CDRE - NYSE

Good afternoon, everyone, and welcome to the Cadre Holdings Third Quarter Ended September 30, 2022 Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Mr. 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 Cadre Holdings third quarter 2022 conference call. Before we begin, I would 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 evening and include a reconciliation of certain non-GAAP financial measures. I would like to remind everyone that this call will be available for replay through November 24, 2022, starting at 8 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today'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.

Thank you, Matt. Good afternoon and thank you for joining Cadre's earnings call to discuss our results for the third quarter of 2022. I'm joined today by our President, Brad Williams; and Chief Financial Officer, Blaine Browers. In our first year as a public company, we have made significant progress capitalizing on the attractive long-term tailwinds, driving demand for our mission-critical safety and survivability equipment. We are delivering on our M&A strategy while generating significant free cash flow, standing margins and exceeding our 1% pricing growth target above material inflation. Our operating model has been resilient in a challenging macro environment, and we are pleased to reaffirm 2022 guidance. Looking ahead, we are excited about our long-term outlook. Our business model benefits from strong cash flow generation and our balance sheet is solid. So we believe we are well positioned to take advantage of a robust M&A pipeline. Executing on this element of our strategy is something that we as a team and I personally spend a substantial amount of time focusing on. In addition to acquiring businesses that complement our core, we are pursuing diversification plays consistent with our focus on safety and survivability. And we have seen some evidence that these types of businesses will be actionable in the short-to-medium term. As you can see from the presentation, we incurred transaction expenses in the third quarter and expect to incur additional transaction expenses in the fourth quarter, which shows that we are actively engaged in this activity and will continue to be thorough, disciplined and thoughtful about our approach as we evaluate deals. It is worth spending a few minutes discussing the macro environment and how we believe it impacts our M&A objectives. First, the capital markets are generally challenging. The equity markets have been volatile with some sectors up and others down, largely reflecting the performance of the underlying sectors. At the same time, as the Fed and other central banks have raised interest rates and switched from quantitative easing to quantitative tightening, the credit markets have tightened, increasing the cost of borrowing for everyone and impacting the ability to get credit at all, in some cases, regardless of the cost. We hedged the substantial portion of our current borrowings in the beginning of the year that we are in good shape there. Our net leverage as of the end of the quarter was 1.7 times net debt-to-EBITDA, and we expect to further delever through [ph] the end of the year. We are also in constant communication with our bank syndicate and are highly confident of our ability to organize additional capital on attractive terms in spite of the overall climate should a compelling opportunity crystallize. Considering the financial markets, our tailwinds and favorable industry macros, we believe we have solid organic drivers for our businesses that create the foundation to continue pursuing accretive acquisitions. 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. You'll see on Slide 4 that on today's call, we'll provide a quarterly update and business overview, including a review of our M&A strategy and cover our financial performance and full year outlook followed by a Q&A session. We will begin on Slide 5. As Warren mentioned, our execution since going public just about one-year ago has been strong. Importantly, we have advanced strategic objectives while navigating a difficult macro environment characterized by persistent supply chain disruptions and inflationary pressures. We have an exceptional team in place to tackle these challenges, and we are excited about the continued implementation of our operating model, which will enable Cadre to create further value for our customers and all stakeholders. Turning to Q3 execution we again exceeded our 1% pricing growth target above material inflation. We believe our products superior quality and performance continue to serve as core differentiators for Cadre and position us to maintain pricing power amid what we believe will be continued inflationary pressures over the near term. Our Q3 adjusted EBITDA conversion rate of 97% was above the high end of our guidance range and reflects the strength of our low CapEx model, resulting once again in significant cash flow generation. As we anticipated, our product mix was more favorable in the third quarter and adjusted EBITDA margins improved 300 basis points. This was driven by an increased higher margin due to year shipments. I'd also like to highlight that our orders backlog remains strong. As of September 30, 2022, our backlog stood at $125.2 million, primarily driven by recent acquisitions as well as strong demand for armor and large federal government orders, offset by a reduction in EOD backlog that we had anticipated. In terms of M&A, we remain well-positioned to capitalize on a robust pipeline, complementing our core organic growth initiatives. Building on our two accretive acquisitions year-to-date, we continue to actively pursue attractive opportunities and remain focused on high-margin companies with leading market positions and strong recurring revenues and cash flows. Later on the call, Blaine will discuss our M&A strategy and pipeline in greater detail. Finally, as evidenced by our strong cash flow generation in the quarter and throughout 2022, we remain poised to both execute acquisitions and consistently return capital to shareholders. In November, we declared our fifth consecutive quarterly dividend of $0.08. Moving to the next two slides, we'll discuss macro tailwinds supporting our long-term sustainable growth, as well as provide an update on current market trends. On Slide 6, we highlight fundamental drivers of demand and visibility for Cadre's mission-critical products, which have remained fairly consistent throughout 2022. With the focus on crime during this midterm election cycle, we continue to see a push to refund police budgets rather than defund. Additional long-term tailwinds include the American Rescue plan funding more police as well as anticipated long-term demand resulting from the Ukraine conflict. These represent long-term opportunities supporting demand for Cadre's mission-critical products, and we continue to anticipate our total addressable market to grow, particularly internationally. We'll next discuss the latest market trends affecting our business on Slide 7. As we have noted in the past, North American police budgets remain healthy as we are seeing signs of increasing spend per officer. Hiring, however, remains an issue and departments are still struggling to fill open positions. We expect it to take some time for officer headcount to return to historical levels. As the War in Ukraine carries on, inbound inquiries have continued, and we have received a number of smaller orders. We expect that the ongoing conflict will provide incremental opportunities in Europe, primarily in EOD. Turning to our supply chains, we continue to experience disruptions and delays, which have affected the flow and availability of certain fabrics, electronic components and various raw materials. Against this backdrop, our pricing power continues to serve us well, and we have worked closely with our partners to reduce the impact on our product lines. We're incredibly proud of our team's ability to address these challenges head on in a difficult macro environment. Regarding trends in our consumer segment, we continue to see stable demand but are monitoring the macros. I'll now turn the call over to our CFO, Blaine Browers.

