Cadre Holdings, Inc. (NYSE:CDRE) Q3 2023 Earnings Call Transcript

Cadre Holdings, Inc. (NYSE:CDRE) Q3 2023 Earnings Call Transcript November 13, 2023

Operator: Good afternoon, and welcome to Cadre Holdings Third Quarter Ended September 30, 2023 Conference Call. Today’s call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Matt Berkowitz of the IGB Group for introductions and the reading of the Safe Harbor statement. Please go ahead sir.

Matt Berkowitz: Thank you, and welcome to Cadre Holdings third quarter conference call. Before we begin, I would like to remind everyone that during today’s call, we will be making several forward-looking statements and we make these statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Cadre and industries and markets in which we operate. More information on potential factors that could affect Cadre’s financial results is included from time to time in Cadre’s public reports filed with the Securities and Exchange Commission.

Please also note that we have posted presentation materials on our website at www.cadre-holdings.com, which supplement our comments this evening and include a reconciliation of certain non-GAAP financial measures. I would like to remind everyone that this call will be available for replay through November 22, 2023 starting at 8 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today’s press release as well as on Cadre’s website. At this time, I would like to turn the call over to Cadre’s Chairman and CEO. Warren Kanders.

Warren Kanders: Good afternoon, and thank you for joining Cadre’s earnings call to discuss our results for the third quarter of 2023. I am joined today by our President, Brad Williams; and our Chief Financial Officer, Blaine Browers. Coming off of the third quarter of 2023, I continue to be very proud of the focus and execution our management team has demonstrated in achieving record results and adjusted EBITDA and adjusted EBITDA margins for the second consecutive quarter. Brad, Blaine and the team’s implementation of the Cadre operating model is driving these results. As I said last quarter, this execution creates operating leverage by using superior operating tools and business processes to produce profitability improvements above our natural growth rate.

We’ve continued rolling the model out across our entire portfolio, and we are gaining momentum as we do. Brad and Blaine will go into more detail later but the results here speak for themselves. For the third quarter, while revenues were up 12.1%, gross profit increased 22.7%. We achieved record adjusted EBITDA margins of 19%, record quarterly adjusted EBITDA of $23.7 million, adjusted EBITDA grew 14.4%, and fully diluted net income per share for the quarter increased 123%. Looking at the 9 month year-to-date results underscores the performance outside the lenses of a single quarter. Revenues up 7.1%, gross profit up 18.7%, adjusted EBITDA up 22.1%, and adjusted EBITDA margin upto 18.2% from 16%. We as a team are exceptionally proud of how we have been able to deliver for our shareholders.

Before moving to M&A, I would like to comment again on the macros driving our business. We are in an environment where geopolitical conditions seem to get worse by the day, and the level of internal conflict inside most countries is on the rise. Domestically the levels of danger facing first responders have not abated to any appreciable degree, if at all. Our role is to provide mission critical life saving equipment to the professionals around the world who work to keep us safe. We have the distribution and manufacturing capabilities to cover a substantial part of the world, and we see no sign that the secular trends driving demand for our products are going anywhere but up. As our business has grown, we have experienced increasing capacity requirements and have reacted accordingly.

Our ability to do this is a testament to our management team, and our many dedicated employees, suppliers, distribution partners, and other stakeholders. It also speaks to the quality of our products, the strength of our brands, superior execution of deliveries, and the trust our customers and end-users place in Cadre’s equipment. Having said that, to be clear, the ongoing conflicts in Ukraine and the Middle East have not impacted our businesses in any material way. As we have mentioned previously, we do not expect as these events eventually — we do expect, these events eventually abate, there may be an opportunity for Cadre to play a larger role to a number of our products, most notably through our various EOD offerings. Lastly, an update on our M&A program.

I am pleased to report that we signed a letter of intent approximately three weeks ago with a business that we have been in discussions with for a number of months. The business in its most recent fiscal year ended during the summer achieved approximately $19 million of revenues with gross margins in excess of 50%, and EBITDA margins in excess of 25%. While we cannot be more specific due to confidentiality obligations, the business is in a category that we have targeted as a priority for a tuck-in type deal. Confirmatory due diligence is underway, and we hope to speak more about this soon. More broadly, we continue to work hard on our M&A pipeline, and we believe we are starting to get more traction. As you are all aware, the credit markets remain very weak.

