S-1/A 1 tm2115376-8_s1a.htm S-1/A tm2115376-8_s1a - block - 30.3282956s
As filed with the U.S. Securities and Exchange Commission on July 27, 2021.
Registration No. 333-257849
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CADRE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3842
(Primary Standard Industrial
Classification Code Number)
38-3873146
(I.R.S. Employer
Identification Number)
13386 International Pkwy
Jacksonville, FL 32218
(904) 741-5400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Warren B. Kanders
13386 International Pkwy
Jacksonville, FL 32218
(904) 741-5400
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of Communications to:
Robert L. Lawrence, Esq.
Kane Kessler P.C.
600 Third Avenue, 35th Floor
New York, New York 10016
(212) 519- 5103
Robert E. Buckholz
Ekaterina Roze
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
(212) 558-4000
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.   ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer   ☐ Non-accelerated filer   ☒ Smaller reporting company   ☒
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.   ☐
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
Shares to be
Registered(1)
Proposed Maximum
Aggregate Offering
Price Per Share
Proposed Maximum
Aggregate
Offering Price(1)(2)
Amount of
Registration
Fee(3)
common stock, par value $0.0001 per share
8,214,286
$19.00
$156,071,434
$17,028.00
(1)
Includes an additional 1,071,429 shares of our common stock that the underwriters have the option to purchase to cover over-allotments, if any.
(2)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) of the Securities Act of 1933, as amended.
(3)
The registrant previously paid $15,684.00 of this amount in connection with a prior filing of this registration statement.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

SUBJECT TO COMPLETION, DATED JULY 27, 2021
[MISSING IMAGE: lg_cadreholdings-4c.jpg]
CADRE HOLDINGS, INC.
(a Delaware corporation)
7,142,857 Shares
Common Stock
This is an initial public offering of shares of common stock of Cadre Holdings, Inc.
Prior to this offering there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $16.00 and $19.00. We have applied to list our common stock on the New York Stock Exchange (the “NYSE”) under the symbol “CDRE”.
After the completion of this offering, Warren B. Kanders will beneficially own approximately 51% of the voting power of our common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. See “Management — Controlled Company Exemption” and “Principal Stockholders.”
We are an “emerging growth company” under federal securities laws and are subject to reduced public company reporting requirements.
Investing in our common stock involves risks. See “Risk Factors” beginning on page 15 to read about factors you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Per Share
Total
Initial public offering price $           $          
Underwriting discounts and/or commissions(1) $           $          
Proceeds, before expenses, to Cadre Holdings, Inc. $           $          
(1)
See the section titled “Underwriting” for additional information regarding the compensation payable to the underwriters.
The underwriters may also exercise their option to purchase up to an additional 1,071,429 shares of common stock from us, at the initial public offering price, less the underwriting discount.
The underwriters expect to deliver the shares against payment in New York, New York on           , 2021.
Stifel
Raymond James
Truist Securities
Stephens Inc.
Roth Capital Partners
PNC Capital Markets LLC
Regions Securities LLC
Prospectus dated            , 2021.

 
TABLE OF CONTENTS
Page
Important Introductory Information
1
15
31
33
34
35
36
38
40
59
69
73
87
90
92
96
98
102
108
108
109
F-1
Dealer Prospectus Delivery Obligation
Through and including                 , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
The market data and certain other statistical information used throughout this prospectus are based on independent industry publications, governmental publications, reports by market research firms or other independent sources. Some data are also based on our good faith estimates.
Neither we nor the underwriters have authorized anyone to provide you any information or make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
 

 
For investors outside of the United States: we have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside of the United States.
 

 
PROSPECTUS SUMMARY
This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless expressly indicated or the context requires otherwise, the terms “Cadre Holdings,” “Company,” “we,” “us,” and “our” in this prospectus refer to Cadre Holdings, Inc., a Delaware corporation, and its consolidated subsidiaries.
Business Overview
For over 55 years, we have been a global leader in the manufacturing and distribution of safety and survivability equipment for first responders. Our equipment provides critical protection to allow its users to safely and securely perform their duties and protect those around them in hazardous or life-threatening situations. Through our dedication to superior quality, we establish a direct covenant with end users that our products will perform and keep them safe when they are most needed. We sell a wide range of products including body armor, explosive ordnance disposal equipment and duty gear through both direct and indirect channels. In addition, through our owned distribution, we serve as a one-stop shop for first responders providing equipment we manufacture as well as third-party products including uniforms, optics, boots, firearms and ammunition. The majority of our diversified product offering is governed by rigorous safety standards and regulations. Demand for our products is driven by technological advancement as well as recurring modernization and replacement cycles for the equipment to maintain its efficiency, effective performance and regulatory compliance.
As discussed below, we believe we have established leading market positions across our product portfolio through high-quality standards, innovation and a direct connection to the end users, including being a leading provider of explosive ordnance disposal technician equipment globally as well as a leading provider of safety holsters and a top provider of soft body armor for first responders in the U.S. We service the ever-changing needs of our end users by investing in research and development for new product innovation and technical advancements that continually raise the standards for safety and survivability equipment in the first responder market. Our target end user base includes domestic and international first responders such as state and local law enforcement, fire and rescue, explosive ordnance disposal technicians, emergency medical technicians (“EMT”), fishing and wildlife enforcement and departments of corrections, as well as federal agencies including the U.S. Department of State (“DoS”), U.S. Department of Defense (“DoD”), U.S. Department of Interior (“DoI”), U.S. Department of Justice (“DoJ”), U.S. Department of Homeland Security (“DHS”), U.S. Department of Corrections (“DoC”) and numerous foreign government agencies in over 104 countries.
 
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We have a large and diverse customer base, with our top 10 customers representing approximately 26% of sales, with no individual customer representing more than 6.5% of our total revenue, for the year ended December 31, 2020.
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We are committed to honoring those who put their lives in danger through the SAVES CLUB®, which pays homage to first responders who experience a life-threatening incident in the line of work in which our armor or gear contribute to saving their lives. The club currently has 2,114 members and counting. With the help of our suppliers, distributors and first responder end users, we strive to fulfill the Company creed: Together, We Save Lives.
Industry Overview
The market for safety and survivability equipment serving first responders focuses on providing a diverse set of protective and mission enhancing products and solutions to our target end users. The market is driven by multiple factors including customer refresh cycles, growing number of personnel employed by first responder organizations, equipment replacement and modernization trends, greater emphasis on public and first responders’ safety and demographic shifts.
Body armor, explosive ordnance disposal equipment and duty gear comprise the core product areas in the safety and survivability equipment market and law enforcement personnel growth is a significant driver for our business. The U.S. Bureau of Labor Statistics projects the number of law enforcement personnel in the U.S. to increase at a faster rate than broader labor market growth over the 10 year period from 2019 to 2029, or 5%, from 813,500 in 2019 to 854,200 in 2029. Demand for first responder safety and survivability equipment is also fueled by increasing law enforcement budgets. Law enforcement budgets have grown significantly on a per capita basis since 2000, supported by increased spending in major cities and by federal agencies. Per the Bureau of Justice Statistics, in real dollars (adjusted for inflation), local police-protection spending per capita rose 29% from 2000 to 2017. In 2017, real state and local police protection spending per capita was $326 vs. $258 in 2000.
 
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The following charts highlight budget growth for major departments from 2008 to 2020 and for domestic state and local police protection spend from 2008 to 2018 (based on available data):
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[MISSING IMAGE: tm2115376d3-bc_domestic4c.jpg]
In addition to the macro industry trends, each of these product segments experiences unique drivers in and of themselves. Increasing mandatory body armor use and refresh policies, evolving technical standards and increases in tactical or special weapons and tactics (“SWAT”) law enforcement personnel act as tailwinds to the body armor market. Meanwhile, the explosive ordnance disposal equipment market is driven by the continued emergence of new global threats while duty gear is driven mainly by product use and replacement cycles.
Our management estimates the annual addressable market for soft body armor (including tactical soft armor) in 2020 to be approximately $870 million. We also estimate explosive ordnance disposal equipment to have an addressable market of approximately $245 million over the seven-to-ten year life cycle of the products’ installed base. Finally, the annual addressable market for holsters for the global law enforcement and military and consumer markets is estimated to be approximately $380 million.
The international market is also poised for growth as foreign governments face increasingly complex safety challenges and seek to replace legacy equipment. Additionally, we foresee the demand for safety and survivability equipment from overseas markets to increase due to heightened awareness of the importance and effectiveness of such products and as countries are exposed to new threats. Our management estimates our addressable number of total law enforcement personnel outside the U.S. to be approximately 9,658,000, representing a substantial market opportunity.
Our management team believes that the safety and survivability equipment industry for first responders represents a stable and growing market with long-term opportunities. Given our strong market standing, direct connection to the end users, extensive distribution network, long history of innovations and high-quality standards, we believe we are well positioned to capitalize on the positive market dynamics.
Competitive Strengths
Leading, independent global provider of safety and survivability equipment for first responders.   Our history as a leading provider of high-quality safety and survivability equipment dates back to 1964. Our differentiated value proposition is built on superior quality combined with an unwavering focus on critical safety standards, making us the trusted brand name for first responders. Our extensive product breadth allows us to serve as a one-stop shop for our end users and their safety and survivability equipment needs.
Strong market positions.   Based on data we collect related to end users and publicly available information on awarded contracts and purchases, we believe we have leading market positions across multiple product categories through superior quality and performance differentiating us from our competition. By way of reference, we sell either concealable tactical or hard armor to 34 of the top 50 police departments in the U.S. by size. Likewise, we sell our duty retention holsters to 48 of the top 50 police departments in the U.S.by size. Furthermore, we are a party to multi-year contracts for the largest bomb suit teams in the world including the U.S. Army, U.S. Marine Corps and U.S. Air Force. Our products continually exceed stringent industry safety standards and are recognized for advancements in performance through innovation and technological enhancement.
 
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Mission-critical products with recurring demand characteristics.   Our products provide critical protection to their end users as well as those around them, with limited or no room for error. As a result, stringent safety standards and customary warranty provisions create refresh cycles on over 80% of the equipment we supply to ensure efficient and effective performance at all times. Demand associated with these refresh cycles drives a highly predictable recurring revenue stream. The majority of our remaining revenue is associated consumable products driving recurring sales based on replenishment needs.
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Attractive macro-economic and secular tailwinds driving demand and visibility for our products.   The vast majority of our end markets are acyclical in nature as their demand is driven primarily by the first responder budgets and relatively unaffected by economic cycles. Our business has benefitted from key shifts serving as tailwinds to our growth strategy including the increasing focus on safety, replacement and modernization trends as well as demographic shifts and urbanization.
Compelling organic and inorganic growth roadmap.   Leveraging our differentiated product development process and technical knowhow, leading domestic market position and first mover advantage with our suppliers, we plan to drive profitable organic revenue growth via new product development and geographic expansion. In particular, international expansion is an especially important initiative in our organic growth roadmap due to the significant market share opportunity and increasing investments in safety and survivability equipment in various key geographic markets. We expect to supplement our organic growth through a targeted M&A program spanning our existing core products and markets as well as attractive adjacencies.
Attractive financial profile with strong EBITDA margins and free-cash-flow generation.   We generate strong profitability through diligent portfolio management of customers and contracts and continued focus on cost structure to drive operating leverage. Our strong profitability combined with minimal capital expenditure requirements result in high free-cash-flow generation, which is a key driver for our internal research and development initiatives and targeted M&A program. Our Adjusted EBITDA Conversion Rate is consistently greater than 90%.
Tenured management with significant public company platforms.   Our management team is comprised of executive officers with extensive experience at public company platforms including Armor Holdings Inc., Danaher Corporation, General Electric Company and IDEX Corporation. Together they bring an established track record of strong performance operating and growing public companies both organically and via acquisitions. This experience has created a differentiated approach to our operating model through their expertise in building a culture of operational and cultural excellence, complexity reduction, and innovation.
Long-term customer relationships across diverse end markets and geographies.   We maintain long-term relationships with over 23,000 first responders and federal agencies both domestically and internationally, with top customer relationships averaging an excess of 15 years. Our global presence spans over 104 countries across North America, Europe and other regions.
Growth Strategy
Our growth plan consists of a multi-pronged approach that includes driving profitable core revenue growth through new product introductions and international market expansion combined with targeted acquisitions, enhanced through our operating model.
Profitable Core Revenue Growth.   We believe that our leading market positions across a range of core categories will continue to yield significant growth opportunities. Our management team is focused on
 
