Cadre - Earnings Call - Q4 2024

Executive Summary

• Record quarter: Revenue $176.0M, gross margin 43.9%, Adjusted EBITDA $38.5M, and diluted EPS $0.32; strong YoY growth driven by acquisitions and robust Armor/Duty Gear shipments, with Q4 described as Cadre’s best quarter as a public company.
• FY2025 guidance initiated: Net sales $572–$601M, Adjusted EBITDA $105–$115M, capex $7–$9M; excludes impacts from newly announced U.S. tariffs; management expects ~20% of annual revenue in Q1 with EBITDA margin ~12–14% before returning to high teens thereafter.
• Tariffs risk and mitigation: Tariffs could have an annualized headwind of ~$18–$22M; management plans pricing actions, productivity gains, and potential production shifts to offset (offsets expected to lag ~3 months).
• M&A catalyst: Agreement to acquire Carr’s Engineering Division (£75M EV) expands nuclear safety vertical into robotics, nuclear medicine, and adds international scale; expected close in Q2 2025 pending approvals.
• Capital structure and dividend: YE 2024 cash $124.9M, net debt $98.3M; quarterly dividend raised to $0.095/share (annualized $0.38, +~9%).

What Went Well and What Went Wrong

What Went Well

• Record Q4 across key metrics (revenue, gross margin, Adjusted EBITDA, margin) with positive mix driven by Duty Gear volume; CEO: “Cadre’s best quarter of financial results as a public company”.
• Strategic momentum: Agreement to acquire Carr’s Engineering Division deepens nuclear exposure (remote handling/robotics) and broadens international reach; brands highly complementary to nuclear safety.
• New product innovation: Launch of thinnest/lightest Level 3A ballistic panel and the Ballast holster with improved safety/adaptability; early feedback positive.

What Went Wrong

• Q3 headwinds from cybersecurity incidents reduced revenue and margins (gross margin 36.6% vs 42.8% YoY; Adjusted EBITDA $13.5M vs $23.7M), causing revenue shift into Q4/Q1 and wider FY2025 ranges.
• FY2024 net income modestly lower YoY ($36.1M vs $38.6M) amid higher SG&A from acquisitions, acquisition costs, higher interest expense, and lower productivity (partly cyber-related, inventory step-up).
• Macro/tariff uncertainty and potential federal procurement “rhythm” delays widened FY2025 ranges; offsets to tariffs expected to lag about three months.

Transcript

Operator (participant)

Good morning and welcome to Cadre Holdings' fourth quarter of 2024 conference call. Today's call is being recorded. All lines have been placed on mute. If you would like to ask a question at the end of the prepared remarks, please press the star keys and the number one on your touch-tone phone. At this time, I would like to turn the conference over to Matt Berkowitz of the IGB Group for introductions and the reading of the Safe Harbor Statement. Please go ahead, sir.

Matt Berkowitz (Head of Investor Relations)

Thank you, and welcome to today's conference call to discuss Cadre's fourth quarter and full-year results. Before we begin, I'd like to remind everyone that during today's call, we'll be making several forward-looking statements. Let me make these statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face Cadre and the industries and markets in which we operate. More information on potential factors that could affect Cadre's financial results is included from time to time in Cadre's public reports filed with the Securities and Exchange Commission.

Please also note that we have posted presentation materials on our website at www.cadre-holdings.com, which supplement our comments this morning and include a reconciliation of certain non-GAAP financial measures. I'd like to remind everyone that this call will be available for replay through March 26, 2025. A webcast replay will also be available via the link provided in yesterday's press release as well as on Cadre's website. At this time, I would like to turn the call over to Cadre's Chairman and CEO, Warren Kanders.

Warren Kanders (Chairman, and CEO)

Good morning, and thank you for joining Cadre's fourth quarter earnings call. I am joined today by our President, Brad Williams, and Chief Financial Officer, Blaine Browers. We are pleased to have reported strong fourth quarter and full-year results, reflective of Cadre's outstanding strategic execution and positive demand trends across our law enforcement, first responder, military, and nuclear markets. Results were in line with our full-year 2024 guidance, driven by an exceptional fourth quarter, during which Cadre achieved record quarterly revenue, gross margin, adjusted EBITDA, and adjusted EBITDA margin. Full-year revenue grew 18%, and adjusted EBITDA grew 22%, resulting in year-over-year adjusted EBITDA margin improvement of 70 basis points. The effectiveness of our operating model and resilience of our businesses were again evident in these strong financials.

