Cadre Holdings, Inc. ($CDRE)

Ladies and gentlemen, good morning, and welcome to Cadre Holdings' Fourth Quarter 2025 Conference Call. Today's call is being recorded. [Operator Instructions] 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.

Thank you, and welcome to today's conference call to discuss Cadre's fourth quarter results. 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 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 25, 2026. 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.

Good morning, and thank you for joining Cadre's earnings call to discuss our results for the fourth quarter and full year 2025. I am joined today by our President, Brad Williams; and Chief Financial Officer, Blaine Browers. Fiscal 2025 was another year of steady progress for Cadre. Our focus remains consistent, building a company that delivers mission-critical technologies for professionals operating in demanding environments while generating disciplined and sustainable growth for our shareholders. Throughout the year, we made progress in 3 areas: strengthening our portfolio, integrating our businesses and continuing to build demand across our core markets in public safety, defense, and nuclear safety. First, we expanded our capabilities with the acquisition of Carr's Engineering. Carr's is a well-regarded provider of engineered solutions serving the nuclear safety market. The business brings deep technical expertise and long-standing customer relationships, and that fits well with our strategy of investing in specialized companies that operate in highly demanding environments. During the year, we also signed an agreement to acquire TYR Tactical, a company widely recognized for its advanced protective equipment and strong reputation with military and law enforcement customers. That transaction closed earlier in 2026, and we are excited to welcome TYR to the Cadre platform. We believe their capabilities and product portfolio are highly complementary to our existing businesses and further strengthen our position in mission-critical safety solutions. At the same time, we continue integrating the businesses we have brought into Cadre over the past several years. Building a strong portfolio is only the real first step. Real value comes from operating as a cohesive platform, aligning leadership, sharing engineering capabilities and strengthening how we go to market. We made solid progress on that front in 2025. Operationally, we also saw strong demand across many of our end markets. Our team secured a number of meaningful contract wins during the year, particularly in advanced sensor technologies and blast mitigation seating, areas where performance and reliability are essential. These programs reinforce the trust our customers place in our technologies and in the Cadre brands. As a result, we continue to build backlog, providing increased visibility as we move forward. That backlog reflects both the strength of our portfolio and the long-term nature of many of our customer relationships. Importantly, we entered the new year with a strong balance sheet. That financial strength allows us to remain disciplined, but also opportunistic, continue to invest in the businesses while pursuing acquisitions that expand our capabilities and market reach. We maintain an active M&A pipeline and are focused on opportunities that fit our strategy and meet our return thresholds. Stepping back, what's encouraging is the consistency of our progress. Year after year, we've continued to strengthen the platform, expanding our capabilities, integrating our businesses and serving the markets where our technologies truly matter. I would like to thank our employees across the organization for their commitment and expertise as well as our customers and partners for their continued trust, and I want to thank our shareholders for their ongoing support. With that, thank you for being with us today. 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 and financial performance as well as our 2026 outlook, followed by a Q&A session. We'll begin on Slide 5. We delivered on our strategic objectives in the fourth quarter, driven by strong and recurring demand for our mission-critical safety products combined with the continued implementation of our operating model. Favorable mix in the quarter reflected higher duty gear volume and lower distribution volume. Orders backlog was up significantly. 2025 order growth plus the addition of Carr's Engineering division in April resulted in a nearly 50% increase in our backlog versus last year. This includes the Blast Exposure Monitoring System, or BEMO, contract that we discussed last quarter. As a reminder, this is a $50 million IDIQ contract and represents a major achievement for our team and key milestone in our work with the U.S. military. Based on the expectations we have previously outlined for 2025, you'll recall that we saw a higher mix of larger opportunities that had been delayed. In fact, our Med-Eng, ICOR Technology, duty gear, defense technology and armor categories have been extremely busy and successful winning larger opportunities in South America, Eastern and Western Europe, UAE and parts of Asia. Large opportunities typically bring challenges around visibility of closing and booking the opportunity. With that said, we continue to have additional larger opportunities that are still in play that we have not closed that we expect continued progress on and throughout 2026. Turning to M&A execution. As you heard from Warren, we completed the acquisition of TYR Tactical last month. Its addition to our portfolio advances Cadre's strategic focus on mission-critical products with high margins, strong cash flows and compelling growth tailwinds. It also