They started going south in mid-2022, and this time last year, bankers were predicting conditions would improve in the first or second quarters of 2023, that did not happen and the credit markets have only gotten worse. In the context of our company, we have been patient and disciplined in our approach to M&A while generating substantial free cash flow to deliver and fortify our balance sheet with net debt standing at less than one times net debt to adjusted EBITDA at the end of the quarter. As we credit conditions and an anaemic [ph] M&A market have persisted for such a long time, and not shown signs of improving, thoughts [ph] of many different types, including financial sponsors and founders have decided to engage in discussions to sell, and valuations are adjusting to reflect these realities.

In addition to the current letter of intent we have executed we are seeing more actionable opportunities, and our balance sheet and financial performance position as well capitalize on these opportunities as they present themselves. Lastly, we are caught in — we are in constant contact with our banks, and they have indicated their support for our approach, given the way in which we have delivered on our commitments to them over the years. In conclusion, I am proud of our results for this quarter and for the first nine months of the year. We are happy to be able to increase our earnings guidance for the year, again, based on our performance and as the remainder of the year comes into focus. As I have said before our businesses are resilient, our operating model is showing results, and we are excited with how we think this year will play out and how things are setting up for 2024.

With that, thank you 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 and I will provide a Q3 update and business overview, including recent trends and financial performance followed by Q&A session. Before I dive in our third quarter results, I’d like to take a moment to expand on Warren’s comments about our operating model and success continuing to fulfill Cadre’s mission of together we save lives. We’re excited about our progress advancing the Cadre operating model as we engage the organization in pursuit of the idea of better every day. Our team members feel an extraordinary sense of purpose, supporting our special mission, which lives not just in the hearts and minds of our associates, but extends to our channel partners and end customers.

As many of you know, we have what we call the Safe Club, which was set up many years ago to recognize first responders that survived life threatening situations using or wearing our products. This club has grown to 2,177 saves. We’re averaging about 34 saves per year. So if you think about that a minute, that equates to approximately 3 men or women that get to come home and live their lives with their families and friends every day. We’re proud of who we are and what we do and look forward to continuing to provide best-in-class equipment that protects the law enforcement, military and security professionals who keep us all safe. Turning now to our third quarter, will begin on Slide 5. During the quarter, we continue to capitalize on Cadre and Trent’s [ph] positions in law enforcement, first responders and military markets as the company increased quarterly revenue, net income and gross margin sequentially, and year-over-year.

Our outstanding results reflect the team’s continued strategic execution, combined with strong sustained demand for our mission critical safety and survivability equipment. We value the strong relationships we have with customers, and we continue to have success in the third quarter managing our portfolio of premium products in the market. Combined with favorable Q3 product mix, as well as productivity gains driven by the continued implementation of our operating model we achieved significant margin expansion. Third quarter adjusted EBITDA margin of 19% was our highest since going public, and gross margins increased by 370 basis points. Q3 product mix reflected favorable armour product mix in the quarter. Looking ahead, we maintained our strong orders backlog which was $126.2 million as of September 30, an $8.3 million increase since the start of the year.

We remain focused on executing M&A and believe our funnel is still healthy in opportunities that we continue to actually evaluate. As Warren mentioned, we’re excited recently — we have recently signed an LOI to acquire new business and expect to be able to share more soon. Based on our low CapEx model, we continue to generate strong free cash flow that enables us to take advantage of attractive growth opportunities while returning capital to shareholders. Last month, we declared our ninth consecutive quarterly dividend of $0.08. On Slide 6, we highlight the macro tailwind supporting a sustainable growth opportunity for Cadre for the foreseeable future. We continue to see a broad push to privatize public safety in both, the US and abroad, and believe Cadre is ideally positioned to capitalize on these secular tailwinds over the medium and long-term.

Turning to Slide 7, I’ll take a moment to zoom in on current market trends and their impacts on our business. We have not seen any signs that police hiring is becoming easier, but healthy police budgets continue to drive increased spending per officer. Cadre’s mission critical protective equipment is consistently prioritized when departments are determining officer needs, no matter the economic environment. Police protection expenditures have continued to trend upward, even during past financial and industrial recessions. Moving the next bullet, in terms of the current geopolitical landscape and consequences for our core businesses, we continue to engage with partners and customers globally to meet orders that fit our model. With that said, we expect there could be movement that creates demand for our products moving forward as the war in Ukraine shifts to its next phase.

