May 9, 2023 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

Form: 10-Q

Documents

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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, 2023

☐ 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 5, 2023, there were 37,586,031 shares of common stock, par value $0.0001, outstanding.

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INDEX

CADRE HOLDINGS, INC.

PART I	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets – March 31, 2023 and December 31, 2022	5
	Consolidated Statements of Operations and Comprehensive Income (Loss) – Three months ended March 31, 2023 and 2022	6
	Consolidated Statements of Cash Flows – Three months ended March 31, 2023 and 2022	7
	Consolidated Statements of Shareholders’ Equity – Three months ended March 31, 2023 and 2022	8
	Notes to 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	37
Item 1A.	Risk Factors	37
Item 6.	Exhibits	37
Signature Page		38

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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;

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●

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 increased expenses associated with being a public company and the related increased 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

●

other risks and uncertainties set forth in the section entitled “Risk Factors” of this Report, which is 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 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CADRE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)


	March 31, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	48,294	$	45,286
Accounts receivable, net of allowance for doubtful accounts of $930 and $924, respectively		55,704		64,557
Inventories		76,343		70,273
Prepaid expenses		11,782		10,091
Other current assets		6,376		6,811
Total current assets		198,499		197,018
Property and equipment, net of accumulated depreciation and amortization of $44,840 and $42,694, respectively		45,095		45,285
Operating lease assets		7,691		8,489
Deferred tax assets, net		2,289		2,255
Intangible assets, net		48,761		50,695
Goodwill		81,292		81,576
Other assets		5,348		6,634
Total assets	$	388,975	$	391,952

Liabilities, Mezzanine Equity and Shareholders' Equity
Current liabilities
Accounts payable	$	27,313	$	23,406
Accrued liabilities		32,899		38,720
Income tax payable		4,086		4,584
Current portion of long-term debt		11,119		12,211
Total current liabilities		75,417		78,921
Long-term debt		135,098		137,476
Long-term operating lease liabilities		4,204		4,965
Deferred tax liabilities		3,606		3,508
Other liabilities		1,200		1,192
Total liabilities		219,525		226,062

Commitments and contingencies (Note 7)

Mezzanine equity
Preferred stock ($0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2023 and December 31, 2022)		—		—

Shareholders' equity
Common stock ($0.0001 par value, 190,000,000 shares authorized, 37,586,031 and 37,332,271 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively)		4		4
Additional paid-in capital		206,451		206,540
Accumulated other comprehensive income		1,720		2,087
Accumulated deficit		(38,725)		(42,741)
Total shareholders’ equity		169,450		165,890
Total liabilities, mezzanine equity and shareholders' equity	$	388,975	$	391,952

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

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CADRE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended
	March 31,
	2023		2022
Net sales	$	111,748	$	104,406
Cost of goods sold		65,130		64,217
Gross profit		46,618		40,189
Operating expenses
Selling, general and administrative		35,250		53,950
Restructuring and transaction costs		—		599
Related party expense		148		122
Total operating expenses		35,398		54,671
Operating income (loss)		11,220		(14,482)
Other expense
Interest expense		(1,641)		(1,490)
Other expense, net		364		(205)
Total other expense, net		(1,277)		(1,695)
Income (loss) before provision for income taxes		9,943		(16,177)
(Provision) benefit for income taxes		(2,941)		6,012
Net income (loss)	$	7,002	$	(10,165)

Net income (loss) per share:
Basic	$	0.19	$	(0.30)
Diluted	$	0.19	$	(0.30)
Weighted average shares outstanding:
Basic		37,373,529		34,446,318
Diluted		37,629,498		34,446,318

Net income (loss)	$	7,002	$	(10,165)
Other comprehensive income:
Unrealized holding (losses) gains, net of tax⁽¹⁾		(426)		3,077
Reclassification adjustments for (losses) gains included in net income (loss), net of tax⁽²⁾		(647)		131
Total unrealized (loss) gain on interest rate swaps, net of tax		(1,073)		3,208
Foreign currency translation adjustments, net of tax⁽³⁾		706		(360)
Other comprehensive (loss) income		(367)		2,848
Comprehensive income (loss), net of tax	$	6,635	$	(7,317)

(1) Net of income tax benefit of $142 and income tax expense of $1,026 for the three months ended March 31, 2023 and 2022, respectively.

