August 9, 2024 - 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: June 30, 2024

☐ 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 August 5, 2024, there were 40,607,988 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 – June 30, 2024 and December 31, 2023	5
	Condensed Consolidated Statements of Operations and Comprehensive Income – Three and six months ended June 30, 2024 and 2023	6
	Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2024 and 2023	7
	Condensed Consolidated Statements of Shareholders’ Equity – Three and six months ended June 30, 2024 and 2023	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 5.	Other Information	40
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;

●

our ability to integrate the operations of the businesses we have acquired, including, without limitation, ICOR Technology Inc. and Alpha Safety Intermediate, LLC, and may acquire in the future;

●

potential legal, reputational, operational and financial effects on the Company resulting from the cybersecurity incident that we reported in July 2024 and/or future cybersecurity incidents on the Company’s business, operations and financial results as well as the effectiveness of the Company’s response and mitigation efforts to any such cybersecurity incidents; and

●

other risks and uncertainties set forth in the section entitled “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, which are incorporated herein by reference.

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

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

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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)


	June 30, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	105,903	$	87,691
Accounts receivable, net of allowance for doubtful accounts of $1,349 and $635, respectively		72,685		58,360
Inventories		95,637		80,976
Prepaid expenses		9,751		11,930
Other current assets		11,014		6,886
Total current assets		294,990		245,843
Property and equipment, net of accumulated depreciation and amortization of $51,186 and $50,968, respectively		46,718		44,647
Operating lease assets		9,624		6,554
Deferred tax assets, net		3,835		4,004
Intangible assets, net		112,229		43,472
Goodwill		148,141		81,667
Other assets		5,095		4,992
Total assets	$	620,632	$	431,179

Liabilities, Mezzanine Equity and Shareholders' Equity
Current liabilities
Accounts payable	$	31,489	$	28,418
Accrued liabilities		46,645		44,524
Income tax payable		1,788		9,944
Current portion of long-term debt		13,128		12,320
Total current liabilities		93,050		95,206
Long-term debt		198,233		127,812
Long-term operating lease liabilities		6,062		3,186
Deferred tax liabilities		18,852		4,843
Other liabilities		5,055		2,970
Total liabilities		321,252		234,017

Commitments and contingencies (Note 8)

Mezzanine equity
Preferred stock ($0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of June 30, 2024 and December 31, 2023)		—		—

Shareholders' equity
Common stock ($0.0001 par value, 190,000,000 shares authorized, 40,607,988 and 37,587,436 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively)		4		4
Additional paid-in capital		302,603		212,630
Accumulated other comprehensive income		226		634
Accumulated deficit		(3,453)		(16,106)
Total shareholders’ equity		299,380		197,162
Total liabilities, mezzanine equity and shareholders' equity	$	620,632	$	431,179

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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net sales	$	144,309	$	121,087	$	282,169	$	232,835
Cost of goods sold		85,659		70,340		165,891		135,470
Gross profit		58,650		50,747		116,278		97,365
Operating expenses
Selling, general and administrative		38,577		34,051		79,296		69,301
Restructuring and transaction costs		19		693		3,106		693
Related party expense		101		115		1,944		263
Total operating expenses		38,697		34,859		84,346		70,257
Operating income		19,953		15,888		31,932		27,108
Other expense
Interest expense		(2,003)		(1,013)		(3,640)		(2,654)
Other (expense) income, net		(336)		346		(1,780)		710
Total other expense, net		(2,339)		(667)		(5,420)		(1,944)
Income before provision for income taxes		17,614		15,221		26,512		25,164
Provision for income taxes		(5,047)		(4,229)		(7,017)		(7,170)
Net income	$	12,567	$	10,992	$	19,495	$	17,994

Net income per share:
Basic	$	0.31	$	0.29	$	0.50	$	0.48
Diluted	$	0.31	$	0.29	$	0.49	$	0.48
Weighted average shares outstanding:
Basic		40,606,825		37,586,031		39,276,700		37,480,367
Diluted		40,855,185		37,850,708		39,701,755		37,758,998

Net income	$	12,567	$	10,992	$	19,495	$	17,994
Other comprehensive income:
Unrealized holding gains on derivative instruments, net of tax⁽¹⁾		169		1,576		1,829		1,150
Reclassification adjustments for gains included in net income, net of tax⁽²⁾		(834)		(735)		(1,728)		(1,382)
Total unrealized (loss) gain on derivative instruments, net of tax		(665)		841		101		(232)
Foreign currency translation adjustments, net of tax⁽³⁾		(97)		185		(509)		891
Other comprehensive (loss) income		(762)		1,026		(408)		659
Comprehensive income, net of tax	$	11,805	$	12,018	$	19,087	$	18,653

(1) Net of income tax expense of $64 and $525 for the three months ended June 30, 2024 and 2023, respectively, and $610 and $383 for the six months ended June 30, 2024 and 2023, respectively.