For example, we anticipate active discussions we’ve been having about providing EOD tools and equipment could lead to opportunities down the road. Based on the situation on the ground, it will take decades to clear the vast amount of unexploded ordinance in Ukraine which expands the cycle of opportunity on the EOD side for Cadre, but likely will be focused on harm mix [ph] of the mind protective wear rather than EOD suits. Turning to the supply chain and labor trends, the environment has been stable in recent months. Our team continues to do an outstanding job at pro-actively addressing supply chain issues, and the extended lead times that we saw last year appear to be mostly behind us. We continue to be pleased with our progress attracting or retaining labor to meet our needs.

On the consumer side, we saw 5% growth in our duty gear sales driven by our focus on new products in the space. One example that has been very successful is the launch of the INCOG X holster [ph], which we launched in partnership with Haley Strategic. In fact, the INCOG X holster won guns and ammo holster of the year. Cadre’s commitment to innovation is a key differentiator and allows us to maintain our premium position in our core law enforcement, first responders and military markets. Following the introduction of our HyperX tactical armor platform, XpertFit 3D body sizing app, and SafariVault line of holsters, all launched in last March [ph], we continue to hear positive feedback from customers. Of note, we’ve experienced a 47% increase of tactical soft armor in the first three quarters of 2023 compared to the same period of last year, with growth directly related and tied to HyperX.

I’ll turn the call over to our CFO, Blaine Browers.

Blaine Browers: Thanks, Brad. I’ll begin my remarks by discussing our M&A strategy and the general acquisition environment. Slide 8 summarizes the key criteria that drive Cadre’s M&A process with potential transactions within three categories; those that will expand our suite of products, those that will enable us to enter new markets and those that will grow our geographic footprint. We target businesses with high margins leading market positions and start strong recurring cash flows and revenues. As per Warren’s earlier remarks, we cannot be more specific about the recent LOI we signed due to confidentiality obligations. But I can share that this business fits well within our platform and its profiles very much consistent with our key criteria.

Regarding broader M&A market, it continues to be a tough financing market as lenders have significantly tighten their lending standards. As Bloomberg recently reported, the average multiple on new LBO [ph] deals is down 1.4 turns from a year ago. Reflecting this new environment it shows us the gap between buyers and sellers appears to be closing. The next few slides detail the third quarter financial performance. As you can see, in Slide 9, we increased net sales, gross margin, net income, adjusted EBITDA and adjusted EBITDA margin in the third quarter, both on a sequential and year-over-year basis. The increase in net sales reflects our significant orders backlog and was mainly driven by higher domestic demand for armor products and large orders for our crowd control products.

This was partially offset by decreased efficiency demand for hard goods. Third quarter net income was $11.1 million or $0.29 per share, grew nearly 125% compared to last year’s Q3. As we continue to implement our operating model and manage the positioning of our portfolio of premium products during the third quarter, we achieved significant margin expansion. For the second consecutive quarter, our adjusted EBITDA margin of 19% was our highest since going public and gross margins increased 370 basis points year-over-year. Illustrated on Slide 10, was net sales and adjusted EBITDA growth year-over-year. As you can see driven by increased revenue and improved gross profit margin, Cadre’s nine month 2023 adjusted EBITDA was up by 2% [ph] versus last year.

Based on our third quarter performance and management’s outlook for the remainder of the year, we have raised the midpoint of our full year adjusted EBITDA guidance range and increased the midpoint of our 2023 net sales guidance. I’ll discuss our new guidance in a moment. On Slide 11, we present our capital structure as of September 30. Our net debt was $74 million, a further reduction of 15% since the end of Q2; this gives us net leverage of 0.8 times. At these levels we maintain significant financial flexibility to grow both, organically and inorganically through acquisitions. We provided updated 2023 guidance on Slide 15, we’ve tightened our full year net sales range, raising the midpoint. We do expect 2023 net sales to be between $477 million to $481 million.

