Cadre Holdings, Inc.

Thank you for joining today's call. The call begins momentarily. Again, the call begins momentarily. Thank you. Thank you. Good afternoon and welcome to the Cadre Holdings third quarter 2021 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 key, then number one on your touchtone phone. At this time, I would like to turn the call over to Matt Berglitz of the ITB group for introductions and the reading of the safe harbor statement. Please go ahead, sir.

Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. 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 in which we operate. We encourage you to review today's press release and CADRE's SEC filings for more information on these risk factors and uncertainties. Please also note that we have posted presentation materials on our website at www.cadre-holdings.com with supplementary comments this evening and include reconciliation of non-GAAP financial measures. At this time, I would like to turn the call over to CADRE's Chairman and CEO, Warren Kanders. Warren Kanders Thank you.

Good afternoon and welcome. I am proud to be here on CADRE's first conference call as a public company. I am also very pleased to be joined by our president, Brad Williams, and our chief financial officer, Lane Browers. With the successful completion of our recent IPO, we achieved an important milestone in our company's storied history, which dates back over 55 years. And we are excited about CADRE's ability to seek to accelerate growth both organically and through acquisition in a very disciplined manner, while continuing to generate significant free cash flows and expand our margins. I will now turn the call over to Brad. Thank you, Warren, and thank you all for joining our first earnings call today. We have a lot of information to review, so I'll just dive right in, starting with our agenda on slide four. On today's call, we'll cover recent highlights, provide a brief overview of CADRE, talk about our financial performance, and then close with a Q&A session. If you go to slide five, I'll cover our Q3 and year-to-date highlights. CADRE has developed an impressive track record of increasing sales while driving significant gross and adjusted margin expansion, which was, once again, demonstrated in our results. We believe that our strong quarterly and nine-month results highlight our ongoing success capitalizing on our leading and entrenched positions in large and growing markets with recurring demand, as well as our ability to generate strong pre-cash flow. We continue to build on CADRE's success improving margins. We expanded adjusted margins 150 basis points during a quarter of challenging comps. For the nine-month period adjusted EBITDA margins expanded 300 basis points. One thing I'd like to point out is that based on our low CapEx model, we generate strong free cash flow, which was also evident in our third quarter and non-month results. This enables us to effectively deploy capital to create long-term shareholder value. As Warren mentioned, we completed our initial public offering in November, which has strengthened our balance sheet and combined with our strong free cash flow, positions us to take advantage of the attractive tailwinds that we believe is driving demand for CADRE's mission-critical first responder products. Our focus will be on accelerating growth through our robust acquisition pipeline, as well as organically through international expansion, which we will discuss later on the call. As part of our disciplined capital allocation approach, we're also pleased to have implemented a regular quarterly cash dividend program of $0.08 per share or $0.32 per share on an analyzed basis. Khajri's first dividend payment will be made on December 2nd, or I'm sorry, December 7th to record holders as of the close of business on November 22nd. The declaration of any future dividend is subject to the discretion of the company's board of directors. Since this is our first call since going public, I'd like to provide an overview on slide six of CADRE's mission and position as a leader in the manufacturing and distribution of safety and survivability equipment for first responders. Our mission is Together We Save Lives. This special mission lives in the hearts and minds of not just our associates, but extends to our channel partners and end customers. We have what we call the Saves Club, which was set up many years ago to recognize first responders that survived life-threatening situations using or wearing our products. We currently have 2,121 saves. We're averaging about 34 saves per year. So if you think about that a minute, that equates to approximately three men or women that get to come home and live their lives with their families and friends every day. We show the three main life-saving categories in our product segment on this slide, which consists of body armor, where we are known for light, comfortable, and highly protective products, duty gear, where we differentiate ourselves with innovative safety holsters that are essential in life-threatening situations, and lastly, EOD, or explosive ordnance disposal equipment, where we have established ourselves as thought leaders on the effects of blasts on the human body. We're an innovative company that has earned