(2) Amounts reclassified to net income relate to gains and losses on derivative and are included in earnings above. Amounts are net of income tax expense of $294 and $245 for the three months ended June 30, 2024 and 2023, respectively, and $578 and $460 for the six months ended June 30, 2024 and 2023, respectively.

(3) Net of income tax benefit of $27 and expense of $144 for the three months ended June 30, 2024 and 2023, respectively, and income tax benefit of $126 and expense of $225 for the six months ended June 30, 2024 and 2023, 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)


	Six Months Ended June 30,
	2024		2023
Cash Flows From Operating Activities:
Net income	$	19,495	$	17,994
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,562		8,220
Amortization of original issue discount and debt issue costs		502		374
Amortization of inventory step-up		2,310		—
Deferred income taxes		(1,915)		14
Stock-based compensation		4,151		4,852
Remeasurement of contingent consideration		509		—
Provision for losses on accounts receivable		769		(21)
Foreign exchange loss (gain)		971		(776)
Other loss (gain)		251		(433)
Changes in operating assets and liabilities, net of impact of acquisitions:
Accounts receivable		(3,387)		7,605
Inventories		2,355		(11,986)
Prepaid expenses and other assets		705		3,397
Accounts payable and other liabilities		(21,998)		(971)
Net cash provided by operating activities		13,280		28,269
Cash Flows From Investing Activities:
Purchase of property and equipment		(3,365)		(2,404)
Proceeds from disposition of property and equipment		49		206
Business acquisitions, net of cash acquired		(141,813)		—
Net cash used in investing activities		(145,129)		(2,198)
Cash Flows From Financing Activities:
Proceeds from revolving credit facilities		5,500		—
Principal payments on revolving credit facilities		(5,500)		—
Proceeds from term loans		80,000		—
Principal payments on term loans		(6,065)		(5,000)
Principal payments on insurance premium financing		(2,187)		(2,189)
Payments for debt issuance costs		(844)		—
Taxes paid in connection with employee stock transactions		(5,311)		(2,725)
Proceeds from secondary offering, net of underwriter discounts		91,776		—
Deferred offering costs		(683)		—
Dividends distributed		(6,842)		(5,993)
Other		37		—
Net cash provided by (used in) financing activities		149,881		(15,907)
Effect of foreign exchange rates on cash and cash equivalents		180		332
Change in cash and cash equivalents		18,212		10,496
Cash and cash equivalents, beginning of period		87,691		45,286
Cash and cash equivalents, end of period	$	105,903	$	55,782
Supplemental Disclosure of Cash Flows Information:
Cash paid for income taxes, net	$	21,605	$	7,288
Cash paid for interest	$	6,458	$	4,859
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Accruals and accounts payable for capital expenditures	$	58	$	129

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, 2023	37,587,436	$	4	$	212,630	$	634	$	(16,106)	$	197,162
Net income	—		—		—		—		6,928		6,928
Dividends declared ($0.0875 per share)	—		—		—		—		(3,289)		(3,289)
Issuance of common stock in secondary offering, net of underwriter discounts and issuance costs	2,200,000		—		72,813		—		—		72,813
Stock-based compensation	—		—		2,044		—		—		2,044
Common stock issued under employee compensation plans	423,688		—		—		—		—		—
Common stock withheld related to net share settlement of stock-based compensation	(150,680)		—		(5,311)		—		—		(5,311)
Foreign currency translation adjustments	—		—		—		(412)		—		(412)
Change in fair value of derivative instruments	—		—		—		766		—		766
Balance, March 31, 2024	40,060,444	$	4	$	282,176	$	988	$	(12,467)	$	270,701
Net income	—		—		—		—		12,567		12,567
Issuance of common stock in secondary offering, net of underwriter discounts and issuance costs	545,719		—		18,280		—		—		18,280
Dividends declared ($0.0875 per share)	—		—		—		—		(3,553)		(3,553)
Stock-based compensation	—		—		2,110		—		—		2,110
Exercise of stock options	1,825		—		37		—		—		37
Foreign currency translation adjustments	—		—		—		(97)		—		(97)
Change in fair value of derivative instruments	—		—		—		(665)		—		(665)
Balance, June 30, 2024	40,607,988	$	4	$	302,603	$	226	$	(3,453)	$	299,380


