November 6, 2024 - 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, 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 November 4, 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 – September 30, 2024 and December 31, 2023	5
	Condensed Consolidated Statements of Operations and Comprehensive Income – Three and nine months ended September 30, 2024 and 2023	6
	Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2024 and 2023	7
	Condensed Consolidated Statements of Shareholders’ Equity – Three and nine months ended September 30, 2024 and 2023	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
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 5.	Other Information	41
Item 6.	Exhibits	42
Signature Page		43

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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)


	September 30, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	92,989	$	87,691
Accounts receivable, net of allowance for doubtful accounts of $1,317 and $635, respectively		69,432		58,360
Inventories		99,583		80,976
Prepaid expenses		15,603		11,930
Other current assets		8,305		6,886
Total current assets		285,912		245,843
Property and equipment, net of accumulated depreciation and amortization of $53,098 and $50,968, respectively		46,221		44,647
Operating lease assets		16,922		6,554
Deferred tax assets, net		3,870		4,004
Intangible assets, net		111,024		43,472
Goodwill		148,944		81,667
Other assets		3,722		4,992
Total assets	$	616,615	$	431,179

Liabilities, Mezzanine Equity and Shareholders' Equity
Current liabilities
Accounts payable	$	27,565	$	28,418
Accrued liabilities		47,241		44,524
Income tax payable		7,141		9,944
Current portion of long-term debt		13,134		12,320
Total current liabilities		95,081		95,206
Long-term debt		194,949		127,812
Long-term operating lease liabilities		12,032		3,186
Deferred tax liabilities		8,782		4,843
Other liabilities		5,490		2,970
Total liabilities		316,334		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 September 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 September 30, 2024 and December 31, 2023, respectively)		4		4
Additional paid-in capital		304,707		212,630
Accumulated other comprehensive (loss) income		(1,079)		634
Accumulated deficit		(3,351)		(16,106)
Total shareholders’ equity		300,281		197,162
Total liabilities, mezzanine equity and shareholders' equity	$	616,615	$	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 September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net sales	$	109,408	$	125,114	$	391,577	$	357,949
Cost of goods sold		69,392		71,511		235,283		206,981
Gross profit		40,016		53,603		156,294		150,968
Operating expenses
Selling, general and administrative		33,981		36,314		113,277		105,615
Restructuring and transaction costs		515		439		3,621		1,132
Related party expense		94		116		2,038		379
Total operating expenses		34,590		36,869		118,936		107,126
Operating income		5,426		16,734		37,358		43,842
Other expense
Interest expense		(1,991)		(1,073)		(5,631)		(3,727)
Other income (expense), net		1,555		(315)		(225)		395
Total other expense, net		(436)		(1,388)		(5,856)		(3,332)
Income before provision for income taxes		4,990		15,346		31,502		40,510
Provision for income taxes		(1,335)		(4,293)		(8,352)		(11,463)
Net income	$	3,655	$	11,053	$	23,150	$	29,047

Net income per share:
Basic	$	0.09	$	0.29	$	0.58	$	0.77
Diluted	$	0.09	$	0.29	$	0.58	$	0.77
Weighted average shares outstanding:
Basic		40,607,988		37,586,031		39,723,702		37,515,976
Diluted		40,949,461		37,930,888		40,118,729		37,830,790

Net income	$	3,655	$	11,053	$	23,150	$	29,047
Other comprehensive income:
Unrealized holding (losses) gains on derivative instruments, net of tax⁽¹⁾		(1,509)		1,131		320		2,281
Reclassification adjustments for gains included in net income, net of tax⁽²⁾		(849)		(884)		(2,577)		(2,266)
Total unrealized (loss) gain on derivative instruments, net of tax		(2,358)		247		(2,257)		15
Foreign currency translation adjustments, net of tax⁽³⁾		1,053		(850)		544		41
Other comprehensive (loss) income		(1,305)		(603)		(1,713)		56
Comprehensive income, net of tax	$	2,350	$	10,450	$	21,437	$	29,103

(1) Net of income tax benefit of $504 and income tax expense of $377 for the three months ended September 30, 2024 and 2023, respectively, and income tax expense of $106 and $760 for the nine months ended September 30, 2024 and 2023, respectively.