Since our IPO, Cadre has had great success executing against our strategic plan and delivering on our commitment to building value for customers and shareholders alike. Mergers and acquisitions have been a key tenet of this strategy, and I am particularly happy about the recent progress we have made on our M&A program to begin the year. In January, we announced an agreement to acquire the engineering division from Carr's Group, which includes multiple best-in-class brands at the forefront of nuclear safety. Consistent with our track record of building value, we view this acquisition as a critical next step in scaling the nuclear safety vertical we established in early 2024. We continue to believe in the consistent growth profile of the nuclear sector, underpinned by complex and evolving industry needs and macro tailwinds that have only grown stronger.

Importantly, the acquisition expands our international footprint and grows our addressable market with entry into new nuclear areas like automation, robotics, and nuclear medicine. The brands we have agreed to acquire are complementary to our existing nuclear business and support mission-critical initiatives with blue-chip customers in more than 20 countries. We believe this acquisition will enable additional M&A in the nuclear sector, and we maintain a robust pipeline of targets. Overall, we see opportunities across our current verticals, including in law enforcement and military markets, and remain committed to evaluating transactions in line with our highly selective key criteria. As always, we will be patient and disciplined. In the context of our M&A program, I would also like to highlight Cadre's significant financial flexibility, supported by a strong balance sheet.

In the fourth quarter, we closed on new financing that provides the company upsized $590 million credit facilities with favorable terms and extended maturities, enhancing our ability to capitalize on meaningful organic and inorganic growth opportunities ahead. Additionally, with our continued strong free cash flow generation, we have capacity to make growing dividend payments while also supporting our M&A objectives. In January, we increased our quarterly dividend, reflecting our confidence in our business's fundamentals and a continued commitment to delivering value for shareholders. While our businesses have historically been very resilient across economic, political, geopolitical, and other cycles, Brad and Blaine will discuss later on the call a number of macro factors we are watching for in 2025 that could affect performance.

Longer term, we see our overarching thesis holding true that priorities will continue to shift towards public safety spending and ensuring those who protect and serve us are equipped with the safest and most reliable products. Notwithstanding the uncertainty in 2025, we believe Cadre is well positioned to continue to grow our platform and further enhance our market leadership over the long term, supported by our strong balance sheet, robust acquisition pipeline, and operating model. With that, thank you for being with us today, and I will turn the call over to Brad. Brad, over to you.

Brad Williams (President)

Thank you, Warren. On today's call, Blaine and I will provide a Q4 update and business overview, including recent trends, financial performance, and 2025 guidance, followed by a Q&A session. We'll begin on slide five. 2024 marked another record year, and we are incredibly proud of our success leveraging the Cadre operating model to drive constant operational improvements. We entered the fourth quarter with a significant backlog, recognizing there was a major challenge in front of us to achieve our full-year guidance. Our teams executed extremely well, ultimately helping us deliver our best quarter as a public company in Q4. I'll speak on some of the factors driving uncertainty in the market in 2025, but overall, Cadre continues to benefit from innovative product offering, premium brands, and leading market positions that enable us to capitalize on strong and recurring demand for our mission-critical safety equipment.

Our mix in the fourth quarter was positive, driven by higher duty gear volume. Order backlog ended the quarter flat versus the prior year, primarily due to an increase of $27 million from recent acquisitions, offset by EOD and armor projects that shipped in 2024. Importantly, we've also delivered on strategic objectives related to M&A and the year-to-date, as Warren mentioned. The acquisition of the engineering division from Carr's Group accomplishes multiple key objectives for Cadre. These include added scale to our nuclear vertical, a larger international footprint, and an expanded nuclear TAM with entry into exciting new areas like automation, robotics, and nuclear medicine. Blaine will discuss additional highlights in a moment, as well as outline other M&A priorities moving forward.

It's important to underline, with our low CapEx model, we continue to generate strong free cash flow, enabling the company to support core organic growth and M&A objectives, while also increasing dividend payments. We've paid 13 consecutive quarterly dividends since going public and, as Warren said, recently raised our dividend to $0.38 per share on an annualized basis, a 9% increase. On slide six, we illustrate long-term tailwinds supporting Cadre's growth opportunity across both public safety and nuclear safety sectors. Our largest market segment is law enforcement and police protection expenditures, which have continued to trend upward through the cycles. This has led to Cadre's consistent and stable growth regardless of economic, political, or geopolitical conditions. On the nuclear safety side, we believe the long-term tailwinds driving growth in that market are best understood by highlighting three key nuclear missions related to environmental safety, national security, and commercial nuclear energy.