				Additional
	Common Stock			Paid-In		Accumulated Other		Accumulated		Shareholders'
	Shares	Amount		Capital		Comprehensive Income		Deficit		Equity
Balance, December 31, 2022	37,332,271	$	4	$	206,540	$	2,087	$	(42,741)	$	165,890
Net loss	—		—		—		—		7,002		7,002
Dividends declared ($0.08 per share)	—		—		—		—		(2,986)		(2,986)
Stock-based compensation	—		—		2,636		—		—		2,636
Common stock issued under employee compensation plans	395,837		—		—		—		—		—
Common stock withheld related to net share settlement of stock-based compensation	(142,077)		—		(2,725)		—		—		(2,725)
Foreign currency translation adjustments	—		—		—		706		—		706
Change in fair value of derivative instruments	—		—		—		(1,073)		—		(1,073)
Balance, March 31, 2023	37,586,031	$	4	$	206,451	$	1,720	$	(38,725)	$	169,450
Net loss	—		—		—		—		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

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 equipment and other related products for the law enforcement, first responder, military and nuclear markets. The business operates through 21 manufacturing plants within the U.S., Mexico, Canada, the United Kingdom, Italy, France, and Lithuania, and sells its products worldwide through its direct sales force, distribution channel and distribution partners, online stores, and third-party resellers.

Principles of Consolidation

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

Secondary Offering

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

On April 1, 2024, the underwriters exercised the full amount of their over-allotment option and purchased an additional 545,719 shares of common stock at a price of $35.00 per share, resulting in net proceeds to the Company of $18,280 after underwriter discounts and commissions, fees and expenses of $820.

Emerging Growth Company

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

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

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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 and cash equivalents (money market funds), 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 and cash equivalents (money market funds), 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:


	June 30, 2024								December 31, 2023
	Carrying		Fair Value						Carrying		Fair Value
	Amount			Level 1		Level 2		Level 3	Amount			Level 1		Level 2		Level 3
Assets:
Money market funds	$	88,847	$	88,847	$	—	$	—	$	74,451	$	74,451	$	—	$	—
Derivative instruments (Note 7)	$	6,808	$	—	$	6,808	$	—	$	6,505	$	—	$	6,505	$	—

Liabilities:
Derivative instruments (Note 7)	$	—	$	—	$	—	$	—	$	427	$	—	$	427	$	—
Contingent consideration (Note 2)	$	2,681	$	—	$	—	$	2,681	$	—	$	—	$	—	$	—

There were no transfers of assets or liabilities between levels during the six months ended June 30, 2024 and 2023.

There have not been material changes in the fair value of debt (Level 2), as compared to the carrying value, as of June 30, 2024 and December 31, 2023.

Revenue Recognition

The Company derives revenue primarily from the sale of physical products. The Company recognizes such revenue at point-in-time when a contract exists with a customer that specifies the goods and services to be provided at an agreed upon sales price and when the

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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 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 certain long-term contracts that contain 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 indicate 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 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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Beginning accrued warranty expense	$	1,551	$	1,350	$	1,610	$	1,234
Current period claims		2		(317)		(114)		(351)
Provision for current period sales		61		534		118		684
Ending accrued warranty expense	$	1,614	$	1,567	$	1,614	$	1,567

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Net Income per Share

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


	Three Months Ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Net income	$	12,567	$	10,992	$	19,495	$	17,994

Weighted average shares outstanding - basic		40,606,825		37,586,031		39,276,700		37,480,367
Effect of dilutive securities:
Stock-based awards		248,360		264,677		425,054		278,631
Weighted average shares outstanding - diluted		40,855,185		37,850,708		39,701,755		37,758,998
Net income per share:
Basic	$	0.31	$	0.29	$	0.50	$	0.48
Diluted	$	0.31	$	0.29	$	0.49	$	0.48

Recent Accounting Pronouncements

Accounting Pronouncements Not Yet Adopted

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

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

2. ACQUISITIONS

ICOR Acquisition

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

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The acquisition was accounted for as a business combination. Total acquisition-related costs for the acquisition of ICOR were $1,757, of which $155 was incurred and recognized during the six months ended June 30, 2024.

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


Cash paid	$	40,350
Less: cash acquired		(1,068)
Plus: Contingent consideration		2,226
Total consideration, net	$	41,508

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


Total consideration, net	$	41,508

Accounts receivable	$	2,352
Inventories		8,086
Prepaid expenses and other current assets		612
Property and equipment		239
Operating lease assets		1,369
Intangible assets		16,677
Goodwill		18,980
Total assets acquired		48,315
Accounts payable		635
Accrued liabilities		1,456
Long-term operating lease liabilities		967
Deferred tax liabilities		3,749
Total liabilities assumed		6,807
Net assets acquired	$	41,508

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

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

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

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

The following table summarizes the changes in the contingent consideration liability for the three and six months ended June 30, 2024:


Balance, December 31, 2023	$	—
ICOR acquisition		2,226
Fair value adjustment		451
Foreign currency translation adjustments		(6)
Balance, March 31, 2024	$	2,671
Fair value adjustment		58
Foreign currency translation adjust

Average Useful Life

Customer relationships

Technology

Trademarks