November 8, 2023 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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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: September 30, 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 November 3, 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)

	Condensed Consolidated Balance Sheets – September 30, 2023 and December 31, 2022	5
	Condensed Consolidated Statements of Operations and Comprehensive Income – Three and nine months ended September 30, 2023 and 2022	6
	Condensed Consolidated Statements of Cash Flows –Nine months ended September 30, 2023 and 2022	7
	Condensed Consolidated Statements of Shareholders’ Equity – Three and nine months ended September 30, 2023 and 2022	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	40

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 6.	Exhibits	41
Signature Page		42

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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 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

●

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, 2022, 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CADRE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)


	September 30, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	69,412	$	45,286
Accounts receivable, net of allowance for doubtful accounts of $819 and $924, respectively		61,261		64,557
Inventories		82,546		70,273
Prepaid expenses		14,667		10,091
Other current assets		8,836		6,811
Total current assets		236,722		197,018
Property and equipment, net of accumulated depreciation and amortization of $48,994 and $42,694, respectively		43,657		45,285
Operating lease assets		6,643		8,489
Deferred tax assets, net		2,299		2,255
Intangible assets, net		44,333		50,695
Goodwill		81,212		81,576
Other assets		5,639		6,634
Total assets	$	420,505	$	391,952

Liabilities, Mezzanine Equity and Shareholders' Equity
Current liabilities
Accounts payable	$	30,733	$	23,406
Accrued liabilities		38,673		38,720
Income tax payable		7,049		4,584
Current portion of long-term debt		13,251		12,211
Total current liabilities		89,706		78,921
Long-term debt		130,309		137,476
Long-term operating lease liabilities		3,603		4,965
Deferred tax liabilities		5,047		3,508
Other liabilities		1,843		1,192
Total liabilities		230,508		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 September 30, 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 September 30, 2023 and December 31, 2022, respectively)		4		4
Additional paid-in capital		210,543		206,540
Accumulated other comprehensive income		2,143		2,087
Accumulated deficit		(22,693)		(42,741)
Total shareholders’ equity		189,997		165,890
Total liabilities, mezzanine equity and shareholders' equity	$	420,505	$	391,952

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

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CADRE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net sales	$	125,114	$	111,554	$	357,949	$	334,192
Cost of goods sold		71,511		67,814		206,981		207,042
Gross profit		53,603		43,740		150,968		127,150
Operating expenses
Selling, general and administrative		36,314		31,732		105,615		118,431
Restructuring and transaction costs		439		1,578		1,132		3,380
Related party expense		116		112		379		1,346
Total operating expenses		36,869		33,422		107,126		123,157
Operating income		16,734		10,318		43,842		3,993
Other expense
Interest expense		(1,073)		(1,567)		(3,727)		(4,496)
Other (expense) income, net		(315)		(1,851)		395		(2,812)
Total other expense, net		(1,388)		(3,418)		(3,332)		(7,308)
Income (loss) before provision for income taxes		15,346		6,900		40,510		(3,315)
(Provision) benefit for income taxes		(4,293)		(1,959)		(11,463)		2,536
Net income (loss)	$	11,053	$	4,941	$	29,047	$	(779)

Net income (loss) per share:
Basic	$	0.29	$	0.13	$	0.77	$	(0.02)
Diluted	$	0.29	$	0.13	$	0.77	$	(0.02)
Weighted average shares outstanding:
Basic		37,586,031		37,289,880		37,515,976		35,697,891
Diluted		37,930,888		37,747,614		37,830,790		35,697,891

Net income (loss)	$	11,053	$	4,941	$	29,047	$	(779)
Other comprehensive income:
Unrealized holding gains, net of tax⁽¹⁾		1,131		2,350		2,281		6,414
Reclassification adjustments for gains included in net income (loss), net of tax⁽²⁾		(884)		(252)		(2,266)		(106)
Total unrealized gain on interest rate swaps, net of tax		247		2,098		15		6,308
Foreign currency translation adjustments, net of tax⁽³⁾		(850)		(2,839)		41		(5,237)
Other comprehensive (loss) income		(603)		(741)		56		1,071
Comprehensive income, net of tax	$	10,450	$	4,200	$	29,103	$	292

(1) Net of income tax expense of $377 and $783 for the three months ended September 30, 2023 and 2022, respectively, and $760 and $2,138 for the nine months ended September 30, 2023 and 2022, respectively.