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delivering new product launches, increasing customer wallet share, executing on key new contract opportunities and expanding our high-margin e-commerce and direct-to-consumer capabilities to continue to drive revenue growth. Examples of recent product innovation include the development of a 3D body sizing solution for soft armor, introduction of our next generation holsters, and working with key suppliers on the use of emerging materials for utilization in new armor products. We are also seeking to expand our leadership in high-growth technologies through the development of our blast sensor equipment for soldier protection. We believe this opportunity could represent a total potential addressable market opportunity of up to approximately $500 million based on the total size of the U.S. Department of Defense branches ultimately participating in the program. The requirement for blast sensors and the potential market for all branches of the U.S. military is supported by the Blast Pressure Exposure Study Improvement Act which was signed into law as part of the National Defense Authorization Act for Fiscal Year 2020.
International Market Expansion.   We are also committed to increasing our market share internationally. Given our leading domestic market position and our products’ high-quality standards and performance, we believe we are well positioned to take advantage of the growth in international demand for safety and survivability equipment for first responders. We intend to penetrate certain international markets through leveraging existing relationships, building local market teams and expansion into relevant market adjacencies.
Targeted M&A Program.   To supplement organic growth and internal research and development, our management team has historically undertaken a targeted M&A program, completing 12 transactions between 2012 and 2017. These strategic acquisitions have allowed us to expand our product and technology offerings, enter new markets and expand geographically to achieve attractive returns in our invested capital period.
We maintain a robust pipeline of opportunistic M&A opportunities, spanning our existing core products and markets as well as attractive adjacencies within the safety and survivability landscape. We plan to utilize our relatively high free-cash-flow generation and historical success in acquisitions to drive favorable acquisition structures and efficient integration. Our operating model, passion around connecting with customers and expansive channel help maximize the value created from our acquisitions.
Continuous Margin Improvement Initiatives.   Our management team has shown a strong track record of achieving cost structure optimization to drive operating leverage, as evidenced by past years’ margin improvements. Our operating model starts with complexity reduction then uses lean tools and methods to continuously improve operational and commercial processes. Strategic initiatives completed over the past few years include among others, rationalizing the Company’s manufacturing footprint, divesting non-core activities, enhancing our supply-chain and optimizing customer relationships and key contracts. Together these activities have helped enhance the Company’s manufacturing and sales operations, ultimately driving profitability growth.
Risks Related to Our Business
Investing in our common stock involves substantial risk. You should carefully consider all of the information in this prospectus prior to investing in our common stock. There are several risks related to our business that are described under the section titled “Risk Factors” elsewhere in this prospectus. Among these important risks are the following:

The products we sell are inherently risky and could give rise to product liability, product warranty claims, and other loss contingencies.

Our markets are highly competitive, and if we are unable to compete effectively, we will be adversely affected.

Technological advances, the introduction of new products, and new design and manufacturing techniques could adversely affect our operations unless we are able to adapt to the resulting change in conditions.

We may seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing capital stock that would dilute your ownership.

We may be unsuccessful in our future acquisition endeavors, if any, which may have an adverse effect on our business; in addition, some of the businesses we acquire may incur significant losses from operations.

Our business and growth may suffer if we are unable to attract and retain key officers or employees, including our Chief Executive Officer, Warren B. Kanders, as well as any loss of officers or employees due to illness or other events outside of our control.
 
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We are uncertain of our ability to manage our growth.

We have significant payment obligations under the terms of our long-term debt, $211.9 million of which was outstanding as of March 31, 2021.

After the completion of this offering, Warren B. Kanders is expected to beneficially own approximately 51% of the voting power of our common stock. As such, the concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.
We are an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities Act”), and Section 3(a)(80) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Pursuant to Section 102 of the Jumpstart Our Business Startups Act (the “JOBS Act”), we have provided reduced executive compensation disclosure and have omitted a compensation discussion and analysis from this prospectus. Pursuant to Section 107 of the JOBS Act, we have elected to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
Recent Developments
Preliminary estimated unaudited financial and operating results as of and for the quarter ended June 30, 2021
The data presented below reflect certain preliminary estimated unaudited financial and operating results as of and for the quarter ended June 30, 2021, based upon information available to us as of the date of this prospectus. We have provided estimated ranges, rather than specific amounts, because these results are preliminary and subject to change. These data are not a comprehensive statement of our financial or operating results as of and for the quarter ended June 30, 2021, and our actual results may differ materially from this preliminary estimated financial information.
We have not yet completed closing our accounting records for the quarter ended June 30, 2021. During the course of our financial close and the preparation of our financial statements and related notes, additional adjustments to the preliminary estimated financial information presented below may be necessary. Therefore, these data represent management estimates that are subject to risks and uncertainties. See “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”
Accordingly, actual results may differ materially from these estimates, and all of these preliminary estimates are subject to change. The preliminary estimates included in this prospectus have been prepared by, and are the responsibility of, management. Our independent registered public accounting firm, KPMG LLP, has not audited, reviewed, compiled or performed any procedures with respect to these preliminary data and, accordingly, KPMG LLP does not express an opinion or any other form of assurance with respect thereto.
Based upon such preliminary estimated and operating financial results, we expect the following key metrics as of and for the quarter ended June 30, 2021 to be between the ranges set out in the following table, as compared to the quarter ended June 30, 2020.
Recent Operating Results (preliminary and unaudited)
Set forth below are selected preliminary consolidated unaudited financial results for the three months ended June 30, 2021. Our consolidated financial results for the three months ended June 30, 2021 are not yet available. The following information reflects our preliminary estimates with respect to the results for the three months ended June 30, 2021, which are based on currently available information and are subject to change. We have provided ranges, rather than specific amounts, for the preliminary results described below primarily because our financial closing procedures for the three months ended June 30, 2021 are not yet complete and, as a result, our final results upon completion of our closing procedures may vary from the preliminary estimates. These estimates should not be viewed as a substitute for interim financial statements prepared in accordance with GAAP.
This selected preliminary consolidated financial data has been prepared by, and is the responsibility of, our management. KPMG LLP has not audited, reviewed, compiled or applied agreed-upon procedures with
 
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respect to this preliminary consolidated financial data. Accordingly, KPMG LLP does not express an opinion or any other form of assurance with respect thereto.
The following are the selected preliminary unaudited financial results for the three months ended June 30, 2021, as well as a comparison to our unaudited financial results for the three months ended June 30, 2020 (in thousands):
Three Months Ended
June 30,
2021
(estimated)
2020
High
Low
Net sales
$ 115,000 $ 112,500 $ 93,344
Gross profit
48,250 47,150 34,052
Net income
6,825 6,550 11,974
Adjusted EBITDA
20,505 19,925 11,293
Net sales.   Net sales increased for the three months ended June 30, 2021 as compared to 2020, primarily as a result of an increase in international sales on customer contracts, an increase in armor shipments due to prior year COVID-19 constraints, and an increase in market demand for ammunition and firearms through our Distribution Segment.
Gross profit.   Gross profit increased for the three months ended June 30, 2021 as compared to 2020, primarily as a result of increased net sales, favorable pricing and favorable product mix.
Net income.   Net income decreased for the three months ended June 30, 2021 as compared to 2020, primarily as a result of a gain from a long-lived asset sale and earn-out stock payments for the three months ended June 30, 2020 compared to no activity for the three months ended June 30, 2021, offset by improvements in gross profit.
Adjusted EBITDA.   Adjusted EBITDA increased for the three months ended June 30, 2021 as compared to 2020, due to increased sales volume and margin rate increases due to favorable pricing and mix in the three months ended June 30, 2021.
The following table presents our EBITDA, Adjusted EBITDA and Adjusted EBITDA Conversion Rate reconciled to the most comparable GAAP measure for the periods indicated (in thousands):
 
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Three Months Ended
June 30,
2021
(estimated)
2020
(actual)
High
Low
Net income
$ 6,825 $ 6,550 $ 11,974
Add back:
Depreciation and amortization
3,482 3,482 3,819
Interest expense
5,621 5,621 5,939
Provision for income taxes
2,515 2,420 331
EBITDA
$ 18,443 $ 18,073 $ 22,063
Add back:
Restructuring and transaction costs
1,250 1,040 1,638
Other general income
(10,950)
Other (expense) income, net
485 485 (1,458)
LTIP bonus
327 327
Adjusted EBITDA
$ 20,505 $ 19,925 $ 11,293
Less: Capital expenditures
(760) (700) (1,451)
Adjusted EBITDA less capital expenditures
$ 19,745 $ 19,225 $ 9,842
Adjusted EBITDA conversion rate
96% 96% 87%
The following table sets forth our cash and cash equivalents and debt as of June 30,2021 on:
(1)
an estimated basis; and
(2)
a pro forma basis to give effect to: (1) the filing of our amended and restated certificate of incorporation, (2) the sale of the shares in this offering at the assumed initial public offering price of $17.50 per share, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us and excluding any exercise of the underwriters’ over-allotment option, (3) the distribution described under “Prospectus Summary — Recent Developments — Distribution,” (4) the repayment in full of outstanding borrowings under our existing Term Loan (as defined herein) and Revolving Credit Facility (as defined herein) with borrowings under the New Credit Agreement and (5) the use of the net proceeds of this offering to repay outstanding borrowings under the New Credit Agreement.
As of June 30, 2021
Estimated
Pro Forma
(in thousands)
High
Low
High
Low
Cash and cash equivalents
$ 15,500 $ 14,000 $ 8,000 $ 8,000
Debt:
Revolver
$ $ $ 3,582 $ 7,020
Term loan
210,158 212,058 150,000 150,000
Other
142 142 142 142
210,300 212,200 153,724 157,162
Unamortized debt discounts and debt issuance costs
(11,136) (11,136) (1,150) (1,150)
Total debt, net (including current portion of long-term debt)
$ 199,164 $ 201,064 $ 152,574 $ 156,012
Net Debt (Total debt net of cash)
$ 183,664 $ 187,064 $ 144,574 $ 148,012
The selected preliminary consolidated financial data presented above for the three months ended June 30, 2021 is preliminary, is not a comprehensive statement of our financial results and is subject to completion of our financial closing procedures. While we have not identified any unusual events or trends that occurred
 
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during the periods that might materially affect these preliminary estimates, our actual results for the three months ended June 30, 2021 will not be available until after this offering is completed. Accordingly, these results may change, and those changes may be material. Further, our preliminary estimated results are not necessarily indicative of the results to be expected for the remainder of fiscal year 2021 or any future period as a result of various factors, including, but not limited to, those discussed in the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Special Note Regarding Forward-Looking Statements.” Accordingly, you should not place undue reliance upon these preliminary estimates.
These estimated preliminary results and operating metrics should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements included elsewhere in this prospectus. For further discussion of factors that impact our results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Results of Operations.”
Concurrent Refinancing
Concurrently with, and conditioned upon, the closing of this offering, we intend to refinance our existing Term Loan and Revolving Credit Facility with our new credit facilities in an aggregate principal amount of $250.0 million, consisting of (i) a term loan in an aggregate principal amount of $150.0 million (the “New Term Loan”) and (ii) commitments for revolving loans up to an aggregate principal amount of $100.0 million (the “New Revolver”) that we entered into, the funding of which is subject to completion of this offering. We intend to use the net proceeds of the New Term Loan and a portion of the funds available under our New Revolver to repay all amounts outstanding under our existing Term Loan and Revolving Credit Facility. These debt transactions are collectively referred to herein as the Refinancing. As of March 31, 2021, there was $223.9 million outstanding under our Term Loan and no amounts outstanding on our Revolving Credit Facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
New Credit Agreement
On July 23, 2021 (the “Closing Date”), Safariland, LLC, as borrower (the “Borrower”), the Company and certain domestic subsidiaries of the Company, as guarantors (the “Guarantors”), entered into a credit agreement (the “New Credit Agreement”) with PNC Bank , National Association (“PNC”), as administrative agent, and the several lenders from time to time party thereto (together with PNC, the “Lenders”) pursuant to which the Borrower may borrow, on a senior secured basis, up to (i) $100,000,000 under the New Revolver (including up to $15,000,000 for letters of credit and up to $10,000,000 for swing line loans), and (ii) $150,000,000 under the New Term Loan, each maturing on July 23, 2026. Commencing December 31, 2021, the New Term Loan requires scheduled quarterly payments in amounts equal to 1.25% per quarter of the original aggregate principal amount of the New Term Loan, with the balance due at maturity. No borrowings were made under the New Credit Agreement on the Closing Date and the New Credit Agreement provides for certain conditions precedent to be satisfied for any borrowings to be made under the New Credit Agreement, including the completion of the Company’s initial public offering of shares of its common stock on or prior to September 30, 2021, and the repayment in full of our existing Revolving Credit Facility and Term Loan with each of Bank of America, N.A and Guggenheim Credit Services, LLC, respectively. On the date that such conditions precedent are satisfied and the borrowings are made (the “Funding Date”), the New Credit Agreement will be guaranteed, jointly and severally, by the Guarantors and, subject to certain exceptions, secured by a first-priority security interest in substantially all of the assets of the Borrower and the Guarantors pursuant to a mutually agreed Security Agreement and a mutually agreed Guaranty and Suretyship Agreement.
The Borrower may elect to have the revolving and term loans under the New Credit Agreement bear interest at a base rate or a LIBOR rate, in each case, plus an applicable rate. The applicable rate for these borrowings will range from 0.50% to 1.50% per annum, in the case of base rate borrowings, and 1.50% to 2.50% per annum, in the case of LIBOR borrowings. The New Credit Agreement also requires the Borrower to pay a commitment fee on the unused portion of the loan commitments. Such commitment fee will range between 0.175% and 0.25% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio.
 