our significant market share in each product category. We're proud to serve a diversified customer base with over 23,000 first responders and federal agencies in more than 104 countries. Moving now to slide seven, we discussed the attractive tailwinds driving demand and visibility for CADRE's mission-critical products. Our largest market segment is law enforcement. As you can see on the left side of this slide, major domestic law enforcement budgets have grown over the past 12 years, despite financial and industrial recessions. On the right side of the slide is police protection expenditures, and as you can see, expenditures also did not decline significantly during the financial and industrial recessions, which we believe demonstrates the significant demand drivers for our mission-critical products through economic cycles. When prioritizing spending, customers lean towards safety and survivability equipment to keep their first responders safe. While there is some uncertainty due to the emergence of the Omicron variant and ongoing supply chain disruptions, to date we've not experienced any material downward trends in our business thus far as a result of these developments. Moving on to slide eight, we highlight the recurring demand characteristics of our mission-critical products based on frequent recurring demand cycles. Since our products provide protection in users as well as those around them with limiter and no room for error, Drivers such as wear and tear, technological advancements, stringent safety standards, the expiration of warranties, and new accessories create refresh cycles for over 80% of our products. A combination of market segment tailwinds and recurring demand characteristics results in a solid foundation for our business with a predictable revenue stream. I'll now turn the call over to our CFO, Blaine Browers. Blaine? Thank you, Brad. So we're going to slide 9 and 10. Here we have detailed year-to-date results and how the business has performed both in a higher growth and lower growth scenario. First, if you compare 2020 and 2019, we achieved about 1% top-line growth. Buzz room margins about 5% as illustrated on slide 10. And EBITDA was up 33%, so very strong results in that lower growth environment. Next, if we look to the nine-month period of 2021 versus the comparable 2020 period, we achieved much stronger growth, expanding sales 9 percent organically, increasing gross margin 16 percent, and EBITDA expanded 32 percent. So, looking at slide 10, I'd like to make a point just on the bottom of the chart on adjusted EBITDA conversion. You know, the nine-month period that EBITDA conversion was over 96%, and we're very proud of our success in generating significant free cash flow. Also, that we don't have seasonality in our business, and more importantly, from a cash generation perspective, we have very low CapEx needs, about 1% of revenue annually. Next slide, on slide 11. Here we have our pro forma capital structure both before and after the IPO. So we use this portion of the proceeds to pay down debt as planned. We paid down $59.4 million of debt outstanding under our existing term loan and revolving loan. And we also, as mentioned in the results, entered into a new term loan as well as a revolving loan in the third quarter. Our pro forma 930 post-IPO net leverage was reduced to about two terms, which provides a significant financial flexibility to grow organically and, more importantly, inorganically through acquisitions. We do have a successful history of acquiring, integrating, and optimizing asset-light businesses with high-free cash flow models and take a very targeted approach. We really think about acquisition in three buckets. The first bucket is current core products and new markets, so I think geographic expansion. The second bucket is really current core markets, new products. And then the final bucket we think about is really expanding our portfolio of safety products outside of our current law enforcement and military markets. So, for instance, fire, EMS, and industrial safety. Now I'm going to turn it back over to Brad for concluding comments. Thanks, Blaine. Before I open the call to questions, I want to point out that we see a great opportunity in our business. Warren's proven track record of creating shareholder value and the great team that we have put together position us well to accelerate growth while generating strong free cash flow and expanding margins. With a rich history dating back to 1964, we are the trusted brand for mission-critical products that have recurring demand. Our company has entrenched positions in large markets to expand as we pursue other product segments and safety and survivability globally. In terms of accelerating growth, we have an active and robust pipeline, which our team is actually working on, consistent with our diligent approach and past success acquiring, integrating, optimizing businesses. Finally, we have generated significant cash to reinvest in the business and and are pleased to have begun returning capital to shareholders with the initiation of a regular quarterly dividend policy. Look forward to continuing to execute for shareholders and are extremely excited about the future. With that, operator, please open the lines up for Q&A.

Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Begin to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from Bert Subin with Stifel. Please proceed.

Hey, good afternoon, and thank you for the time, Warren, Brad, and Blaine. Hey, Bert. Thanks for coming. Hey, Heather. Congrats on your first public quarter. For my first question, in 2020, the murder rate and the violent crime rate were both up pretty substantially. But in 21, there's been general labor challenges across most industries. How do you balance those items when you think about demand across your product lines into next year? Is there a situation in which crime is getting worse, but spend goes into recruiting new law enforcement officers, or do you think it gets spent on safety first?

Yeah, Bert, I think it's a great question. All right, I got it. So, Bert, I think it's a great question. When you look at, I think there will be two things where there will be focus, one on, you know, recruiting of officers because during the COVID timeframe and defund the police, there are a lot of retirements out in terms of our customer base. So a lot of law enforcement officers were really lost and there's less feet on the street out there today. So you'll see recruitment that'll be taking place. But in terms of those funds, after recruitments take place, they have to outfit the officers as they go into their daily duties. So I don't look at it as a one or the other. I look at it as they'll have to be funds spent on both as they equip their officers to go on the streets.

I guess maybe just to elaborate on it, I guess I meant it in the form of, you know, budgets are somewhat finite. You know, they're going to have to stretch a bit. But if you have to pay police officers, let's say 7% more and budgets are up 3%, I'm just wondering how you think about that getting balanced in terms of that spend equation.

Well, I think either way the equation goes, it's always going to point towards safety and survivability products when they prioritize. Overall, you know, we've seen it over the years when there is budget crunches, they will typically deprioritize non-critical products for the products that protect their folks. Yeah, Bert, we've seen, and I think we went through this with you during the roadshow, but If you look at the major cities across the country, they're actually upspending on policing and so on. We're going to see, quite frankly, a longer-term trend here as there's a need for more police. They will need to be paid more. They will need to be trained better, and they will need to be better equipped. And so we fit in right there. And the question of where the money is going to come from, it's going to come from other areas to support this. That's our belief, and, you know, we are seeing that right now.

That's very helpful. I mean, that sort of segues into my follow-up, which, Warren, in the earnings release, you noted that you're focused on seeking to accelerate growth organically. Can you maybe just highlight what you see as the greatest opportunity and then perhaps the greatest headwind to that? Thanks for taking the question.

Yeah, so I think, you know, in terms of – You know, the opportunity for us, really, it's, you know, equipping the police departments that have been decimated over this period of time. So we just see more numbers, you know, coming through. As we talked about previously, you know, we're under-indexed internationally. As you know, our market shares are quite high domestically, and we've talked about our growth aspirations previously. uh, there. Uh, but, uh, you know, internationally, um, um, again, we are, we are under indexed. And so we are looking to expand that. Um, we had talked about a specific acquisition during the roadshow and, uh, you know, we expect to have that signed this month and close just after the beginning of the year. And, um, uh, but, um, you know, we're, you know, we're, We're very optimistic about the longer-term macro trends that support our business. In terms of headwinds, I think for us, as well as a lot of folks that manufacture domestically, wage rates are challenging today. Hiring employees, good employees, are challenging. But we have an outstanding management team led by Brad and others that have been working hard to address that and to stay on top of it. But that is something that we do think about. Coupled with that, they are continuing to work through you know, lean manufacturing opportunities and so on. So even though you may have to pay more for our labor in certain markets, you know, there will be opportunities through greening and cost ups and so on to not only maintain but actually to continue to improve our margins.

That's very helpful. Thank you for that. Just my final question. I think it's probably for Blaine because he mentioned it. He talked about the three buckets you look at for your M&A pipeline. Which of those three do you see as most attractive near term, and is that answer different over the long run?