(2) Amounts reclassified to net income (loss) relate to gains on interest rate swaps and are included in Interest expense above. Amounts are net of income tax benefit of $215 and income tax expense of $44 for the three months ended March 31, 2023 and 2022, respectively.

(3) Net of income tax expense of $81 and income tax benefit of $18 for the three months ended March 31, 2023 and 2022, respectively.

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

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CADRE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2023		2022
Cash Flows From Operating Activities:
Net income (loss)	$	7,002	$	(10,165)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		4,261		3,544
Amortization of original issue discount and debt issue costs		64		111
Deferred income taxes		183		(6,951)
Stock-based compensation		2,747		23,588
Gain on sale of fixed assets		(103)		—
Provision for losses on accounts receivable		40		45
Foreign exchange (gain) loss		(213)		253
Changes in operating assets and liabilities, net of impact of acquisitions:
Accounts receivable		9,075		(1,693)
Inventories		(5,830)		(2,956)
Prepaid expenses and other assets		(556)		3,158
Accounts payable and other liabilities		(3,948)		(18)
Net cash provided by operating activities		12,722		8,916
Cash Flows From Investing Activities:
Purchase of property and equipment		(781)		(950)
Proceeds from disposition of property and equipment		201		—
Business acquisitions, net of cash acquired		—		(19,787)
Net cash used in investing activities		(580)		(20,737)
Cash Flows From Financing Activities:
Principal payments on term loans		(2,500)		(2,506)
Principal payments on insurance premium financing		(1,092)		(1,474)
Payment of capital leases		—		(11)
Taxes paid in connection with employee stock transactions		(2,725)		(6,216)
Dividends distributed		(2,986)		(2,750)
Net cash used in financing activities		(9,303)		(12,957)
Effect of foreign exchange rates on cash and cash equivalents		169		798
Change in cash and cash equivalents		3,008		(23,980)
Cash and cash equivalents, beginning of period		45,286		33,857
Cash and cash equivalents, end of period	$	48,294	$	9,877
Supplemental Disclosure of Cash Flows Information:
Cash paid (received) for income taxes, net	$	3,141	$	(100)
Cash paid for interest	$	2,359	$	1,282
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Accruals and accounts payable for capital expenditures	$	238	$	119

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

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CADRE HOLDINGS, INC.

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, 2022	37,332,271	$	4	$	206,540	$	2,087	$	(42,741)	$	165,890
Net income	—		—		—		—		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


				Additional
	Common Stock			Paid-In		Accumulated Other		Accumulated		Shareholders'
	Shares	Amount		Capital		Comprehensive Income		Deficit		Equity
Balance, December 31, 2021	34,383,350	$	3	$	127,606	$	(1,917)	$	(37,052)	$	88,640
Net loss	—		—		—		—		(10,165)		(10,165)
Dividends declared ($0.08 per share)	—		—		—		—		(2,750)		(2,750)
Stock-based compensation	—		—		22,436		—		—		22,436
Common stock issued under employee compensation plans	580,990		—		1,152		—		—		1,152
Common stock withheld related to net share settlement of stock-based compensation	(182,069)		—		(6,216)		—		—		(6,216)
Foreign currency translation adjustments	—		—		—		(360)		—		(360)
Change in fair value of derivative instruments	—		—		—		3,208		—		3,208
Balance, March 31, 2022	34,782,271	$	3	$	144,978	$	931	$	(49,967)	$	95,945

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

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CADRE HOLDINGS, INC.