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The New Credit Agreement also contains customary representations and warranties, and affirmative and negative covenants, including limitations on additional indebtedness, dividends, and other distributions, entry into new lines of business, use of loan proceeds, capital expenditures, restricted payments, restrictions on liens on the assets of the Borrowers or any Guarantor, transactions with affiliates, amendments to organizational documents, accounting changes, sale and leaseback transactions, dispositions, and mandatory prepayments in connection with certain liquidity events. The New Credit Agreement contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, failure to make payment on, or defaults with respect to, certain other material indebtedness, bankruptcy and insolvency events, material judgments and change of control provisions. Upon the occurrence of an event of default, and after the expiration of any applicable grace period, payment of any outstanding loans under the New Credit Agreement may be accelerated and the Lenders could foreclose on their security interests in the assets of the Borrowers and the Guarantors.
The foregoing description of the New Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the New Credit Agreement, which is included as an exhibit to the registration statement of which this prospectus forms a part.
Distribution
Following closing of this offering, we intend to use borrowings under the New Credit Agreement to make a one-time distribution to our existing stockholders in the amount of $55 million, of which a portion will be deemed a return of capital and a portion will be deemed a dividend.
Corporate Information
Cadre Holdings, Inc. was incorporated in the State of Delaware on April 12, 2012.
Our principal executive offices are located at 13386 International Pkwy, Jacksonville, Florida 32218 and our telephone number is (904) 741-5400. Our website address is www.cadre-holdings.com. The information on, or that may be accessed through, our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
Our principal material logos and trademarks include Safariland and Med-Eng, amongst others used for various niche product categories. Our logo and our other trade names, trademarks and service marks appearing in this prospectus are our property. Solely for convenience, our trademarks and trade names referred to in this prospectus appear without the ™ or ® symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and trade names.
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, presenting only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements.
In addition, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this provision of the JOBS Act. As a result, we will not be subject to new or revised accounting standards at the same time as other public companies that are not emerging growth companies. Therefore, our consolidated financial statements may not be comparable to those of companies that comply with new or revised accounting pronouncements as of public company effective dates.
 
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We will remain an emerging growth company until the earliest of: (i) the last day of the fiscal year following the fifth anniversary of the consummation of this offering; (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion; (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
 
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The Offering
Common stock offered by us
7,142,857 shares
Total shares of common stock to be outstanding immediately after this offering
34,626,207 shares (or 35,697,636 shares if the underwriters exercise their option to purchase additional shares from us in full).
Directed share program
The underwriters have reserved for sale, at the initial public offering price per share, up to 714,286 shares of our common stock being offered for sale to business associates, directors, employees and friends and family members of our employees. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares. If purchased by these persons, these shares will not be subject to a lock-up restriction, except in the case of shares purchased by any director or executive officer.
Use of proceeds
We expect our net proceeds from this offering will be $109 million (or $126 million if the underwriters exercise their option to purchase additional shares in full), based on an assumed initial public offering price of $17.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds of this offering to repay amounts outstanding under our New Credit Agreement. See “Use of Proceeds.”
Controlled company
After the completion of this offering, Warren B. Kanders will beneficially own approximately 51% (or approximately 49.5%, if the underwriters exercise in full their overallotment option) of the voting power of our common stock. However, we do not intend to avail ourselves of the controlled company exemption under the corporate governance standards of the NYSE.
Dividend policy
We have never declared or paid cash dividends on our common stock; however, in addition to the $55 million one-time distribution described under “Recent Developments — Distribution,” we expect to pay a periodic dividend on our common stock in the foreseeable future. See “Dividend Policy.”
Proposed NYSE symbol
“CDRE”
Risk factors
Please read the section entitled “Risk Factors” beginning on page 15 for a discussion of some of the factors you should carefully consider before deciding to invest in our common stock.
 
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize our consolidated financial and other data. We have derived the summary consolidated statements of operations data for the three months ended March 31, 2021 and 2020 and the summary consolidated balance sheet data as of March 31, 2021 from our unaudited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statements of operations data for the years ended December 31, 2020 and 2019 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary consolidated financial and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis,” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
Consolidated Statements of Operations Data:
(In thousands, except for share and per share amounts)
Three months ended March 31,
Year ended December 31,
2021
(Unaudited)
2020
(Unaudited)
2020
2019
Net sales
$ 110,536 $ 97,940 $ 404,642 $ 420,736
Cost of goods sold
66,577 58,838 251,704 274,699
Gross profit
43,959 39,102 152,938 146,037
Operating expenses
Selling, general and administrative
28,051 27,050 106,627 124,270
Restructuring and transaction costs
321 1,334 5,822 918
Related party expense
153 162 1,635 1,096
Other general income
(10,950) (7,630)
Total operating expenses
28,525 28,546 103,134 118,654
Operating income
15,434 10,556 49,804 27,383
Other income (expense)
Interest expense
(5,044) (6,669) (24,388) (29,848)
Loss on extinguishment of debt
(200)
Other (expense) income, net
(44) 680 2,659 395
Total other expense, net
(5,088) (5,989) (21,929) (29,453)
Income (loss) before (provision) benefit for income taxes
10,346 4,567 27,875 (2,070)
(Provision) benefit for income taxes
(3,482) (315) 10,578 142
Net income (loss)
$ 6,864 $ 4,252 $ 38,453 $ (1,928)
Net income (loss) per share:
Basic
$ 12.49 $ 7.74 $ 69.96 $ (3.52)
Diluted
$ 12.49 $ 7.74 $ 69.96 $ (3.52)
Weighted average shares outstanding:
Basic
549,667 549,667 549,667 548,042
Diluted
549,667 549,667 549,667 548,042
 
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Consolidated Statements of Cash Flows Data:
(In thousands)
Three months ended March 31,
Year ended December 31,
2021
(Unaudited)
2020
(Unaudited)
2020
2019
Cash flows provided by operating activities
$ 16,832 $ 14,878 $ 45,419 $ 7,414
Consolidated Balance Sheet Data:
(In thousands)
As of March 31, 2021
(Unaudited)
Cash and cash equivalents
$ 17,440
Total assets
300,479
Total liabilities
284,480
Total shareholders’ equity
15,999
Non-GAAP and Other Financial Measures
We review the following non-GAAP and other financial measures to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Increases or decreases in our non-GAAP and other financial measures may not correspond with increases or decreases in our revenue and our non-GAAP and other financial measures may be calculated in a manner different than non-GAAP and other financial measures used by other companies. For additional information regarding these measures, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Measures.”
Three months ended March 31,
Year ended December 31,
(In thousands)
2021
2020
2020
2019
EBITDA
$ 18,929 $ 15,086 $ 66,996 $ 43,221
Adjusted EBITDA
20,246 15,740 57,982 43,699
Capital expenditures
788 1,262 4,708 3,082
Adjusted EBITDA conversion rate
96% 92% 92% 93%
 
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RISK FACTORS
Investing in our common stock involves a high degree of risk. Before you invest in our common stock, you should carefully consider the following risks, together with all of the other information contained in this prospectus, including our financial statements and related notes. Any of the following risks could have a material adverse effect on our business, operating results, and financial condition and could cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment.
Risks Related to Our Industry
The products we sell are inherently risky and could give rise to product liability, product warranty claims, and other loss contingencies.
The products that we manufacture are typically used in applications and situations that involve high levels of risk of personal injury. Failure to use our products for their intended purposes, failure to use or care for them properly, or their malfunction, or, in some limited circumstances, even correct use of our products, could result in serious bodily injury or death. Given this potential risk of injury, proper maintenance of our products is critical. Our products include: body armor and plates designed to protect against ballistic and sharp instrument penetration; explosive ordnance disposal products; police duty gear; and crowd control products.
Claims have been made, and are pending against certain of our subsidiaries, involving permanent physical injury and death allegedly caused by our products or arising from the design, manufacture or sale of such goods. If these claims are decided against us and we are found to be liable, we may be required to pay substantial damages and our insurance costs may increase significantly as a result, which could have a material adverse effect on our business, financial condition and results of operations. Also, a significant or extended lawsuit, such as a class action, could divert significant amounts of management’s time and attention.
We cannot assure you that our insurance coverage would be sufficient to cover the payment of any potential claim. In addition, we cannot assure you that this or any other insurance coverage will continue to be available or, if available, that we will be able to obtain it at a reasonable cost. Any material uninsured loss could have a material adverse effect on our business, financial condition and results of operations. In addition, the inability to obtain product liability coverage would prohibit us from bidding for orders from certain governmental customers because, at present, many bids from governmental entities require such coverage, and any such inability would have a material adverse effect on our business, financial condition, results of operations and liquidity.
Furthermore, while our products are rigorously tested for quality, our products nevertheless do, and may continue to, fail to meet customer expectations from time-to-time. Also, not all defects are immediately detectible. Failures could result from faulty design or problems in manufacturing. In either case, we could incur significant costs to repair and/or replace defective products under warranty. We have experienced such failures in the past, and remain exposed to such failures. In some cases, product redesigns and/or rework may be required to correct a defect, and such occurrences could adversely impact future business with affected customers. Our business, financial condition, results of operations and liquidity could be materially and adversely affected by any unexpected significant warranty costs.
We are subject to extensive government regulations, and our failure or inability to comply with these regulations could materially restrict our operations and subject us to substantial penalties.
We are subject to federal licensing requirements with respect to the export of certain of our products. In addition, we are obligated to comply with a variety of federal, state and local regulations, both domestically and abroad, governing certain aspects of our sales, operations and workplace, including regulations promulgated by, among others, the U.S. Departments of Commerce, Defense, Justice, Treasury, State and Transportation, the Federal Aviation Administration, the U.S. Environmental Protection Agency, the U.S. Bureau of Alcohol, Tobacco and Firearms, and the Equal Employment Opportunity Commission. The U.S. Bureau of Alcohol, Tobacco and Firearms also regulates our manufacturing and distribution of certain destructive devices, firearms, and explosives. We also ship hazardous goods, and in doing so, must comply with the regulations of the U.S. Department of Transportation for packaging and labeling. We are also
 
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required to comply with Controlled Goods Directorate Registration regime in Canada for explosive ordnance disposal products. Additionally, the failure to obtain applicable governmental approval and clearances could materially adversely affect our ability to continue to service the government contracts we maintain. Exports of some of our products to certain international destinations may require export authorization from U.S. export control authorities, including the U.S. Departments of Commerce and State, and authorizations may be conditioned on re-export restrictions. Failure to receive these authorizations may materially adversely affect our revenues and in turn our business, financial condition, results of operations and liquidity from international sales. Furthermore, we have material contracts with governmental entities and are subject to rules, regulations and approvals applicable to government contractors. We are also subject to routine audits to assure our compliance with these requirements.
While we continually work to enhance our international trade compliance programs, we cannot assure you that we are or will be in full compliance at all times with applicable laws and regulations governing the export and deemed export of defense articles, defense services, and dual-use products and services that are controlled by U.S. and/or foreign governments. In those instances where we have identified non-compliances with applicable laws or regulations, we have taken affirmative steps to correct or mitigate such identified failures and to self-report them to the cognizant U.S. or foreign government agencies. We also import significant volumes of foreign-made components and materials for use in our manufacturing processes, which may be subject to import duties and other regulations. Violations of international trade (export/import) controls in the U.S. and elsewhere may result in severe criminal and/or civil penalties, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Like other companies operating internationally, we are subject to the U.S. Foreign Corrupt Practices Act and other laws that prohibit improper payments to foreign governments and their officials by U.S. and other business entities. We operate in countries known to experience endemic corruption. Our extensive operations in such countries create risk of an unauthorized payment by one of our employees or agents, which would be in violation of various laws including the Foreign Corrupt Practices Act. Violations of the Foreign Corrupt Practices Act may result in severe criminal penalties, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
We have significant international operations and assets and, therefore, are subject to additional financial and regulatory risks.
We sell our products in foreign countries and seek to increase our level of international business activity. Our overseas operations are subject to various risks, including: U.S.-imposed embargoes and/or sanctions of sales to specific countries (which could prohibit sales of our products there); foreign import controls (which may be arbitrarily imposed and enforced and which could interrupt our supplies or prohibit customers from purchasing our products); exchange rate fluctuations; dividend remittance restrictions; expropriation of assets; war, civil uprisings and riots; government instability; the necessity of obtaining government approvals for both new and continuing operations; and legal systems of decrees, laws, taxes, regulations, interpretations and court decisions that are not always fully developed and that may be retroactively or arbitrarily applied.
One component of our strategy is to expand our operations into selected international markets. Military procurement, for example, has traditionally had a large international base. We actively market our products in Europe, North and South America, the Middle East, Africa, and Asia. However, we may be unable to execute our business model in these markets or new markets. Further, foreign providers of competing products and services may have a substantial advantage over us in attracting consumers and businesses in their countries due to earlier established businesses in those countries, greater knowledge with respect to the cultural differences of consumers and businesses residing in those countries and/or their focus on a single market. In pursuing our international expansion strategy, we face several additional risks, including:

foreign laws and regulations, which may vary country by country, that may impact how we conduct our business;

uncertain costs of doing business in foreign countries, including different employment laws;

potential adverse tax consequences if taxing authorities in different jurisdictions worldwide disagree with our interpretation of various tax laws or our determinations as to the income and expenses attributable to specific jurisdictions, which could result in our paying additional taxes, interest and penalties;
 
