Cadre Holdings Targets Growth After Strong Q2 Performance

Cadre Holdings (ticker: CDRE) has announced strong financial results for the second quarter of 2024, showcasing significant increases in net sales and net income compared to the same period last year. The company has also reported improved adjusted EBITDA margins while maintaining a positive financial outlook.

Despite a recent cyber incident that affected gross margins, Cadre is optimistic about a solid final quarter as it works through backlogged orders. The company is actively seeking mergers and acquisitions to strengthen its product lines and market presence, particularly in law enforcement, military, and nuclear safety sectors.

### Key Takeaways
– Cadre Holdings recorded considerable year-over-year growth in net sales and net income for Q2 2024.
– The company’s adjusted EBITDA margins have improved, with a maintainable net leverage of 1.1 times.
– Cadre plans to finalize at least one merger or acquisition by the end of 2024 to broaden its market presence.
– A cyber incident led to a roughly 5-point decline in gross margins for Q3, but a robust Q4 is anticipated due to order backlogs.
– Guidance for adjusted EBITDA is set between $103 million and $109 million, with projected capital expenditures ranging from $7 million to $9 million.
– Organic growth was reported at approximately 5% for the quarter, with a long-term growth target of 3% to 5%.
– The company aims to achieve gross margins in the mid-40s through increased automation, enhancing predictability and quality while reducing costs.

### Company Outlook
– Cadre remains confident in its outlook, focusing on continued growth and market leadership.
– The company expects Q3 revenue to be on par with the previous year while anticipating a strong Q4 due to overcoming order delays.

### Challenges Highlighted
– Gross margins are expected to be negatively impacted by the cyber incident, with a 5-point decline projected.
– Operating cash flow is anticipated to be lower year-over-year because of bonus payments and cash tax liabilities.

### Positive Aspects
– Cadre is pleased with its financial results, showcasing increased net sales, net income, and adjusted EBITDA.
– The company is actively exploring M&A opportunities to bolster its platform and leverage its strengths.

### Areas of Concern
– Without the cybersecurity incident, Cadre would have increased its adjusted EBITDA guidance.

### Q&A Insights
– There was no business loss from the cyber incident, only a transfer of sales from Q3 to Q4.
– The company holds cyber insurance to cover claims tied to the incident.
– Cadre is in the early phases of implementing automation to achieve better gross margins over time.
– Decreased free cash flow in the first half is attributed to bonus and cash tax payments, though improvements are anticipated from inventory management and accounts receivable.

### Conclusion
Cadre Holdings has demonstrated remarkable financial performance, with promising growth opportunities on the horizon. The company remains focused on boosting its market position through strategic investments and enhancing its operational efficiency, aiming for continued success in the upcoming quarters.