Thank you, Brad. I'll begin my remarks by discussing our M&A strategy and the general acquisition environment. Slide 8 summarizes the key criteria that drive Cadre's M&A process. Under Warren's leadership, Cadre has always been a patient investor with a long track record of successfully rate [ph] acquiring, integrating and optimizing high-margin companies with leading market positions and strong recurring revenues and cash flows. As we have outlined in the past, we will continue to remain disciplined and seek compelling opportunities to either expand our product and technology offerings, enter new markets and/or grow our geographic footprint. This year, we have completed two accretive acquisitions that further expanded Cadre's international presence and added multiple growth avenues. Integration of both businesses has progressed as expected, and we anticipate ongoing progress implementing Cadre operating tools. In terms of future M&A, we continue to actively evaluate deals and have a robust funnel of targets consistent with our key criteria. As we discussed last quarter, it's becoming more difficult for businesses to refinance, which could lead to new acquisition opportunities in the market. But based on what we've seen up to this point, we believe there's still a disconnect between sellers pricing expectations and the current market environment. On Slides 11 and 12, we detail our third quarter 2022 results. As you can see, net income, adjusted EBITDA and adjusted EBITDA margin each improved sequentially, illustrating our resilient operating model and the more favorable Q3 mix that Brad mentioned earlier. Cadre generated net sales of $111.2 million as compared to $98.7 million for the same quarter last year. The increase in the product segment was primarily a result of recent acquisitions and armor volume, partially offset by a large contractual armor order that was held in the prior year in our product segment. In our Distribution segment, the increase was driven by agency demand for hard goods. Gross profit margin was 39.2% for the third quarter, a significant sequential improvement, consistent with our expectation that second half 2022 margins would be similar to the strong margins we saw in the first half of 2021. Excluding the amortization of inventory step-up on the Cyalume acquisition, Q3 2022 gross profit margin was 40.7%. Net income was $4.9 million for the third quarter compared to a net loss of $5.3 million for the quarter ended September 30, 2021, which included a loss on the extinguishment of debt related to the August 2021 debt refinance. As a result of the more favorable Q3 product mix, third quarter profit increased more than 11% as compared to the second quarter. Third quarter EBITDA conversion of 97% is a strong indication of our ability to produce free cash flow. And I'd like to remind everyone that from a cash generation perspective, we have very low ongoing CapEx needs at approximately 1% of revenue annually, excluding facility expansion or upgrades. Turning to the next slide, we illustrate the anticipated top line and adjusted EBITDA growth for the full year 2022. Based on the midpoint of our guidance range, we expect approximately 5% annual growth for both full year net sales and adjusted EBITDA. On Slide 12, we present our capital structure as of September 30. Our net debt was $116.8 million, and we believe our net leverage below 2 times provides significant financial flexibility to grow organically and more importantly, inorganically through acquisitions. We provided guidance on Slide 13. As we approach the conclusion of the year, we are reaffirming our 2022 outlook based on our strong performance to date and fourth quarter expectations. Of note, like most businesses with exposure overseas, we continue to see FX pressure due to the strength of the U.S. dollar and ongoing challenges with our supply chain. If the rates were to hold, this could be around $1 million headwind for the year for FX versus our guidance. Cadre expects to generate net sales in 2022 between $444 million and $452 million and adjusted EBITDA in 2022 of between $72.5 million and $77.5 million. Additionally, we expect adjusted EBITDA conversion to be between 92% and 95% for the full year 2022. I'll now turn it back over to Brad for concluding remarks.

