10-Q 1 cdre-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: March 31, 2024

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________ to _________

Commission File Number: 001-40698

CADRE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

38-3873146

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

13386 International Pkwy

Jacksonville, Florida

    

32218

(Address of principal executive offices)

(Zip code)

(904) 741-5400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

CDRE

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

    

Non-accelerated filer

Accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 3, 2024, there were 40,606,163 shares of common stock, par value $0.0001, outstanding.

INDEX

CADRE HOLDINGS, INC.

PART I

FINANCIAL INFORMATION

Page

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets – March 31, 2024 and December 31, 2023

5

Condensed Consolidated Statements of Operations and Comprehensive Income – Three months ended March 31, 2024 and 2023

6

Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2024 and 2023

7

Condensed Consolidated Statements of Shareholders’ Equity – Three months ended March 31, 2024 and 2023

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

36

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 5.

Other Information

38

Item 6.

Exhibits

38

Signature Page

39

2

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Except where the context otherwise requires or where otherwise indicated, the terms the “Company”, “Cadre”, “we,” “us,” and “our,” refer to the consolidated business of Cadre Holdings, Inc. and its consolidated subsidiaries. All statements in this Report, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s current expectations, assumptions, hopes, beliefs, intentions, and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. In some cases, you can identify forward-looking statements because they contain words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “could,” “plan,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. The Company cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of the Company, incident to its business.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. These forward-looking statements are based on information available as of the date of this Report (or, in the case of forward-looking statements incorporated herein by reference, if any, as of the date of the applicable filed document), and any accompanying supplement, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date, and the Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Report. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. Our forward-looking statements do not reflect the potential impact of any future acquisitions, partnerships, mergers, dispositions, joint ventures, or investments we may make.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:

the availability of capital to satisfy our working capital requirements;
anticipated trends and challenges in our business and the markets in which we operate;
our ability to anticipate market needs or develop new or enhanced products to meet those needs;
our expectations regarding market acceptance of our products;
the success of competing products by others that are or become available in the market in which we sell our products;
the impact of adverse publicity about the Company and/or its brands, including without limitation, through social media or in connection with brand damaging events and/or public perception;
changes in political, economic or regulatory conditions generally and in the markets in which we operate;
the impact of political unrest, natural disasters or other crises, terrorist acts, acts of war and/or military operations;
our ability to maintain or broaden our business relationships and develop new relationships with strategic alliances, suppliers,

customers, distributors or otherwise;

our ability to retain and attract senior management and other key employees;

3

our ability to quickly and effectively respond to new technological developments;
the effect of an outbreak of disease or similar public health threat, such as the COVID-19 pandemic, on the Company’s business;
logistical challenges related to supply chain disruptions and delays;
the impact of inflationary pressures and our ability to mitigate such impacts with pricing and productivity;
the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors;
the ability of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes;
our ability to properly maintain, protect, repair or upgrade our information technology systems or information security systems, or problems with our transitioning to upgraded or replacement systems;
our ability to protect our trade secrets or other proprietary rights and operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company;
our ability to maintain a quarterly dividend;
the expenses associated with being a public company, including but not limited to expenses associated with disclosure and reporting obligations;
any material differences in the actual financial results of the Company’s past and future acquisitions as compared with the Company’s expectations; and
our ability to integrate the operations of the businesses we have acquired, including, without limitation, ICOR Technology Inc. and Alpha Safety Intermediate, LLC, and may acquire in the future; and
other risks and uncertainties set forth in the section entitled “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, which are incorporated herein by reference.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. Other risks and uncertainties are and will be disclosed in our prior and future filings with the Securities and Exchange Commission (“SEC”) and this information should be read in conjunction with the Condensed Consolidated Financial Statements included in this Report.

Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements.