Yeah, great question, Bert. I think if you think about most attractive, and maybe let's take the attractive part out and maybe talk about ease of execution. you know, the current products, new markets really kind of focused on geographic expansion is probably the easier execution, you know, for us and for the team. I think it probably goes in the same order I mentioned that. So, you know, second being, you know, current core markets, new products, right, again, because we have the expertise, we have the the know-how in those markets, and we're just expanding the portfolio. We're already reaching out to them users and decision-makers in those markets. Now, the third one, you know, really more safety products in different markets. You know, that's attractive for a different reason. It really gives us the opportunity to diversify. And, you know, one thing we feel very strongly about is the operating model. And, you know, the operating model leveraging 80-20 lean to increase improvement in daily management it's really agnostic on end market, right? And, you know, between Brad and myself and Warren, you know, and the rest of them had a variety of end markets and experiences. So, you know, Brad with both Brad and I with IDEX backgrounds, Danaher, you know, IRGE, we worked in just a vast amount of different end markets. So, you know, we're very confident in our ability to execute outside of the core markets as well.

Thank you very much.

Thank you.

Thank you, Mr. Subban. The next question comes from Jeff Van Senderen with B. Riley. Please proceed.

Yes. Hi, everyone. First, let me say congratulations on the particularly strong margins. And I know you don't really break it out per se, but wondering if you can give us any more color around what you're seeing in each of the main product categories and then the outlook for each of those. And then any update you can share on the blast sensor project and, I guess, what and when is the next milestone we should expect you to speak about for the blast sensor project?

Great. Brad, do you want me to start and you kind of pick up on the blast sensor or do you want to take it off? Yeah, you want to take the margin and I'll take the blast sensor. And, Jeff, I think you were – Appreciate the question, Jeff, so thank you. I think you're talking about kind of body armor duty here in EOD, kind of what we're seeing? Right. Okay. Yeah, so for body armor, you know, the demand has been solid. You know, we've been very happy with the execution of that business, both commercially and internally. What we've started to see, you know, here in fourth quarter, some positive signs on the demand side that we're certainly happy to see kind of going forward But the teams have just done a really great job executing both on a price and margin perspective. So our cost out really productivity. You know, duty gear, the, you know, a little bit different story. It's more of a steady state, but there's a replenishment. It tends to be kind of level through the period. So the team has done both facilities that produce the products have done a great job on, you know, reducing past due lead times. And as we kind of entered the holiday season, we have certainly looked to prior years and uptick for holiday spending. And then EOD, a little bit more of a project business, but they've really come in as we kind of expected for the year. But we really haven't seen any signs of weakening or it's been really kind of continue from the first half as we've expected. So we've been very pleased, you know, in the first nine months of the year and looking forward to the coming months.

Okay, great. And then anything on the – go ahead. Sorry. I was just going to see if you had any other questions on that one for Blaine before I cover the blast sensor. No, no. It would be great if you can jump on the blast sensor. Yeah, absolutely.

I appreciate that. So I'll give you where we're at today. So, you know, phase one that we've talked about in the roadshow was delivered, and, you know, the testing for that is ongoing. So that, you know, we're pretty much moved out of that phase except for additional testing that's happening. Phase two is underway with phase three that's been awarded. Okay, so we're in that Phase 2 timeframe, but then looking ahead to Phase 3, that one's also been awarded. There's some additional milestones for Phase 2 in February of 2022, and that's our next major milestone that we'll be working toward. There's also a potential for an additional award, which would be Phase 4, but we don't have any additional information on that at this point in time.

Okay. So we should then – sorry, go ahead. I'd like to thank Jeff.

Sorry, I just want to circle back on something.

Oh, no, I was just going to ask, it sounded like we should probably hear something then in February. Is that something announceable?