Thank you, Blaine. Before opening the call to questions, a note that our progress in 2022 and since our IPO in November 2021 has been strong amid persisting macro headwinds, while we continue to be conscious of supply chain and inflationary pressures, we have an exceptional team to navigate this environment and are focused on further implementing our operating model, which we believe will create long-term value for customers and shareholders. As we approach the end of the year and look towards 2023, we will continue to draw on our leading and entrenched market positions across our life-saving product categories to capitalize on additional selling opportunities. Further improving gross and adjusted EBITDA margins over the long term remains a priority, and we will continue to seek to achieve cost structure optimization to drive operating leverage and expect margin expansion over time. Finally, we will continue to see compelling M&A opportunities that expand our product and technology offerings, enter new markets and grow our geographic footprint. We remain extremely optimistic about our long-term prospects underpinned by this robust pipeline and the strong long-term macro tailwinds driving demand and visibility for Cadre's mission-critical products, both domestically and internationally. With that, operator, please open up the lines for Q&A.

Thank you. [Operator Instructions] We'll hear first today from Daniel Imbro with Stephens.

Hey. Good evening guys. Thanks for taking our question. I want to comment on the product side and the strength you saw there, you noted in the release, stronger armor sales. I'm curious, how is that market developing competitively? How is your primary large competitor handling supply chain? Have you seen any share wins this year? Or kind of what's driving that armor strength? And any update there would be great?

Yes. Thanks Daniel. So from the intelligence we have, what we've seen is pretty consistent with us in terms of supply chain with the couple of competitors in this market space and how they're doing. Do we have competitive wins in the marketplace? Yes, we do. And we have those wins based on, like we've talked about in the past, really based on our value proposition of our product and really the strong brand that we do have in the position in the marketplace.

Got it. And then, one, maybe on Europe just thinking about the long-term growth there, you guys have achieved obviously really strong share in the U.S. between holsters and armor. Is there anything different about that market that would inhibit you from ultimately getting to that kind of market share, 90% plus on holsters? From what you've learned so far, could Europe ultimately look like that market, or any early learnings on the share opportunity over there?

Yes. This is Blaine. Yes, I think what we see in Europe is a different market, right? It's not a single market, its multiple markets. And for us, Radar was that first step in that process of localization and getting closer to the customer and having more of an impact where the decisions are being made. So, I think it's possible. It's just a little more difficult to get there and will take us a little more time because in the U.S., it's much easier. They do a lot of sharing between agencies locally and nationally, just information sharing that is, as you get into Europe, they're a little wall-off in that sense and not quite as much information sharing or even following kind of what some other departments do. With our superior products and position with the Radar brand on board now, we think that's certainly the goal long term, but it's certain we didn't get here today in the U.S. overnight, and I don't think it will happen in Europe overnight either.

Got it. And then just a financial one, Blaine, just to wrap-up. The guide implies a bit at the midpoint of some EBITDA margin expansion further from the third quarter. Obviously, 3Q saw some nice sequential improvement. So kind of curious, can you talk to what the building blocks are that gets that EBITDA margin expansion from 3Q to 4Q?