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technological differences that vary by marketplace, which we may not be able to support;

longer payment cycles and foreign currency fluctuations;

economic downturns; and

uncertainty of sustained revenue growth outside of the United States.
We may also be subject to unanticipated income taxes, excise duties, import taxes, export taxes or other governmental assessments. In addition, a percentage of the payments to us in our international markets are often in local currencies. Although most of these currencies are presently convertible into U.S. dollars, we cannot be sure that convertibility will continue. Even if currencies are convertible, the rate at which they convert is subject to substantial fluctuation. Our ability to transfer currencies into or out of local currencies may be restricted or limited. Any of these events could result in a loss of business or other unexpected costs, which could reduce revenue or profits and have a material adverse effect on our business, financial condition, results of operations and liquidity.
We routinely operate in areas where local government policies regarding foreign entities and the local tax and legal regimes are often uncertain, poorly administered and in a state of flux. We cannot, therefore, be certain that we are in compliance with, or will be protected by, all relevant local laws and taxes at any given point in time. A subsequent determination that we failed to comply with relevant local laws and taxes could have a material adverse effect on our business, financial condition, results of operations and liquidity. One or more of these factors could adversely affect our future international operations and, consequently, could have a material adverse effect on our business, financial condition, results of operation and liquidity.
Risks Related to Our Business
Many of our customers have fluctuating budgets, which may cause substantial fluctuations in our results of operations.
Customers for our products include domestic and international first responders such as state and local law enforcement, fire and rescue, explosive ordnance disposal technicians, emergency medical technicians, fishing and wildlife enforcement and departments of corrections, as well as federal agencies and numerous foreign government agencies. Government tax revenues and budgetary constraints, which fluctuate from time to time, can affect budgetary allocations for these customers. Many domestic and foreign government agencies have in the past experienced budget deficits that have led to decreased spending in defense, law enforcement and other military and security areas. In addition, first responder budgets have been the subject of increased discussions as a result of controversies relating to police reform. Our results of operations may be subject to substantial period-to-period fluctuations because of these and other factors affecting military, law enforcement and other governmental spending. A reduction of funding for state, local, municipal as well as federal and foreign governmental agencies could have a material adverse effect on sales of our products and our business, financial condition, results of operations and liquidity.
Our markets are highly competitive, and if we are unable to compete effectively, we will be adversely affected.
The markets in which we operate include a large number of competitors ranging from small businesses to multinational corporations and are highly competitive. Competitors who are larger, better financed and better known than we are may compete more effectively than we can. In order to stay competitive in our industry, we must keep pace with changing technologies and customer preferences. If we are unable to differentiate our services from those of our competitors, our revenues may decline. In addition, our competitors have established relationships among themselves or with third parties to increase their ability to address customer needs. As a result, new competitors or alliances amongst competitors may emerge and compete more effectively than we can. There is also a significant industry trend towards consolidation, which may result in the emergence of companies which are better able to compete against us. Any such development could have a material adverse effect on our business, financial condition, results of operations and liquidity.
There are limited sources for some of our raw materials and components, which may significantly curtail our manufacturing operations.
The raw materials and components that we use to manufacture our products, include SpectraShield®, a patented product of Honeywell, Inc.; Kevlar®, a patented product of E.I. du Pont de Nemours Co., Inc.;
 
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Dyneema®, a patented product of Koninklijke DSM N.V.; and Twaron®, a patented product of Teijin Limited, amongst others, which we use in manufacturing ballistic resistant garments. We purchase the materials and components that we use in manufacturing ballistic resistant garments directly from these suppliers and also through five independent weaving companies. The supply of the materials and components that we use to manufacture our products may be constrained by a number of factors, including a supplier’s need to prioritize the manufacture of rated orders issued under the Defense Production Act of 1950 (the “DPA”). We cannot predict when the United States government will invoke the DPA, and in the past we have faced shortages from our sources of materials and components when the DPA has been invoked, including shortages in the raw materials and components that we use in manufacturing ballistic resistant garments.
Should these materials or components become unavailable for any reason, we would not necessarily be able to replace them with materials or components of like weight and strength, as our ballistic resistant garments must be manufactured to specific standards using specific materials and components that are not necessarily interchangeable based on metrics such as weight and strength. When we have faced shortages in the past, we have been able to ameliorate the issue by obtaining substitutable alternative materials and components from other commercially available sources. However, the use of alternative materials and components in our ballistic resistant garments requires research and development, recertification as well as customer acceptance of the new products utilizing these alternative materials and components, and there is no guarantee that any such recertification or acceptance will be obtained by us. Thus, if our supply of any of these materials or components were materially reduced or cut off or if there were a material increase in the prices of these materials or components, our manufacturing operations could be adversely affected and our costs increased, and our business, financial condition, results of operations and liquidity could be materially adversely affected.
Our resources may be insufficient to manage demand.
As we expand our operations, any growth may place significant demands on our management, administrative, operating and financial resources. The growth of our customer base, the types of services and products offered and the geographic markets we serve place a significant strain on our resources. In addition, we cannot easily identify and hire personnel qualified both in the provision and marketing of our products and systems. Our future performance and profitability will depend in large part on our ability to attract and retain additional management and other key personnel; our ability to implement successful enhancements to our management, accounting and information technology systems; and our ability to adapt those systems, as necessary, to respond to any growth in our business.
We are dependent on industry relationships.
A number of our products are components in our customers’ final products. Accordingly, to gain market acceptance, we must demonstrate that our products will provide advantages to the manufacturers of final products, including increasing the safety of their products, providing such manufacturers with competitive advantages or assisting such manufacturers in complying with existing or new government regulations affecting their products. There can be no assurance that our products will be able to achieve any of these advantages for the products of our customers. Furthermore, even if we are able to demonstrate such advantages, there can be no assurance that such manufacturers will elect to incorporate our products into their final products, or if they do, that our products will be able to meet such customers’ manufacturing requirements. Additionally, there can be no assurance that our relationships with our manufacturer customers will ultimately lead to volume orders for our products. The failure of manufacturers to incorporate our products into their final products could have a material adverse effect on our business, financial condition, results of operations and liquidity.
We may be unable to protect our proprietary technology.
We depend upon a variety of methods and techniques that we regard as proprietary trade secrets. We also depend upon a variety of trademarks, service marks and designs to promote brand name development and recognition. We rely on a combination of trade secret, copyright, patent, trademark, unfair competition and other intellectual property laws as well as contractual agreements to protect our rights to such
 
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intellectual property. Due to the difficulty of monitoring unauthorized use of and access to intellectual property, however, such measures may not provide adequate protection. It is possible that our competitors may access our intellectual property and proprietary information and use it to their advantage. In addition, there can be no assurance that courts will always uphold our intellectual property rights, or enforce the contractual arrangements that we have entered into to protect our proprietary technology. Any unenforceability or misappropriation of our intellectual property could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Furthermore, we cannot assure you that any pending patent application or trademark application made by us will result in an issued patent or registered trademark, or that, if a patent is issued, it will provide meaningful protection against competitors or competitor technologies. In addition, if we bring or become subject to litigation to defend against claimed infringement of our rights or of the rights of others or to determine the scope and validity of our intellectual property rights, such litigation could result in substantial costs and diversion of our resources, which could have a material adverse effect on our business, financial condition, results of operations and liquidity. Unfavorable results in such litigation could also result in the loss or compromise of our proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties on unfavorable terms, or prevent us from manufacturing or selling our products, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Technological advances, the introduction of new products, and new design and manufacturing techniques could adversely affect our operations unless we are able to adapt to the resulting change in conditions.
Our future success and competitive position depend to a significant extent upon our proprietary technology. We must make significant investments to continue to develop and refine our technologies. We will be required to expend substantial funds for and commit significant resources to research and development activities, the engagement of additional engineering and other technical personnel, the purchase of advanced design, production and test equipment, and the enhancement of design and manufacturing processes and techniques. Our future operating results will depend to a significant extent on our ability to continue to provide design and manufacturing services for new products that compare favorably on the basis of time to introduction, cost and performance with the design and manufacturing capabilities. The success of new design and manufacturing services depends on various factors, including utilization of advances in technology, innovative development of new solutions for customer products, efficient and cost-effective services, timely completion and delivery of new product solutions and market acceptance of customers’ end products. Because of the complexity of our products, we may experience delays from time to time in completing the design and manufacture of new product solutions. In addition, there can be no assurance that any new product solutions will receive or maintain customer or market acceptance. If we are unable to design and manufacture solutions for new products of our customers on a timely and cost-effective basis, such inability could have a material adverse effect on our business, financial condition, results of operations and liquidity.
We may be adversely affected by applicable environmental, health and safety laws and regulations.
We are subject to federal, state, local and foreign laws and regulations governing environment, health and safety (“EHS”) matters, including those regulating discharges to the air and water, the management of wastes, the control of noise and odors, and the maintenance of a safe and healthy operating environment for our employees. We cannot assure you that we are at all times in complete compliance with all such requirements. Like all companies in our industry, we are subject to potentially significant fines or penalties if we fail to comply with various EHS requirements. Such requirements are complex, change frequently, and could become more stringent in the future. Accordingly, we cannot assure you whether these requirements will change in a manner requiring material capital or operating expenditures or will otherwise have a material adverse effect on us in the future. In addition, we are also subject to environmental laws requiring the investigation and clean-up of environmental contamination. We may be subject to liability, including liability for clean-up costs, if contamination is discovered at one of our current or former facilities, in some circumstances even if such contamination was caused by a third party such as a prior owner. We also may be subject to liability if contamination is discovered at a landfill or other location where we have disposed of wastes, notwithstanding that historic disposal practices may have been in accordance with all applicable requirements. We use Orthochlorabenzalmalononitrile and Chloroacetophenone chemical agents in
 
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connection with our production of our crowd control products, and these chemicals are hazardous and could cause environmental damage if not handled and disposed of properly. Moreover, private parties may bring claims against us based on alleged adverse health impacts or property damage caused by our operations. The amount of liability for cleaning up contamination or defending against private party claims could be material and have a material adverse effect on our business, financial condition, results of operations and liquidity.
We may lose money or generate less than expected profits on our fixed-price contracts.
Our direct government contracts are primarily fixed-price for a specified term. Under these contracts, we agree to perform a specific scope of work or deliver a certain quantity of end items for a fixed price. Typically, we assume more risk with fixed-price contracts since we are subject to rising labor costs and commodity price risk. Fixed-price contracts require us to price our contracts by forecasting our expenditures. When making proposals for fixed-price contracts, we rely on our estimates of costs and timing for completing these projects. These estimates reflect management’s judgments regarding our capability to complete projects efficiently and timely. Our production costs may, however, exceed forecasts due to unanticipated delays or increased cost of materials, components, labor, capital equipment or other factors. Therefore, we may incur losses on fixed price contracts that we had expected to be profitable, or such contracts may be less profitable than expected, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
As it relates to our Products segment, fixed-price contracts represented less than 12% of annual net sales in 2020. For our Distribution segment, we estimate that fixed-price contracts represented approximately 55% of annual net sales in 2020.
Our business is subject to various laws and regulations favoring the U.S. government’s contractual position, and our failure to comply with such laws and regulations could harm our operating results and prospects.
As a direct and indirect contractor to the U.S. government, which represents approximately 16% of our business in 2020, we must comply with laws and regulations relating to the formation, administration and performance of federal government contracts, which effect how we do business with our clients and may impose added costs on our business. These rules generally favor the U.S. government’s contractual position. For example, these regulations and laws include provisions that subject contracts we have been awarded to:

protest or challenge by unsuccessful bidders; and

unilateral termination, reduction or modification by the government.
The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for the U.S. government under both cost-plus and fixed-price contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the U.S. Department of Defense. Responding to governmental audits, inquiries or investigations may involve significant expense and divert management’s attention. Our failure to comply with these or other laws and regulations could result in contract termination, suspension or debarment from contracting with the federal government, civil fines and damages and criminal prosecution and penalties, any of which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Our Chief Executive Officer has divided responsibilities and is not required to devote any specified amount of time to our business.
Our Chief Executive Officer, Warren B. Kanders, is also the Executive Chairman of Clarus Corporation, which is in the business of designing, manufacturing, and marketing equipment for outdoor recreation activities. Our employment agreement with Mr. Kanders requires that he devote his time, attention, energy, knowledge, best professional efforts and skills to the duties assigned to him by us, but he is permitted to pursue other professional endeavors and investments that do not violate the terms of his employment agreement, including provisions relative to non-competition. Mr. Kanders’ employment agreement does not require him to devote any specific amount of time to the Company. Accordingly, it is possible that
 