Yeah, that'll – No, I won't say that that will be the final phase because with this additional phase, the project originally started out as a phase one, two, and three, and now Special Courses has added or looked at a phase four. So as soon as we get additional information on phase four, you know, that will give us an idea of if the project will extend beyond the phase three timeframe, which the next phase period deliverable will be in that February timeframe. So there's really those two milestones, which is the deliverable for phase two and three in February, and then telling us what phase four is going to look like, which will help us with the overall timing. Okay, got it. And Jeff, I was going to circle back. You didn't ask it, but I think it's on everyone's mind, which is a little bit of that kind of inflation and supply chain, and certainly pricing kind of comes in as well. You know, I think on the supply chain, Brad mentioned it, you know, we don't source a lot outside of the regions where we make the goods. So, you know, in general, we've been up to this point insulated from any major material supply chain shortages, which is great. Now, the teams are obviously working very hard with our key suppliers to make sure we have that material flow, but certainly not what you kind of see in some of the headlines. You know, we don't have critical goods stuck in a ship, you know, off the coast of California. You know, kind of second component around inflation, you know, we've seen some inflation. I don't think it's what you see a lot of times in the headlines. You know, we're not seeing high singles in teams. But I'll say that the teams have done just a fantastic job on price and getting ahead of that. So as that, we are seeing some inflation coming in. We're able to stay ahead of it and, you know, expand margins as you've seen kind of from the results. So I just wanted to fill that out a little bit more for you, Jeff.

Okay, now that's really helpful. Thank you. And then just a quick follow up on the acquisition. I think everyone knows you've been working on just wondering, in terms of the closing timing of that, and when you might share more in terms of the metrics.

Sure. So that's certainly, we're very excited about it. It fits right in this acquisition strategy we laid out and checks a lot of the, it's not all the boxes, you know, we're looking for an acquisition. So we're actually on a call with the management or the owners this morning, working very closely, you know, really expect to sign here before the end of the year, frankly, in the coming weeks and then close, you know, very, very early next year. I think as we get a little bit further down the path, Jeff will be able to share a little bit more about the business. But very excited about not just the core business and what it kind of brings, but also the opportunity to leverage the tools that we talked about before. So very much looking forward to that one.

Okay, terrific. Thanks for taking my questions, and best of luck for the remainder of the quarter. Thanks, Jeff. Thanks, Jeff.

Thank you, Mr. Van Cenderen. The next question comes from Brian with Raymond James. Please proceed.