We continue to seek tailwinds in these areas. Of note, nuclear modernization and national missile defense are on our Defense Secretary's list of critical priorities. We've also seen the new administration prioritizing domestic energy sources, including nuclear. As we have discussed previously, our nuclear brands have protected market positions and highly visible revenue that continues to be sort of supported by long-term contracts and recurring purchase orders. Turning to slide seven, I'll take a moment to zoom in on the latest market trends and their impacts on our core law enforcement business. While spend per officer remains stable in North America, the important point to highlight is a bipartisan commitment to public safety. As the world becomes less safe, the importance of Cadre's lifesaving mission comes even more clearly into focus.

We've seen repeatedly that when it comes to funding priorities, customers lean towards the most reliable, safety, and survivability equipment to protect first responders. We are proud of the trust that our customers and our end users place in Cadre to ensure those who protect and serve us are equipped with the safest and most reliable products. Regarding the geopolitical landscape, there is even more unpredictability and uncertainty. While we focus on planning contingencies in a rapidly changing environment, our baseline belief remains the same that as ongoing global conflicts eventually reach the cleanup stage, Cadre could play a larger role, likely through our various EOD offerings. Consistent with our commitment to constant innovation, we introduced two new products at the SHOT Show in January that we are excited about. One is a new Safariland Armor APEX HP Level 3A ballistic panel.

We have engineered the thinnest, lightest, and most protective hybrid ballistic armor on the market, with a 20% reduction in weight and a 20% increase in ballistic performance. This product is available in male and female unstructured styles, with an additional female-structured option for precise tailored protection. On the duty gear side, we've introduced Valis, our most advanced duty-rated holster for law enforcement professionals. With enhanced functionality shaped by decades of feedback and design improvements, we see this holster offering superior safety, adaptability, and usability for modern law enforcement and tactical applications. Valis'ss unique design fulfills a current opportunity in Safariland duty-rated holster line. We've been very pleased with the initial positive feedback we've heard and will continue to work to get these products in the hands of customers.

Before I turn it over to Blaine, I'd like to provide an update on the operating environment as we navigate a number of macro uncertainties in 2025. As the U.S. government focuses on downsizing and international relations shift, there are potential delays in transactional processes within certain federal agencies, which could change the rhythm of how these organizations have traditionally operated. We're tracking these developments very closely, but there is still quite a bit of uncertainty that we are assessing in the current climate, as such have established wider guidance ranges for 2025. I'll now turn the call over to CFO Blaine Browers.

Blaine Browers (CFO)

Thanks, Brad. I'll turn to the guidance shortly, but we'll kick off my comments with a review of our M&A strategy. As Warren and Brad mentioned, we've begun 2025 with positive momentum in regard to M&A, having announced an agreement to acquire the engineering division from Carr's Group in January. I'll recap the transaction highlights on slide nine. When we established our position in the nuclear market last year, acquiring Alpha Safety, we saw a path forward for significant built-in growth, as well as attractive opportunities for additional M&A in the space.

Consistent with this approach, we've identified the engineering division as our top nuclear target and are very pleased to have reached an agreement to add these industry-leading brands to our portfolio. They include Wälischmiller Engineering, Carrs MSM, Bendalls Engineering, NW Total Engineered Solutions, and NuVision Engineering, all of which are highly complementary to Cadre's existing nuclear safety business.

In combination with our current expertise in the material handling, manufacturing, and radiation protection, we believe the new division's cutting-edge technology, particularly in remote handling and robotics, uniquely positions Cadre to deliver unparalleled capabilities to a global customer base. The engineering division brings geographic scale by having 80% of revenue outside the U.S. Products make up over 95% of the revenue split, with the remaining 5% being services. These businesses generated revenues of approximately GBP 51 million for the fiscal year ended August 31, 2024, with margins that are within the range of what we look for in a target acquisition. Moving forward, we expect to leverage our operating model to achieve exceptional results as we begin integration following the expected close during the second quarter after we receive final regulatory approval.

This transaction represents an important next step in scaling our nuclear products category, and we anticipate additional opportunities to augment growth through select acquisitions. Our overall funnel is robust, spanning both nuclear and core law enforcement targets. As always, we intend to remain patient and disciplined and are committed to evaluating M&A consistent with our key criteria focused on companies with strong margins, leading and defensible market positions, as well as recurring revenues and cash flows. Turning now to a summary of Cadre's financial performance, slides 11 and 12 detail our Q4 and full-year results. As you can see on slide 11, we delivered our full-year guidance of double-digit top and bottom line growth in 2024, driven by high-level execution in Q4, which represents Cadre's best quarter of financial results as a public company.