opens the door to international markets and provides access to new customers based on long-standing relationships. The integration process is underway, and we have started over -- our first 100 days of functional integration activities, which have included initial states, site visits by both TYR and Cadre teams. Based on our initial diligence, we kicked off 2 projects to evaluate product opportunities to use TYR capabilities within 2 different Cadre businesses. TYR has shown an impressive dedication to manufacturing processes that deliver customers best-in-class solutions. We look forward to leveraging their engineering capabilities as well as employing core Cadre operating model tools to unlock additional opportunities across the organization. While TYR is our latest acquisition, and our teams are focused on integration, we are certainly not done when it comes to M&A, and we are actively evaluating a robust funnel and high-quality strategically aligned businesses to add to our portfolio. Critical to our success is Cadre's ability to generate significant free cash flows through cycles, which enables us to both pursue acquisitions and make strategic investments in core organic growth, while also returning capital to shareholders. We paid 17 consecutive quarterly dividend since going public and recently raised our dividend of $0.40 per share on an annualized basis. Turning to Slide 6. We continue to operate in 2 markets defined by durable long-term demand drivers. On the law enforcement side, we see rising safety threats globally, coupled with resilient and growing spend on production equipment. There is bipartisan commitment to public safety in the U.S. and across Europe, supported by growing defense budgets. On the nuclear safety side, long term, demand is tied to policy and commercial tailwinds across our 3 market segments: environmental management, national security and nuclear energy. I'll speak more about some of the dynamics we are seeing in the nuclear market in a moment. The next 2 slides outline more current developments in our business environment. Trends in North America law enforcement remained positive, highlighted by significant federal investment in government agencies. From a geopolitical perspective, global conflict is on the rise, underscoring the importance of the work that we do. As we have discussed previously, however, the opportunity for Cadre to play a more meaningful role generally comes when hostilities end, and we can provide various EOD offerings to address unexploded ordinance. In our consumer channel, while oral consumer demand is down, we have benefited from the strength of the Safariland brand and new product introductions. During 2025, we saw growth in this channel of 7% for the full year and 15% growth in the second half of the year, both versus prior year. Turning next to the latest market trends affecting our nuclear vertical on Slide 8. We continue to see multidirectional support driven by expanded government and commercial programs. On the National Defense front, expanding government mandates for weapons modernization and production are driving consistent and growing demand. The broader nuclear power space also continues to support growth opportunities for Cadre and the momentum in this market segment has only grown greater. Based on our follow the fuel strategy tied to the expanding nuclear fuel cycle, we are seeing stronger-than-expected opportunities in our funnel related to nuclear ventilation and containment systems and criticality alarm systems. Our third nuclear market segment is environmental management, where we support nuclear material processing, handling and remediation. The development to call out in this area has been a recent executive order aimed at repurposing the U.S. plutonium stockpile to fuel nuclear reactors. Historically, Alpha Safety products were used to transport, stabilize plutonium to sites where it was down blended with uranium and ultimately packaged in the criticality control overpacks per shipment. Following the executive order, this down blending program has slowed which has directly reduced demand for some Alpha Safety products. Additionally, we've seen a shift in priorities at multiple nuclear sites toward pit production programs. With resources heavily focused on rebuilding plutonium production infrastructure, waste disposition programs are currently receiving less operational focus. And as a result, plutonium material movement has slowed. While this will have a near-term financial impact, keep in mind this development pertains to only 1 subsegment of the nuclear group. Blaine will discuss this in greater detail, but overall, the broader Cadre nuclear group outlook remains positive. Before I turn the call over to Blaine, I'd like to highlight another major win for Cadre's Med-Eng subsidiary that Warren alluded to in his introduction. Earlier this week, we announced that Med-Eng has been awarded $86 million in contracts by General Dynamics European Land Systems or GDELS, to provide blast attenuation seats. Designed to protect occupants for mine and roadside explosive threats, these are life-saving seats that highlight our differentiated expertise in blast physics and integration into military vehicles. We are honored to be awarded these contracts, which marked an important endorsement of Med-Eng's breadth of engineering and product development capabilities. Production and first delivery of the larger of the 2 programs will begin in 2026 and continue until 2031, while the second contract will run in parallel beginning in 2026 and continuing through 2029. With that, I'll now turn the call over to our CFO, Blaine Browers, to speak more about M&A, Cadre's Q4 financial results and 2024 outlook.