Yeah. Hi. Good afternoon, everyone, and congrats on a good start out of the gate here. I wanted to maybe talk a little bit about margins. You've had a really fantastic trajectory over the last couple of years. It seems like there's still a few hundred basis points. over the next few years to get? You mentioned a little bit with inflation and pricing, but can you maybe just give us the overall bridge to how we might get to 20% over the next, I don't know, pick your timeframe, two, three, four years? Yeah, so I think it really comes in three buckets. The first really being the, you know, value gap, right, price versus material inflation and kind of continue expansion there. You know, we're very proud of our products, you know, premier brand names, you know, very sticky in the marketplace. So we've done it and we're confident we can kind of continue to do it on that price and material formula there. You know, the second piece, you know, really comes down to the ability to leverage our model. So We've talked a lot about as we continue to grow, our footprint or SG&A doesn't grow at the same rate, right? And that's a little bit of the structure of the business, but I think more importantly how we and the teams view the business, which is just that continuous improvement, looking to get a little bit better every day, right? take a little bit more out of the cost, you know, cost to serve, if you will, and leverage that. So, you know, as we get that organic growth, that volume comes, you know, it's going to flow through, you know, certainly not 100% margin, but in between margin and keep it up. And then the final leg there is really around productivity. And, you know, that's something the teams do a really great job of just always having a robust funnel of cost out of productivity projects. And it's, you know, Every month, you have your project, you knock that project off, you pull the next one in, and you have this rolling 12 months of just, well, we're going to get a little bit better, right? And it's everything from redesign to automation to, you know, new products. So, you know, that's really kind of how we think about it. And, you know, we've certainly made a lot of progress over the past years and, you know, feel strongly that we're kind of in early innings on that productivity and operating model side. Great. Thanks. That's helpful. And then I wanted to maybe talk about some of the growth opportunities. You mentioned international being underpenetrated. Can you maybe give us a sense for how international versus domestic grew this quarter? And then, you know, also Warren has built in the past a fantastically sized federal business. Are there opportunities to get overweight federal beyond the blast sensor program? And how should we think about that as a growth vector going forward? Blaine, you want to take the first part of that, and I'll take the second one. Yeah, why don't you get started, Brad, and circle back on the first part. OK. All right, so let's talk about the federal piece. And we talked about this some in the roadshow. So we do have federal business today, you know, predominantly in our mid-inch business with our Bonsu products globally. And, you know, we are the market leader in that category. In terms of additional, and then we have other federal business today within other product categories, but in terms of going after additional federal business that we have lower share in, like Body Armor, for example, we talked about it on the Roadshow quite a bit. It's just not an area. Every time we've looked at federal, either while I've been here or before that, we just don't like the margin profiles of that market segment overall. So I think where we're at today in terms of the percentage that we have from a federal perspective, we're pretty happy with. As we find pockets of high-margin-type opportunities within the federal space, we'll go after those. Perfect. And kind of circling back to the first part of the question, Brian, is international had a very, very strong quarter. You know, we did a little over $16 million in revenue last year. This year, $22.6 million. So, you know, they're about 39% growth year on year, which speaks to just the strength of the team and the products. You know, on the domestic side, we mentioned earlier a little bit of a tough comp this year. So if you kind of rewound to last year in Q3, you know, we had two things that were driving significant demand that do make it a tough comp. One, It was around the crowd control side of the business. And the second piece is the commercial side of the business, which for us, it's really holsters. So as folks were out buying guns, they're buying holsters and buying our products. But very, very strong on the international side. Yeah, it sounds like it. And then I could just sneak one last one in, and then I'll jump into the queue. The business generates such really good free cash flow. How should we measure your capacity for future M&A? So we have this one deal that's going to close fairly soon. What type of rhythm might you want to get into? And obviously closing the deal is different than having capacity. What would be a nice cadence for the company? Thank you. Yeah, so maybe capacity as we think about it is really – you know, I think two to four acquisitions a year. And it's going to be very dependent, Brian, on size, location, product offering, et cetera. So in the past, I'm really talking kind of management capacity and our ability to kind of digest and execute those. So we'll be very focused and process-oriented on those approaches. You know, from a cash side, as you kind of model it out with that high free cash flow, depending on the deal size and the multiples, we're certainly able to do a good amount of M&A just through the free cash flow generation. Then we also have the $100 million revolver, which is at this point in time undrawn, which gives us plenty of capacity on a go-forward basis. Great. Thanks so much, guys. Hey, Brian. What? Let me add one more thing to the federal question that you asked. So kind of tying that back to the M&A, my answer was more around the organic side of things, but there are some potential M&A that we're looking at that would bring us into some of the federal space. And obviously, as we're looking at those M&A opportunities, we're digging into what we feel like those margins would be like and how it would fit within the higher margin, high free cash flow type profile that we desire. I just want to make sure I added the M&A view on the federal side of your question. Thank you.

Thank you, Mr. Diswale. The next question comes from Matt Kuranda with Roth Capital. Please proceed.

Hey, guys. I'll add my congratulations on the IPO as well. Maybe we'll start on distro if we could. I noticed margins pretty strong up year-over-year despite a little bit of softness in revenue on a year-over-year basis. So maybe just wonder if you could talk about some mixed dynamics that are at play there, anything to note, and then how sustainable is the margin profile in distro on a go-forward basis?