4

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CADRE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

March 31, 2024

    

December 31, 2023

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

87,052

$

87,691

Accounts receivable, net of allowance for doubtful accounts of $1,087 and $635, respectively

68,107

58,360

Inventories

 

95,759

 

80,976

Prepaid expenses

 

12,365

 

11,930

Other current assets

 

6,045

 

6,886

Total current assets

 

269,328

 

245,843

Property and equipment, net of accumulated depreciation and amortization of $49,904 and $50,968, respectively

 

46,709

 

44,647

Operating lease assets

9,987

6,554

Deferred tax assets, net

 

3,969

 

4,004

Intangible assets, net

 

115,011

 

43,472

Goodwill

 

148,912

 

81,667

Other assets

 

5,526

 

4,992

Total assets

$

599,442

$

431,179

Liabilities, Mezzanine Equity and Shareholders' Equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

30,282

$

28,418

Accrued liabilities

 

47,467

 

44,524

Income tax payable

 

2,573

 

9,944

Current portion of long-term debt

 

15,234

 

12,320

Total current liabilities

 

95,556

 

95,206

Long-term debt

 

200,601

 

127,812

Long-term operating lease liabilities

5,822

3,186

Deferred tax liabilities

 

21,554

 

4,843

Other liabilities

 

5,208

 

2,970

Total liabilities

 

328,741

 

234,017

Commitments and contingencies (Note 8)

 

 

  

Mezzanine equity

 

 

  

Preferred stock ($0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2024 and December 31, 2023)

 

 

Shareholders' equity

 

 

  

Common stock ($0.0001 par value, 190,000,000 shares authorized, 40,060,444 and 37,587,436 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively)

 

4

 

4

Additional paid-in capital

 

282,176

 

212,630

Accumulated other comprehensive income

 

988

 

634

Accumulated deficit

 

(12,467)

 

(16,106)

Total shareholders’ equity

 

270,701

 

197,162

Total liabilities, mezzanine equity and shareholders' equity

$

599,442

$

431,179

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

CADRE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except share and per share amounts)

Three Months Ended March 31, 

    

2024

    

2023

Net sales

$

137,860

$

111,748

Cost of goods sold

 

80,232

 

65,130

Gross profit

 

57,628

 

46,618

Operating expenses

 

  

 

  

Selling, general and administrative

 

40,719

 

35,250

Restructuring and transaction costs

 

3,087

 

Related party expense

 

1,843

 

148

Total operating expenses

 

45,649

 

35,398

Operating income

 

11,979

 

11,220

Other expense

 

  

 

  

Interest expense

 

(1,637)

 

(1,641)

Other (expense) income, net

 

(1,444)

 

364

Total other expense, net

 

(3,081)

 

(1,277)

Income before provision for income taxes

 

8,898

 

9,943

Provision for income taxes

 

(1,970)

 

(2,941)

Net income

$

6,928

$

7,002

Net income per share:

 

  

 

  

Basic

$

0.18

$

0.19

Diluted

$

0.18

$

0.19

Weighted average shares outstanding:

 

  

 

  

Basic

 

37,946,576

 

37,373,529

Diluted

 

38,554,185

 

37,629,498

Net income

$

6,928

$

7,002

Other comprehensive income:

 

  

 

  

Unrealized holding gains (losses) on derivative instruments, net of tax(1)

1,660

(426)

Reclassification adjustments for gains included in net income, net of tax(2)

(894)

(647)

Total unrealized gain (loss) on derivative instruments, net of tax

766

(1,073)

Foreign currency translation adjustments, net of tax(3)

 

(412)

 

706

Other comprehensive income (loss)

354

(367)

Comprehensive income, net of tax

$

7,282

$

6,635

(1) Net of income tax expense of $546 and $142 for the three months ended March 31, 2024 and 2023, respectively.

(2) Amounts reclassified to net income relate to gains and losses on derivative and are included in earnings above. Amounts are net of income tax expense of $284 and $215 for the three months ended March 31, 2024 and 2023, respectively.

(3) Net of income tax benefit of $99 and $24 for the three months ended March 31, 2024 and 2023, respectively.

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

CADRE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three Months Ended March 31, 

    

2024

    

2023

Cash Flows From Operating Activities:

 

  

 

  

Net income

$

6,928

$

7,002

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Depreciation and amortization

 

3,942

 

4,261

Amortization of original issue discount and debt issue costs

 

149

 

64

Amortization of inventory step-up

769

Deferred income taxes

 

1,546

 

183

Stock-based compensation

2,067

2,747

Remeasurement of contingent consideration

451

Provision for losses on accounts receivable

 

480

 

40

Foreign exchange loss (gain)

 

934

 

(213)

Other loss (gain)

52

(103)

Changes in operating assets and liabilities, net of impact of acquisitions:

 

 

Accounts receivable

 

2,696

 

9,075

Inventories

 

1,818

 

