it.
Speaker Change: So that's really kind of the core of that that SG&A roll forward.
Speaker Change: Yes, because that Q4 will have the full quarter from from Alpha.
Speaker Change: Whereas obviously Q1 of 2024 does not.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: And then since we're on the topic of cars, just maybe any more color you can give us on how youre thinking about the complementary elements of that business cross selling opportunities that sort of thing.
Speaker Change: Yes, absolutely, Jeff So as I mentioned I'm here I'm here at one of the nuclear shows in Phoenix. This week and it's been greatly in on the ground here.
Speaker Change: When I'm talking to various companies here and I mentioned that they haven't heard about the acquisition, which most of them have and I mentioned the phenomenal brands that we're acquiring.
Speaker Change: They just light up because it continues to bring an opportunity for them to partnership with a company like ours being the parent company backed by great financials in just that I would call it that that professionalism and operating model that we bring to the businesses as you know so.
Speaker Change: Definitely some excitement there when you look at between Walsh Miller.
Speaker Change: <unk> total.
Speaker Change: Alpha safety, New vision all of those brands working together.
Speaker Change: Pretty it's pretty awesome seen how that can continue to come together with relationships that for example.
Speaker Change: The UK facilities and companies have with.
Speaker Change: And customer like Sellafield, and where our U S entities don't always have that stronger relationship. There. So it gives us the ability to continue to work with them with engineered type products and solutions to make sure that we can continue to expand the installed base.
Speaker Change: Okay, great to hear thanks for taking my questions I'll take the rest offline.
Jeff: Thanks, Jeff.
Speaker Change: Your next question comes from the line of.
Jeff: Sure.
Jeff: Hey, al <unk> with Jefferies.
Jeff: Please go ahead.
Speaker Change: Thank you good morning, and thank you guys. So maybe the first question I wanted to ask was on pricing you called out that 2024 exceeded targets any way you could quantify and how are you.
Jeff: Youre thinking about the market segmentation and maybe.
Jeff: Backdrop into 'twenty 'twenty five pricing.
Sheila: Yes Sheila.
Speaker Change: It varies by particular product your eye as Brad mentioned in the past.
Speaker Change: Very targeted approach when it comes to pricing so the the range across the products is really going to be on the low end a little over a percent.
Speaker Change: On the high end you have some businesses that were pricing more more like two and a half.
Speaker Change: Blended overall.
Yes.
Speaker Change: Probably close to between one five and 2% across the portfolio.
Speaker Change: When we look forward to 2025 youre pricing excluding tariffs. So this is just what I would consider organic pricing.
Speaker Change: As usual would be yes.
Speaker Change: Yes, generally the same range, probably closer to a point and a half is we're not seeing a tremendous amount of input inflation.
Speaker Change: And thats on a net basis the pricing comments.
Speaker Change: Oh growth net gross net net to our top line. When you say net are you referring to material inflation net or just yes.
Speaker Change: Yes.
Speaker Change: Olin partition.
Speaker Change: Those were gross sorry, okay.
Speaker Change: And then maybe if we could just talk about European defense in the news again today and how do you think about just for Panther cadre in Europe.
Speaker Change: And where do you think your best progression to grout.
Speaker Change: Yeah are you talking about law enforcement military Youre talking about nuclear side, yes lot of La and Boston I apologize.
Speaker Change: Yeah, no that's okay. That's okay.
Speaker Change: I wanted to make sure I clarify because it can be different on the nuclear side.
Speaker Change: Due to the cars acquisition.
Speaker Change: Talked about when Jeff asked the question on the military and law enforcement side keep in mind.
Speaker Change: The one product category for us that applies.
Speaker Change: Potentially.
Speaker Change: Within any cleanup activity that goes on in the Ukraine at some point and then also within within.
Speaker Change: Israel is really our iOS product line. So that's really the area for us.
Speaker Change: A lot of times people think its body armor for us our focus with body armor is in more of law enforcement side of things and some national police forces internationally, but usually not on your broad military side of things, where youll see some of that that higher.