Yes, most of it really comes down to the mix of products. And then we have, as you know, limited kind of view on backlog, and that's what drives a lot of that between both portfolio mix or different kind of product mix, but also mix within the products itself. Very happy with the execution the teams have done around price and productivity in Q3, seeing no signs of that slowing. So it's really more about that mix as we talk to and in particular, EOD looks. Looks to be a little bit heavier in Q4, which is always helpful for us.

That's helpful. I appreciate it. [indiscernible] go forward guys.

Thanks Daniel.

Thank you.

We'll hear next from Bert Subin with Stifel.

Hey. Good afternoon and thank you for the time.

Hi, Bert, thank you.

Hi, Bert.

So Brad, last quarter you noted you were doing some more research to better understand where police hiring stands these days. Is there any detail you can share about what you think net police officer growth is and sort of how it's been trending? I know that data is hard to come by, but just if you're seeing anything over the sort of the last 90 days? And then additionally, when you noted spend per officer is increasing, is that just higher pricing? Or is that also a greater breadth of product sales to the officer?

Hey, Bert, I'll work those backwards. So we've seen some indications of not necessarily broadening on the pricing side of things. But there are some indications that there's higher spend there. And we don't have any, I would say, solid information on that topic. We expect it's due to headcount being down like it is. And again, not a lot of good data there, but we estimate 20% or upwards depending on the agency. The headcount is one of their biggest spins. So with headcount being down, it gives them the ability to continue to upgrade and potential cases and continue to focus that funding on a less smaller group of officers.

Okay. That's helpful. And then just to follow up on maybe more on the financial side. The midpoint of guidance this year implies about 5% EBITDA growth versus 2022. I realize you guys are not giving guidance for next year, but just high level, if we look ahead to 2023, how should we think about your target of greater than 10% annual EBITDA growth?

Yes. So for 2023, we're currently in the process internally of evaluating what things look like. And the one piece we always have to come back to is if you think about kind of armor for instance, or there's a core, what we call kind of run rate portion of the business that's very repeatable. And then we've talked about large orders kind of coming on top. That's something we're evaluating that depending on where the volume goes that will obviously directly impact that EBITDA expansion upwards or downwards from there. So I think on the core products, duty-gear armor, as Brad kind of mentioned, Warren talked about, we have those tailwinds and then we'll have to go through the EOD side of the world to see what the cycle looks like in the backlog and what one looks like.

Okay. And maybe just finally, is there an update you can provide on where blast sensor opportunity stands today?

Yes, definitely, Bert. So we're continuing down the blast sensor project various phases. So we successfully delivered Phase II for SOCOM and not only successfully delivered it, but there's trials that were also completed with what we would consider good findings from the trials. So now we're entering into Phase III of the work with various deliverables involved in Phase III. That Phase III is expected to be completed in March 31st of 2023. So that's really what's on deck, what we've done and what's up next.

Thank you.

We'll move next to Elizabeth Greenfield [ph] with Bank of America.

Hi, good evening. I think I missed what you said around the FX impact and what it was in the quarter and what you thought it would be for the year?

Elizabeth, we talked about really being about $1 million of headwind for the year versus guidance.

And the original guidance for FX flows?

No, this is from our guidance. So it's a $1 million headwind from our original guidance.

Okay. And then how should we think about the sales mix going forward, so starting in 2023?

2023, we expect armor to be good where you have to have some tailwinds behind us as we kind of entered the year. We do expect some officer headcounts to increase. But as Brad mentioned, that wouldn't be filling up that complete gap. So we'd expect that to be a tailwind for us. Due to gear much the same as more officers go on the street as they're given guns of holsters. And then EODs the side of the world, but we take a little more time with because it is programmatic, and we want to really have kind of nailed down.

Okay. Alright. Great. Thank you so much.

Thank you.

We'll move next to Sheila Kahyaoglu with Jefferies.

Hi. Good afternoon guys and thank you for our first Cadre. In terms of supply chain, you called out some weakness and shortages around electronics or raw materials and fabrics. Can you maybe talk about how you expect that to impact the top line for 2022 and going into 2023? And then also how you're thinking about that working capital impact?