(5,830)

Prepaid expenses and other assets

 

2,028

 

(556)

Accounts payable and other liabilities

 

(21,723)

 

(3,948)

Net cash provided by operating activities

 

2,137

 

12,722

Cash Flows From Investing Activities:

 

  

 

  

Purchase of property and equipment

 

(1,343)

 

(781)

Proceeds from disposition of property and equipment

201

Business acquisitions, net of cash acquired

 

(141,293)

 

Net cash used in investing activities

 

(142,636)

 

(580)

Cash Flows From Financing Activities:

 

  

 

  

Proceeds from revolving credit facilities

 

5,500

 

Principal payments on revolving credit facilities

 

(5,500)

 

Proceeds from term loans

80,000

Principal payments on term loans

 

(2,500)

 

(2,500)

Principal payments on insurance premium financing

 

(1,083)

 

(1,092)

Payments for debt issuance costs

(844)

Taxes paid in connection with employee stock transactions

(5,311)

(2,725)

Proceeds from secondary offering, net of underwriter discounts

73,535

Deferred offering costs

(722)

Dividends distributed

 

(3,289)

 

(2,986)

Net cash provided by (used in) financing activities

 

139,786

 

(9,303)

Effect of foreign exchange rates on cash and cash equivalents

 

74

 

169

Change in cash and cash equivalents

 

(639)

 

3,008

Cash and cash equivalents, beginning of period

 

87,691

 

45,286

Cash and cash equivalents, end of period

$

87,052

$

48,294

Supplemental Disclosure of Cash Flows Information:

Cash paid for income taxes, net

$

9,369

$

3,141

Cash paid for interest

$

2,498

$

2,359

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Accruals and accounts payable for capital expenditures

$

210

$

238

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

CADRE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands, except per share amounts)

Additional 

Common Stock

Paid-In 

Accumulated Other 

Accumulated 

Shareholders' 

    

Shares

    

Amount

    

Capital

    

Comprehensive Income

    

Deficit

    

Equity

Balance, December 31, 2023

 

37,587,436

 

$

4

 

$

212,630

 

$

634

 

$

(16,106)

 

$

197,162

Net income

 

6,928

6,928

Dividends declared ($0.0875 per share)

(3,289)

(3,289)

Issuance of common stock in secondary offering, net of underwriter discounts and issuance costs

2,200,000

72,813

72,813

Stock-based compensation

2,044

2,044

Common stock issued under employee compensation plans

423,688

Common stock withheld related to net share settlement of stock-based compensation

(150,680)

(5,311)

(5,311)

Foreign currency translation adjustments

 

(412)

(412)

Change in fair value of derivative instruments

766

766

Balance, March 31, 2024

 

40,060,444

$

4

$

282,176

$

988

$

(12,467)

$

270,701

Additional 

Common Stock

Paid-In 

Accumulated Other 

Accumulated 

Shareholders' 

    

Shares

    

Amount

    

Capital

    

Comprehensive Income

    

Deficit

    

Equity

Balance, December 31, 2022

 

37,332,271

$

4

$

206,540

$

2,087

$

(42,741)

$

165,890

Net loss

 

 

 

 

 

7,002

 

7,002

Dividends declared ($0.08 per share)

 

 

 

 

 

(2,986)

 

(2,986)

Stock-based compensation

2,636

2,636

Common stock issued under employee compensation plans

395,837

Common stock withheld related to net share settlement of stock-based compensation

(142,077)

(2,725)

(2,725)

Foreign currency translation adjustments

706

706

Change in fair value of derivative instruments

(1,073)

(1,073)

Balance, March 31, 2023

 

37,586,031

$

4

$

206,451

$

1,720

$

(38,725)

$

169,450

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

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CADRE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except share and per share amounts)

1.    SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Basis of Presentation

Cadre Holdings, Inc., D/B/A The Safariland Group (the “Company”, “Cadre”, “we”, “us”, and “our”), a Delaware corporation, began operations on April 12, 2012. The Company, headquartered in Jacksonville, Florida, is a global leader in manufacturing and distributing safety equipment and other related products for the law enforcement, first responder, military and nuclear markets. The business operates through 21 manufacturing plants within the U.S., Mexico, Canada, the United Kingdom, Italy, France, and Lithuania, and sells its products worldwide through its direct sales force, distribution channel and distribution partners, online stores, and third-party resellers.

Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP" or “U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting, and include the accounts of the Company, its wholly owned subsidiaries, and other entities consolidated as required by GAAP. Accordingly, they do not include all of the information and footnotes required by GAAP for annual audited financial statements. The unaudited condensed consolidated interim financial statements have been prepared on a basis consistent with the audited consolidated financial statements and include all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. These condensed consolidated interim financial statements and notes thereto should be read in conjunction with the Company’s most recently completed annual consolidated financial statements. All adjustments considered necessary for a fair presentation have been included. All intercompany balances and transactions have been eliminated in consolidation.

Secondary Offering

On March 19, 2024, the Company completed a secondary offering in which the Company issued and sold 2,200,000 shares of common stock at a price of $35.00 per share. The Company’s net proceeds from the sale of shares were $72,813 after underwriter discounts and commissions, fees and expenses of $4,187.

On April 1, 2024, the underwriters exercised the full amount of their over-allotment option and purchased an additional 545,719 shares of common stock at a price of $35.00 per share, resulting in net proceeds to the Company of $18,241 after underwriter discounts and commissions, fees and expenses of $859.

Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation, and an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements.

In addition, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this provision of the JOBS Act. As a result, we will not be subject to new or revised accounting standards at the same time as other public companies that are not emerging growth companies. Therefore, our condensed consolidated financial statements may not be comparable to those of companies that comply with new or revised accounting pronouncements as of public company effective dates.

9

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CADRE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Use of Estimates

The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Fair Value Measurements

The Company follows the guidance of Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This guidance also establishes the following three-level hierarchy based upon the transparency of inputs to the valuation of an asset or liability on the measurement date:

Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Unobservable inputs that reflect assumptions about what market participants would use in pricing assets or liabilities based on the best information available.

The Company’s financial instruments consist principally of cash, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued liabilities, income tax payable and debt. The carrying amounts of certain of these financial instruments, including cash, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued liabilities and income tax payable approximate their current fair value due to the relatively short-term nature of these accounts.

The following table presents our fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis:

March 31, 2024

December 31, 2023

Carrying 

Fair Value

Carrying 

Fair Value

    

Amount

    

Level 1

    

Level 2

    

Level 3

    

Amount

    

Level 1

    

Level 2

    

Level 3

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Derivative instruments (Note 7)

$

7,072

$

$

7,072

$

$

6,505

$

$

6,505

$

Liabilities:

Derivative instruments (Note 7)

$

$

$

$

$

427

$

$

427

$

Contingent consideration (Note 2)

$

2,671

$

$

$

2,671

$

$

$

$

There were no transfers of assets or liabilities between levels during the three months ended March 31, 2024 and 2023.

There have not been material changes in the fair value of debt (Level 2), as compared to the carrying value, as of March 31, 2024 and December 31, 2023.

Revenue Recognition

The Company derives revenue primarily from the sale of physical products. The Company recognizes such revenue at point-in-time when a contract exists with a customer that specifies the goods and services to be provided at an agreed upon sales price and when the performance obligation is satisfied by transferring the goods or service to the customer. The performance obligation is considered satisfied when control transfers, which is generally determined when products are shipped or delivered to the customer but could be

10

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CADRE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

delayed until the receipt of customer acceptance, depending on the terms of the contract. Sales are made on normal and customary short-term credit terms or upon delivery for point of sale transactions.

The Company enters into contractual arrangements primarily with customers in the form of individual customer orders which specify the goods, quantity, pricing, and associated order terms.

At the time of revenue recognition, the Company also provides for estimated sales returns and miscellaneous claims from customers as reductions to revenues. The estimates are based on historical rates of product returns and claims. The Company accrues for such estimated returns and claims with an estimated accrual and associated reduction of revenue. Additionally, the Company records inventory that it expects to be returned as part of inventories, with a corresponding reduction to cost of goods sold.

Charges for shipping and handling fees billed to customers are included in net sales and the corresponding shipping and handling expenses are included in cost of goods sold in the accompanying condensed consolidated statements of operations and comprehensive income. We consider our costs related to shipping and handling after control over a product has transferred to a customer to be a cost of fulfilling the promise to transfer the product to the customer.