Fourth quarter net sales of $176 million, net income of $13 million, and adjusted EBITDA of $38.5 million were all-time records and significant increases year over year. At the same time, fourth quarter gross margin and adjusted EBITDA margin improved by 530 and 400 basis points versus last year's Q4. Illustrated on slide 12 is net sales and adjusted EBITDA growth year over year, including our new 2025 guidance, which I'll discuss in more detail in a moment. At its midpoint, this outlook implies full-year revenue and adjusted EBITDA growth next year of 3% and 5%, respectively. On slide 13, we present our capital structure as of December 31, 2024, prior to the agreement to acquire the engineering division.

While we've taken our time with M&A over the last 12 months, Cadre continued to accumulate cash on the balance sheet, giving us flexibility to pursue the acquisition and maintain what we believe to be a responsible pro forma net leverage of around 1.75 times when the deal closes. This includes Carr's adjusted EBITDA contributions based on our last 12 months. We believe the strength of our balance sheet will give us the ability to continue to be acquisitive during 2025 and beyond. We provide new 2025 guidance on slide 14. We expect net sales to be between $572 million and $601 million. Our adjusted EBITDA guidance range of between $105 million and $115 million implies adjusted EBITDA margins of 18.8%. These widened net sales and adjusted EBITDA ranges reflect the uncertain environment that Brad alluded to earlier.

The guidance indicates a 2% organic growth on revenue at the midpoint and 5% on the high end of the range, with organic adjusted EBITDA at 5% in the midpoint and 10% on the high end. I note that our guidance does not include any impact from the recently announced or implemented U.S. tariffs, nor does it include the Cars acquisition. The currently announced tariffs on an annualized basis would have an impact in the range of $18 million-$22 million, not building any offsetting mitigation. Due to the timing lag between tariffs becoming effective and the turnaround time for our actions, we estimate that our offsets to tariffs will lag about three months. As we've all seen, tariff policy continues to evolve in real time, which makes it difficult to forecast and comment on specific impacts and countermeasures we are considering.

Overall, we believe Cadre is well positioned to navigate the near-term challenges based on our track record of effectively addressing supply chain disruptions in the past and consistent high-level execution in line with our strategic objectives. We are prepared with a long list of actions and will continue to proactively strategize in terms of which are most viable as the environment changes to mitigate tariffs. As we've discussed before, certain products in our portfolios have projects that can move our revenue timing around in any given year. In 2025, we expect revenue and adjusted EBITDA to be stronger in the second half of the year, driven by EOD duty gear and armor project timing, which is in line with our expectations prior to the new administration. The expected profile of the year looks very much like what we experienced in 2023.

We do expect Q1 to be about 20% of revenue for the year due to project timing with adjusted EBITDA margins in the range of 12-14%, driven by volume leverage and unfavorable mix with adjusted EBITDA margins returning to the high teens for the remainder of the year. Now I'll turn it back to Brad for concluding comments.

Brad Williams (President)

Thank you, Blaine. In closing, while there is significant uncertainty in the market, we continue to follow our roadmap for profitable growth, capitalizing on the strong market demand for Cadre's best-in-class mission-critical safety equipment. Our ability to deliver innovative solutions to our customers remains a key driver of our success, and we believe we remain well positioned to sustain this momentum. Beyond our core organic growth initiatives, we are actively evaluating compelling M&A opportunities that align with our selective key criteria as Blaine outlined. We're excited to continue to deliver on our strategic objectives and enhance our market leadership over the long term. With that, operator, please open up the lines for Q&A.

Operator (participant)

At this time, I would like to remind everyone in order to ask a question, press * then the number 1 on your telephone keypad. Your first question comes from the line of Larry Solow with CJS Securities. Please go ahead.

Lawrence Solow (Analyst)

Great. Good morning. Congrats on a good quarter. I think I might get lost in the shuffle a little bit, but good operating leverage there. I guess, Brad, just on guidance, I know you mentioned it's wider than normal. At the high end of the range, still seems a little bit less than we would have thought with some of the rollover from the cybersecurity breach benefiting this year. Are you still even at the high end, assuming that there's some impact from the uncertainty in the government spending?

Blaine Browers (CFO)

Yeah. On the high end, Larry, that puts us up at that 5% organic, which is kind of right where we communicated. We did have some rollover from 2024, but not a significant amount. The teams did a really fantastic job executing on Q4, and we were able to shift quite a bit in that quarter and really deliver to our customers. It is not as significant as we initially thought back in October, November.