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Mr. Kanders will fail to devote the necessary time to our Company which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
We may be subject to disruptions, failures or cyber-attacks in our information technology systems and network infrastructures that could have a material adverse effect on us.
We maintain and rely extensively on information technology systems and network infrastructures for the effective operation of our business. Techniques used to gain unauthorized access to private networks are constantly evolving, and we may be unable to anticipate or prevent unauthorized access to data pertaining to our customers, including credit card and debit card information and other personally identifiable information. Like all Internet services, our direct-to-consumer service, which is supported by our own systems and those of third-party vendors, is vulnerable to computer viruses, Internet worms, break-ins, phishing attacks, attempts to overload servers with denial-of-service or other attacks and similar disruptions from unauthorized use of our and third-party vendor computer systems, any of which could lead to system interruptions, delays or shutdowns, causing loss of critical data or the unauthorized access to personally identifiable information. If an actual or perceived breach of our systems or a vendor’s systems security occurs, we may face civil liability and public perception of our security measures could be diminished, either of which would negatively affect our ability to attract customers, which could have a material adverse effect on our business. We also would be required to expend significant resources to mitigate the breach of security and to address related matters.
Further, a disruption, infiltration or failure of our information technology systems or any of our data centers including the systems and data centers of our third-party vendors as a result of software or hardware malfunctions, computer viruses, cyber-attacks, employee theft or misuse, power disruptions, natural disasters or accidents could cause breaches of data security and loss of critical data, which in turn could materially adversely affect our business. In addition, our ability to integrate, expand, and update our information technology infrastructure is important for our contemplated growth, and any failure to do so could have an adverse effect on our business.
We cannot fully control the actions of third parties who may have access to the customer data we collect and the customer data collected by our third party vendors. We may be unable to monitor or control such third parties and the third parties having access to our other websites in their compliance with the terms of our privacy policies, terms of use, and other applicable contracts, and we may be unable to prevent unauthorized access to, or use or disclosure of, customer information. Any such misuse could hinder or prevent our efforts with respect to growth opportunities and could expose us to liability or otherwise adversely affect our business. In addition, these third parties may become the victim of security breaches or have practices that may result in a breach, and we could be responsible for those third-party acts or failures to act.
Any failure, or perceived failure, by us or the prior owners of acquired businesses to maintain the security of data relating to our customers and employees, to comply with our posted privacy policies, our predecessors’ posted policies, laws and regulations, rules of self-regulatory organizations, or industry standards and contractual provisions to which we or they may be bound, could result in the loss of confidence in us, or result in actions against us by governmental entities or others, all of which could result in litigation and financial losses, and could potentially cause us to lose customers, revenue and employees.
Misuse of our products may adversely affect the Company’s reputation.
The target end users of the products that we sell, which include firearms, ammunition and body armor, are licensed professionals that include state and local law enforcement, federal agencies, foreign police, military agencies as well as private security firms. However, if any misuse of our products were to occur, the Company’s reputation could be harmed. The occurrence of any misuse of our products could seriously damage our reputation and the image of our brands or cause our customers to consider alternatives to the Company’s products, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Adverse publicity about the Company and/or its brands, including without limitation, through social media or in connection with brand damaging events and/or public perception, could negatively impact our business.
Negative claims or publicity involving us, our board of directors, our brands, our products, services and experiences, consumer data, or any of our key employees, or suppliers could seriously damage our reputation and the image of our brands, regardless of whether such claims are accurate.
 
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Social media, which accelerates and potentially amplifies the scope of negative publicity, can increase the challenges of responding to negative claims. Negative attention or scrutiny on the various products sold by our brands can also possibly result in negative publicity. For example, heightened governmental scrutiny of the safety of crowd control products has resulted in requests by two subcommittees of the U.S. House Committee on Oversight and Reform for information from major U.S. manufacturers, including us, relating to the production, sale, safety, and regulation of crowd control products. Congressional scrutiny and other similar inquiries by governmental bodies may damage our reputation and may also result in potential legislation designed to regulate the various products sold by our brands. See “Business — Government Regulation” and “Business — Legal Proceedings”.
Adverse publicity could also damage our reputation and the image of our brands, undermine consumer confidence in us and reduce long-term demand for our products, even if such adverse publicity is unfounded or not material to our operations. If the reputation, culture or image of any of our brands is tarnished or receives negative publicity, then our business, financial condition, results of operations and liquidity could be materially adversely affected.
The terms of our outstanding long-term debt and any requirements to incur further indebtedness or refinance our outstanding indebtedness in the future could have a material adverse effect on our business and results of operations.
Our significant payment obligations under the terms of our long-term debt, $211.9 million of which was outstanding as of March 31, 2021, together with any additional indebtedness we may incur in the future (including under the New Credit Agreement), could adversely affect our business, financial condition, results of operations and prospects. For example, our indebtedness or any additional financing may:

make it more difficult for us to pay or refinance debts as they become due;

require us to use a larger portion of cash flow for debt service, reducing funds available for other purposes;

limit our ability to pursue business opportunities, such as potential acquisitions, and to react to changes in market or industry conditions;

reduce the funds available for other purposes, such as implementing our strategy, funding capital expenditures and making distributions to stockholders;

increase our vulnerability to adverse economic, industry or competitive developments;

affect our ability to obtain additional financing;

decrease our profitability or cash flow, or require us to dispose of significant assets in order to satisfy debts and other obligations if we are not able to satisfy these obligations using cash from operations or other sources; and

disadvantage us compared to competitors.
Any of the foregoing, alone or in combination, could have a material adverse effect on our business, financial condition, results of operations and prospects. A breach of, or the inability to comply with, the covenants in our term loan facility and revolving credit agreement could result in an event of default, in which case the lenders will have the right to declare all borrowings to be immediately due and payable, which would have a material adverse effect on our business, financial condition, results of operations and prospects and could lead to foreclosure on our assets
In the future, we may need to refinance our indebtedness. However, additional financing may not be available on favorable commercial terms to us, or at all. If, at such time, market conditions are materially different or our credit profile has deteriorated, the cost of refinancing such debt may be significantly higher than our indebtedness existing at that time. Furthermore, we may not be able to procure refinancing at all. Any failure to meet any future debt service obligations through use of cash flow, refinancing or otherwise, could have a material adverse effect on our business, financial condition, results of operations and prospects.
Risks Related to our Acquisition Strategy
A number of other companies are seeking to make acquisitions in our industry, which may make our acquisition strategy more difficult or expensive to pursue.
We compete with many other companies, and certain of them have greater financial resources than we do for pursuing and consummating acquisitions and to further develop and integrate acquired businesses. Our
 
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strategy of growing through the acquisition of businesses and assets relies on our ability to consummate acquisitions to develop and offer new products that foster the growth of our core business, and to establish ourselves in other geographic regions and related businesses in which we do not currently operate. Increased competition for acquisition opportunities may impede our ability to acquire these companies because they choose another acquirer. It could also increase the price that we must pay for these companies. Either of these outcomes could reduce our growth, harm our business and adversely impact our ability to consummate acquisitions.
We may be unsuccessful in identifying suitable acquisition candidates, which may negatively impact our competitive position and our growth strategy.
In addition to organic growth, our future growth will be driven by our selective acquisition of additional businesses, our competitors and complementary businesses. Our growth through acquisitions, to date, has consisted of 12 acquisitions and two divestitures and we are in discussions to acquire additional businesses including our planned acquisitions. We may be unable to identify other suitable targets for future acquisition or acquire businesses at favorable prices, which would negatively impact our growth strategy. We may not be able to execute our growth strategy through organic expansion, and if we are unable to identify and successfully acquire new businesses complementary to ours, we may not be able to offer new products in line with industry trends.
The due diligence process that we undertake in connection with acquisitions may not reveal all facts that may be relevant in connection with an investment.
Before making acquisitions and other investments, we conduct due diligence of the target company that we deem reasonable and appropriate based on the facts and circumstances applicable to each acquisition. The objective of the due diligence process is to assess the investment opportunities based on the facts and circumstances surrounding an investment or acquisition. When conducting due diligence, we may be required to evaluate important and complex business, financial, tax, accounting, environmental and legal issues. The due diligence process may at times be subjective with respect to newly-organized companies for which only limited information is available. Accordingly, we cannot be certain that the due diligence investigation that we conduct with respect to any investment or acquisition opportunity will reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity. For example, instances of fraud, accounting irregularities and other deceptive practices can be difficult to detect. Executive officers, directors and employees may be named as defendants in litigation involving a company we are acquiring or have acquired. Even if we conduct extensive due diligence on a particular investment or acquisition, we may fail to uncover all material issues relating to such investment, including regarding the controls and procedures of a particular target or the full scope of its contractual arrangements. We rely on our due diligence to identify potential liabilities in the businesses we acquire, including such things as potential or actual lawsuits, contractual obligations or liabilities imposed by government regulation. However, our due diligence process may not uncover these liabilities, and where we identify a potential liability, we may incorrectly believe that we can consummate the acquisition without subjecting ourselves to that liability. If our due diligence fails to identify issues specific to an investment or acquisition, we may obtain a lower return from that transaction than the investment would return or otherwise subject ourselves to unexpected liabilities. We may also be forced to write-down or write-off assets, restructure our operations or incur impairment or other charges that could result in our reporting losses. Charges of this nature could contribute to negative market perceptions about us or our shares of common stock.
We may face difficulty in integrating the operations of the businesses we have acquired and may acquire in the future.
Acquisitions have been and will continue to be an important component of our growth strategy; however, we will need to integrate these acquired businesses successfully in order for our growth strategy to succeed and for our Company to become profitable. We will implement, and the management teams of the acquired businesses will adopt, our policies, procedures and best practices. We may face difficulty with the integration of the businesses we acquire, such as coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures. Furthermore, we may fail in implementing our policies and procedures, or the policies and procedures may
 
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not be effective or provide the results we anticipate for a particular business. Further, we will be relying on these policies and procedures in preparing our financial and other reports as a public company, so any failure of acquired businesses to properly adopt these policies and procedures could impair our public reporting. Management of the businesses we acquire may not have the operational or business expertise that we require to successfully implement our policies, procedures and best practices.
We typically retain the management of the businesses we acquire and rely on them to continue running their businesses, which leaves us vulnerable in the event they leave our Company.
We seek to acquire businesses that have strong management teams that will continue to run the business after the acquisition. We often rely on these individuals to conduct the day-to-day operations, and pursue the growth, of these acquired businesses. Although we typically seek to sign employment agreements with the managers of acquired businesses, it remains possible that these individuals will leave our organization. This would harm the prospects of the businesses they manage, potentially causing us to lose money on our investment and harming our growth and financial results.
Risks Related to this Offering and Ownership of our Common Stock
We will be a “controlled company” within the meaning of the rules of the NYSE and the rules of the SEC and, as a result, qualify for, but do not intend to rely on, exemptions from certain corporate governance requirements.
After completion of this offering and the application of net proceeds therefrom, Warren B. Kanders will beneficially own approximately 51% of the voting power of common stock (or approximately 49.5% if the underwriters exercise in full their over-allotment option). As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that:

a majority of our board of directors consists of “independent directors” as defined under the rules of the NYSE;

our director nominees be selected, or recommended for our board of directors’ selection, by a nominating/corporate governance committee comprised solely of independent directors; and

the compensation of our executive officers be determined, or recommended to our board of directors for determination, by a compensation committee comprised solely of independent directors.
If the Company were to rely on the foregoing exemptions, we may not have a majority of independent directors, and our compensation committee and nominating/corporate governance committee may not consist entirely of independent directors, and therefore you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. However, following this offering, we do not intend to utilize any of the foregoing corporate governance exemptions.
There has been no prior market for our common stock. An active market may not develop or be sustainable, and investors may not be able to resell their shares at or above the initial public offering price.
There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the representatives of the underwriters and us, and may vary from the market price of our common stock following the completion of this offering. An active or liquid market in our common stock may not develop upon completion of this offering or, if it does develop, it may not be sustainable. In the absence of an active trading market for our common stock, you may not be able to resell those shares at or above the initial public offering price or at all. We cannot predict the prices at which our common stock will trade.
After this offering, our executive officers, directors and principal stockholders, if they choose to act together, will continue to have the ability to control all matters submitted to stockholders for approval.
Upon the closing of this offering, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock before this offering and their respective affiliates will, in the
 