Our upwardly revised adjusted EBITDA guidance range up between $82 million and $85 million implies 10% annual growth on adjusted EBITDA versus our initial forecast of 4% at the beginning of the year. Additionally, whereas the midpoints of our original guidance implied, adjusted EBITDA margin was up 16.2%, our success in the year-to-date has significantly increased our expectations for the full year margins. Based on the updated midpoints, adjusted EBITDA margins rise to 17.4%. While the prior year Q4 was our largest revenue quarter of the year, we now expect that Q3 will be the high watermark [ph] for revenue. One of the large international orders that we expected to ship in Q4 was actually shipped ahead of time in Q3 changing this expectation.

We do expect armor volume to be down sequentially and the mix to return to normal. Based on these developments along with the mix in EOD, shifting less profitable products we expect margins to be lower sequentially. We’d also like to reiterate that for the most of our businesses, we only have 45 to 60 days of backlog visibility at any given time. I’ll now turn it over to Brad for concluding comments.

Brad Williams: Thank you, Blaine. In summary, we’re highly pleased with our strategic execution in the year today which is reflected in our strong third quarter and nine month financial results. Once again, we generated record EBITDA margins and quarterly adjusted EBITDA as we continue to implement our operating model focused on attaining and sustaining exceptional results. We’re pleased to raise the midpoint to both, our full year 2023 adjusted EBITDA and revenue outlook. M&A continues to be a focus and we recently signed a letter of intent with the business that meets our key criteria. We expect to capitalize on additional attractive growth opportunities and remain confident that we will see more of these opportunities in the months ahead.

Backed by macro tailwinds related increasing public safety budgets and favorable industry dynamics, we believe Cadre is ideally positioned to further grow our leading platform of premium safety brands moving forward. With that, operator, please open up the lines for Q&A.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Daniel Imbro with Stephens. Your line is open.

Daniel Imbro: Hey, good evening, everybody. Thanks for taking our questions. Maybe one of international markets side. I think it was encouraging to hear you guys won a contract there. Warren, I think your comments kind of signalled that it wasn’t the Middle East that hasn’t really materialized into new business yet. So one, can you comment on what markets you won the international contract? And then two, given what’s going on globally, how long would it be for you to expect that evolving conflict to materialize into some safety orders for you guys products?

Blaine Browers: Yes, let me — I can take the first part and Warren, you can jump in. When I referenced the large international contract in Q3 that was originally planned in Q4; that was actually in a North America — outside the US order on the gun control products. We do have — we have had some orders for Ukraine but I think consistent — as we’ve said, it’s not been material to this point. And really, it’ll be in that demining side of the world for the EOD — sorry for EOD. So it won’t be in the suits, it’ll really be in that demining which is a less protective version of the EOD suit. That makes sense, Daniel?

Daniel Imbro: Could you quantify maybe the contract that was pulled from 4Q into 3Q at all, Blaine?

Blaine Browers: We can’t disclose it due to sensitivity. But it was significant for the business, I think as you kind of go through and look at the change in consensus, that’ll give you a feel for that — the size and scale of it.

Daniel Imbro: Got it. And then, maybe taking a step back here. More in cash continues to build on the balance sheet even for this pending deal but let’s call it a few million bucks of EBITDA, you still should have excess cash assuming it on a normal mode. What do you view as the strategic or best uses of that cash? Are there CapEx projects you can pull forward? You guys don’t have a ton of that. Is it a special dividend? So how do you foresee deploying that capital back to shareholders in the absence of deals?

Blaine Browers: Well, the good news is, we don’t have an absence of deal, something we’re working on a number as we speak. In fact, one we thought had gone away; I think the last time we spoke, we talked about skills that we had bid on that we had been withdrawn, one of those is back. So your pipeline right now is quite full. And as the guys said before, you know, the multiples are now reflective of the cost of capital and the overall environment. So we couldn’t be more excited. So our objective is to use to reinvest our cash in transactions. The company that we’re buying — that we have an ROI on, similar to our existing businesses, and that one also has low CapEx requirements and has margins. And I think from the last couple of transactions we’ve done, we are trying to target EBITDA margins in excess of 20%.

Daniel Imbro: Got it. And then last one for me, Brad. You mentioned productivity gains and some self-help on 3Q margin. Other than the timing of that contract, anything one-time in that leverage or are you unlocking more savings? Maybe as you continue to scale the business and just turn over more stones on the productivity side? Thanks.