Lawrence Solow (Analyst)

Right. The impact is it obviously about 20% just from a high level of your revenue goes directly from federal government, but greater than 50 is from state. Is this a concern more at the federal level? It sounds like it's more just the rhythm of orders and the transaction processes. You don't feel like there's any midterm or longer-term reduction in demand or excess pricing that may get impacted or anything around those areas?

Brad Williams (President)

No, Larry, we think of it this way. There's the underlying business, setting aside anything that's going on today with DOGE and downsizing the U.S. government, etc. If you set that aside for a second, there's no change in the underlying sentiment around law enforcement and our military protective products and what we've seen over the long term. The same on nuclear. I'm at the Waste Management Symposium show this week, which is one of the biggest nuclear shows. Just being on the ground here, continuing to listen to customers here and folks that are in the industry, same thing on the nuclear side. In fact, World Nuclear News put out a recent article that talks about the tech giants that are really pledging support of a goal of at least tripling global nuclear capacity by 2050. That's companies like Amazon, Google, Meta.

We look at multiple demand drivers there, and we think things are definitely solid. Now let's move over to what's going on with the government side. You mentioned about 20% of the business breaks down that way. That would be the area that we think is more of a turned in a rhythm offset. As folks are either being shifted around or losing their jobs, etc., that could affect transactionally things that typically we would see being processed a lot faster. We actually saw this during COVID, during and after COVID, where it took the government quite a while to get their legs under them around who's doing sign-offs, who's cutting POs, and things like that. We look at it as more of a rhythm offset than anything at the moment.

Lawrence Solow (Analyst)

Okay. And then just the tariffs, I appreciate that the line in the sand is giving us a little bit of a number, potential impact. Clearly, it's a big moving target. I guess countermeasures can't really—you can't start doing those until you know what that tariff will actually be. Curious, you said it would lag three months from when you start putting measures in if you had to. That sounds like if you had to and if you had more clarity on what tariffs were going to be, you could actually move relatively fast, at least on some of that, to knock off some of that potential impact. Is that kind of fair to say?

Brad Williams (President)

Yeah, absolutely fair to say. I think for those that know us and close to us, we're a group of folks that execute right. We execute extremely well, and we've shown that. We've got a track record of it. Even though there's not significant clarity, there's some timing clarity in front of us. There's not been a great definition around the word tariffs. There's a lot of details behind the scenes that go along with that. As that's being figured out, that doesn't mean we've frozen and we're just sitting around waiting for that to happen. We've done our work, and we started that work at the beginning of the year. We'll be doing everything and anything that everybody else or most companies in the world are going to be looking at and doing.

We have got everything from, I would call it, realistic price type opportunities that we have already taken a look at, all the way through like we did in COVID, where we have 20-some facilities around the world. It gives us an opportunity to potentially shift product lines around in some facilities as needed. We have some outstanding partners that we have been working with also, seeing what happened through COVID at times. It gives us that ability to be as flexible as possible. We are working on everything from A to Z, even things like accelerating productivity so that we can make sure that we offset any kind of tariffs that we do end up experiencing.

Lawrence Solow (Analyst)

Got it. Great. I appreciate all that comment. Thanks.

Operator (participant)

The next question comes from the line of Jeff Van Sinderen with B. Riley Securities. Please go ahead.

Jeff Van Sinderen (Senior Equity Research Analyst)

Hi. Good morning, everyone. Just wanted to ask you a little bit more about what's baked in your guidance for the year. Realize there's some uncertainty there. Just considering the recent acquisitions, what level of SG&A should we be considering for 2025? Also, did you say that Cars was not included in your guidance at all? Just wondering how much we might want to layer in for Cars for second half.

Blaine Browers (CFO)

Yeah. Cars, that's correct, Jeff. Cars is not in our guidance at this point. If things go as expected and we close in Q2, we'll provide update and guidance at that time. On the SG&A level, really looking at Q4, and if you peel apart the transaction expenses related to Cars, that's really, I would say, the baseline. From there, coming off Q3 last year, we're adding an incremental about $3 million, an increased spend around IT. That's really kind of the core of that SG&A roll forward. At Q4, we'll have the full quarter from Alpha, whereas obviously Q1 of 2024 does not.

Jeff Van Sinderen (Senior Equity Research Analyst)

Okay. Since we're on the topic of Cars, just maybe any more color you could give us on how you're thinking about the complementary elements of that business, cross-selling opportunities, that sort of thing.