(2) Amounts reclassified to net income relate to gains and losses on derivative instruments and are included in earnings above. Amounts are net of income tax expense of $283 and $295 for the three months ended September 30, 2024 and 2023, respectively, and $861 and $755 for the nine months ended September 30, 2024 and 2023, respectively.

(3) Net of income tax expense of $240 and income tax benefit of $170 for the three months ended September 30, 2024 and 2023, respectively, and income tax expense of $114 and $55 for the nine months ended September 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)


	Nine Months Ended September 30,
	2024		2023
Cash Flows From Operating Activities:
Net income	$	23,150	$	29,047
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,325		12,385
Amortization of original issue discount and debt issue costs		787		359
Amortization of inventory step-up		3,851		—
Deferred income taxes		(11,627)		1,317
Stock-based compensation		6,255		7,060
Remeasurement of contingent consideration		685		—
Provision for losses on accounts receivable		757		37
Foreign exchange gain		(788)		(243)
Other loss (gain)		355		(394)
Changes in operating assets and liabilities, net of impact of acquisitions:
Accounts receivable		162		3,429
Inventories		(2,589)		(12,229)
Prepaid expenses and other assets		(4,161)		(3,131)
Accounts payable and other liabilities		(21,096)		8,623
Net cash provided by operating activities		8,066		46,260
Cash Flows From Investing Activities:
Purchase of property and equipment		(4,381)		(4,248)
Proceeds from disposition of property and equipment		74		206
Business acquisitions, net of cash acquired		(141,813)		—
Net cash used in investing activities		(146,120)		(4,042)
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		(9,562)		(7,500)
Proceeds from insurance premium financing		—		3,949
Principal payments on insurance premium financing		(2,187)		(2,909)
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		(10,395)		(8,999)
Other		37		—
Net cash provided by (used in) financing activities		142,831		(18,184)
Effect of foreign exchange rates on cash and cash equivalents		521		92
Change in cash and cash equivalents		5,298		24,126
Cash and cash equivalents, beginning of period		87,691		45,286
Cash and cash equivalents, end of period	$	92,989	$	69,412
Supplemental Disclosure of Cash Flows Information:
Cash paid for income taxes, net	$	22,761	$	7,923
Cash paid for interest	$	10,523	$	7,389
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Accruals and accounts payable for capital expenditures	$	112	$	24

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 (Loss)		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
Net income	—		—		—		—		3,655		3,655
Dividends declared ($0.0875 per share)	—		—		—		—		(3,553)		(3,553)
Stock-based compensation	—		—		2,104		—		—		2,104
Foreign currency translation adjustments	—		—		—		1,053		—		1,053
Change in fair value of derivative instruments	—		—		—		(2,358)		—		(2,358)
Balance, September 30, 2024	40,607,988	$	4	$	304,707	$	(1,079)	$	(3,351)	$	300,281

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 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
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.

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:


	September 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	$	81,218	$	81,218	$	—	$	—	$	74,451	$	74,451	$	—	$	—
Derivative instruments (Note 7)	$	4,239	$	—	$	4,239	$	—	$	6,505	$	—	$	6,505	$	—

Liabilities:
Derivative instruments (Note 7)	$	—	$	—	$	—	$	—	$	427	$	—	$	427	$	—
Contingent consideration (Note 2)	$	2,890	$	—	$	—	$	2,890	$	—	$	—	$	—	$	—

There were no transfers of assets or liabilities between levels during the nine months ended September 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 September 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 September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Beginning accrued warranty expense	$	1,614	$	1,567	$	1,610	$	1,234
Current period claims		(232)		(451)		(346)		(802)
Provision for current period sales		334		590		452		1,274
Ending accrued warranty expense	$	1,716	$	1,706	$	1,716	$	1,706

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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 September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Net income	$	3,655	$	11,053	$	23,150	$	29,047

Weighted average shares outstanding - basic		40,607,988		37,586,031		39,723,702		37,515,976
Effect of dilutive securities:
Stock-based awards		341,473		344,857		395,027		314,814
Weighted average shares outstanding - diluted		40,949,461		37,930,888		40,118,729		37,830,790
Net income per share:
Basic	$	0.09	$	0.29	$	0.58	$	0.77
Diluted	$	0.09	$	0.29	$	0.58	$	0.77

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 nine months ended September 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:

Form: 10-Q

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