NOTES TO 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 and survivability products and other related products for the law enforcement, first responder and military markets. The business operates through 16 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 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 interim consolidated 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 interim consolidated 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.

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, presenting only two years of audited financial statements, 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 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.

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CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Use of Estimates

The preparation of these 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, 2023								December 31, 2022
	Carrying		Fair Value						Carrying		Fair Value
	amount			Level 1		Level 2		Level 3	amount			Level 1		Level 2		Level 3
Assets:
Interest rate swap (Note 6)	$	7,555	$	—	$	7,555	$	—	$	8,985	$	—	$	8,985	$	—

Liabilities:
Interest rate swap (Note 6)		—		—		—		—		—		—		—		—

There were no transfers of assets or liabilities between levels during the three months ended March 31, 2023 and 2022.

The carrying value of our long-term debt obligations approximates the fair value, as the long-term debt contains a floating interest rate component.

Revenue Recognition

The Company derives revenue primarily from the sale of physical products. The Company recognizes revenue 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 delayed until the receipt

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CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

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. The Company has some long-term contracts that may contain research and development performance obligations that are satisfied over time. The Company invoices the customer once the billing milestone is reached and collects under customary short-term credit terms. For long-term contracts, the Company recognizes revenue using the input method based on costs incurred, as this method is an appropriate measure of progress toward the complete satisfaction of the performance obligation. Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicates a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

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 consolidated statements of operations and comprehensive income (loss). 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 are capitalized and amortized over the life of the contract. These costs are recorded in selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income (loss).

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 consolidated statements of operations and comprehensive income (loss).

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


	Three months ended March 31,
	2023		2022
Beginning accrued warranty expense	$	1,234	$	1,256
Current period claims		(34)		(116)
Provision for current period sales		150		93
Ending accrued warranty expense	$	1,350	$	1,233

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CADRE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except share and per share amounts)

Net Income (Loss) per Share

Basic income or loss per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the periods presented. Diluted income or loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of potential common shares, determined using the treasury-stock method. The calculation of weighted average shares outstanding and net income (loss) per share are as follows:


	Three months ended March 31,
	2023		2022
Net income (loss)	$	7,002	$	(10,165)

Weighted average shares outstanding - basic		37,373,529		34,446,318
Effect of dilutive securities:
Stock-based awards		255,969		—
Weighted average shares outstanding - diluted		37,629,498		34,446,318
Net income (loss) per share:
Basic	$	0.19	$	(0.30)
Diluted	$	0.19	$	(0.30)

For the three months ended March 31, 2022, 886,108 restricted stock awards and 357,479 stock options were excluded from diluted weighted average shares outstanding because the impact would be anti-dilutive due to a net loss in the period.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 includes an impairment model (known as the current expected credit loss model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. In November 2019, the FASB issued additional guidance which extends the effective date of ASU 2016-13 for emerging growth companies to begin in fiscal years beginning after December 15, 2022. The Company adopted this standard on January 1, 2023. The adoption of this ASU did not have a material impact on our consolidated financial statements and disclosures.

Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and related amendments. This ASU provides temporary optional expedients and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Inter-Bank Offered Rate (“LIBOR”) which began to be phased out in 2021, to alternate reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The standard is currently effective and upon adoption may be applied to applicable contract modifications through December 31, 2024. The Company is in the process of evaluating the optional relief guidance provided within this ASU but we expect to avail ourselves of certain optional expedients related to the cash flow hedges on our floating rate debt. Management will continue its assessment and monitor regulatory developments during the LIBOR transition period. Currently, management does not believe that the impact of transitioning from LIBOR to SOFR will have a material impact on our consolidated financial statements.

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CADRE HOLDINGS, INC.

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2. ACQUISITIONS

Radar Acquisition

On January 11, 2022, Safariland, LLC, a wholly-owned subsidiary of the Company, completed the acquisition of Radar Leather Division S.r.l. (“Radar”), a premiere family-owned duty gear business based in Italy that specializes in the production of high-quality holsters, belts, duty belts, and other accessories.