Speaker Change: Huge ramp ups in volumes and typically margins are much lower that's why we took we haven't played in those categories. So for us it's really EOD when you see any kind of.
Speaker Change: Headliners like that now on the nuclear side, it's different our Tam just continues to increase as we acquire into these other areas. So that's an area that we definitely.
Speaker Change: Continue to see expansion with product lines.
Speaker Change: Okay.
Speaker Change: Great. Thank you so much.
Speaker Change: Thanks Sheila.
Speaker Change: Your next question comes from the line of Matt Koranda with Roth capital. Please.
Speaker Change: Please go ahead.
Matt Koranda: Hey, guys good morning, maybe.
Matt Koranda: Maybe just wanted to talk about the 225 full year guidance and then maybe the first quarter or is it kind of fits into the full year. So I guess at the midpoint about 3% growth factor than maybe just wondering if you could comment on the relative growth rates youre seeing between between sort of the four army our armor due to gear EOD franchise.
Matt Koranda: <unk> versus the nuclear business for the full year and then for the first quarter I guess, just doing some quick math it looks like a decent down quarter on a sales growth basis year over year and just wanted to see if you could maybe unpack some near term trends that are sort of driving the <unk>.
Matt Koranda: Guidance.
Sure Yeah. So the.
Matt Koranda: The core businesses for armor and duty here, we're seeing the typical growth we would expect which is yes.
Matt Koranda: So really kind of on average about 3% for the year on the on the U S side.
Matt Koranda: On the the car sorry on the cars on the alpha side of the World.
Matt Koranda: We closed March of last year of 2024, so we're really picking up two months.
Matt Koranda: The growth rate is a bit higher on a percentage basis than you would expect.
Matt Koranda: The go forward.
Matt Koranda: Kind of just into the double digits with those added two months in the organic growth.
Matt Koranda: So that kind of lays out I think the overlay there and again.
Matt Koranda: <unk> that wide kind of guide.
Guidance range as well continue to dial that in as we go forward, but as Brad has talked quite a bit about just the uncertainty of not necessarily losing business, but really more on the delay on the procurement side with with any cuts that may or may not occur.
Matt Koranda: Moving to Q1 of this year.
Matt Koranda: Really a couple of drivers and you got to go back in time to Q1 2024, when we announced earnings we had a really actually at the time. It was a record quarter for our U S armor business driven by a federal agency contract. So there is absolutely a comp issue there and that was an atypical.
Matt Koranda: Q1 for that business generally for armor, and particularly U S. AMR Q1 is really the lowest revenue quarter of them just driven by the procurement cycle.
Matt Koranda: That's kind of 0.1 driving that that downdraft in Q1. The second component is really just <unk> EOD timing right and that is one that is <unk>.
Matt Koranda: Not so much seasonal but really driven by the project lay up.
Matt Koranda: I'd say Q1, 2024 was a pretty average quarter for that business, whereas Q1 of this year is quite a bit lighter in there.
Matt Koranda: More significantly backend loaded which.
Matt Koranda: That backend load for the <unk> business is pretty typical.
Matt Koranda: Out of the gates, where they are at for Q1.
Matt Koranda: Just a little bit lighter than we saw last year and would expect to see.
Speaker Change: Okay I appreciate the detail there Brian.
Speaker Change: And maybe just on the tariff impact you guys mentioned so thanks for the quantification in the 18 to 22 is helpful.
Speaker Change: Maybe wanted to see if you could talk about where most of that comes from I assume thats kind of Mexico and Canada.
Speaker Change: Any China exposure, just any way to break that apart I guess as we kind of look at the headlines and try to figure out what's happening over the next step.
Speaker Change: Several weeks and months would be helpful. And then just in terms of the mitigation actions that you mentioned they sound encouraging.
Speaker Change: Wondered if youre willing to put some numbers around sort of what you could go out and offset.
Speaker Change: Of that 18 to 22, what's realistic in terms of sort of the offset so we can go get.
Speaker Change: Yes, let's start with the easier one which is the the China component.