Thanks, Brad. I will kick off my comments by spending a moment to underscore Cadre's M&A track record and the momentum we expect to carry into 2026. As you can see on Slide 9, the acquisition of TYR completed in February marks our sixth acquisition since going public. Each of these transactions has been in line with our thoughtful and patient approach and met our highly selective key criteria focused on strong margins, leading and defensible market positions, recurring revenues and cash flows. Looking ahead, we maintain a robust acquisition pipeline in both the public safety and nuclear markets and intend to grow our diversified portfolio of mission-critical safety businesses through disciplined capital allocation. Turning to Slide 10. We highlight the criteria that guides our process when evaluating potential transactions. Overall, we anticipate additional M&A in 2026 and continue to see attractive opportunities to broaden our product range, enter new markets and increase customer wallet share. On the next 2 slides, we have provided a broader overview of the TYR acquisition, which represents another step forward in the strategy we have articulated over the last several years. As Brad discussed, we have begun the integration process and look forward to the beginning of this next phase of growth together. TYR brings significant hard armor capabilities via their large presses and autoclaves that will be a significant resource addition to the Cadre armor businesses. We're excited about how the strengths of both companies will complement each other and enable new growth opportunities. Another key point to highlight is that the TYR Tactical customer base has minimal overlap with Cadre's existing Safariland armor business. On Slide 11, we show TYR and Cadre armor revenue by customer channel, which illustrates how complementary the 2 brands will be in the marketplace. TYR serves a worldwide customer base, including top-tier special ops units, government agencies and militaries. You can see that 66% of its revenue is derived from international customers while U.S. federal and U.S. military totaled 27%, both areas where Safariland does not have a major foothold today. Turning now to a summary of Cadre's financial performance. Slide 14 details our fourth quarter and full year results. Fourth quarter top and bottom line results were down versus last year's record Q4, our full year net sales, net income and adjusted EBITDA increased significantly year-over-year. In Q4, duty gear and armor product lines saw revenue and margins in line with our expectations, but we did experience revenue timing shifts in our nuclear businesses and EOD product lines, some distribution softness and run rate and a slight impact in our chemical luminescence product due to the government shutdown. Notably, 2025 adjusted EBITDA of $111.7 million marked a record for the third consecutive year and 2025 gross margins improved 140 basis points. Similar to what we've seen in the past, irrespective of party, there can be uncertainty as a new administration gets their footing. We have seen similar impacts in the past but these impacts have been short-lived. We've also seen the resiliency of our business as we exit these transition periods. I would like to reiterate that we've had 2 significant wins in public safety that reinforce our optimistic view of the future with a blast sensor contract and the blast attenuation sear contract, both of which have multiyear horizons for our life-saving products and are 2 of the biggest contracts in our history. I would also like to highlight the fact that the gross margins for the full year 2025 for public safety products, excluding distribution and nuclear, were up 188 basis points on a full year basis, which further reinforces the strong execution of the teams and sets the stage for strong EBITDA margins as we see more typical growth. Illustrated on Slide 15 is net sales and adjusted EBITDA growth year-over-year including our 2026 guidance, which I'll discuss more in a moment. Our full year outlook implies year-over-year revenue and adjusted EBITDA growth of 22% and 24% respectively, at the midpoints. You can see that over the last several years, Cadre has delivered consistent and stable growth. Our resilience is a key differentiator with the businesses that are largely affected by economic, geopolitical and other cycles. On Slide 16, we present our capital structure as of December 31, 2025. After completing the acquisition of TYR Tactical, our net leverage is just under 3x, not including TYR's earnings. If you adjust for TYR's adjusted EBITDA contribution, our leverage dropped to about 2.5x. We believe Cadre's strong free cash flow generation, coupled with the strength of our balance sheet gives us ample financial flexibility to continue to pursue organic and inorganic opportunities. We provide 2026 guidance on Slide 17. Net sales are expected to be between $736 million and $758 million. Our adjusted EBITDA guidance is between $136 million and $141 million, implying adjusted EBITDA margins of 18.5%. The guidance indicates organic growth for both public safety and the nuclear businesses to be in the 3% to 5% range as well as continued implementation of our pricing strategy of 1% price increase net of material inflation. Brad discussed near-term headwinds for one of our nuclear businesses, which is reflected in our guidance. From a profitability perspective, these declines represent negative mix and that impact is considered an outlook. We believe, over time, as we realize these commercial nuclear opportunities in our funnel that our nuclear mix will return to what we've seen in the past. As we look at the quarterly cadence of revenue, similar to the past, we expect the second half of the year to be heavier with a lighter Q1. Our public safety businesses have their larger opportunities timed for later in the year. For example, the blast sensor order isn't expected to ship until later in the year as the team ramps up production on this new product line. We expect Q1 to be up year-over-year, driven by [ Zircaloy ] and TYR, but organically down in the quarter driven primarily by Armor project timing combined with Armor material constraints, lower distribution revenue and Alpha project timing. We expect Q1 to be very similar to Q3 of last year on the revenue line with margins around 39% due to volume and mix, as we've discussed. We do expect margins to climb as we exit Q1 as the mix improves and volume increases and EBITDA margins in the low teens in Q1 for the same reason. This doesn't include impact of the inventory step-up for TYR or amortization as part of the purchasing accounting. Overall, our businesses are performing well, and we expect continued strong demand in 2026 and across our core markets in public safety and nuclear safety. I'll now turn it back to Brad for concluding comments.