Hey, this is Brad. So based on what we're seeing this year in 2022 versus 2023 from a supply chain perspective, we think it's going to be some of the same, which has been fairly inconsistent within the supply chain. So we have various items pop up from time to time that our supply chain teams have to focus on and work with those suppliers and partner with some areas where suppliers have expected longer-term type issues. We've worked on increasing those safety stocks either within our four walls in our facilities or within the facilities of those suppliers, which has been helpful, too. So we feel like next year will be similar as we go forward, but the teams have done a great job managing through it.

And the one area to your working capital question, we did take a strategic view on inventory, in particular, on ballistics, and you really saw the impact in the cash flows here in Q3. The cash use of about $7.2 million, about half of that is related to that holistic reserve, another half is really just timing in the quarter. So at this point, we do not expect it to be a significant drag on working capital or cash flow next year, but it's something we'll continue to evaluate.

And what is the specific like material that is the issue? Is it a raw material? Or is it just the supply chain being slow in terms of deliveries?

An example would be fabrics. For example, some of the ballistic materials that we have within the supply chain, we do group calls on that with those suppliers it stems from. Typically, the most common one has been within their supply chain, whether it's within their facilities or one step back in the supply chain of labor availability has been one of the biggest issues, which is, as many of us know, fairly common across the globe in terms of labor type issues. So that would be one example that we continue to have to monitor and make sure we're in control of.

Okay. Now that makes sense.

Just don't think about it as one particular supplier or material that's on a shortage. This is intermittent throughout the supply chain with different holistic materials that would cover both armor and EOD.

Okay. No. That's super helpful. And then if I could ask one more, the police sirens in the background, being in transport in New York City are not intentional, but you guys have talked about the police department sort of looking to fill positions and maybe struggling a bit. How are you seeing those trends over time?

Yes. Those trends have continued. Again, I wish we had some specific data to be able to continue to look at and see if things are improving or going up and down, but we get our information through our company-owned distributors that we owned up the East Coast and then also our third-party distributors that have feet on the street and then also our own sales force. And they continue, things have not gotten worse, it seems, continue to recruit, and they have folks going into recruit classes. Those recruit classes aren't as large as what most agencies would like as it was in the past. So I feel like it's pretty flat comparatively to previous quarters that we've discussed.

Okay. Great. Thank you.

Thank you.

[Operator Instructions] We'll hear now from Jeff Van Sinderen with B. Riley.

Hi everyone. Most of my questions have been answered, but I did want to ask you about Cyalume to see kind of, I guess, the latest you're seeing there relevant to new opportunities to grow, create efficiencies, improve contribution from Cyalume?

Yes. Hey, I'll take that one. This is Brad. Most of the work so far in Cyalume has been step one in our playbook is implementing our operating model. So we've been making a lot of great progress there in terms of that implementation with monthly business reviews, daily management, the budgeting process, pricing power tools as we've worked with them. So that's been the initial focus so far. Behind the scenes, we do have a separate team on the selling side of things with the Safariland selling team, working with the Cyalume selling team on coming up with the next steps in terms of how we approach the marketplace and various opportunities, both within their core products and then a couple of other product areas that we feel like there could be some growth within. So those will come later as we get into the first quarter as we dive in and make some decisions on how are we going to organize ourselves with Cyalume. And it could be do nothing all the way through to leveraging our channel and our brand that we have within the Safariland side of things.

And then I think you mentioned some small orders maybe stemming from Ukraine. I think that was how I gathered it was. And I'm just wondering how you expect that to progress as we're heading into 2023 and maybe any time frame around that?

You definitely got the comment right. We're currently engaged with a couple of countries around funding for demining and EOD applications, which is really where we think the opportunity for Cadre is in Ukraine. Right now, when you look at the funding, the U.S. military recently put out for Ukraine, it's been heavily towards offensive weapons. In fact, I think I saw a Wall Street Journal article pop up around U.S. military buying or artillery rounds from South Korea and shipping them over. So we think the tempo of the conflict is still a little bit too high for them to get very serious, but we do expect that to pick up in 2023, and the teams are being very proactive in working with both Ukrainian context as well as local government contacts as well.

Okay. Great to hear. Thanks for taking my questions an best of luck for the remainder of Q4.

Thank you.

Thanks.