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aggregate, hold shares representing approximately 74% of our outstanding voting stock, not reflecting any shares that may be purchased by them in this offering. As a result, if these stockholders were to choose to act together, they would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:

delay, defer or prevent a change in control;

entrench our management and the board of directors; or

impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.
If you purchase shares of common stock in this offering, you will suffer immediate dilution of your investment.
The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent shares subsequently are issued under outstanding stock options, you will incur further dilution. Based on an assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $19.23 per share, representing the difference between our pro forma net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price. In addition, purchasers of common stock in this offering will have contributed approximately 72% of the aggregate price paid by all purchasers of our stock but will own only approximately 21% of our common stock outstanding after this offering.
An active trading market for our common stock may not develop.
Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations with the underwriters. Although we have applied to have our common stock approved for listing on NYSE, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares or at all.
Our stock price may be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors purchasing shares in this offering.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

actual or anticipated fluctuations in our results of operations;

the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;

announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, operating results or capital commitments;

changes in operating performance and stock market valuations of other technology or retail companies generally, or those in our industry in particular;

price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

changes in our board of directors or management;

sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;

lawsuits threatened or filed against us;
 
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changes in laws or regulations applicable to our business;

the expiration of contractual lock-up agreements;

changes in our capital structure, such as future issuances of debt or equity securities;

short sales, hedging and other derivative transactions involving our capital stock;

general economic conditions in the United States and abroad;

other events or factors, including those resulting from war, pandemics, incidents of terrorism or responses to these events; and

the other factors described in the sections of the prospectus titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies, including e-commerce companies. Stock prices of many technology companies, including e-commerce companies, have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and materially adversely affect our business, financial condition and operating results.
Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market following the completion of this offering, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our common stock.
All of our executive officers, directors, holders of substantially all of our outstanding capital stock and substantially all of our stock options and restricted stock units are subject to lock-up agreements that restrict their ability to transfer shares of our capital stock for 180 days from the date of this prospectus. Subject to certain exceptions, the lock-up agreements limit the number of shares of capital stock that may be sold immediately following this initial public offering. Subject to certain limitations, as of February   , 2022, approximately 25,630,100 shares of common stock will become eligible for sale upon expiration of the 180-day lock-up period. The representatives of the underwriters may, in their sole discretion, permit our stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways that may not yield a return.
We currently intend to use the net proceeds to us from this offering to reduce outstanding indebtedness. We may also use a portion of the net proceeds from this offering for the acquisition of, or investment in, technologies, solutions or businesses that complement our business. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be
 
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used for purposes that do not increase the value of our business or increase the risks to you, which could cause the price of our stock to decline. Until net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.
We are an emerging growth company and a smaller reporting company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies and smaller reporting companies could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including:

not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;

reduced disclosure obligations regarding executive compensation in our periodic reports and annual report on Form 10-K; and

exemptions from the requirements of holding non-binding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We could be an emerging growth company for up to five years following the completion of this offering. Our status as an emerging growth company will end as soon as any of the following takes place:

the last day of the fiscal year in which we have more than $1.07 billion in annual revenue;

the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates;

the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or

the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.
We cannot predict if investors will find our common stock less attractive if we choose to rely on any of the exemptions afforded emerging growth companies. If some investors find our common stock less attractive because we rely on any of these exemptions, there may be a less active trading market for our common stock and the market price of our common stock may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this provision of the JOBS Act. As a result, we will not be subject to new or revised accounting standards at the same time as other public companies that are not emerging growth companies. Therefore, our consolidated financial statements may not be comparable to those of companies that comply with new or revised accounting pronouncements as of public company effective dates.
We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain additional executive management and qualified board members.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual, quarterly and
 
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current reports with respect to our business and results of operations. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could materially adversely affect our business and results of operations. We will need to hire additional employees or engage outside consultants to comply with these requirements, which will increase our costs and expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and our business may be materially adversely affected.
We also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be materially adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially adversely affect our business, financial condition and operating results.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock, which may also have the consequence of depressing the market price of our common stock.
Our status as a Delaware corporation and the anti-takeover provisions of Delaware law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following:

permitting the board of directors, and not stockholders, to establish the number of directors and fill any vacancies and newly created directorships;

authorizing the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;

restricting the forum for certain litigation against us to Delaware;

establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings;

preventing stockholders from taking any action except at a formal meeting of stockholders;

requiring certain amendments to our amended and restated certificate of incorporation to be approved by the holders of at least 66 2/3% of our then-outstanding common stock; and/or
 
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requiring that any special meeting of our stockholders will only be able to be called by a majority of our board of directors, the chairperson of our board of directors, our Chief Executive Officer, or our President.
These provisions, alone or together, may (a) frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to select or replace members of our board of directors, which is responsible for appointing the members of our management: (b) discourage, delay, or prevent a transaction involving a change in control of our Company, and/or (c) discourage proxy contests, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the market price of our common stock.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware (or other state courts of the State of Delaware if the Court of Chancery in the State of Delaware does not have jurisdiction or the federal district court for the District of Delaware if no state court in the State of Delaware has jurisdiction) is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine or any action asserting an “internal corporate claim” as that term is defined in Section 115 of the Delaware General Corporation Law. Our amended and restated bylaws provide that this choice of forum does not apply to any complaint asserting a cause of action under the Securities Act or the Exchange Act. Finally, our amended and restated bylaws provide that the federal district courts of the United States of America will be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act or the Exchange Act. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, a court may determine that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging lawsuits against our directors and officers, although our stockholders cannot waive our compliance with federal securities laws and the rules and regulations thereunder.
Our amended and restated bylaws provide that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
Because we may not pay cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, may be your sole source of gain.
We have never declared or paid cash dividends on our capital stock, though we do intend to make the one-time distribution described under “Prospectus Summary — Recent Developments — Distribution.” We currently are also contemplating paying periodic cash dividends but we may elect to retain all of our future earnings, if any, to finance the growth and development of our business. Our ability to pay cash dividends may be limited by the terms of our New Credit Agreement. Any future debt agreements may also preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock may be your sole source of gain for the foreseeable future.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
 
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Our amended and restated certificate of incorporation authorizes the issuance of shares of blank check preferred stock.
Our amended and restated certificate of incorporation provides that our board of directors will be authorized to issue from time to time, without further stockholder approval, up to 10,000,000 shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each series, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, including sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of any series. Such shares of preferred stock could have preferences over our common stock with respect to dividends and liquidation rights. We may issue additional preferred stock in ways which may delay, defer or prevent a change in control of us without further action by our stockholders. Such shares of preferred stock may be issued with voting rights that may adversely affect the voting power of the holders of our common stock by increasing the number of outstanding shares having voting rights, and by the creation of class or series voting rights.
We may issue a substantial amount of our common stock in connection with future acquisitions, and the sale of those shares could adversely affect our stock price.
As part of our acquisition strategy, we anticipate issuing additional shares of common stock as consideration for such acquisitions. To the extent that we are able to grow through acquisitions and issue shares of our common stock as consideration, the number of outstanding shares of common stock that will be eligible for sale in the future is likely to increase substantially. Persons receiving shares of our common stock in connection with these acquisitions may be more likely to sell large quantities of their common stock, which may influence the price of our common stock. In addition, the potential issuance of additional shares in connection with anticipated acquisitions could lessen demand for our common stock and result in a lower price than would otherwise be obtained.
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

the availability of capital to satisfy our working capital requirements;

anticipated trends and challenges in our business and the markets in which we operate;

our ability to anticipate market needs or develop new or enhanced products to meet those needs;

our expectations regarding market acceptance of our products;

the success of competing products by others that are or become available in the market in which we sell our products;

the impact of adverse publicity about the Company and/or its brands, including without limitation, through social media or in connection with brand damaging events and/or public perception;

changes in political, economic or regulatory conditions generally and in the markets in which we operate;

our ability to maintain or broaden our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise;

our ability to retain and attract senior management and other key employees;

our ability to quickly and effectively respond to new technological developments;

the effect of the COVID-19 pandemic on the Company’s business;

the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors;

the ability of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes;

our ability to properly maintain, protect, repair or upgrade our information technology systems or information security systems, or problems with our transitioning to upgraded or replacement systems;

our ability to protect our trade secrets or other proprietary rights and operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and

other risks and uncertainties set forth in the section entitled “Risk Factors” beginning on page 15 of this prospectus and any accompanying prospectus supplement, which is incorporated herein by reference.
These forward-looking statements are only predictions, are uncertain and involve substantial known and unknown risks, uncertainties and other factors which may cause our (or our industry’s) actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. The “Risk Factors” section of this prospectus sets forth detailed risks, uncertainties and cautionary statements regarding our business and these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing regulatory environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus.
We cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the U.S., we do not intend to update any of the forward-looking statements to conform these statements to reflect actual results, later events or circumstances or to reflect the occurrence of unanticipated events. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or other investments or strategic transactions we may engage in.
 
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INDUSTRY AND MARKET DATA
This prospectus contains statistical data, estimates, and forecasts that are based on independent industry publications, or other publicly available information, as well as other information based on our internal sources. Although we believe that the third-party sources referred to in this prospectus are reliable, neither we nor the underwriters have independently verified the information provided by these third parties. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this prospectus.
 
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USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of our common stock in this offering will be $109 million, based on an assumed initial public offering price of $17.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses. Our net proceeds will increase by approximately $17 million if the underwriters’ option to purchase additional shares is exercised in full.
Each $1.00 increase or decrease in the assumed initial public offering price of $17.50 per share would increase or decrease the net proceeds that we receive from this offering by $6.6 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions. Similarly, each increase or decrease of one million shares in the number of shares of common stock offered by us would increase or decrease the net proceeds that we receive from this offering by $16 million, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions.
We intend to use the net proceeds of this offering to repay amounts outstanding under our New Credit Agreement. For a description of our outstanding indebtedness, including the interest rate and maturity of our New Credit Agreement, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Debt.”
 
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DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock, although we do intend to make the one-time distribution described above under “Prospectus Summary — Recent Developments — Distribution”, and we expect to pay a periodic dividend on our common stock in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will be dependent on a number of factors, including our earnings, capital requirements, our overall financial condition and other factors that our board of directors considers relevant.
 
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CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents and capitalization as of March 31, 2021. Such information is set forth on the following basis:

an actual basis;

an as adjusted basis, giving effect to (1) the filing of our amended and restated certificate of incorporation, (2) the sale of the shares in this offering at the assumed initial public offering price of $17.50 per share, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us and excluding any exercise of the underwriters’ over-allotment option, (3) the distribution described under “Prospectus Summary — Recent Developments — Distribution.” on a pro forma adjusted basis, (4) the repayment in full of outstanding borrowings under our existing Term Loan and Revolving Credit Facility with borrowings under the New Credit Agreement, as described in “Use of Proceeds,” and (5) the use of the net proceeds of this offering to repay outstanding borrowings under the New Credit Agreement.
The information discussed below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and the related notes appearing elsewhere in this prospectus.
As of
March 31, 2021(1)
Actual
As Adjusted(2)
(Unaudited)
(In thousands)
Cash and cash equivalents
$ 17,440 $ 8,000
Debt:
Revolver
$ 15,719
Current portion of long-term debt
$ 2,579 $ 7,500
Long-term debt
209,342 141,804
Total debt
211,921 165,023
Preferred Stock, par value $0.01 per share, 10,000 shares authorized, no shares issued and outstanding actual; $0.0001 par value per share, 10,000,000 shares authorized, no shares issued and outstanding as adjusted
Shareholders’ equity:
Common Stock, $0.01 par value per share, 990,000 shares authorized,
549,667 shares issued and outstanding actual: $0.0001 par value per share
190,000,000 shares authorized, 34,626,207 shares issued and outstanding
as adjusted
5 3
Additional paid-in capital
48,668 105,663
Accumulated other comprehensive loss
(2,576) (2,576)
Accumulated (deficit)
(30,098) (30,096)
Total shareholders’ equity
15,999 72,994
Capitalization
$ 227,920 $ 238,017
(1)
The number of shares of common stock outstanding is based on 549,667 shares of common stock issued and outstanding as of March 31, 2021 and assumes no exercise of the underwriters’ over-allotment option.
(2)
A $1.00 increase or decrease in the initial assumed public offering price per share would increase or decrease our as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $6.6 million assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts, commissions and estimated offering expenses payable by us.
 