Thank you, Blaine. We continue to execute well against our strategic priorities, and our strong 2026 outlook reflects our confidence in the businesses, fundamentals and the effectiveness of the Cadre operating model. We believe the combination of Cadre's track record of superior execution, resilience in the face of economic, political and geopolitical and other cycles as well as the dedication of our talented teams around the world will continue to drive strong results moving forward. Beyond our core organic growth initiatives, we are actively evaluating compelling M&A opportunities and remain committed to targets with strong financial profiles, durable competitive advantages and structural growth drivers. In conclusion, we're excited to continue to build our platform and further enhance our market leadership supported by Cadre's entrenched positions and favorable industry trends across our law enforcement, first responder, military and nuclear end markets. With that, operator, please open up the lines for Q&A.

[Operator Instructions] And our first question comes from the line of Larry Solow with CJS Securities.

My first kind of question, Brad, very encouraged to see the kind of organic outlook returning to a somewhat normalized rate there in the 3% to 5%. So if I do my math somewhat correctly, it looks like you were down about 2% organically in '25, and you kind of outlined bunch of larger orders pushed out. I'm just curious like in this environment or is it kind of a domino effect where some of the things that were pushed out from '25 into '26 or, then you're seeing stuff go from '26 to '27? Or doesn't -- is there any catch up? Just kind of curious on your visibility. Obviously, with geopolitical stuff, Iranian conflict, all that other stuff, eventually, something like that probably should be good. But in the short term, government shutdown, partial shutdown. Does some of this stuff also kind of impact your visibility for the current year?