Sales commissions paid to employees as compensation are expensed as incurred for contracts with service periods less than a year. For contracts with service periods greater than a year, these costs have historically been immaterial and are capitalized and amortized over the life of the contract. Commission costs are recorded in selling, general and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive income.

Product Warranty

Some of the Company’s manufactured products carry limited warranty provisions for defects in quality and workmanship. A warranty reserve is established at the time of sale to cover estimated costs based on the Company’s history of warranty repairs and replacements, and is recorded in cost of goods sold in the Company’s condensed consolidated statements of operations and comprehensive income.

The following table sets forth the changes in the Company’s accrued warranties, which is recorded in accrued liabilities in the condensed consolidated balance sheets:

Three months ended March 31, 

    

2024

    

2023

Beginning accrued warranty expense

$

1,610

$

1,234

Current period claims

 

(116)

 

(34)

Provision for current period sales

 

57

 

150

Ending accrued warranty expense

$

1,551

$

1,350

Net Income per Share

Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding during the periods presented. Diluted income per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of

11

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CADRE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

potential common shares, determined using the treasury-stock method. The calculation of weighted average shares outstanding and net income per share are as follows:

    

Three months ended March 31, 

    

2024

    

2023

Net income

$

6,928

$

7,002

 

  

 

  

Weighted average shares outstanding - basic

 

37,946,576

 

37,373,529

Effect of dilutive securities:

Stock-based awards

607,609

255,969

Weighted average shares outstanding - diluted

 

38,554,185

 

37,629,498

Net income per share:

 

  

 

  

Basic

$

0.18

$

0.19

Diluted

$

0.18

$

0.19

Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires a public entity to disclose in its rate reconciliation table additional categories of information about federal, state and foreign income taxes and provide more details about the reconciling items in some categories if items meet a quantitative threshold. The guidance will require all entities to disclose income taxes paid, net of refunds, disaggregated by federal (national), state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold. The guidance makes several other changes to the disclosure requirements. All entities are required to apply the guidance prospectively, with the option to apply it retrospectively. The guidance is effective for public business entities for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the enhanced disclosure requirements, however, we do not anticipate a material change to our financial position, results of operations or cash flows.

2.    ACQUISITIONS

ICOR Acquisition

On January 9, 2024, Med-Eng, ULC, a wholly-owned subsidiary of the Company, completed the acquisition of ICOR Technology Inc. (“ICOR”), a trusted global supplier of high-quality, reliable, innovative, and cost-effective explosive ordnance disposal robots.

The acquisition was accounted for as a business combination. Total acquisition-related costs for the acquisition of ICOR were $1,757, of which $155 was incurred and recognized during the three months ended March 31, 2024.

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CADRE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Total consideration, net of cash acquired, was $39,282 for 100% of the equity interests in ICOR. The total consideration was as follows:

Cash paid

    

$

40,350

Less: cash acquired

(1,068)

Plus: Contingent consideration

2,226

Total consideration, net

$

41,508

The following table summarizes the total purchase price consideration and the amounts recognized for the assets acquired and liabilities assumed, which have been estimated at their fair values. The fair value estimates for the purchase price allocation are based on the Company’s best estimates and assumptions as of the reporting date and are considered preliminary. The fair value measurements of identifiable assets and liabilities, and the resulting goodwill related to the ICOR acquisition are subject to change and the final purchase price allocation could be different from the amounts presented below. We expect to finalize the valuations as soon as practicable, but no later than one year from the date of the acquisition. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill. Goodwill for the ICOR acquisition is included in the Product segment and reflects synergies and additional legacy growth and profitability expected from this acquisition through expansion into new markets and customers.

Total consideration, net

    

$

41,508

Accounts receivable

$

2,352

Inventories

8,086

Prepaid expenses and other current assets

612

Property and equipment

239

Operating lease assets

1,369

Intangible assets

16,677

Goodwill

18,980

Total assets acquired

48,315

Accounts payable

635

Accrued liabilities

1,456

Long-term operating lease liabilities

967

Deferred tax liabilities

3,749

Total liabilities assumed

6,807

Net assets acquired

$

41,508

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CADRE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

In connection with the acquisition, the Company acquired exclusive rights to ICOR’s trademarks, customer relationships, and product technologies. The amounts assigned to each class of intangible asset and the related average useful lives are as follows:

    

Gross

    

Average Useful Life

Customer relationships

$

1,570

10

Technology

13,677

 

10

Trademarks

1,420

10

Total

$

16,667

The full amount of goodwill of $18,980 is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and ICOR prior to the acquisition. ICOR revenue and cost of goods sold are included in the Product segment from the date of acquisition. The acquisition is not expected to be material to our operations and consequently we have not included any pro-forma information.

