Cadre Holdings, Inc. Price & Performance (CDRE)

I'd like to remind everyone that this call will be available for replay through 03/26/2025, 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 Sanders. 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 Browsers. 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 has been a key tenet of this strategy and I am particularly happy about the recent progress we have made in our M and A program to begin the year. In January, announced an agreement to acquire the engineering division from Cadre Group, which includes multiple best in class brands at the forefront of nuclear safety. Assistent 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 twenty twenty four. 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 complementary to our existing nuclear business and support mission critical initiatives with Blue Shield customers in more than 20 countries. We believe this acquisition will enable additional M and A in the new 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 and A program, I would also like to highlight Kavjerk's significant financial flexibility. Supported by a strong balance sheet. In the fourth quarter, we closed on new financing, that provides the company upsized $590,000,000 credit facilities with favorable terms and extended maturities. Enhancing our ability to capitalize on meaningful organic 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 and A objectives. In January, we increased our quarterly dividend, reflecting our confidence in our businesses' 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 three 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. Thank you, Warren.

On today's call, Blaine and I will provide a Q4 update and business overview. Including recent trends, financial performance, 2025 guidance, followed by a Q and A session. We'll begin on Slide five. 2024 marked another record year we Cadre incredibly proud of our success leveraging the CADRE operating model to drive constant operational improvements. We entered the fourth quarter 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 the 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. Orders backlog ended the quarter flat versus the prior year primarily due to an increase of $27,000,000 from recent acquisitions, offset by EOD and ARMOR projects that shipped in 2024. Importantly, we've also delivered on strategic objectives related to M and A in the year to date as Warren mentioned.

The acquisition of the engineering division from KARS Group accomplishes multiple key objectives for CADRE. These include added scale to our nuclear vertical, a larger international footprint and expanded nuclear TAM with entry into exciting new areas like automation, robotics and nuclear medicine. Blaine will discuss additional highlights in a moment, well as outline other M and 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 and A objectives. While also increasing dividend payments. We 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 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 that 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 life saving 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 in January that we're excited about. One is a new Safari We have engineered the thinnest, lightest and most protective hybrid ballistic armor on the market with a 20% reduction in weight 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 ballast, 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 offerings superior safety, adaptability and usability for modern law enforcement and tactical applications. Ballot's unique design fulfills a current opportunity in the Farland due to Bradyhold rated holster line. We've been very pleased with the initial positive feedback we've heard we'll continue to work to get these products in the hands of the 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 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 the current claimant as such have established wider guidance ranges for 2025.

I'll now turn over the call over to CFO, Blaine Brouers. Thanks, Brad. I'll turn the guidance shortly, but we'll kick off my comments with a review of our M and A strategy. As Warren and Brad mentioned, we've begun 2025 with positive momentum in regard to M and A, having announced an agreement to acquire the engineering division from KAAR's Group in January. I'll recap the transaction highlights on Slide nine. When we established our position in the new 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 and A in the space. [indiscernible] Consistent with this approach, we've identified 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 Vejlisch Miller, KARS MSN, Bendels Engineering, NW Total Engineered Solutions and New Vision 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, [indiscernible] uniquely positions CADRE to deliver unparalleled capabilities to a global customer base. The engineering division brings geographic scale by having 80 Products make up over 95% of the revenue split with the remaining 5% being services. These businesses generated revenues of approximately 51,000,000 British pounds for the fiscal year ended 08/31/2024, which 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 and 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 eleven and twelve 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. Quarter net sales of $176,000,000 net income of $13,000,000 and adjusted EBITDA 38,500,000.0 all time records and significant increases year over year. At the same time, fourth quarter gross margin and adjusted EBITDA margin improved by five thirty and four hundred basis points versus last year's Q4. Illustrated on Slide 12 is net sales and adjusted including our new 2025 guidance, which I'll discuss more detail in a moment. At its midpoint, this outlook implies full year revenue and adjusted [indiscernible] On Slide 13, we present our capital structure as of 12/31/2024. Prior to the agreement to acquire the engineering division.

