Cadre Holdings, Inc. Q1 FY2025 earnings call

• Acquired the engineering division from Cars, which adds scale to the nuclear vertical, expands international footprint, and enters new areas like automation, robotics, and nuclear medicine. - Maintains a robust M&A pipeline across verticals including nuclear, law enforcement, first responders, and military. - Generated strong free cash flow, enabling support for organic growth and M&A, and increased dividends for 14 consecutive quarters. - Industry tailwinds in law enforcement (continued positive spending on personal protection equipment) and nuclear market (environmental safety, national security, commercial nuclear energy with small modular reactor projects). - Begun initial phases of integration for the acquired engineering division, focusing on finance, accounting, IT, legal, and compliance.

In the first quarter, net sales were $130.1 million and adjusted EBITDA was $20.5 million, both above expectations. The product mix was less favorable than expected due to Alpha Safety and EOD volume. Orders backlog increased $22.4 million during the quarter, primarily driven by EOD and silo demand.

• 2025 net sales expected between $618 million and $648 million, adjusted EBITDA between $112 million and $122 million. - Q2 expected to be up sequentially about 17% with adjusted EBITDA margins around 17%. - Second half expected to be stronger than the first half, driven by armor and EOD project timing. - Tariffs impact mitigated as of now, but tariff policy remains uncertain and evolving, with focus on mitigating actions.

• Uncertainty in tariff policy and its potential impact. - Evolving business environment with potential delays in federal agency transactional processes. - Continued unpredictability and uncertainty in the operating environment affecting business operations.

Q: How do you think about the pricing commentary given it seems to exceed the target in Q1 and how does that contribute to the rest of the year?

A: From the tariff perspective and pricing, normal pricing was done in January, with countermeasures for Q2. For Q1, there wasn't a significant impact. Expect to fully offset tariffs as of today, but environment is evolving.

Q: How do you think about the revenue synergy opportunity on the distribution side with the engineering acquisition?

A: The acquisition gives geographic expansion, with existing brands having relationships with customers like Sellafield in the UK and Fukushima in Japan, and manufacturing footprint in multiple countries to manufacture locally for product categories.

Q: Any lumpiness or timing of shipments you have visibility on now?

A: Q2 expected to be up from Q1, Q4 shaping up to be the biggest quarter, with EOD and armor projects looking heavier in Q4.

Q: Any visibility on potential procurement delays or disruption from changes in broader government agencies?

A: No major changes seen yet, no effects on business from sanctuary cities or federal position changes so far, with ears to the ground and sales teams monitoring.

Q: Color on nuclear market demand and M&A focus?

A: Nuclear market has positive demand with new administration appointments and support for nuclear power. M&A funnel is robust in both nuclear and law enforcement, opportunistic and disciplined.

Q: Q1 results better than initial expectations, drivers and margin outlook?

A: Tough comp in Q1 2024 with armor and EOD impacts, teams executed well for upside. Margin improvement due to no repeat inventory step up and strong execution on price and productivity, expecting margins to improve over time through pricing and productivity.

Q: Incremental addition from Cars acquisition and margin levers?

A: Early days, keeping practical guidance, core organic guidance flat. Initial margin impact with step up and intangible amortization, expecting improvement through operating model and leveraging growth to increase EBITDA margin.

Q: Broader question on tariffs and production footprint?

A: Tariffs impact mitigated, production footprint is satisfactory with work done on mitigating costs in Mexico and strategic placement of nuclear facilities internationally.