Brad Williams (President)

Yeah. Absolutely, Jeff. As I mentioned, I'm here at one of the nuclear shows in Phoenix this week. It's been great being on the ground here when I'm talking to various companies here. I mentioned they haven't heard about the acquisition, which most of them have. I mentioned the phenomenal brands that we're acquiring, they just light up because it continues to bring an opportunity for them to partnership with a company like ours, being the parent company, backed by great financials. Just that, I would call it that professionalism and operating model that we bring to the businesses, as you know. Definitely some excitement there when you look at between Wälischmiller, Bendalls, NW Total, Alpha Safety, NuVision, all those brands working together.

It's pretty awesome seeing how that can continue to come together with relationships that, for example, the U.K. facilities and companies have with an end customer like Sellafield, and where our U.S. entities don't always have that strongest relationship there. It gives us the ability to continue to work with them with engineered-type products and solutions to make sure that we can continue to expand the install base.

Jeff Van Sinderen (Senior Equity Research Analyst)

Okay. Great to hear. Thanks for taking my questions. I'll take the rest offline.

Lawrence Solow (Analyst)

Thanks, Jeff.

Operator (participant)

Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead.

Sheila Kahyaoglu (Managing Director)

Thanks. Good morning. Thank you, guys. Maybe the first question I wanted to ask was on pricing. You called out that 2024 exceeded targets. Any way you could quantify and how you're thinking about the market segmentation and maybe backdrop into 2025 pricing?

Blaine Browers (CFO)

Yeah, Sheila. It varies by particular product, right? As Brad's mentioned in the past, it's a very targeted approach when it comes to pricing. The range across the products is really going to be on the low end, a little over 1%. On the high end, you'll have some businesses that we're pricing more like 2.5%. Blended overall, it's probably close to between 1.5% and 2% across the portfolio. When we look forward to 2025, pricing excluding tariffs, so this is just what I would consider organic pricing, business as usual would be generally in the same range, probably closer to a point and a half, as we're not seeing a tremendous amount of input inflation.

Sheila Kahyaoglu (Managing Director)

Is that on a net basis, the pricing comments or gross?

Blaine Browers (CFO)

Net gross. Net to our top line. When you say net, are you referring to material inflation net or just?

Sheila Kahyaoglu (Managing Director)

Yeah, net of material inflation.

Blaine Browers (CFO)

Those were gross. Sorry.

Sheila Kahyaoglu (Managing Director)

Okay. Maybe if we could just talk about European defense in the news again today. How do you think about just the TAM for Cadre in Europe, and where do you think you're best positioned to grow?

Brad Williams (President)

Yeah. Are you talking about law enforcement military, or are you talking about nuclear side?

Sheila Kahyaoglu (Managing Director)

Yes, law enforcement. I apologize. I should have clarified.

Brad Williams (President)

Yeah. No, that's okay. That's okay. I just wanted to make sure I clarify because it can be different on the nuclear side due to the Carr's Group acquisition, as I just talked about when Jeff asked the question on the military and law enforcement side. Keep in mind the one product category for us that applies potentially within any cleanup activity that goes on in the Ukraine at some point, and then also within Israel, is really our EOD product line. That's really the area for us. A lot of times people think it's body armor for us. Our focus with body armor is in more of law enforcement side of things and some national police forces internationally, but usually not on your broad military side of things, where you'll see some of that higher huge ramp-ups and volumes, and typically margins are much lower.

That's why we typically haven't played in those categories. For us, it's really EOD when you see any kind of headliners like that. Now, on the nuclear side, it's different. Our TAM just continues to increase as we acquire into these other areas. That's an area that we definitely continue to see expansion with product lines.

Sheila Kahyaoglu (Managing Director)

Great. Thank you so much.

Brad Williams (President)

Thanks, Sheila.

Operator (participant)

Your next question comes from the line of Matt Kuranda with Roth Capital. Please go ahead.

Matt Koranda (Analyst)

Hey, guys. Good morning. Maybe just wanted to talk about the 2025 full-year guidance and then maybe the first quarter as it kind of fits into the full year. I guess that at the midpoint, about 3% growth factored in. Maybe just wondering if you could comment on the relative growth rates you're seeing between sort of the core armor duty gear EOD franchises versus the nuclear business for the full year. For the first quarter, I guess, just doing some quick math, it looks like a decent down quarter on a sales growth basis year over year. Just wanted to see if you could maybe unpack some near-term trends that are sort of driving the Q1 guidance.