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DILUTION
If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering.
Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our historical net tangible book value as of March 31, 2021 was ($99.3) million or ($180.64) per share. Our historical net tangible book value excludes $115.3 million of goodwill and intangible assets.
After giving effect to the 50 to 1 stock split resulting in 27,483,350 shares of common stock, the sale by us of 7,142,857 shares of common stock in this offering at an assumed initial public offering price of $17.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of March 31, 2021 would have been ($61.8) million, or ($1.79) per share. This amount represents an immediate increase in pro forma net tangible book value of $178.85 per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $19.29 per share to new investors purchasing shares of common stock in this offering at the assumed initial public offering price.
The following table illustrates this dilution on a per share basis to new investors:
Assumed public offering price per share
$ 17.50
Net tangible book value per share as of March 31, 2021
$ (180.64)
Increase in net tangible book value per share attributable to this offering
$ 178.85
As adjusted net tangible book value per share after giving effect to this
offering
$ (1.79)
Dilution in net tangible book value per share to purchasers in this offering
$ 19.29
Each $1.00 increase or decrease in the assumed initial public offering price of $17.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma adjusted net tangible book value per share to new investors by $0.19, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions.
If the underwriters exercise their option to purchase additional shares from us in full, the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering would be $(1.24) per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $18.74 per share.
The following table summarizes, as of March 31, 2021, on a pro forma basis as described above, the total number of shares of common stock owned by existing stockholders and to be owned by new investors in this offering, the total consideration paid, and the average price per share paid by our existing stockholders and to be paid by new investors in this offering at the assumed initial public offering price of $17.50 per share, calculated before deduction of estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Shares Purchased
Total
Consideration
Average
Price
per
Share
Number
Percent
Amount
Percent
Existing stockholders
27,483,350 79% $ 61,673,015 33% $ 2.24
Investors in the offering
7,142,857 21% 125,000,000 67% 17.50
Total 34,626,207 100% $ 186,673,015 100% $ 5.39
 
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If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own 77%, and the investors purchasing shares of our common stock in this offering would own 23 % of the total number of shares of our common stock outstanding immediately after completion of this offering.
 
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize our consolidated financial and other data. We have derived the summary consolidated statements of operations data for the three months ended March 31, 2021 and 2020 and the summary consolidated balance sheet data as of March 31, 2021 from our unaudited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statements of operations data for the years ended December 31, 2020 and 2019 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary consolidated financial and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis,” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
Consolidated Statements of Operations Data:
(In thousands, except for share and per share amounts)
Three months ended
March 31,
Year ended
December 31,
2021
2020
2020
2019
(Unaudited)
(Unaudited)
Net sales
$ 110,536 $ 97,940 $ 404,642 $ 420,736
Cost of goods sold
66,577 58,838 251,704 274,699
Gross profit
43,959 39,102 152,938 146,037
Operating expenses
Selling, general and administrative
28,051 27,050 106,627 124,270
Restructuring and transaction costs
321 1,334 5,822 918
Related party expense
153 162 1,635 1,096
Other general income
(10,950) (7,630)
Total operating expenses
28,525 28,546 103,134 118,654
Operating income
15,434 10,556 49,804 27,383
Other income (expense)
Interest expense
(5,044) (6,669) (24,388) (29,848)
Loss on extinguishment of debt
(200)
Other (expense) income, net
(44) 680 2,659 395
Total other expense, net
(5,088) (5,989) (21,929) (29,453)
Income (loss) before (provision) benefit for income taxes
10,346 4,567 27,875 (2,070)
(Provision) benefit for income taxes
(3,482) (315) 10,578 142
Net income (loss)
$ 6,864 $ 4,252 $ 38,453 $ (1,928)
Net income (loss) per share:
Basic
$ 12.49 $ 7.74 $ 69.96 $ (3.52)
Diluted
$ 12.49 $ 7.74 $ 69.96 $ (3.52)
Weighted average shares outstanding:
Basic
549,667 549,667 549,667 548,042
Diluted
549,667 549,667 549,667 548,042
 
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Consolidated Statements of Cash Flows Data:
Three months ended
March 31,
Year ended
December 31,
2021
2020
2020
2019
(Unaudited)
(Unaudited)
Cash flows provided by operating activities
$ 16,832 $ 14,878 $ 45,419 $ 7,414
Consolidated Balance Sheet Data:
(In thousands)
As of
March 31, 2021
(Unaudited)
Cash and cash equivalents
$ 17,440
Total assets
300,479
Total liabilities
284,480
Total shareholders’ equity
15,999
Non-GAAP and Other Financial Measures
We review the following non-GAAP and other financial measures to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Increases or decreases in our non-GAAP and other financial measures may not correspond with increases or decreases in our revenue and our non-GAAP and other financial measures may be calculated in a manner different than non-GAAP and other financial measures used by other companies. For additional information regarding these measures, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Measures.”
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of operations of Cadre Holdings, Inc. (D/B/A The Safariland Group) (“Cadre,” “the Company” “we,” “us” and “our”) should be read together with our unaudited consolidated financial statements as of and for the three months ended March 31, 2021 and 2020 and our audited consolidated financial statements as of and for the years ended December 31, 2020 and 2019 in each case together with related notes thereto, included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of Cadre’s control. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” included elsewhere in this prospectus. Certain total amounts may not foot due to rounding.
Our Business
Cadre is a global leader in the manufacturing and distribution of safety and survivability equipment for first responders. Our equipment provides critical protection to allow its users to safely and securely perform their duties and protect those around them in hazardous or life-threatening situations. Through our dedication to superior quality, we establish a direct covenant with end users that our products will perform and keep them safe when they are most needed. We sell a wide range of products including body armor, explosive ordnance disposal equipment and duty gear through both direct and indirect channels. In addition, through our owned distribution, we serve as a one-stop shop for first responders providing equipment we manufacture as well as third-party products including uniforms, optics, boots, firearms and ammunition. The majority of our diversified product offering is governed by rigorous safety standards and regulations. Demand for our products is driven by technological advancement as well as recurring modernization and replacement cycles for the equipment to maintain its efficiency, effective performance and regulatory compliance.
We service the ever-changing needs of our end users by investing in research and development for new product innovation and technical advancements that continually raise the standards for safety and survivability equipment in the first responder market. Our target end user base includes domestic and international first responders such as state and local law enforcement, fire and rescue, explosive ordnance disposal technicians, emergency medical technicians (“EMT”), fishing and wildlife enforcement and departments of corrections, as well as federal agencies including the U.S. Department of State (“DoS”), U.S. Department of Defense (“DoD”), U.S. Department of Interior (“DoI”), U.S. Department of Justice (“DoJ”), U.S. Department of Homeland Security (“DHS”), U.S. Department of Corrections (“DoC”) and numerous foreign government agencies in over 104 countries.
The following table sets forth a summary of our financial highlights for the periods indicated:
Three months ended March 31,
Year ended December 31,
(in thousands)
2021
2020
2020
2019
Net sales
$ 110,536 $ 97,940 $ 404,642 $ 420,736
Net income (loss)
$ 6,864 $ 4,252 $ 38,453 $ (1,928)
Adjusted EBITDA(1)
$ 20,246 $ 15,740 $ 57,982 $ 43,699
(1)
Adjusted EBITDA is a non-GAAP financial measure. See “Non-GAAP Measures” below for our definition of, and additional information about, Adjusted EBITDA, and for a reconciliation to net income (loss), the most directly comparable U.S. GAAP financial measure.
Net sales increased by $12.6 million for the three months ended March 31, 2021 as compared to March 31, 2020, primarily as a result of higher demand for body armor, duty gear, and crowd control products as well as distribution of ammunition and firearms. Net sales decreased by $16.1 million for the year ended
 
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December 31, 2020 as compared to December 31, 2019, primarily as a result of the Mustang Survival Holdings Corporation (“Mustang”) sale in June 2019 which contributed $18.8 million in sales in 2019.
Net income increased by $2.6 million for the three months ended March 31, 2021 compared to March 31, 2020, primarily as a result of improvements in gross profit due to higher sales coupled with lower interest expense. Net income increased by $40.4 million for the year ended December 31, 2020 as compared to December 31, 2019, primarily as a result of improvements in gross profit of $6.9 million driven by price, continuous improvement projects, product / customer rationalization and portfolio mix; reduction in certain selling, general and administrative expenses due primarily to $7.6 million of goodwill impairments taken in 2019 compared to no goodwill impairment in 2020, reduced travel, marketing and health care costs of $3.4 million, an increase in other general income of $6.2 million from a long-lived asset sale, gains on sales of equity securities in other (expense) income, net of $2.2 million, and a benefit for income taxes of $10.6 million from the release of a valuation allowance on a portion of our deferred tax assets, partially offset by higher transaction and restructuring costs of $4.9 million.
COVID-19
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
The full impact of the COVID-19 pandemic continues to evolve as of the date of this prospectus. During 2020 and the first quarter of 2021, the financial results of our business were relatively unaffected by COVID-19. In all of the countries and states in which our business operates, the relevant local authorities have deemed our business to be essential in nature and thereby allowed us to continue operations during any government mandated shutdowns. We took many measures to mitigate outbreaks in any of our facilities that would negatively impact the business, such as allowing employees to work remote, new manufacturing layouts to enable social distancing and daily temperature checks. The extent to which our business may be affected by the COVID-19 pandemic will largely depend on both current and future developments, including its duration, spread and treatment, all of which are highly uncertain and cannot be reasonably predicted. While any impact to global markets is uncertain, the Company continues to monitor developments.
 
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FACTORS AFFECTING RESULTS OF OPERATIONS
The below factors have been important to our business and we anticipate them to impact our results of operations in future periods:
Broad-based, Public Sector Customer Base
We have a highly diversified customer base, with our largest customer accounting for 6.4% of our 2020 net sales and our top 10 customers accounting for 25.9% of our 2020 net sales. Our extensive distribution network of over 1,000 distributors and retailers allows us to service both large and small agencies globally. We believe our business is resilient to varying economic cycles, as our customers’ demand for many of our products is non-discretionary. In addition, technological developments and manufacturers’ warranties contribute to relatively steady equipment replacement rates. For example, domestically we offer five-year warranties for soft armor, an important product for domestic law enforcement, and our customers typically replace their equipment before the related warranties expire. We have a dedicated sales force and third-party distributors that maintain longstanding relationships with our end users, providing training and information on the effective use of our products. We will continue to invest in our marketing and sales teams at similar levels to maintain those relationships.
On the other hand, demand for our products, as well as the timing of that demand, may be subject to governmental budget constraints at the national (including U.S. federal) and local government levels. Government spending levels, as well as political conditions, electoral agendas and public opinion, can have a direct impact on appropriations decisions and demand for specific Personal Protective Equipment. Our business has in the past been both positively and negatively affected by such trends and may be impacted in the future.
Diverse Supplier Base
We depend on certain domestic and international suppliers for the delivery of components used in the manufacturing of our products. Our reliance on third-party suppliers creates risks related to our potential inability to obtain an adequate supply of raw materials or components and reduced control over pricing and timing of delivery of components and sub-assemblies. Specifically, we depend on suppliers for materials such as ballistic fabrics, customized metals and plastics, sub-assemblies and machined parts. We seek to preserve access to necessary materials through long-term supply agreements with select suppliers and the diversification of our supplier base. No vendor makes up more than 10% of total purchases and our top 10 vendors account for less than 30% of total purchases. We will maintain a diverse supplier base and continue to evaluate our suppliers and implement long-term supply agreements as necessary to mitigate our risk.
Business Optimization Initiatives
As part of our productivity initiatives, we have in the past and continue to take advantage of opportunities to enhance margins through productivity, including the rationalization of manufacturing facilities, asset sales and other productivity initiatives to drive efficiencies. The costs of these initiatives, which are typically incurred before we internalize projected benefits, may distort our underlying financial performance in a given period. For example, over the last three years, we implemented programs aimed at making our manufacturing facilities more productive, consolidating select manufacturing facilities and making more efficient use of our raw materials and inventory, among others. We also practice as part of our operating system, a practice often referred to as root-cause/countermeasure (“RCCM”) whereas we identify root causes that unlock efficiencies and implement sustainable long term countermeasures to ensure we capture the opportunity. All of these practices allow us to more effectively manage our manufacturing efficiency and cost base. We anticipate to continue to invest in our business optimization initiatives to offset inflation and expand margins in the future.
Research and Development
Research and Development (“R&D”) is a critical component of our business strategy as a means of differentiating our products from competitors. R&D primarily consists of personnel costs, employee benefits, certification, and testing fees. Our continued investment in R&D allows us to market and patent innovative
 