As part of the ICOR acquisition, the purchase agreement with respect to the acquisition provided for the payment of contingent consideration of up to CDN$8,000 (approximately $5,797) based upon future cumulative net sales during the three-year period ended January 9, 2027. Using a Monte-Carlo pricing model, the Company estimated the fair value of the contingent consideration to be $2,225 as of January 9, 2024. Significant unobservable inputs used in the valuation include a discount rate of 6.2%. The contingent consideration liability is remeasured at the estimated fair value at the end of each reporting period with the change in fair value recognized within operating income in the condensed consolidated statements of operations and comprehensive income for such period. We measure the initial liability and remeasure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements.

As the contingent consideration liability is remeasured to fair value each reporting period, significant increases or decreases in projected sales, discount rates or the time until payment is made could have resulted in a significantly lower or higher fair value measurement. Our determination of fair value of the contingent consideration liabilities could change in future periods based on our ongoing evaluation of these significant unobservable inputs.

The following table summarizes the changes in the contingent consideration liability for the three months ended March 31, 2024:

Balance, December 31, 2023

$

ICOR acquisition

2,226

Fair value adjustment

451

Foreign currency translation adjustments

 

(6)

Balance, March 31, 2024

$

2,671

Alpha Acquisition

On February 29, 2024, Safariland, LLC, a wholly-owned subsidiary of the Company, completed the acquisition of Alpha Safety Intermediate, LLC (“Alpha Safety”), a provider of highly engineered technical products and services spanning the nuclear value chain.

The acquisition was accounted for as a business combination. Acquisition-related costs for the acquisition of Alpha Safety were $4,399, all of which was incurred and recognized during the three months ended March 31, 2024.

Total consideration, net of cash acquired, was $102,011 for 100% of the equity interests in Alpha Safety. The total consideration was as follows:

Cash paid

    

$

106,618

Less: cash acquired

 

(4,607)

Total consideration, net

$

102,011

14

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

The following table summarizes the total purchase price consideration and the amounts recognized for the assets acquired and liabilities assumed, which have been estimated at their fair values. The fair value estimates for the purchase price allocation are based on the Company’s best estimates and assumptions as of the reporting date and are considered preliminary. The fair value measurements of identifiable assets and liabilities, and the resulting goodwill related to the Alpha Safety acquisition are subject to change and the final purchase price allocation could be different from the amounts presented below. We expect to finalize the valuations as soon as practicable, but no later than one year from the date of the acquisition. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill. Goodwill for the Alpha Safety acquisition is included in the Product segment and reflects synergies and additional legacy growth and profitability expected from this acquisition through expansion into new markets and customers.

Total consideration, net

    

$

102,011

Accounts receivable

$

9,653

Inventories

11,835

Prepaid expenses and other current assets

2,151

Property and equipment

2,189

Operating lease assets

2,262

Intangible assets

57,500

Goodwill

48,554

Total assets acquired

134,144

Accounts payable

1,896

Accrued liabilities

17,220

Long-term operating lease liabilities

1,573

Deferred tax liabilities

11,444

Total liabilities assumed

32,133

Net assets acquired

$

102,011

In connection with the acquisition, the Company acquired exclusive rights to Alpha Safety’s trademarks, customer relationships, and product technologies. The amounts assigned to each class of intangible asset and the related average useful lives are as follows:

    

Gross

    

Average Useful Life

Customer relationships

$

17,000

20

Technology

35,800

 

15

Trademarks

4,700

10

Total

$

57,500

The full amount of goodwill of $48,554 is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and Alpha Safety prior to the acquisition. Alpha Safety revenue and cost of goods sold are included in the Product segment from the date of acquisition. The acquisition is not expected to be material to our operations and consequently we have not included any pro-forma information.