Blaine Browers (CFO)

Sure. Yeah. The core businesses for armor and duty gear, we're seeing the typical growth that we would expect, which is really kind of on average about 3% for the year on the U.S. side. On the Alpha side of the world, we closed March of last year of 2024, so we're really picking up two months. The growth rate is a bit higher on a percentage basis than you'd expect on a go-forward, kind of just into the double digits with those added two months and the organic growth. That kind of lays out, I think, the overlay there.

That wide kind of guidance range is we'll continue to dial down as we go forward, but as Brad's talked quite a bit about, just the uncertainty of not necessarily losing business, but really more on the delay on the procurement side with any cuts that may or may not occur. Moving to Q1 of this year, really a couple of drivers. You got to go back in time to Q1 2024 when we announced earnings. We had a really actually, at the time, it was a record quarter for our US armor business driven by a federal agency contract. There's absolutely a comp issue there. That was an atypical Q1 for that business. Generally, for armor, and particularly US armor, Q1 is really the lowest revenue quarter of them, just driven by the procurement cycle.

That's kind of point one driving that downdraft in Q1. The second component is really just EOD timing, right? That is one that is not so much seasonal, but really driven by the project layup. I would say Q1 2024 was a pretty average quarter for that business, whereas Q1 of this year is quite a bit lighter and they're more significantly back-end loaded, which that back-end load for the EOD business is pretty typical. Coming out of the gates where they're at for Q1 is just a little bit lighter than we saw last year and would expect to see.

Matt Koranda (Analyst)

Okay. Appreciate the detail there, Blaine. Maybe just on the tariff impact you guys mentioned. Thanks for the quantification. The 18-22 is helpful. Maybe wanted to see if you could talk about where most of that comes from. I assume it's kind of Mexico and Canada. Any China exposure, just any way to break that apart, I guess, as we kind of look at the headlines and try to figure out what's happening over the next several weeks and months would be helpful. In terms of the mitigation actions that you mentioned, they sound encouraging. Wondered if you're willing to put some numbers around sort of what you could go out on an offset of that 18-22, what's realistic in terms of sort of the offsets we can go get.

Blaine Browers (CFO)

Yeah. Let's start with, I think, the easier one, which is the China component. It's a pretty small part of our supply chain. It's not a significant impact. It's really driven by Mexico and Canada. The split between them is, call it, about 60% Mexico-driven versus 40% Canada-driven. Brad can talk about some of the mitigating actions, but they're really kind of two completely different sets of actions. Sorry, some commonality, but then there's some distinct actions for each geographic location.

Yeah, Matt. I touched on those a little bit a few minutes ago. The challenge I think everybody has out there is just knowing what these curveballs are going to end up looking like, right, as they continue to evolve. I think we see on a daily basis, there's something new that comes up and changes up or down, you name it. It's definitely a tough environment to kind of predict in. What we're doing is we're just moving forward with what we know on a daily basis. If things change, and I'll call it in a positive direction for any company from a terrorist or cost perspective, then we can begin to turn things back in a different direction.

As I mentioned before, it ranges everything from price, but overall for price, and we've said this before, I mean, we're high-quality position, premium products out there that have been used to save lives for 60 years. We are that known product in the entity, but it doesn't mean that we can just have unlimited price opportunity. That's why I kind of call it realistic price-type potential changes there to offset some of that from the tariffs perspective. There are other actions that the teams are working on globally. How do we accelerate productivity? We've been mitigating some facilities since COVID with some additional moves of diversifying factories, let's call it, and moving some products into other factories so that we don't have some things concentrated in single areas. That's another one.

Brad Williams (President)

There's just a whole list of actions that we're not just going through, but I would expect that most any company out there are really out there looking at it and looking at how they tackle it.

Matt Koranda (Analyst)

Okay. Super helpful, guys. I'll leave it there. Thank you.

Brad Williams (President)

Thanks, Matt.

Operator (participant)

Your next question comes from the line of Mark Smith with Lake Street Capital Markets. Please go ahead.

Mark Smith (Senior Research Analyst)

Hi, guys. First question for me, just thinking about Q1 here a little bit more. Is there really any of the lumpiness and delay in kind of sales and deliveries from cybersecurity incident that's flowing into Q1, or did you really get for the most part all of that done in Q4?

Blaine Browers (CFO)

For the most part, it was all really done in Q4. There was a very minimal amount that slipped out into Q1.

Mark Smith (Senior Research Analyst)

Okay. And then just as we think about kind of EBITDA margins in Q1, I think, Blaine, that you'd say kind of 12-15% expectation. Is that really those slower margins just a function of kind of the deliveries and the mix, as you just talked about, within kind of duty gear and EOD shifts that this person that EBITDA margin down and just kind of the sales volume, if you will, in Q1?