Yeah, so for the distribution side, not making anything brings a new element in, right? So we're certainly relying on suppliers, key suppliers to deliver, which right now we have quite a bit of pent-up backlog that as the manufacturer is able to produce the goods and ship, we'll see that revenue flush through. That team does a good job around pricing and kind of work on both avenues, just like the product side of the world. So I think The areas that are more susceptible are really on some of the law enforcement's primarily fixed contracts, so you don't have as much pricing issue there. And the retail is fairly small for them. I say retail, I mean folks that walk up to the counter and buy boots or pants. So that would be the area where you have a little more pressure around pricing. I want to go forward, basically, if the economy took a turn. But it's a pretty – small portion of the business, so it doesn't give us a ton of exposure there. You know, mix certainly matters, but we haven't seen any significant changes, you know, year to year that would either be detrimental or incremental to the business.

Okay, that's helpful. And then I just wondered if you could run through a few more details on the pending acquisition. It sounds like it's likely to close by the end of the year. So maybe just for the benefit of folks on the call, just in terms of, you know, sort of size margins, is it a creative to your, you know, your corporate average, any detail on, on sort of just thoughts on multiple and how it compares to kind of just the overall range of multiples that you guys are looking to pay on the pipeline. All that would be super helpful. And then maybe if you could thread in just expected, are there some operating synergies that we can get out of this or some commercial synergies that we should expect to kind of overlay into 22?

Sure. So maybe starting with kind of the near-term acquisition, we're going to, I think, kind of hold on sharing more just about that until we get a little bit further in the process, Matt. But we're as excited about sharing more about it with you as you already hear more about it. So, Hopefully here in the next couple of weeks, we'll be able to shed a little more light on that. As far as we have talked about, it is creative to kind of where we sit today. And the synergies, because it is a core product and it's that first bucket, that core products, new markets or geographic expansion, gives us the opportunity to really expand our foothold in that market, which we're very excited. We have a commercial presence in that market already. So there's some natural synergies there. It also gives us a manufacturing footprint that we currently don't have for that particular product in that region. So there's some opportunity to really kind of make local for local. And obviously in today's world with freight, where it's at today, you know, even before, you know, kind of the new world freight rates, it would have been, you know, a significant savings. And now in the current environment, it's certainly much more attractive. As far as multiples we see out, you know, it varies, you know, very differently by product. So, you know, kind of what we've shared before is if you think about kind of the body armor.

You know, you move into duty gear, you're kind of.

more high singles, and then as we kind of go outside the core markets, you know, that really kind of look and feel a little more industrial, like, you know, you're seeing things in the high singles and the teens as well. In all those cases, you know, for us, what's most important is our ability to deliver value, the return on investment capital. And that's really where we spend a lot of our time is, you know, not just you know, looking at the business and really kind of going deep and understanding how they do business, how they're structured, you know, where do we have the opportunities? And, you know, our view on M&A is, you know, we certainly value growth like everyone else, but, you know, for us, the difference in making a good deal and a great deal, that great deal is going to have multiple avenues to deliver that return on invested capital, right? And that's where we really focus our time is how do we have plan, not just A and B, but plan A, B, C, And how do we lay it in so we can continue to expand those EBITDA margins as we acquire? Because, again, we live in that world where we've got to be better every day. And that's really our core to our approach is how can we make the business a little bit better? And this particular target we're looking at is a great company, well run. But we look at it and we see opportunities to run it even better and We believe we can deliver significant returns on that investment.

Very helpful point. Thank you. Just last one, if I could thread one in real quick, is just how mature do you think the next opportunity after this kind of near-term one that closes for the end of the year is? I mean, you guys have identified a pretty large and robust pipeline, and you mentioned probably you could do, I guess, comfortably two to four a year. Obviously, it depends on size. Does that mean we should expect you could clip off another one as soon as the first quarter of 2022? Just talk to us about kind of level set up and timing and expectations there. And then lastly, just leverage. I mean, obviously we can all read covenants and everything like that, but probably don't want to bump up too far against those. What's sort of a comfortable leverage range that you'd like to be in sort of post-close on any major acquisition?