15

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

3.    REVENUE RECOGNITION

The following tables disaggregate net sales by channel and geography:

Three Months Ended March 31, 

    

2024

    

2023

U.S. state and local agencies (a)

$

74,992

$

66,502

Commercial

 

11,265

 

10,077

U.S. federal agencies

 

21,186

 

14,127

International

 

29,437

 

20,432

Other

 

980

 

610

Net sales

$

137,860

$

111,748

(a) Includes all Distribution sales

Three Months Ended March 31, 

    

2024

    

2023

United States

$

108,423

$

91,316

International

 

29,437

 

20,432

Net sales

$

137,860

$

111,748

Revenue by product is not disclosed, as it is impractical to do so.

Contract Liabilities

Contract liabilities are recorded as a component of other liabilities when customers remit cash payments in advance of the Company satisfying performance obligations. Contract liabilities are recognized into revenue when the performance obligation is satisfied. Contract liabilities are included in accrued liabilities in the Company’s condensed consolidated balance sheets and totaled $12,345 and $4,246 as of March 31, 2024 and December 31, 2023, respectively. Revenue recognized during the three months ended March 31, 2024 from amounts included in contract liabilities as of December 31, 2023 was $1,883.

Remaining Performance Obligations

As of March 31, 2024, we had $44,681 of remaining unfulfilled performance obligations, which include amounts that will be invoiced and recognized in future periods. The remaining performance obligations are limited only to arrangements that meet the definition of a contract under ASC Topic 606, Revenue from Contracts with Customers, as of March 31, 2024. We expect to recognize approximately 82% of this balance over the next twelve months and expect the remainder to be recognized in the following two years.

4.    INVENTORIES

The following table sets forth a summary of inventories, stated at lower of cost or net realizable value, as of March 31, 2024 and December 31, 2023:

March 31, 2024

December 31, 2023

Finished goods

$

39,405

$

31,674

Work-in-process

 

8,985

 

8,473

Raw materials and supplies

 

47,369

 

40,829

Total

$

95,759

$

80,976

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CADRE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

5.    GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table summarizes the changes in goodwill for the three months ended March 31, 2024:

    

Product

    

Distribution

    

Total

Balance, December 31, 2023

$

79,051

$

2,616

$

81,667

ICOR acquisition

18,980

18,980

Alpha Safety acquisition

48,554

48,554

Foreign currency translation adjustments

 

(289)

 

 

(289)

Balance, March 31, 2024

$

146,296

$

2,616

$

148,912

Gross goodwill and accumulated impairment losses were $156,497 and $7,585, respectively, as of March 31, 2024 and $89,161 and $7,585, respectively, as of December 31, 2023.

Intangible Assets

Intangible assets such as certain customer relationships and patents on core technologies and product technologies are amortizable over their estimated useful lives. Certain trade names and trademarks which provide exclusive and perpetual rights to manufacture and sell their respective products are deemed indefinite-lived and are therefore not subject to amortization.

Intangible assets consisted of the following as of March 31, 2024 and December 31, 2023:

March 31, 2024

    

    

    

    

Weighted 

Accumulated 

Average 

Gross

Amortization

Net

 

Useful Life

Definite lived intangibles:

 

  

 

  

 

  

 

  

Customer relationships

$

104,840

 

$

(66,712)

 

$

38,128

 

17

Technology

 

65,445

 

 

(12,647)

 

 

52,798

 

13

Tradenames

 

12,700

 

 

(5,834)

 

 

6,866

 

9

Non-compete agreements

 

998

 

 

(998)

 

 

 

-

$

183,983

 

$

(86,191)

 

$

97,792

Indefinite lived intangibles:

 

  

 

 

  

 

 

  

 

  

Tradenames

 

17,219

 

 

 

 

17,219

 

Indefinite

Total

$

201,202

 

$

(86,191)

 

$

115,011

 

  

17

Table of Contents

CADRE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

December 31, 2023

    

    

    

    

Weighted 

Accumulated 

Average 

Gross

Amortization

Net

 

Useful Life

Definite lived intangibles:

 

  

 

  

 

  

 

  

Customer relationships

$

86,621

$

(65,650)

 

$

20,971

 

11

Technology

 

16,111

 

 

(11,979)

 

 

4,132

 

8

Tradenames

 

6,622

 

 

(5,492)

 

 

1,130

 

4

Non-compete agreements

 

1,003

 

 

(1,003)

 

 

 

-

$

110,357

 

$

(84,124)

 

$

26,233

Indefinite lived intangibles:

 

  

 

 

  

 

 

  

 

  

Tradenames