Speaker Change: Pretty small part of our supply chain. So it's not a significant impact, it's really driven by Mexico and Canada.
Speaker Change: And the split between them.
Speaker Change: <unk>.
Speaker Change: It's all about 60%, Mexico, driven versus 40%, Canada driven.
Speaker Change: Yeah, and Brian can talk about some of the mitigating actions, but they're really kind of two completely different sets of actions or sorry. Some commonality, but then there is some distinct actions for each geographic location.
Matt Koranda: Yes, Matt so I touched on those a little bit a few minutes ago. So.
Matt Koranda: The challenge I think everybody has out there is just knowing what these curve balls are going to end up looking like right as they continue to evolve.
Matt Koranda: We see on a daily basis. There is there is something new that comes up in changes up or down you name. It. So it's definitely.
Matt Koranda: Tough environment to kind of predict and so what we're doing is we're just moving forward with what we know on a daily basis and then if you.
Matt Koranda: Things change I'll call. It in a positive direction for any company from a terrorist or cost per cost perspective, then.
Matt Koranda: We can begin to turn things back in a different direction. So as I mentioned before it ranges everything from price, but overall for price and we've said this before I mean, we're.
Matt Koranda: High quality.
Matt Koranda: Physician premium products out there that had been used to save lives for 60 years. So we are that known product in the entity, but it doesn't mean that we can just have unlimited price some opportunity. So that's why I kind of call it realistic price.
Matt Koranda: Potential changes there to offset some of that from a tariffs perspective, but then there's other actions that the teams are working on globally, how do we accelerate productivity.
Matt Koranda: We've been mitigating some facilities since COVID-19 with some additional moves of diversifying factories, let's call. It moving some products into other factories. So that we don't have some things concentrated in single areas. So that's another one.
Matt Koranda: Just a.
Matt Koranda: A whole list of actions that we're not just going through but I would expect that most any company out there are really out there looking at it looking at how they tackle it.
Matt Koranda: Okay Super helpful guys I'll leave it there thank you.
Matt Koranda: Thanks, Matt.
Mark Smith: Your next question comes from the line of Mark Smith with Lake Street Capital markets. Please go ahead.
Mark Smith: Hi, guys first question for me just thinking about Q1 here a little bit more.
Mark Smith: Is there really any of the lumpiness and delay in kind of sales and deliveries from cyber security incident that slowing into Q1 or did you really get most.
Mark Smith: Most part of all of that done in Q4.
Mark Smith: For the most part it was all really done in Q4, there's a very minimal amount that slipped out into Q.
Mark Smith: Q1.
Okay.
And then just as we think about kind of EBITDA margins.
Mark Smith: One I think blayne, the GK kind of 12% to 15% expectation is that really that was a slower March it's just a function of Canada deliveries and the new mix as you just talked about within kind of duty gear and <unk>.
Mark Smith: These shifts that this person that EBITDA margin down and just kind of the sales volume of people in Q1.
Mark Smith: Yes, it's really driven by the volume leverage of the sales volume leverage on SG&A, we expect our gross margins to be.
Mark Smith: Really in line with what we've seen historically so this is just a volume game and again.
Mark Smith: Yes that that.
Mark Smith: And movement on the EOD side, right, which is a <unk>.
Profitable business for us that drives quite a bit of flow through really just compounds that low volume Q1 as well.
Mark Smith: Okay.
Mark Smith: And then last question, just thinking domestically and law enforcement on kind of hiring trends.
Mark Smith: I assume that were not seen any real uptick yet, but I'm curious if there's anything that's changed there and then secondly in a tougher economic environment or maybe with higher unemployment do you see some of those law enforcement roles that are filled easier in.
Mark Smith: And that kind of an environment.
Mark Smith: Yes, so the first hey market spread so the first part of that is <unk>.
Mark Smith: To be stable, we're not hearing stories as we interact whether it's with our safari landfills team or a company on sales team. So we have a lot of ears to the ground and feet on the street.
Mark Smith: Not seeing any unstable changes.