Sure. Yeah, so, you know, M&A is always difficult because, you know, a bit of it's out of our control, right? It's kind of finding the right time. And, you know, Warren has some great stories and experience where they've looked at or he's looked at businesses a couple times and the timing hasn't been right and it works out right. Everything kind of aligns and the deal goes through. So I just want to kind of caveat that kind of first part. You know, I think as we're thinking about what's next, you know, Yeah, I would say it's probably more of a Q two Q three, you know, timing. Um, we talked very regularly, um, both kind of internally with targets and kind of moving this forward. Um, sometimes things take a little bit longer, sometimes a little bit quicker. But I'd say, you know, that kind of summer time frame would be more realistic if things played out as we expected. And then, you know, just on the leverage. The only other thing I would add to that, Blaine and Matt, is, you know, we covered this on the roadshow, but just keep in mind, I mean, we do have that target, you know, that Blaine mentioned, the two to four per year, but we're not here to just, you know, force acquisitions in. That's not at all what we'll be doing. I mean, we've got to make sure that it meets our specific criteria around M&A. We talk about how disciplined we are and how we operate and, you know, about our operating model and the backgrounds that a lot of us have at some world-class companies. And that also extends into the M&A side of things. So just keep that in mind. You know, we're here to make sure that we're great stewards of this capital that we do have. And, you know, we've got to make sure that all those things align to be able to continue to move those forward.

Great point. Excellent. Very helpful. And then just on the leverage front, maybe, sorry if you addressed that, but I don't think I heard it yet.

No, no, we haven't. So I think, you know, longer term, we're comfortable with two. You know, as we look at M&A, you know, I think we would go up to three, maybe a little bit above that, but not much with the, you know, quick plan to work it back down, right? And that's, you know, one of the great things about our business is with that free cash flow generation, you know, we're able to, if we're not paying for these deals with cash, leveraging or utilizing debt, the cash that we generate, we're able to pay it down, you know, very quickly and deliver.

All right. Super helpful, guys. I'll jump back into you here. Appreciate it.

Thank you.

Thanks.

Thanks, Smith.

Thank you, Mr. Kuranda. The next question comes from Mark Smith with Lake Street Capital. Please proceed.

Hey, guys. First off for me, just staying kind of on M&A, any change that you've seen as we look at the last couple months in multiples out there in any of the areas that you're looking?

No. I haven't seen any change.

Okay. And then the next question for me is just as we look at domestic expansion opportunities kind of organic growth can you just talk about maybe your share and total addressable market in in duty gear outside of kind of where we think about you know typical law enforcement and what opportunities you have there in growth yeah i can i can take that one um

So, Mark, as you already alluded to, within law enforcement, you know, we feel like our share is high within that category. So our strategy within the law enforcement side is just to continue to innovate like we've done, you know, for many, many years and to maintain that share within that market segment. Outside of that segment, when you look at holsters, it's really about the consumer segment. The consumer segment for us has really been an afterthought over the years because most all of our resources, whether that's R&D or marketing or whatever resources we would put into it, is always around the law enforcement side of things. So like we talked about in the roadshow, you know, we have added R&D engineers and segmented our engineering team plus segmented our commercial selling team so that we'll begin to get more focused in the consumer holster side of things so that we can expand from an outside and inside the waistband, you know, product standpoint.

Great. Thank you.

Thank you, Mr. Smith. There are no additional questions registered at this time, so I'll pass the conference to Brad Williams for closing remarks.

Brad Williams All right. Thank you, operator. Really appreciate that. I'd like to thank everyone again for joining us on today's call. you know, for your continued interest in CADRE. Really appreciate everyone joining this first earnings call, you know, overall. Operator?

Thank you. That concludes the CADRE Holdings Third Quarter 2021 conference call. Thank you for your participation. You may now disconnect your lines.