TYR Tactical, LLC (CDRE) Earnings Call Transcript & Summary

Good morning, and welcome to Cadre Holdings 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 IGB Group for introductions and the reading of the safe harbor statement. Please go ahead, sir.

Thank you, and welcome to Cadre Holdings conference call to discuss the acquisition of TYR Tactical. 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 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 note that we have posted presentation materials on our website at www.cadre-holdings.com, which supplement our comments this morning. I'd like to remind everyone that a webcast replay of this call will be available via the link provided in today's press release as well as on Cadre's website. At this time, I'd like to turn the call over to Cadre Chairman and CEO, Warren Kanders.

Good morning, and thank you for joining Cadre's conference call to discuss our latest acquisition. I am joined today by our President, Brad Williams; and our Chief Financial Officer, Blaine Browers. We are pleased to further strengthen Cadre's industry-leading safety platform with the agreement to acquire TYR Tactical, a manufacturer of mission-critical personal protective equipment for military and law enforcement agents globally. I wish to congratulate the entire TYR team, Jason and Jane Beck, their family and employees. I have followed Jason and his businesses for over 25 years, and I'm excited to partner with Jason and his dedicated teams. As we have mentioned before, Cadre's M&A strategy is patient, thorough and disciplined. This transaction is consistent with that approach and reflects our ongoing commitment to expanding our portfolio and enhancing the company's market leadership across categories. A family-owned business founded by Jason and Jane Beck in 2010, TYR Tactical has established itself as a best-in-class brand, delivering must-own tactical defense products to elite military and law enforcement teams around the world. Its financial growth is underpinned by proprietary technologies, scalable manufacturing and outstanding management. Most importantly, Cadre and TYR Tactical share a long-standing commitment to innovation, quality and a life-saving mission. For decades, Jason and Jane have dedicated their lives to serving the men and women of law enforcement with gear that always exceeds mission demands. We welcome them both as significant Cadre shareholders and look forward to beginning this next chapter together. For Cadre, this acquisition represents another step forward in the strategy we have articulated over the last several years. Our long-term vision has been to evolve from a safety and survivability equipment company into a broader industrial business that builds on our legacy while finding new, high-margin, high free cash flow businesses in verticals where we can apply our expertise. It is also important to recognize that we are not done building upon our leadership positions in core law enforcement and military categories. We continue to see attractive opportunities to broaden our product range, enter new markets and increase customer wallet share. At the end of the day, our life-saving mission remains central to everything we do. We are proud of the trust that users place in Cadre and even our safety focus becomes more diversified, we will remain unwavering in our commitment to delivering products and solutions that customers can rely on when it matters most. 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, I'll provide a brief overview of TYR Tactical, outlining products and key investment highlights, followed by a Q&A session. I'll begin on Slide 3 with a summary of the transaction and why we are so excited to acquire this business. As you heard from Warren, TYR Tactical is a specialty provider of high-performance advanced tactical gear, including soft armor, hard armor and tactical nylon to U.S. and allied militaries and law enforcement agencies around the world. It is a business that fits squarely within the strategic criteria that define our disciplined approach to M&A, outlined on the right side of the slide. Key attributes, including a leading market position, strong brand recognition, differentiated manufacturing technology as well as exceptional product quality and commitment to innovation. The business also brings meaningful growth tailwinds with approximately $92.6 million of revenue in the year ended December 31, 2024, and a margin profile expected to be immediately accretive. While I'll speak more in a moment about its expansive geographic footprint, the business has headquarters in Peoria, Arizona and additional facilities in El Paso, Texas; Ontario, Canada and Denmark with deeply entrenched positions globally and a sticky contract base. These dedicated facilities ensure an expedited manufacturing process and support their extensive international customer relationships. The map on the right side of Slide 4 is an effective illustration of the company's worldwide penetration. The business services customers in nearly 40 countries with international revenue representing approximately 50% of 2024 total sales. Based on its established relationships with key European militaries and recent wins with Danish and Swedish Armed Forces, we see clear opportunities to secure additional contracts with other European and NATO militaries and law enforcement agencies moving forward. A key point to highlight is that the TYR Tactical customer base has minimal overlap with Cadre's existing Safariland armor business. In the bottom left corner of the slide, you'll see an overview of the TYR Tactical product suite. Designed to meet the exacting needs of tactical operators in high-risk environments, its offerings include plate carriers, vests, hard armor, shields and accessories that enhance equipment operability. The business has a reputation for innovation, leading ergonomics and field-tested durability, which underpin its market-leading position. Turning next to Slide 5. We provide a closer look at differentiated manufacturing technology and proprietary IP portfolio that TYR has developed under the leadership of co-founders, Jason and Jane Beck. Jason and Jane have built an exceptional engineering foundation supported by a substantial investment in cutting-edge pressing and autoclave systems at their Arizona headquarters. These capabilities are highly unique in the industry and allow TYR to produce defense products engineered with next-generation advanced ballistic materials. As these materials become increasingly prevalent in hard plates and shields, this engineering technology is a must-have to remain competitive. The company's proactive R&D process has yielded a deep intellectual property portfolio with 80 patents secured across the U.S., Canada, Australia and Europe and another 27 patents pending. TYR also maintains 59 registered trademarks, protecting its key brands and product innovations worldwide. Importantly, the company has placed significant emphasis on working with female operators, resulting in patented female body armor that addresses the distinct ergonomic needs of female agents without compromising comfort or adding bulk or weight. Taken all together, their track record of product development, coupled with advanced engineering capabilities reflect a business that has invested heavily in innovation and built meaningful barriers to entry. Before turning to Q&A, I'll spend a moment to reiterate the key investment merits that TYR Tactical brings to the table. The acquisition represents a significant step forward in advancing Cadre's strategic focus on mission-critical products with high margins, strong cash flows and compelling growth tailwinds. It establishes a foothold in international markets and provides access to new customers based on long-standing relationships that drive demand. From the initial diligence that we have completed, TYR has shown an impressive dedication to manufacturing processes that deliver customers best-in-class solutions. We look forward to employing core Cadre operating model tools to unlock additional opportunities with TYR and other Cadre brands. Overall, this is exactly the kind of high-quality, strategically aligned business we seek to add to our platform, one that enhances our leadership, accelerates growth and delivers long-term value for our shareholders. We can't wait to get started and begin the integration process following the expected close in the first half of 2026. With that, operator, please open up the lines for Q&A.