While I've taken our time with M and A over the last twelve 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 form a net leverage of around 1.75x when the deal closes. This includes KAR's adjusted EBITDA contributions based on our last twelve 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 $572,000,000 and $6.00 $1,000,000 Our adjusted EBITDA guidance range of between $105 and $115,000,000 implies adjusted EBITDA margins of 18.8%. These wide net sales and adjusted EBITDA ranges reflect the uncertain environment that Bright alluded to earlier. Guidance indicates a 2% organic growth on revenue at the midpoint and 5% 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 Cadre acquisition.

The currently announced tariffs on an annualized basis would have an impact in the range of 18% to $22,000,000 not building any offsetting mitigation. [indiscernible] 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. But 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 we'll 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% to 14% driven by volume leverage and unfavorable mix with adjusted EBITDA margins returning to the high teens for the remainder of the year. I'll now turn it back to Brad for concluding comments.

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 customer 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 and 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 and A. Your first question comes from the line of Larry Solow with CJS Securities. Please go ahead.

Great. Good morning. Congrats on a good quarter. I might get lost in the shuffle a little bit, but good operating leverage there. So I guess Brad, just on the guidance, I know you mentioned it's wider than normal. At the high end of the range, still seems a little bit less 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.

Yes. 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're able to ship quite a bit in that quarter and really deliver to our customers. So it's not as significant as as we initially thought back in October, November.

Right. And the impact, is it obviously about 20% just on from a high level of your revenue goes directly into from federal government, but greater than 50 is from state.

Is this are you concerned 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 mid term or longer term reduction in demand or or excess pricing that may get impacted or anything around those areas?

No, Larry. So we think of it this way. So there's the underlying business setting aside any anything that's going on today with Doge and downsizing the U. S. Government, etcetera. So if you set that aside for a second, there's no change in the underlying sentiment around law enforcement and our military protected 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. And 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 in a recent article that talks about the tech giant that are really pledging support of a goal of at least tripling global nuclear capacity by 02/1950. And that's companies like Amazon, Google, Meta. So So we look at multiple demand drivers there and we think things are definitely solid. So 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 it's more of a termed it a rhythm offset. So as folks are either being shifted around or losing their jobs, etcetera, 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 around who's doing sign offs, who's cutting POs and things like that.

So we look at it as more of a rhythm offset than anything at the moment.

Okay. And then just the tariffs, I appreciate that the line in the sand that us a little bit of a number. Potential impact. And clearly, it's a big moving target. And I guess countermeasures can't really you can't start doing those until you know that tower will tariffs will actually be. But curious, you said it would lag three months from when you start putting measures in if you had to, but that sounds like 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?

Yes, absolutely fair to say. I think for those that know us and close to us, we're 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. So So 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 frozen and we're just sitting around waiting for that to happen. So we've done our our work and we started that work at the beginning of the year. So we'll be doing everything that and anything that everybody else or most companies in the world are going to be looking at and doing. So we've got everything from I would call it realistic price type offer we've already taken a look at all the way through like we did in COVID where we've got 20 some facilities around the world. So it gives us an opportunity to potentially shift product lines around in some facilities as needed And then we have some outstanding partners that we've been working with also seeing what happened through COVID at times and it gives us that ability to be as flexible as possible. And so we're 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. So Got it. Great. I appreciate all that color.

Thanks.

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

Good morning, everyone. Just wanted to ask you a little bit more about what's baked into your guidance for the year? I realize there's some uncertainty there, but just considering the recent acquisitions, what level of SG and A should we be considering for '25 then also did you say that Cadre was not included in your guidance at all? So just wondering how much we might want to layer in for Cadre for second half? Yes. So the 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 and A level, really looking at Q4 and if you peel apart the transaction expenses related to Cadre, that's really I would say the baseline. And then from there, coming off Q3 last year, we're adding an incremental about $3,000,000 an increased spend around IT. So that's really kind of the core of that that SG and A roll forward. Because that Q4 will have the full quarter from Alpha. Whereas obviously Q1 of twenty twenty four does not.