Brad Williams: No, I mean there is nothing significant one time, Daniel, once we look at productivity. This is really — that mantra of doing things just a little better each day. So as we kind of look sequentially, we use that as a good gauge of improving, not just on a year-over-year basis, but more we’re better than this quarter than last quarter; so this will be something we continue to build on. We’ve certainly seen some very strong gains from the team on a year-on-year basis and sequentially, so we’re really pleased with everyone’s progress really across the globe when it comes to the adoption of the operating model and daily management, really just pushing the business — all the businesses forward.

Daniel Imbro: Understood. Appreciate the color and best of luck.

Brad Williams: Thanks, Daniel.

Operator: The next question comes from the line of Jeff Van Sinderen with B. Riley & Co. Your line is open.

Jeff Van Sinderen: Hi, everyone. So just wanted to go back to the demining suit, I guess you would call it the less productive version of the EOD suit. Can you just remind us of the dollar price point there versus the full suit?

Blaine Browers: Yes. When you think about a full bomb suit, right, you’re upwards of $30,000 or right around there. This would be a demining city, it can vary, right — and there is actually a level in between, Jeff, as we talk about what’s commonly referred to as a tack-six [ph] suit or a tactical suit. As you move down to demining, you’re certainly above, kind of the body armor level, but below even the tack-six [ph] protection, and that can vary depending on — there is variation there but you’re — you’re really talking sub — generally sub-5000 — in north of 1000. The difference on that front is, one of the restrictions around EOD is such as we kind of — we talk about the market, it’s a fairly limited market, right with about 20,000 operators across the globe.

So there is just a limited number there, right, and we’ll continue to sell those and we continue to be the proven product and product of choice for those operators. As we move down — the demining users; you don’t have to have the same level of training you do with the EOD under, and you’re addressing different levels of threat, right; and that’s the reason there is a different level of protection. The demining, though, is a much higher volume game. So teams are working very diligently with partners, and they’re really kind of working with Ukraine and different embassies across the globe to ensure that, hey, when the time is right, here is the suite of products that we have available to ensure we protect the men and women that are out there making the country safe again.

Warren Kanders: Again — again, that one — again, the timing of that will be when the hostilities [indiscernible] to do that kind of work; and that same work will need to be done in Gaza as well?

Jeff Van Sinderen: Right. That was going to be my next question was, just — have you had any inquiries yet around what’s happening in the Middle East?

Warren Kanders: So we are — we — I mean, we get inquiries [indiscernible]; Israel is a customer and we’re doing what we can. But obviously, lot of the stuff that’s going over there right now is kind of big emissions [ph] related to Iron Dome and just the bombs that drop.

Jeff Van Sinderen: Okay, that’s helpful. And then just — I guess anything, just a quick follow-up if I could. Just any update on the blast protection? I’m sorry, the blast sensor product; just wondering kind of where we are with that?

Brad Williams: Jeff, you talked about black sensors?

Jeff Van Sinderen: Yes. Yes, the sensor.

Brad Williams: Okay. I just want to make sure. So on the black sensor side of things, still the same status as previous quarter. We expect — we’re being told right now it’s the first quarter of next year is when we’ll receive that feedback on the current phase of the project that we’re in. So, we’re still in that wait and see phase in terms of any changes in requirements as we go forward with that project. But so far, no news is good news.

Jeff Van Sinderen: Okay, great. Thanks for taking my questions. I’ll take the rest offline.

Brad Williams: Okay. Thank you, Jeff. We’ll talk to you in a little bit.

Operator: [Operator Instructions] The next question comes from the line of Shiela [ph] with Jefferies. Your line is open.

Unidentified Analyst: Hi, guys. This is Sam [ph] on here for Sheila [ph]. Congrats on the quarter. Now I just want to ask quickly, another strong quarter of gross margins and EBITDA margins, continued sequential performance is strong. You mentioned EOD and armor mix should continue to normalize into Q4. Can you just help us frame some of these other moving pieces within the implied EBITDA guide that steps down a few points sequentially here in Q4?

Warren Kanders: The two biggest pieces are really armor mix, we do have some larger armor orders in Q4 that we have visibility today. On that we know we’ll be — the lower margin than we experienced in Q3; and really more of that normalization. And then on the EOD side, as we think about the different products, this would be moving away from EOD suits to doing more volume in some of our other product lines such as tools and robots, which are just a lower margin profile in that quarter. That’s really the two drivers along with a little bit of volume leverage, obviously with the lower top line; that’s implied in that guidance.