[Operator Instructions] Your first question comes from Larry Solow from CJS Securities.

Congratulations. It sounds like strategically, certainly what you're looking for. Can you maybe give us a little more color just on the competitive environment? It sounds like most of these products are complementary to you guys. So it doesn't sound like you're competing much directly. But just maybe across their product line, it sounds like they're the leader, but can you just give us a little more color on the competitive environment and their growth history. It sounds like they're closing in on $100 million revenue in a 15-year history. How is that kind of growth shaped out over the last few years?

Larry, it's Brad. I'll take the first half of that, and then Blaine will pick up on the last piece there. But just talking about the competitive landscape typically, when we talk about competition in the market, Safariland is known for really the soft body armor side of things within, as you know, law enforcement from an armor perspective. What we typically don't have significant share in is on the tactical side of things. We've done well, as you know, in the past 24 months with a product called HyperX, which is a tactical body armor system that Safariland has. So then to kind of contrast that, you flip it the other way, and when you look at TYR, we don't have significant customer overlap, which is great. That was one of the things that attracted us to the business. They're entrenched with militaries around the world where typically Safariland has national police forces when we have business outside the U.S. And then as you know, we're heavily concentrated in law enforcement, where they're heavily concentrated more in the federal side of things from a customer perspective. When you look at products, the Safariland expertise is not in plates and shields, even though we have those product lines, they're important to the business that we have today, but it's not something that we've been able to continue to keep up with, with the type of investments needed to progress those product categories forward. TYR has done an amazing job, not just from a product development in those categories, but also capital equipment to make sure that we can keep up with the more advanced materials that are needed to manufacture the plates and gear at the level that's needed in the market.

And then on the growth side, Larry, they've seen pretty significant growth over the last few years as they've landed some of these large projects and large opportunities. We expect that to moderate but still to grow in the future. As we kind of move forward, we'll provide more guidance. But they've definitely been aggressive in the market and successful with their products. And we're excited to really bring them in as part of the Cadre family and look forward to some of the opportunities we can unlock between the traditional kind of armor -- Safariland armor as well as the TYR Tactical products.

Got it. I appreciate that. And if I could just squeeze in one more. It sounds like I know you didn't give the actual EBITDA number, but if I just take a guesstimate with the margin profile you discussed, your leverage, pro forma, I think, should still be just under 3. Am I in the ballpark there?

Yes, using Q3 results pro forma with TYR, would just less than 3. That's correct.

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

Congrats. Just wanted to start with maybe the regional exposure at TYR. I know you broke out and said about 50% of sales coming internationally, but you were sort of qualitatively alluding to a fair amount in Northern Europe. Any willingness to sort of break out exposure there and then potential to cross-sell some of your core products into those customers as well to get some more growth lift out of this?

Yes, other than what we've disclosed, Matt, and thanks for the question, we'll kind of leave it to Brad's comments where he mentioned Sweden and Denmark. But they have had great success in Northern Europe and we think there's the opportunity to really leverage the best of both worlds as we continue to explore additional exposure and wins in Europe, and that's -- we primarily think about that on the armor side, but we do believe with the strong relationship TYR brings, it can and will open up opportunities for our other product lines as well.

Okay. Got it. And then I guess we're relatively close to the end of the year in '25, any willingness to just sort of put a rough number on what they're tracking toward for the year in terms of sales? I know you gave the '24 number. But how should we think about, I guess, sales this year?

Yes. We won't put a specific number on it. We're obviously getting through the process and signing the purchase agreement, and we'll look to close the first half of next year. But I would say, based on where they landed next -- or last year, they do have growth this year, but we'll -- as we move forward and get to maybe the earnings call in a couple of weeks or next week, we can discuss a little bit more. But they've been -- they've definitely been growing. We would not expect them to be flat.

Okay. Last, just a quick one on the margin front. I know you said accretive to EBITDA margins. So I assume that means probably we likely have something like a 20-handle percent EBITDA margin on this thing. How stable have margins been historically? And then just any tariff exposure or any other material kind of cost exposure we should be thinking about on this front?

Yes. On the gross margin, they have seen expansion with some of the new opportunities -- when you go down to EBITDA margins, you've obviously seen some pretty significant growth as they've leveraged their SG&A., and much like Cadre, been thoughtful about investing in the business now and why. So we're very excited. We think a lot of that culture side fits really well with us and how they think about the business. One of the pieces we are most pleased to see is they have a focus on high-quality business going forward. And the business they win, they're not competing on price, they're bringing value to the table and pricing accordingly. And Matt, I think you had a second question.

The other piece was just any tariff exposure that we should be considering and any material cost items that we should be thinking about in terms of input costs for TYR?

No. It's -- their supply chain is very similar to the current armor business supply chain. So there's no significant tariff exposure like to the rest of the business.

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