Cadre Holdings, Inc. Q3 FY2025 earnings call

• Warren Kanders highlighted the acquisition of TYR Tactical, a leading manufacturer of mission-critical protective equipment, as the sixth and largest acquisition since going public, with TYR bringing world-class engineering and global reach.
• Brad Williams discussed the third quarter's strong results, including positive mix driven by EOD and nuclear categories, organic backlog growth, and the Med-Eng's BEMO contract worth $50 million from the U.S. Department of Defense.
• Blaine Browers reviewed the M&A strategy, emphasizing TYR's alignment with Cadre's criteria, and provided financial performance details, including Q3 results and 2025 guidance.
• Progress with the Cadre operating model at Carr's businesses, with positive feedback on tool adoption and progress in Germany and the U.K.

In the third quarter, net sales were $155.9 million, representing a 42% year-over-year increase. Gross margin improved 610 basis points year-over-year and 180 basis points sequentially. Organic backlog increased by $20 million sequentially, with progress made in booking previously delayed opportunities. The acquisition of TYR Tactical is a significant step, with its revenue having 66% from international customers and 27% from U.S. federal and military, complementary to Cadre's existing business.

• 2025 net sales are expected to be between $624 million and $630 million, with adjusted EBITDA guidance between $112 million and $116 million, implying adjusted EBITDA margins of 18.2%.
• Q4 gross margin is expected to land between Q2 and Q3 rates, with positive outlook for the remainder of the year. TYR acquisition will bring inventory step-up and intangibles amortization impacts but is expected to be accretive to adjusted EBITDA.

• Potential impact of government shutdown on deliveries and sign-offs for some business units and product lines.
• Timing variability in nuclear business due to fewer large opportunities, leading to backlog build and bleed as projects execute.
• Uncertainty regarding material costs and inflation, though currently tracked and no significant unexpected changes anticipated.

Q: Congrats on a good quarter. Really nice margin improvement sequentially. Any thoughts on sequential improvement and Carr's progress under the operating model?

A: Blaine Browers said margin improvement is broad-based across major categories, driven by price, productivity, and mix. Brad Williams noted good progress with Carr's businesses, with the operating model lead having visited Germany and U.K. and reported exceptional progress.

Q: Just wanted to touch on or circle back to gross margins, SG&A leverage. Any expectation on gross margin increase next year with TYR acquisition?

A: Blaine Browers said Q4 gross margin expected between Q2 and Q3 rates, with TYR acquisition bringing inventory step-up and intangibles amortization impacting GAAP gross margin but accretive to adjusted EBITDA.

Q: Organic growth in the quarter looks to have been driven by armor and duty gear. Any sense of how much is step-up in demand vs easier cyber comps?

A: Blaine Browers said organic growth in armor and duty gear is strong, with run rate up from last year, and backlog increase shows confidence in booking large orders. Brad Williams added on backlog growth and tracking of large opportunities.

Q: The offset, I guess, in the quarter was order timing in the nuclear business. Any risk in that end market?

A: Blaine Browers said nuclear business has timing variability but still bullish on outlook for next year and beyond with funnel of opportunities.

Q: Maybe just attacking sort of the growth question, what was the nuclear contribution to product revenue in the third quarter?

A: Blaine Browers said Carr's businesses were under $20 million and Alpha was slightly less in the quarter on a run rate basis.

Q: Maybe just attacking sort of the guidance that's implied for the fourth quarter. Any impact from government shutdown?

A: Brad Williams said government shutdown impact contemplated in guidance, with teams watching business units and product lines connected to government openness.

Q: Maybe just attacking sort of the growth question, any thoughts on new product mix and TYR's innovation history?

A: Brad Williams said new products have gained in legacy business, and TYR has a history of innovation in tactical gear, with Cadre expecting to leverage that for growth.

Q: I wanted to ask about input costs and inflation. Any significant input cost increase?

A: Blaine Browers said inputs have tracked consistently, with no unexpected material price changes, and tools in place to counteract inflation impacts.