(2) Amounts reclassified to net income (loss) relate to (gains) losses on interest rate swaps and are included in Interest expense above. Amounts are net of income tax expense of $295 and $84 for the three months ended September 30, 2023 and 2022, respectively, and $755 and $35 for the nine months ended September 30, 2023 and 2022, respectively.

(3) Net of income tax benefit of $170 and $916 for the three months ended September 30, 2023 and 2022, respectively, and income tax expense of $55 and income tax benefit of $934 for the nine months ended September 30, 2023 and 2022, respectively.

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

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CADRE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2023		2022
Cash Flows From Operating Activities:
Net income (loss)	$	29,047	$	(779)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		12,385		11,319
Amortization of original issue discount and debt issue costs		359		554
Amortization of inventory step-up		—		3,055
Deferred income taxes		1,317		(2,755)
Stock-based compensation		7,060		28,988
Gain on sale of fixed assets		(98)		—
Provision for losses on accounts receivable		37		245
Foreign exchange (gain) loss		(243)		3,006
Other		(296)		—
Changes in operating assets and liabilities, net of impact of acquisitions:
Accounts receivable		3,429		(3,271)
Inventories		(12,229)		(7,187)
Prepaid expenses and other assets		(3,131)		986
Accounts payable and other liabilities		8,623		(4,660)
Net cash provided by operating activities		46,260		29,501
Cash Flows From Investing Activities:
Purchase of property and equipment		(4,248)		(2,938)
Proceeds from disposition of property and equipment		206		—
Business acquisitions, net of cash acquired		—		(55,039)
Net cash used in investing activities		(4,042)		(57,977)
Cash Flows From Financing Activities:
Proceeds from revolving credit facilities		—		43,000
Principal payments on revolving credit facilities		—		(43,000)
Principal payments on term loans		(7,500)		(7,514)
Proceeds from insurance premium financing		3,949		3,989
Principal payments on insurance premium financing		(2,909)		(3,878)
Payment of capital leases		—		(26)
Taxes paid in connection with employee stock transactions		(2,725)		(6,216)
Proceeds from secondary offering, net of underwriter discounts		—		56,329
Deferred offering costs		—		(2,953)
Dividends distributed		(8,999)		(8,521)
Net cash (used in) provided by financing activities		(18,184)		31,210
Effect of foreign exchange rates on cash and cash equivalents		92		(241)
Change in cash and cash equivalents		24,126		2,493
Cash and cash equivalents, beginning of period		45,286		33,857
Cash and cash equivalents, end of period	$	69,412	$	36,350
Supplemental Disclosure of Cash Flows Information:
Cash paid for income taxes, net	$	7,923	$	710
Cash paid for interest	$	7,389	$	3,860
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Accruals and accounts payable for capital expenditures	$	24	$	272

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

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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, 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
Net income	—		—		—		—		10,992		10,992
Dividends declared ($0.08 per share)	—		—		—		—		(3,007)		(3,007)
Stock-based compensation	—		—		2,041		—		—		2,041
Foreign currency translation adjustments	—		—		—		185		—		185
Change in fair value of derivative instruments	—		—		—		841		—		841
Balance, June 30, 2023	37,586,031	$	4	$	208,492	$	2,746	$	(30,740)	$	180,502
Net income	—		—		—		—		11,053		11,053
Issuance of common stock in secondary offering, net of underwriter discounts and issuance costs	—		—		—		—		—		—
Dividends declared ($0.08 per share)	—		—		—		—		(3,006)		(3,006)
Stock-based compensation	—		—		2,051		—		—		2,051
Foreign currency translation adjustments	—		—		—		(850)		—		(850)
Change in fair value of derivative instruments	—		—		—		247		—		247
Balance, September 30, 2023	37,586,031	$	4	$	210,543	$	2,143	$	(22,693)	$	189,997

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

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CADRE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - CONTINUED