The acquisition was accounted for as a business combination. Total acquisition-related costs for the acquisition of Radar were $627, of which $204 was incurred and recognized during 2022.

Total consideration, net of cash acquired, was $19,365 for 100% of the equity interests in Radar. The total consideration was as follows:


Cash paid	$	20,844
Less: cash acquired		(1,479)
Total consideration, net	$	19,365

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. Since our initial purchase price allocation and during the measurement period, we have increased goodwill by $390 for revisions made to cash paid, inventory acquired and deferred income taxes for certain book and tax basis differences as we completed the tax return filings for the pre-acquisition period. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill. Goodwill for the Radar 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	$	19,365

Accounts receivable	$	2,347
Inventories		1,874
Prepaid expenses		682
Other current assets		665
Property and equipment		3,053
Intangible assets		10,200
Goodwill		7,101
Total assets acquired		25,922
Accounts payable		1,120
Deferred tax liabilities		2,787
Accrued liabilities		2,106
Long-term debt		544
Total liabilities assumed		6,557
Net assets acquired	$	19,365

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In connection with the acquisition, the Company acquired exclusive rights to Radar’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:

The full amount of goodwill of $7,101 is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and Radar prior to the acquisition. Radar revenue and cost of goods sold are included in the Product segment from the date of acquisition. The acquisition was not material to our consolidated financial statements and consequently we have not included any pro-forma information.

Cyalume Acquisition

On May 4, 2022, Safariland, LLC, a wholly-owned subsidiary of the Company, completed the acquisition of Cyalume Technologies, Inc, CT SAS Holdings, Inc. and Cyalume Technologies SAS (collectively “Cyalume”). Cyalume is engaged in the design and manufacture of proprietary chemical illumination solutions for a diverse range of products, including light sticks, infrared products, safety markings and non-pyrophoric training ammunition.

The acquisition was accounted for as a business combination. Acquisition-related costs for the acquisition of Cyalume were $3,546, all of which was incurred and recognized during 2022.

Total consideration, net of cash acquired, was $36,178 for 100% of the equity interests in Cyalume. The total consideration was as follows:


Cash paid	$	38,012
Less: cash acquired		(1,834)
Total consideration, net	$	36,178

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The following table summarizes the total purchase price consideration and the preliminary fair value 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. Since our initial purchase price allocation, we have increased goodwill by $1,867 for revisions made to cash paid as a result of a working capital settlement, changes in assumptions used to fair value property and equipment, and deferred income taxes for certain book and tax basis differences as we complete the tax return filings for the pre-acquisition period. The fair value measurements of identifiable assets and liabilities, specifically deferred tax assets and liabilities, and the resulting goodwill related to the Cyalume acquisition, are subject to change as we complete our valuation process, and therefore 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 Cyalume 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	$	36,178

Accounts receivable	$	3,302
Inventories		10,908
Prepaid expenses		255
Other current assets		10
Property and equipment		12,492
Intangible assets		8,300
Goodwill		8,508
Total assets acquired		43,775
Accounts payable		1,080
Deferred tax liabilities		4,652
Accrued liabilities		1,577
Other long-term liabilities		288
Total liabilities assumed		7,597
Net assets acquired	$	36,178

In connection with the acquisition, the Company acquired exclusive rights to Cyalume’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	$	3,900		15
Technology		3,600		10
Trademarks		800		Indefinite
Total	$	8,300

The full amount of goodwill of $8,508 is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and Cyalume prior to the acquisition. Cyalume revenue and cost of goods sold are included in the Product segment from the date of acquisition. The acquisition was not material to our consolidated financial statements and consequently we have not included any pro-forma information.