Larry, it's Brad. Thanks for the question. The good news is when you look at -- when there's large opportunities within this business or quite frankly, many other businesses have been in, you have good visibility to those. So that mix of large opportunities that we talked about last year, we've closed a lot of those opportunities. They're sitting in our backlog now. We talked about blast seats we announced earlier this week. We just talked about it. That was something that we were expecting more toward the end of last year, but we've got that one in the bag now. We also have the sensor program, which was the other one that, we thought we would get earlier in the year, last year, but we ended up having more towards the end of the year last year. And then we have other ones that we can't disclose the customer base for competitive reasons, but there's other larger opportunities within multiple categories that they're funded, but there's various details around those orders that have kept those orders from getting booked at the moment. So we continue to work those, working them hard. And I'm also proud to say, I mentioned in the prepared remarks that our international teams have been closing a lot of various orders within many different countries within not just a single business unit, but multiple business units, and we're really proud of the traction that we've been making there.

Right. So it certainly sounds like a temporary thing, right? I mean, it feels like your backlog continues to grow. Question just on the nuclear front. So I guess kind of that shift in prioritization, less cleanup on the plutonium side, more focused on plutonium build-out. I guess in theory, you're taking it from one hand and giving to the other hand, but that given the other hand, may take a little bit longer, so you have a plutonium build-out, so you have a temporary short-term negative impact. Is that kind of a good way to look at that in terms of how you view it?

Yes. I think there's a timing difference when we think about like an existing revenue stream for nuclear related around that down blending and then the pickup on the commercial nuclear side. There is a timing lag just because of the size and significance of those projects for it to pick up. That's kind of point one, and then the second point, which Brad brought up is really just the mix change and the impact on margins that has that down blending is a very highly technical side of the business with margins that go with the kind of technical expertise required. So you kind of have this twofold kind of impact. What we are excited though is how robust that commercial energy, nuclear energy funnel has become since acquisition, right? If you kind of rewind back when we started, and I think this is the great thing about the platform is we play in all 3 of these end markets. So over the long run, we're comfortable. There's plenty of revenue opportunities not only to offset that loss but really to continue to drive growth in that segment.

Got you. And if I could slip one more, just margin outlook. It looks like the implied kind of midpoint slightly up, almost pretty flattish. Is that, and I know TYR is accretive, so is that most of that impact just on the mix side in nuclear, which is kind of dragging the margin this coming year?

That's really it. Yes, it's that mix impact.

And our next question comes from the line of Eegan McDermott with Jefferies.

It sounds like some of those bigger orders are still being pushed to the right and we've seen some recent wins, but for the remaining contracts, what gives you confidence that they're delayed and not lost at this point?

100% Confidence that they're delayed and not lost at this point. That's the type of visibility that we have to those. Can't go through the details for those specific ones, but the visibility is 100% there, especially 1 -- 2 actually larger orders in one of our business units that that's in our -- has been awarded to us, let's call it, right? So when we look at the products that we have that have been specified no issue there. So definitely no losses, high confidence in those. It's just a timing situation and they are both 2 different specific situations taking place.

Understood. That's helpful. And maybe if I could follow up on CapEx, guided in the $10 million to $14 million range for '26 is obviously a step-up from recent years. And maybe just some commentary on that, if you could? And should we be thinking of that as going towards capacity expansion or focused on any specific area of the business?

Really, the uplift from historical is around capacity, in particular, in the nuclear area or the nuclear businesses where we had some site build-outs. And if you go back in history, we have had periods where we're getting -- we get closer to, not quite 2% of revenue, but closer to 2% revenue as we talk about. And generally, what drives that is capacity expansion, buildings, and that's the case for this year. Outside of that investment in one of our sites, the CapEx is very, very typical for the rest of the businesses.

And our next question comes from the line of Matt Koranda with ROTH Capital.

I appreciate the detail on the organic components of the '26 outlook. Just wondering what are you factoring in from TYR from a revenue contribution standpoint? It sounds like it's still going to be accretive on EBITDA margin, but I wanted to hear a little bit more about revenue and then cadence of revenue from TYR throughout the year?