We'll move on to Mark Smith with Lake Street Capital Markets.

Hi guys. First off, just a big picture question. Just as we thinking about, historical impact we be thinking about the historical impact you guys are seeing from recession maybe on smaller consumer products, but also on some of these bigger contracts and budgets? Historically, what have you guys seen in a recessionary environment as far as impact on your business?

Yes. On the commercial side, I think that's generally going to follow that recession as you have consumer-facing products, right? So that one, it will be impacted. I think the good news about our business is that's not a significant portion of our revenue. On the police side, as we looked at kind of the day over the years, the funding has been stable during the recessionary times for police. So we haven't seen significant downdrafts in those environments in the past. When it comes to government funding, again, we're generally a non-discretionary products. So I don't think we've seen cases where we've lost the funding. I do think though in a recession or even in the case where there's headlines that you may see some more movement than you would normally. When I say movement really timing around the orders and timing around the shipments. But from a municipality perspective and the data supports it, the spending is not significantly trended down during those 2008, 2009 financial crisis or even during the other industrial session in the early teens.

Perfect. And then similarly, you guys talked about capital markets being tough and potentially opening up some M&A opportunities. Are you guys seeing that pipeline start to expand? Or is it still early before we see that start to expand?

Yes. I would say in the last 30 to 60 days, we've certainly added more targets into the funnel, which has been positive. As I mentioned in my comments, and I think Warren alluded to it, it's just the timing, right. Capital is tough out there. It's expensive and waiting for the sellers to adjust to that, which it may take some time to get their expectations along with the current market conditions. But we remain bullish just on the level activity, a number of targets out there, and I believe as these rates come into effect and other companies are looking at refis that will really open the door for increased activity.

Okay. And the last question, just to clarify on the FX. You said, I think, about $1 million headwind against the guidance. Can you quantify kind of what you're seeing from FX impact throughout the year? As we look through it, is it pretty much $1.8 million or some of that other expense not quite as tied to FX?

So the question is through the year?

Yes, if you quantify it maybe year-to-date?

Year-to-date versus our guidance, it's about $700,000 of $1 million, a little bit more to go into Q4.

Okay. Perfect. Thank you.

And Matt Koranda with ROTH Capital has our next question.

Hey guys. Good evening. A lot of mine have been asked and answered, but I just wanted to clarify and make sure I understand the fourth quarter implied sort of guidance here. So it looks like $114 million at the midpoint or so. Just curious how much we're assuming comes from Radar and Cyalume in the quarter. I know you guys in the past had mentioned Radar as a little bit more seasonal towards the fourth quarter. So just wanted to get a sense for kind of rough contribution there and maybe any thoughts on organic growth go forward?

Yes. For Cyalume it's a very steady business. As we've kind of looked historically at their quarters, it's been fairly level loaded. We definitely have talked about a majority of Radar's revenue comes in really that September through December time frame, which we've seen looks to be happening this year. Again, a good visibility on backlog in orders and really just managing the supply chain portion of it, but again, Radar's not a large business. If you go back to kind of what we paid for it, it's not going to significantly move that needle on the overall revenue.

Okay. Got it. And then could you just put a finer point on what's baked into the EBITDA margin improvement in the fourth quarter, if I look at it year-over-year, pretty healthy improvement assumed. And it sounded like, if I'm hearing you correctly, it's just a richer mix of product revenue. And I think I heard you mention EOD, but could you just kind of go through that once more and just kind of put a finer point on where that margin improvement year-over-year is coming from for the fourth quarter?

Sure. Sure. So one of the big drivers in that change is really around duty gear. We talked a little bit about this coming into the year is the commercial markets, consumer markets were quite unpredictable in the back half of last year and unpredictable being a very strong first half and a softer second half. We've since seen that normalize and it's been steady through the year so far, which is great, but that is certainly one of the bigger drivers. And then the EOD volume as well is another large component, and that's more of a sequential comment, but due to year volume and then that channel mix on the consumer side is certainly a big lift for us.

Okay. Very helpful. I leave it there. Thanks.

Thanks.

And with no other questions at this time, I would like to turn things back to you all for closing remarks.

Okay. Thank you, operator. I'd like to thank everyone again for joining us on today's call and for your continued interest in Cadre. Operator?