Unidentified Analyst: Got it. That’s helpful. Thanks. And I guess, you know, maybe just to step back and talk a little bit more on sort of top line; strong 12% year-over-year growth and up 3% sequentially, against — its typically a seasonally soft Q3. Can you just help us kind of bucket the growth drivers within that? And sort of — you mentioned the large international order, but is there anything, like timing of backlog or price or just more volume out the door that got pulled forward here in Q3?

Blaine Browers: Yes, it’s really — it’s really volume. I mean, there’s some price but the price sequentially is not a significant component there. I think as you kind of think about the drivers, there’s nothing other than a large international order I mentioned in the crowd control side; there is nothing that really sticks out significantly. The armour team, in particular, has had some significant volume; Brad mentioned, the HyperX, which is that soft tactical — they’ve continued to deliver some hard armor products as well, coming off the — driven really by the [indiscernible] school incident last year which is really going to be placed in shields. And those are really — those kind of drivers there. Other than that, there’s nothing that really kind of sticks out but those are significant numbers, when you make that large international order, that’s a very significant number for that business.

It certainly had an impact in the quarter, and you’re getting to kind of imply where we can’t really talk about the size of the order but it’s certainly implied when you look at the changing guidance, and certainly kind of Q3, Q4 change.

Unidentified Analyst: Great. Really helpful. Thank you.

Operator: Your next question comes from the line of Matt [ph] with ROTH MKM. Your line is open.

Unidentified Analyst: Hey guys, good evening. We covered the margin swing for the fourth quarter. But I wanted to get a better understanding of the swing factors on the top line guide for the fourth quarter, I guess implied in the idea of like $10 million range. Maybe just talking about the factors on the swing into the high end or the low end of that guidance range? And then, just — are there any large orders we should be thinking about, that could get pulled in or pushed out that kind of factor in there?

Blaine Browers: Yes, the push and pull is really — is implied in that kind of range, Matt. And certainly when we get to the end of end of the year, time gets critical, you get holidays. So anything that certainly think internationally, anything that gets pushed out into kind of maybe decision point — kind of mid-December then or even earlier, that tends to have some risks to it. So there’s — I think as we always get towards the end of the year, we get a little cautious on those orders. Sort of kind of where we — the day we feel confident on the range and the guide, but there’s a couple of significant orders, really in armor is really going to be the — that kind of make or break. And that’s – kind of seemed like the business and that visibility right there that really tends to be armor and duty here that have that shorter visibility, whereas DoD tends to have that larger visibility.

So when you hear about the armor our duty here, it’s about those orders coming in. When you move to the D side, that’s typically driven by — maybe customer changes on delivery dates, right, though we already have the firm order in place or it could be driven by payments with prior to shipment, we’re waiting on a pre-payment or a full payment. Those are really kind of the two components that impact the range there as we move into Q4.

Brad Williams: And I would say overall, Matt, we’ve factored in when we built that that revise range overall, for any of those kind of potential situations that Blaine was just referencing.

Blaine Browers: And we kind of think about that too, Matt. That’s not a loss. I don’t know — we don’t think about that as losing, that would just be a push.

Unidentified Analyst: Got you. Okay, that’s helpful guys. And then, just on the acquisition. I know you probably don’t want to say too much on it, but just curious of the language you used; was that it’s similar to the existing business. Does that mean that it could be an existing products or maybe just any flavor for sort of where you might be headed there?

Warren Kanders: Matt, we’re not going to go there. Just say, the — it’s a very comfortable business, we know the people, and we’re very excited about the opportunity. Obviously, we need to go through all the things that we go through to acquire businesses, and working through the contracts and the diligence and so on. But we’re encouraged by this one, and I think when we can speak about it specifically, you’ll agree with us that it’s a very strong deal.

Unidentified Analyst: Okay, great. Had to try there, Warren. Thank you.

Warren Kanders: I know. It’s okay.

Operator: And the next question comes from Ron Epstein with Bank of America. Your line is open.