Yes. Yes. Our outlook with TYR out of the gates is a conservative approach as we do with all acquisitions. So -- we have them weighed in at about $100 million on a full year basis. Given that we closed in February, that would put them in the high 80s, low 90s for baked into guidance. And then EBITDA margins, right, where we talked about in that 20% range. As we move forward in the year and you're getting a little closer to the team's process and develop more confidence in the funnel, we'll adjust accordingly from there. But we feel comfortable with where we're starting with them.

Okay. And then on the blast seat contract, I was curious how that ramps up. I know you said there's contribution in '26. It sounds like probably later in the year. Maybe any color on how you're thinking about the ramp-up and contribution to the sales in the back half of '26. And then just on a go-forward basis, I guess, is it kind of a run rate type deal through the 2 contracts terms that you gave in the press release? Any additional kind of thoughts on the way to thread that into the model would be helpful.

Matt, it's Brad. So think of it this way. New program, we wanted to get it out as soon as possible to actually getting the $86 million PO in our hands. So what the team is working on now with GDELS is the production planning side of things for 2026. So we actually have just started that here in March so that we can begin ordering parts and begin to get the supply chain cranked up. And then there's some sample deliverables as we go into the fourth quarter as we go into that phase of the project overall. So most of this revenue will be timed into 2027 and beyond for the schedule that I've mentioned earlier.

And our next question comes from the line of Jeff Van Sinderen with B. Riley Securities.

Just wanted to circle back to down blending for a moment, if we could. Would you expect down blending funding to increase again at some point or might down blending be replaced by some other sort of disposal process? And is that one that Cadre could be involved with?

Jeff, overall, it's hard to tell what we're referencing is an executive order that went out last year that directed -- it was really -- it was directed from the DOE to decrease the down blending of excess plutonium except in areas that are required by law. So that's you can go read the executive order, but that's roughly what the executive order says. And then what we've seen by working with some of our customers like LANL and Savannah River and those folks is things have shifted more toward pit production programs like we've been talking about within our verticals with the goal of increasing pit production since the U.S. has, quite frankly, been producing zero pits over many years since the cold war ended. So that seems to be the focus at the moment. That does drive additional opportunities. There are different opportunities compared to what cleanup activities would look like with our high-end containers that Blaine had already mentioned that bring higher margins within that product category for us. And what it shifted to is from a commercial nuclear standpoint and more of the nuclear ventilation and containment type systems that we have within the Alpha Safety business unit and then also criticality alarm systems, which is also within the Alpha Safety business unit. The good news is the funnel for those 2 product categories have been growing significantly since this shift has been happening. We've got various companies that are in the enrichment side of things and also fabricators, that we have an extensive list of quotes that are going on with them that we're pursuing at the moment for these offsetting type opportunities.

Okay. Good to hear. And then can you tell us a little bit more about the general dynamics seats attenuation product, what all you're supplying there, maybe a little more about the vehicles that the seats are going into? And also, is there potential for follow-on orders from General Dynamics, and just maybe what the overall outlook is for Med-Eng given the recent wins?

Yes, great question. It's not a category that we've talked a lot about in the past., it is a category that we have approximately installed base, 13,000-plus seats are out there that we've designed and manufactured over time across 15 to 18 different distinct configuration. So we've been doing this for about 18 years. So the team at Med-Eng has a lot of experience on the crew survivability side of things. So think of it as the product is -- it's a purpose-built blast attenuation-type seats that's engineered to protect occupants of track and wheeled combat vehicles, and then also other vehicles within militaries. So these vehicles anytime there's a blast that happens, it could be under the vehicle, it would be close to the vehicle, this is a way to protect the occupants that are sitting in these seats in the vehicle. We do have field-proven performance with various situations where vehicles that experience those type of blasts and lives have been saved due to these -- the blast seats that we have. So hopefully, that gives you a little more detail and a little more color around what we do in this category. The team -- very proud of this team, they've been working really, really hard to continue to build up the funnel and land some of these projects as they come about in these programs, and we're probably working with GDELS on this. It's a customer that we have a lot of experience with, whether it's General Dynamics, U.S.A., General Dynamics Canada, General Dynamics. Europe, obviously, the U.K. we have experience working with them overall. So we're happy to have this program.