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3. REVENUE RECOGNITION

The following tables disaggregate net sales by channel and geography:


	Three months ended March 31,
	2023		2022
U.S. state and local agencies (a)	$	66,502	$	57,923
Commercial		10,077		11,034
U.S. federal agencies		14,127		7,914
International		20,432		27,019
Other		610		516
Net sales	$	111,748	$	104,406

(a) Includes all Distribution sales


	Three months ended March 31,
	2023		2022
United States	$	91,316	$	77,387
International		20,432		27,019
Net sales	$	111,748	$	104,406

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 reversed into revenue when the performance obligation is satisfied. Contract liabilities are included in accrued liabilities in the Company’s consolidated balance sheets and totaled $4,257 and $4,615 as of March 31, 2023 and December 31, 2022, respectively. Revenue recognized during the three months ended March 31, 2023 from amounts included in contract liabilities as of December 31, 2022 was $1,805.

Remaining Performance Obligations

As of March 31, 2023, we had $26,731 of remaining performance obligations, which included 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, 2023. We expect to recognize approximately 67% 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, 2023 and December 31, 2022:


	March 31, 2023		December 31, 2022
Finished goods	$	27,583	$	25,208
Work-in-process		8,751		7,466
Raw materials and supplies		40,009		37,599
Total	$	76,343	$	70,273

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5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table summarizes the changes in goodwill for the three months ended March 31, 2023:


	Product		Distribution		Total
Balance, December 31, 2022	$	78,960	$	2,616	$	81,576
Measurement period adjustments		(593)		—		(593)
Foreign currency translation adjustments		309		—		309
Balance, March 31, 2023	$	78,676	$	2,616	$	81,292

Gross goodwill and accumulated impairment losses was $88,877 and $7,585, respectively, as of March 31, 2023 and $89,161 and $7,585, respectively, as of December 31, 2022.

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, 2023 and December 31, 2022:


	March 31, 2023
							Weighted
				Accumulated			Average
	Gross			amortization		Net	Useful Life
Definite lived intangibles:
Customer relationships	$	86,181	$	(60,974)	$	25,207	11
Technology		16,010		(11,835)		4,175	8
Tradenames		6,545		(4,583)		1,962	4
Non-compete agreements		986		(986)		—	4
	$	109,722	$	(78,378)	$	31,344
Indefinite lived intangibles:
Tradenames		17,417		—		17,417	Indefinite
Total	$	127,139	$	(78,378)	$	48,761


	December 31, 2022
							Weighted
				Accumulated			Average
	Gross			amortization		Net	Useful Life
Definite lived intangibles:
Customer relationships	$	85,847	$	(59,122)	$	26,725	11
Technology		15,629		(11,309)		4,320	8
Tradenames		6,484		(4,254)		2,230	4
Non-compete agreements		973		(973)		—	4
	$	108,933	$	(75,658)	$	33,275
Indefinite lived intangibles:
Tradenames		17,420		—		17,420	Indefinite
Total	$	126,353	$	(75,658)	$	50,695

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(in thousands, except share and per share amounts)

The Company recorded amortization expense of $2,328 and $2,157 for the three months ended March 31, 2023 and 2022, respectively, of which $162 and $50 was included in cost of goods sold in the consolidated statements of operations and comprehensive income (loss) for the respective periods.

The estimated amortization expense for definite-lived intangible assets for the remaining nine months of 2023, the next four years and thereafter is as follows:


Remainder of 2023	$	5,508
2024		5,055
2025		3,091
2026		2,695
2027		2,517
Thereafter		12,478
Total	$	31,344

6. DEBT

The Company’s debt is as follows:


	March 31, 2023		December 31, 2022
Short-term debt:
Insurance premium financing	$	1,119	$	2,211
Current portion of term loan		10,000		10,000
	$	11,119	$	12,211
Long-term debt:
Revolver		—		—
Term loan		136,064		138,564
Other		523		512
	$	136,587	$	139,076
Unamortized debt discount and debt issuance costs

Average Useful Life

Customer relationships

Technology

Trademarks