Blaine Browers (CFO)

Yeah. It's really driven by the volume leverage or the sales volume leverage on SG&A. We expect our gross margins to be really in line with what we've seen historically. This is just a volume game. Again, that movement on the EOD side, right, which is a profitable business for us that drives quite a bit of flow through, really just compounds that low volume Q1 as well.

Mark Smith (Senior Research Analyst)

Okay. And then last question for me, just thinking domestically in law enforcement on kind of hiring trends, I assume that we're not seeing any real uptick yet, but I'm curious if there's anything that's changed there. Secondly, in a tougher economic environment or maybe with higher unemployment, do you see some of those law enforcement roles that are filled easier in that kind of an environment?

Blaine Browers (CFO)

Yeah. The first part, hey, Mark and Brad, the first part of that is it continues to be stable. We're not hearing stories as we interact, whether it's with our Safariland sales team or our company-owned sales team. We have a lot of ears to the ground and feet on the street. We're not seeing any unstable changes within the current headcount, which is good. Continues to be stable. It's that building above that is the question.

Mark Smith (Senior Research Analyst)

We've talked about that, right? We view it as a long-term kind of tailwind as folks are added. Higher unemployment, could that be a place to go?

Brad Williams (President)

Absolutely. Could be a place to go for folks. There are also some pretty high hurdles with recruit classes and the amount of success rate for folks that come into a recruit class and actually graduating. Obviously, that could be a filter to that population of folks that would potentially sign up for that profession.

Mark Smith (Senior Research Analyst)

Perfect. Thank you.

Brad Williams (President)

Thanks, Mark.

Operator (participant)

Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead.

Sheila Kahyaoglu (Managing Director)

Thank you, guys. I apologize. One last question on my end. Just given—and I missed the first five minutes of the call, but I do not think we discussed it—DOGE spending. How do we think about that impact? What is your exposure to FBI, Department of Homeland Security? Have you seen any changes there, whether it is headcount or purchasing behavior?

Blaine Browers (CFO)

No. Maybe starting with the on the nuclear side, on the DOE side, yeah, there were some employees impacted by that initial cut of probationary employees. From the information we have, particularly with the NNSA, those employees were brought back. We have stayed as close as we can to it as it relates to nuclear and have not seen a meaningful impact. I think talking with Brad and the team out at the show this week is there's still a lot of optimism long-term. The Defense Secretary as well has made it a priority around nuclear weapons. We kind of look at that and say, "Hey, that feels fairly compartmentalized, somewhat safe. We do not feel there is a lot of exposure." On the federal law enforcement side, we absolutely have exposure both in holsters as well as armor. We have not seen significant impact there.

It is one where again, we are trying to stay on top of that as well. We do think there is, with the bipartisan and commitment around law enforcement and security, that it does not seem incredibly likely they will be severely impacted. When we say that, we are really kind of thinking long-term. There could absolutely be temporary disruptions in the procurement process if there are employments, program officers, etc., that are impacted. For the most part, we do not see it right now. It is something we are staying very close to, and we will continue to evaluate.

Sheila Kahyaoglu (Managing Director)

What's your exposure percentage-wise? Sure.

Brad Williams (President)

Sheila, the only thing I'd add real quick to that is if we do see any shifts of folks moving, we've heard a couple of stories of shifts going from one agency to another, right? Do not think of population of headcount within these professions within government agencies as exiting typically. Like border patrol, an increase in border patrol, for example. Anywhere there's that, you just kind of have to—as we see any headliners, you have to kind of get out like we do and spend that time and kind of dig in to make sure that we really know what it means. So far, we haven't seen anything that concerns us on the demand side.

Operator (participant)

Do you have percentage exposure to those three agencies? I could take it offline as well. Thank you, guys.

Blaine Browers (CFO)

Yeah. I mean, we do have some, Sheila. We don't disclose that level of exposure or what level of exposure, but I think as you're kind of piecing together the product lines, generally, that duty-rated holster is going to be ours, whereas the armor side's a little more hit and miss depending on the agency and the application.

Sheila Kahyaoglu (Managing Director)

Perfect. Thank you.

Blaine Browers (CFO)

Thank you.

Operator (participant)

I will now turn the call back over to Brad Williams for closing remarks. Please go ahead.

Brad Williams (President)

Thank you, everyone, for your time today attending our Cadre Holdings earnings release. That'll conclude the call for today.

Operator (participant)

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.