Mark Smith: Within the current head count which is good.
Mark Smith: <unk> to be stable.
Mark Smith: Building above that is the question we've talked about that right. We view it as a long term kind of tailwind.
Mark Smith: Folks are added.
Mark Smith: Higher unemployment could that'd be a place to go absolutely could be a place to go for folks.
Mark Smith: But there are also some pretty.
Mark Smith: High hurdles.
Mark Smith: With recruit classes.
Mark Smith: The amount of success rate for folks who come in to a recruit class and actually graduating so.
Mark Smith: Obviously that could be a filter to that.
Mark Smith: Population of folks that would potentially sign up for for that profession.
Mark Smith: Perfect. Thank you.
Martin: Thanks Martin.
Martin: Your next question comes from the line.
Martin: Kind of the al <unk> with Jefferies.
Speaker Change: Please go ahead.
Speaker Change: Thank you guys. So I apologize one last question on my end.
Speaker Change: And I missed the first five minutes of the call, but I don't think we discussed it does spending.
Speaker Change: How do we think about that impact of whats your exposure to FBI Department of Homeland Security have you seen any changes there whether its head count or.
Speaker Change: Purchasing behavior.
Speaker Change: No maybe starting with the on the nuclear side on the Dod side, Yes, there were.
Speaker Change: Some employees impacted by that initial.
Speaker Change: Initial kind of probationary employees and from the information, we have particularly with the NSA those employees were brought back so far.
Speaker Change: As close as we can to it as it relates to the nuclear and have not seen a meaningful impact and I think.
Speaker Change: Talking with Brad and the team out at the show. This week is there's still a lot of optimism long term in the.
Defense Secretary as well as made it a priority around nuclear weapons. So we kind of look at that and say hey that feels fairly compartmentalized.
Speaker Change: Somewhat say, if we don't feel there's a lot of exposure.
Speaker Change: On the federal law enforcement side.
Speaker Change: We absolutely have exposure both end holster posters as well as his armor, we have not seen significant impact there and it's one where again, we're trying to stay on top of that as well, but we do think there is with the bipartisan commitment around law enforcement and security.
Speaker Change: It doesn't seem incredibly likely they will be severely impacted now when.
Speaker Change: When we say that we're really kind of thinking long term.
Speaker Change: Could not fully be temporary disruptions in the.
Speaker Change: Procurement process, if theres employments program officers et cetera that are impacted but for the most part we don't see it right now, but it's something we're staying very close to and we will continue to evaluate.
Speaker Change: Whats your exposure to Spanish language.
Speaker Change: Sure Sheila the only thing I'd add real quick to that is if we do see any shifts of.
Speaker Change: Folks moving.
Speaker Change: We've heard a couple of stories of shifts going from one agency to another alright. So don't think of population of head count within these professions within government agencies.
Speaker Change: Exiting typically so like border patrol and increase in border patrol for example, so anywhere there is that.
Speaker Change: Just kind of have to.
Speaker Change: As we see any headliners you'll have to kind of get out like we do in spend that time and kind of dig in to make sure that we really know what it means and so far we haven't seen anything that concerns us on the demand side.
Speaker Change: Do you have percentage exposure to it.
Speaker Change: Those agents or three agencies.
Speaker Change: I can take it offline.
Speaker Change: Thank you guys.
Speaker Change: Yes, I mean, we do have some sheila.
Speaker Change: We don't disclose that level of exposure or what level of exposure, but.
Speaker Change: I think as Youre kind of piecing together the product lines.
Generally that duty rated holster is going to be ours.
Speaker Change: Whereas the.
Speaker Change: <unk> side, so a little little more hit and Miss depending on the agency and the application.
Speaker Change: Perfect. Thank you.
Thank you.
Speaker Change: I will now turn the call back over to Brad Williams for closing remarks. Please go ahead.
Speaker Change: Thank you everyone for your time today attending.
Speaker Change: Our country Holdings earnings release.
Speaker Change: And that'll conclude the call for today.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining and you may now disconnect.
Speaker Change: [music].