Okay. And then since we're on the topic of Cadre, just maybe any more color you could give us on how you're thinking about the complement Yes, absolutely, Jeff. So as I mentioned, I'm here at one of the nuclear shows in Phoenix this week and it's been great being on the ground here. When I'm talking to various companies here and I mentioned they haven't heard about the acquisition, which most of them have and 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 and just that, I would call it that professionalism and operating model that we bring to the businesses as you know. So definitely some excitement there when you look at between Wallach, Miller, Bindal's, NW Total, Alta Safety, New Vision, all those brands working together It's pretty awesome seeing how that can continue come together with relationships that for example, The UK facilities and companies have with an end customer like Cellifeld and where our U. S. Entities don't always have that strongest relationship there. So 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 installed base.

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

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

Hey, good morning. Thank you guys. So 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 we're thinking about the market segmentation and maybe backdrop into 2025 pricing?

Yes, Sheila. It varies by particular product, right? As Brad has mentioned in the past, it's a very targeted approach when it comes to pricing. So the range across the products is really going to be on the low end, a little over 1%. On the high end, you have some businesses that were pricing more more like 2.5%. Blended overall it's probably close to between 1.52% across the the portfolio.

Your 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 1.5 we're not seeing a tremendous amount of input inflation.

That's on a net basis? The pricing comments?

Or growth?

Gross.

Well, net to our top line, when you say net, are you material inflation net or just Yes, net of material inflation.

Those were gross, sorry.

Okay. And then 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?

Yes. Are you talking about law enforcement military or talking about nuclear side? Yes, law enforcement. I apologize. I should have clarified.

Yes, no, that's okay. That's okay. I just wanted to make sure I clarified because it can be different on the nuclear side due to the Cadre 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. So that's really the area for us.

A lot of times people think it's BodyArmor for us. Our focus with BodyArmor 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 that higher huge ramp ups in volumes and typically margins much lower. That's why we typically haven't played in those categories. So 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.

So that's an area that we definitely continue to see expansion with product lines.

Great. Thank you so much.

Thanks, Sheila.

Your next question comes from the line of Matt Koranda with ROTH Capital. Please go ahead. Hey, guys. Good morning. Maybe just wanted to talk about the twenty twenty five full year guidance and then maybe the first quarter as it kind of fits into the full year. So I guess 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 [indiscernible] EOD franchises versus the nuclear business.

For the full year? And then 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 and just wanted see if you could maybe unpack some near term trends that are sort of driving the 1Q guidance?

Sure. Yes. So the Cadre business is 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 Cadre sorry, not on the Cadre. On the Alpha side of the world, we closed March of last year of twenty twenty four. So we're really picking up two months. So, though growth rate is a bit higher on a percentage basis, than you'd expect on a go forward, Kind of just into the the double digits with those added two months in the organic growth So that kind of lays out, I think, the overlay there. And again, the that wide kind of guidance range is we'll continue to do that as we go forward. But as Brad has 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 and you got to go back in time to Q1 twenty twenty four when we announced earnings.

We had a really actually at the time it was a record quarter for our U. S. Armor business driven by a federal agency contract.

So there's absolutely a comp issue there and that was an atypical Q1 for that business. Generally, for armor and particularly U. S. Armor, Q1 is really the lowest revenue quarter of them just driven by the procurement cycle. And that's kind of point one driving that that downdraft in Q1. The second component is really just EOD timing right? And that is one that is not so much seasonal, but really driven by the project [indiscernible] And I would say Q1 twenty twenty four was a a pretty average quarter for that business. Whereas Q1 of this year is quite a bit lighter in there. More significantly back end loaded, which that back end load for the EOD business is pretty typical. Coming out the gates where they're at for Q1, it's just a little bit lighter than we saw last year and would expect to see.

Okay. Appreciate the detail there, Blaine. And maybe just on the tariff impact you guys mentioned, so it got thanks for the quantification, the 18% to 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 look at the headlines and try to figure out what's happening over the next several weeks and months would be helpful. And then just 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 and offset of that 18% to 22%, what's realistic in terms of sort of the offsets we can go get? [indiscernible] with I think the easier one, which is the China component. It's a pretty small part of our supply chain.