(Unaudited)

(In thousands, except per share amounts)


				Additional
	Common Stock			Paid-In		Accumulated Other		Accumulated		Shareholders'
	Shares	Amount		Capital		Comprehensive (Loss) 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
Net income	—		—		—		—		4,445		4,445
Issuance of common stock in secondary offering, net of underwriter discounts and issuance costs	2,250,000		1		46,987		—		—		46,988
Dividends declared ($0.08 per share)	—		—		—		—		(2,783)		(2,783)
Stock-based compensation	—		—		2,739		—		—		2,739
Foreign currency translation adjustments	—		—		—		(2,038)		—		(2,038)
Change in fair value of derivative instruments	—		—		—		1,002		—		1,002
Balance, June 30, 2022	37,032,271	$	4	$	194,704	$	(105)	$	(48,305)	$	146,298
Net income	—		—		—		—		4,941		4,941
Issuance of common stock in secondary offering, net of underwriter discounts and issuance costs	300,000		—		6,389		—		—		6,389
Dividends declared	—		—		—		—		(2,988)		(2,988)
Stock-based compensation	—		—		2,661		—		—		2,661
Foreign currency translation adjustments	—		—		—		(2,839)		—		(2,839)
Change in fair value of derivative instruments	—		—		—		2,098		—		2,098
Balance, September 30, 2022	37,332,271	$	4	$	203,754	$	(846)	$	(46,352)	$	156,560

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

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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 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 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 June 9, 2022, the Company completed a secondary offering in which the Company issued and sold 2,250,000 shares of common stock at a price of $23.50 per share. The Company’s net proceeds from the sale of shares were $46,988 after underwriter discounts and commissions, fees and expenses of $2,715, of which $2,000 was paid to Kanders & Company, Inc., a company controlled by Warren Kanders, our Chief Executive Officer.

On July 14, 2022, the underwriters exercised a portion of their over-allotment option and purchased an additional 300,000 shares of common stock at a price of $23.50 per share, resulting in net proceeds to the Company of $6,627 after underwriter discounts and commissions, fees and expenses of $423.

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 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.

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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:


	September 30, 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 swaps (Note 6)	$	9,303	$	—	$	9,303	$	—	$	8,985	$	—	$	8,985	$	—

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

There were no transfers of assets or liabilities between levels during the nine months ended September 30, 2023 and 2022.

There have not been material changes in the fair value of debt (Level 2), as compared to the carrying value, as of September 30, 2023 and December 31, 2022.

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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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. Revenue related to contracts recognized over time do not represent a material portion of the Company’s overall revenue.

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Beginning accrued warranty expense	$	1,567	$	1,427	$	1,234	$	1,256
Current period claims		(451)		(311)		(802)		(398)
Provision for current period sales		590		81		1,274		339
Ending accrued warranty expense	$	1,706	$	1,197	$	1,706	$	1,197

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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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	11,053	$	4,941	$	29,047	$	(779)

Weighted average shares outstanding - basic		37,586,031		37,289,880		37,515,976		35,697,891
Effect of dilutive securities:
Stock-based awards		344,857		457,734		314,814		—
Weighted average shares outstanding - diluted		37,930,888		37,747,614		37,830,790		35,697,891
Net income (loss) per share:
Basic	$	0.29	$	0.13	$	0.77	$	(0.02)
Diluted	$	0.29	$	0.13	$	0.77	$	(0.02)

For the nine months ended September 30, 2022, 7,363 restricted stock awards 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 condensed consolidated financial statements and disclosures.

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”). On May 31, 2023, we amended our 2021 credit agreement and interest rate swap agreements to affect the transition from LIBOR to SOFR. In connection with these amendments, the Company adopted ASU 2020-04 in the second quarter of 2023. In doing so, the Company elected to adopt the suite of optional expedients when analyzing the amendment to the credit agreement and related interest swaps. As such, the amendments to the Company’s 2021 credit agreement and swap agreements, and the adoption of this ASU did not have a material impact on our condensed consolidated financial statements and disclosures.

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(in thousands, except share and per share amounts)

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 premier 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. 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

Form: 10-Q

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