And our next question comes from the line of Mark Smith with Lake Street.

First question for me. I just wanted to ask about TYR kind of synergies as we think about their facility and opportunities maybe with some of your current Safariland products. What's maybe built into the guidance, what opportunities there are as well as maybe cross-selling opportunities and if there's anything built into the guidance for that?

Mark, it's Brad. Great question. The short answer is there's zero built into the guidance related to TYR synergies. As you know, our first 100 days as we get out of the gates, we focus on all the functional-related activities, IT, finance, accounting, tax, treasury, compliance, you name it, that's the immediate focus with the teams as we bring people into the Cadre organization. We have kicked off a couple of projects. I can't go into details of those projects because it would bring up some potential competitive type situations out there, but we've kicked off 2 projects that I've approved within actually 2 separate business units. One is within our Armor business unit, another words, with our Med-Eng business unit to work with the TYR folks together on looking at how TYR capabilities can be used within those 2 parts of those businesses. So we're really excited about those 2 projects. We think they're very, I would call them, lower complexity projects that have higher opportunities of success as we go forward to get our feet wet with the TYR team working with our Cadre business units.

Perfect. And the second one for me is just kind of housekeeping and maybe for Blaine. Just can you just walk through a little bit more on that Q1, you gave some numbers around maybe Q1 on revenue margin. If you can just kind of review that. And then curious if there's some continued transaction costs that roll over into Q1?

Yes, absolutely. So we said revenue really in line with Q3 of last year, which was right at $155. 8 million, gross margins around 39%, with EBITDA margins in the low teens. And there will be some carryover on transaction costs into the year as we close the deal.

And our next question comes from the line of Jordan Lyonnais with Bank of America.

On the organic backlog decline, is it fair to think that most of that should be from the environmental cleanup work inside of the nuclear business and then 2026, the verticals that we should see this 3% to 5% organic growth. If it's commercial versus true defense, what win do you guys have around the commercial side coming through that gives you the confidence we'll see that shift to make up for the environmental down?

And your -- when you're talking backlog, Jordan, sequentially, is the question, right? Q3 to Q4?

Yes.

Okay. It's kind of as we expect, there were a number of larger projects, right? Our backlog had increased coming into or at the end of Q3. And then as those large shipments went out. So it's duty gear had some large orders, Brad mentioned on some international wins that got shipped in Q4 that lowered their backlog. Nothing alarming, but it's kind of a little bit spread amongst a lot of the businesses. Just calling attention to year-over-year, right, if we look back to where we were December of '24 we're still up organically pretty significantly. So I think kind of use that as a base point just to ground on that backlog growth on a year-on-year basis. And then on the commercial nuclear side, we've always had these products, right, that we're talking about. So I think the, how do we comfort around the win is really relative to our past track record in this area. The real difference here is not that it's new products or new uses, it's just the sheer number that we're seeing. So if you think about ventilation containment as an example, Brad mentioned, right, that's something the business has done for many, many years, both in fuel production as well as in remediation. So this isn't a new application. When you think about the competitor set, it's the same competitors they've competed about in the past, very similarly with the criticality accident alarm systems, same set of circumstances, same competitors same application. And that's what gives us comfort around those future wins. This isn't a new market for us by any means.

And that concludes our question-and-answer session. I will now turn the conference back over to Brad Williams for closing remarks.

I'd like to thank everyone for joining our call today and your continued support of Cadre Holdings. Operator, that'll conclude the call.

Thank you. Ladies and gentlemen, this concludes today's conference call, and we thank you for your participation. You may now disconnect.