Ron Epstein: Hey, good evening guys. A lot has been asked, but let me see if I can open the aperture [ph] a little bit. So Warren, when you think about M&A, security is a broad definition, right. So there are verticals that you don’t currently play in — maybe more technically oriented, tech like electronics, that kind of thing. When we think about potential deals you could do, how are you thinking about adjacencies and other verticals that aren’t — where you’re playing currently?

Warren Kanders: That’s a great question. We have an extraordinary management team, led by Brad and Blaine. As you know, they have an operating model background; and so whatever we look at — those opportunities, we’ll need to benefit from the operating models which we’ve been developing for our own business here over the last number of years. And where you’re seeing — we were all seeing the benefit of that right now. So the transaction that we talked about earlier, that’s right on top of everything that we do. Today we would be looking at adjacencies in areas that could involve electronics, we have some capabilities in house on that, and Brad in particular has had personal experience in those types of things; industrial safety and so on.

But again, we are looking for those businesses that can benefit from the operating model and discipline that we have. And I think also, we spoke previously about the types of margins that we would want to experience in those businesses. So, we are looking only at opportunities where the margins are in excess of 20%, and where — there is not a lot of CapEx required to maintain and grow those businesses. But there seemed to be more today available than there have been; I think we’re going to see — and Ron, you probably know this from talking to a lot of your companies you cover, there’s going to be more internal thinking about what [indiscernible] larger companies and what they have, what the mix is, and divesting certain things that don’t fit in.

And so, it’s pretty ripe for us. Also private equity, as you probably have read, it’s very difficult for new funds to be raised, even for the largest firms. And now there are a lot of firms out there today that are orphans, and with higher interest rates; that’s a problem. And so that is forcing a lot of private equity firms to re-evaluate what they have, how long they can keep it, what they need to do with those assets. So we are as encouraged as we could be right now about who we are, what we do, our balance sheet; as you know, we’re very careful about that. And Blaine is very focused every day, not just on the operating aspects of the business but also on our balance sheet as well. And so, these disciplines take forward with us as we’re looking to buy [ph].

Ron Epstein: Super. Thanks.

Operator: Your next question comes from the line of Mark Smith with Lake Street Capital Markets. Your line is open.

Mark Smith: Hi, guys, sorry, if I missed this earlier in the call, but can you discuss kind of new products, how those are performing, especially a lot of those that we saw kind of introduced early in calendar 2023?

Brad Williams: Hey Mark, this is Brad. So new product-wise, what I talked about little bit earlier, we’re really proud of the progress we’ve made. And I know you’ve seen some of those HyperX product, XpertFit 3D body sizing, the SafariVault line, and then we have a whole host of consumer holsters that we’ve launched. And most notably, our INCOG X holster, just won guns and ammo holster of the year. So we’re really, really proud about what we’re doing from a new product perspective. When you look at the growth overall, for the consumer side of things, we, in our remarks showed a 5% increase on duty gear, on the consumer side for us. And then HyperX has reported 40%, 45% [ph] growth on the HyperX side of things. So, we love engineers, the world would be a better place with more engineers, quite frankly.

And our team is having fun with innovation, and quite frankly, spending a lot of time with customers and just understanding pain points, and where we can continue to improve things and make their lives better and continue to uphold our mission around saving lives. So, I’m really proud of the results we’re seeing.

Mark Smith: Okay. And you bring up the consumer side of the business doing well; any commentary? We’ve seen higher demand in October following the events in the Middle East, even domestically for some of those products — any insight you can give us in maybe October, what those trends look like on the consumer side of the business?

Blaine Browers: I think October has been consistent with our expectations, which I think is kind of the framework we’ve seen all year now. Our expectations are probably a little bit different than what you’d expect in the market. And that’s really driven by these new products that, as Brad mentioned, have had great success. So yes, I think when you look at the statistics, the consumer markets, generally kind of — certainly in this kind of space, kind of down to maybe flat — flattish to down. Whereas with those new products we’re able to continue to expand our share and grow in those markets; so what we’re seeing kind of early part of the Q4 as well.

Mark Smith: Perfect. Thank you.

Operator: And there are no further questions at this time. Brad Williams, I will turn the call back over to you.

Brad Williams: Thank you, operator. I’d like to thank everyone, again, for joining us on today’s call and your continued interest in Cadre. Thank you.

Operator: This concludes today’s conference call. Thank you, and have a great day.