So it's not a significant impact. It's really driven by Mexico and Canada And the split between them [indiscernible] called about 60% Mexico driven versus 40% Canada driven. And Brad can talk about some of the mitigating actions, but they're really kind of two completely different sets of actions or sorry, some commonality, but then there's some distinct actions for each geographic location.

Yes, Matt. So I touched on those a little bit a few minutes ago.

So So the challenge I think everybody has out there is just knowing what these curveballs are going to end up looking 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 name it. So it's definitely a tough environment to kind of predict in. So what we're doing is we're just moving forward with what we know on a daily basis. And then if things change and I'll call it in a positive direction, for any company from a tariffs or cost perspective, then we can begin to turn things back in a different direction. So 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 positioned premium products out there that have been used to save lives for sixty years.

So we are that known product and the entity, but it doesn't mean that can just have unlimited price opportunity. So that's why I kind of call it realistic price type potential changes there to offset some of that. From a tariffs perspective. But then there's other actions that 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 we don't have some things concentrated in single areas. So that's another one. There's just a 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. Okay. Super helpful guys. I'll leave it there. Thank you. Thanks Matt.

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

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 delivery from cybersecurity incident that's flowing into Q1? Or did you really get to most part all of that done in Q4?

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

Okay.

And then just as we think about kind of EBITDA margins in Q1, I think Blaine that you'd take kind of 12% to 15% expectation. Is that really the 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 puts in that EBITDA margin down and just kind of the sales volume, if you will, in Q1? Yes, it's really driven by the volume leverage or the sales volume leverage on SG and A. We expect our gross margins to be really in line with what we've seen historically. So this is just a volume game. And again, the 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.

Okay.

And then last question, just thinking domestically in law enforcement, on kind of hiring trends, I assume that we're we're not seeing any real uptick yet but I'm curious if there's anything that's changed there And then 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? Yes. So the first part, hey Mark, spread. So the first part of that is, it continues to be stable. We're not hearing stories as we interact whether it's with our Safari land sales team or our company owned sales team. So 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 is the question. 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? Absolutely, it could be a place to go for folks. But 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.

So So obviously, that could be a filter to that population of folks that would potentially sign up for for that profession.

Perfect.

Thank you.

Thanks, Mark.

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

Thank you guys. So I apologize. One last question on my end. Just given, and I missed the first five minutes of the call, but I don't think we discussed it, Doge spending.

How do we think about that impact? What's your exposure to FBI to How do we think about that impact? What's your exposure to FBI, Department of Homeland Security?

Have you seen any changes there, whether it's headcount or purchasing behavior?

No, maybe starting with the on the nuclear side, on the DOE side, there were some employees impacted by that initial kind of probationary employees and from the information we have, particularly with the NNSA those employees were brought back. So for we've as close as we can to it as it relates to Newclear and have not seen meaningful impact. And I think talking with Brad and the team out at the show this week is there's still a lot of optimism long term and the Defense Secretary as well has made it a priority around nuclear weapons. So So we kind of look at that and say, hey, that feels fairly compartmentalized somewhat safe. We don't feel there's a lot of exposure. On the federal law enforcement side, we absolutely had exposure both in holster, holsters as well as armor. We have not seen significant impact there.

And again, we're trying to stay on top of that as well. But we do think there's with the bipartisan commitment around law enforcement and security, that it doesn't seem incredibly likely they will be severely impacted. Now when we say that, we're really kind of thinking long term. There could absolutely be temporary disruptions in the procurement process if there's employment program officers, etcetera. That are impacted. But for the most part, we don't see it right now. But it's something we're staying very close to and we'll continue to evaluate.

What's your exposure percentage wise Sure.

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? So don't think of population of headcount within these professions, within government agencies, [indiscernible] So like border patrol, an increase in border patrol, for example. So 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.

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

I mean, we do have some, Sheila. We don't disclose that level of 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 is a little more hit and miss depending on the agency and the application.

Perfect. Thank you.

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

Thank you, everyone, for your time today attending our CADRE Holdings earnings release. And that will conclude the call for today.

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