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solutions to address our customer’s needs in a rapidly changing environment. These investments allow us to be innovative in the industry and ensure our law enforcement and military personnel have the safest and most secure solutions. We also engage with government agencies for funded R&D programs that allow us to work directly with end users so that we ensure we understand all the challenges they face in the field. We anticipate our investment in R&D excluding government funding to be relatively stable in as a percentage of sales, but could increase due to government mandated certification changes or as we explore new technologies. These investments will further differentiate our business and products, providing accelerated sales growth and margin expansion.
Targeted Mergers & Acquisition program
To supplement business growth and internal research and development, our management team has historically undertaken a targeted M&A program, completing 12 business acquisitions between 2012 and 2017. These strategic acquisitions have allowed us to expand our product and technology offerings, enter new markets and expand geographically to achieve attractive returns on our invested capital.
Leveraging our successful track record of acquisitions, we maintain a robust pipeline of M&A opportunities, spanning our existing core products and markets as well as attractive adjacencies within the safety and survivability landscape. We plan to utilize our relatively high Adjusted EBITDA Conversion(1) and historical success in acquisitions to drive favorable acquisition structures and seamless integration. Our experience and operating model allow us to optimize operations, scale appropriately, leverage our direct connection with end users and distribution partners, and utilize our procurement power to help maximize the value created from our acquisitions. Our focus on maintaining a robust pipeline of targets will continue in the future and we anticipate will lead to expanded margins.
(1)
Adjusted EBITDA Conversion is a non-GAAP financial measure. See “Non-GAAP Measures” below for our definition of, and additional information about Adjusted EBITDA Conversion, and for a reconciliation to the most directly comparable U.S. GAAP financial measure.
 
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KEY PERFORMANCE METRICS
Orders backlog
We monitor our orders backlog, which we believe is a forward-looking indicator of potential sales. Our orders backlog for products includes all orders that have been received and are believed to be firm. Due to municipal government procurement rules, in certain cases orders included in backlog are subject to budget appropriation or other contract cancellation clauses. Consequently, our orders backlog may differ from actual future sales. Orders backlog can be helpful to investors in evaluating the performance of our business and identify trends over time.
The following table presents our orders backlog as of the periods indicated:
As of March 31,
As of December 31,
(in thousands)
2021
2020
2020
2019
Orders backlog
$ 124,419 $ 111,749 $ 131,814 $ 108,199
Orders comprising backlog as of a given balance sheet date are typically invoiced in subsequent periods. The majority of our products are generally processed and shipped within one to three weeks of an order being placed, though the fulfillment time for certain products, for example, explosive ordnance disposal equipment, may take three months or longer. Our orders backlog could experience volatility between periods, including as a result of customer order volumes and the speed of our order fulfilment, which in turn may be impacted by the nature of products ordered, the amount of inventory on hand and the necessary manufacturing lead time.
Orders backlog increased by $12.7 million as of March 31, 2021 compared to March 31, 2020 due to an increase of $8.7 million from the distribution of ammunition and firearms through our company-owned retail locations and an increase of $4.0 million from the explosive ordnance disposal line due to customer refresh cycles.
Orders backlog increased by $23.6 million as of December 31, 2020 compared to December 31, 2019 primarily due to an increase of $7.6 million from the explosive ordnance disposal line due to customer refresh cycles, an increase of $7.2 million from crowd control products due to higher demand, an increase of $9.7 million from incremental ammunition and firearms demand, partially offset by a decrease in duty gear backlog.
 
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DESCRIPTION OF CERTAIN COMPONENTS OF FINANCIAL DATA
Net sales
We recognize revenue when a contract exists with a customer that specifies the goods and services to be provided at an agreed upon sales price and when the performance obligation is satisfied by transferring the goods or service to the customer. The performance obligation is considered satisfied when control transfers, which is generally determined when products are shipped or delivered to the customer but could be delayed until the receipt of customer acceptance, depending on the terms of the contract. At the time of revenue recognition we also provide for estimated sales returns and miscellaneous claims from customers as reductions to revenues. Charges for shipping and handling fees billed to customers are included in net sales. Taxes collected from customers and remitted to government authorities are reported on a net basis and are excluded from sales. See Note 1 “Significant Accounting Policies — Revenue Recognition” to our audited consolidated financial statements included elsewhere in this prospectus.
We generate sales primarily through our four main sales channels: U.S. state and local agencies, international, U.S. federal agencies, and commercial.
Costs and Expenses
Cost of goods sold.   Cost of goods sold includes raw material purchases, manufacturing-related labor costs, contracted labor, shipping, reimbursable research and development costs, allocated manufacturing overhead, facility costs, depreciation and amortization, and product warranty costs. We anticipate our cost of goods sold will increase in absolute dollars to support the growth of our revenue however will stay relatively consistent as a percentage of revenue.
Selling, general and administrative.   Selling, general and administrative (“SG&A”) expense includes personnel-related costs, professional services, marketing and advertising expense, research and development, depreciation and amortization, and impairment charges. We anticipate our SG&A to stay relatively consistent from year to year in absolute dollars. Further, as a result of becoming a public company, we anticipate to incur additional expenses for, among other things, directors’ and officers’ (“D&O”) liability insurance, outside director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Restructuring and transaction costs.   Restructuring costs consist primarily of termination benefits and relocation of employees, termination of operating leases and other contracts related to consolidating or closing facilities. Transaction costs consist of legal fees and consulting costs related to one-time transactions. We anticipate our restructuring and transaction costs will be correlated with future restructuring and transaction activities, if any, which could be greater than or less than historic levels.
Related party expense.   Related party expense primarily consists of rent expense related to 5 distribution locations owned by an employee and any one-time transaction fees paid to related parties. We anticipate our related party expense to stay relatively consistent from year to year in absolute dollars.
Other general income.   Other general income consists primarily of gains from the disposition of a long-lived asset coupled with earn-out stock programs. We anticipate our other general income will be correlated with future long-lived asset dispositions and other investment activities, if any, which could be greater than or less than historic levels.
Interest expense.   Interest expense consists primarily of interest on outstanding debt. We anticipate our interest expense will vary with the level of debt in any given period.
Loss on extinguishment of debt.   Loss on extinguishment of debt consists primarily of recorded losses associated with debt restructuring. We anticipate our loss on extinguishment of debt will be correlated with future debt restructuring activities, if any, which could be greater than or less than historic levels.
Other (expense) income, net.   Other (expense) income, net primarily consists of non-operating gains and losses, such as gains or losses on the sale of equity securities and foreign currency impacts. We anticipate
 
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our other (expense) income, net gains and losses will be correlated with foreign currency movements, which could be greater than or less than historic levels.
(Provision) benefit for income taxes.   A provision or benefit for income tax is calculated for each of the jurisdictions in which we operate. The provision or benefit for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The benefit or provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the book and tax bases of assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. See Note 14 “Income Taxes” in our audited consolidated financial statements included elsewhere in this prospectus.
 
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RESULTS OF OPERATIONS
In order to reflect the way our chief operation decision maker reviews and assesses the performance of the business, Cadre has determined that it has two reportable segments — the Product segment and the Distribution segment. Segment information is consistent with how the chief operating decision maker, our chief executive officer, reviews the business, makes investing and resource allocation decisions and assesses operating performance.
The following table presents data from our results of operations for the three months ended March 31, 2021 and 2020 and for the years ended December 31, 2020 and 2019 (in thousands unless otherwise noted):
Three months ended March 31,
Year ended December 31,
2021
(Unaudited)
2020
(Unaudited)
% Chg
2020
2019
% Chg
Net sales
$ 110,536 $ 97,940 12.9% $ 404,642 $ 420,736 (3.8)%
Cost of goods sold
66,577 58,838 13.2% 251,704 274,699 (8.4)%
Gross profit
43,959 39,102 12.4% 152,938 146,037 4.7%
Operating expenses
Selling, general and administrative
28,051 27,050 3.7% 106,627 124,270 (14.2)%
Restructuring and transaction costs 
321 1,334 (75.9)% 5,822 918 534.2%
Related party expense
153 162 (5.6)% 1,635 1,096 49.2%
Other general income
(10,950) (7,630) 43.5%
Total operating expenses
28,525 28,546 (0.1)% 103,134 118,654 (13.1)%
Operating income
15,434 10,556 46.2% 49,804 27,383 81.9%
Other income (expense)
Interest expense
(5,044) (6,669) (24.4)% (24,388) (29,848) (18.3)%
Loss on extinguishment of debt
(200)
Other (expense) income, net
(44) 680 (106.5)% 2,659 395 573.2%
Total other expense, net
(5,088) (5,989) (15.0)% (21,929) (29,453) (25.5)%
Income (loss) before (provision) benefit for income taxes
10,346 4,567 126.5% 27,875 (2,070) 1,446.6%
(Provision) benefit for income taxes 
(3,482) (315) 1,005.4% 10,578 142 7,349.3%
Net income (loss)
6,864 4,252 61.4% 38,453 (1,928) 2,094.5%
Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020
Net sales.   Product segment net sales increased by $10.3 million, or 12.3%, from $83.5 million to $93.8 million for the three months ended March 31, 2021 as compared to 2020 primarily due to a $7.7 million increase in the U.S. state and local agencies channel (increase in demand for duty gear and crowd control and contract wins for armor) and an increase in the international channel of $3.9 million (driven by EOD suits replenishments and European armor demand) offset in part by a $2.4 million reduction in the U.S. federal agencies channel (prior year shipment timing for customer contracts mainly relating to bomb suits and duty gear holsters). Distribution segment net sales increased by $3.2 million, or 16.7% from $19.4 million to $22.7 million for the three months ended March 31, 2021 as compared to 2020 primarily due to increases in retail and e-commerce sales as a result of market demand for our ammunition and firearms. Reconciling items consisting primarily of intercompany eliminations were ($5.9) million and ($5.0) million for three months ended March 31, 2021 and 2020, respectively.
Cost of goods sold.   Product segment cost of goods sold increased by $6.5 million, or 13.1%, from $49.1 million to $55.6 million for the three months ended March 31, 2021 as compared to 2020 primarily
 
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due to costs to manufacture product (namely material and labor). Product segment gross profit as a percentage of net sales decreased by 0.5% to 40.7% for the three months ended March 31, 2021 from 41.2% for the three months ended March 31, 2020 mainly driven by product mix. Distribution segment cost of goods sold increased by $2.2 million, or 14.6% from $14.8 million to $16.9 million for the three months ended March 31, 2021 as compared to 2020 primarily due to costs to acquire products. Distribution segment gross profit as a percentage of net sales increased by 1.3% to 25.3% for the three months ended March 31, 2021 from 24.0% for the three months ended March 31, 2020 mainly driven by an increase in ammunition and firearm sales. Reconciling items consisting primarily of intercompany eliminations were ($5.9) million and ($5.1) million for three months ended March 31, 2021 and 2020, respectively.
Selling, general and administrative.   SG&A increased by $1.0 million, or 3.7%, for the three months ended March 31, 2021 as compared to 2020 primarily due to increase in incentive bonus partially offset in part by lower travel and marketing spend.
Restructuring and transaction costs.   Restructuring and transaction costs decreased by $1.0 million, for the three months ended March 31, 2021 as compared to 2020 primarily due to lower transactions costs and consulting fees incurred.
Related party expense.   Related party expense was relatively consistent period over period with $0.2 million for each period. We recorded rent expense relating to distribution warehouses and retail stores that we lease from an employee.
Interest expense.   Interest expense decreased by $1.6 million, or 24.4% for the three months ended March 31, 2021 as compared to 2020 primarily due to voluntary debt repayments on our outstanding debt.
(Provision) benefit for income taxes. Income tax provision increased by $3.2 million for the three months ended March 31, 2021 as compared to 2020 primarily due to the release of a valuation allowance on a portion of our deferred tax assets in 2020.
Comparison of Year Ended December 31, 2020 to Year Ended December 31, 2019
Impact of divestiture.   The comparability of our operating results for the year ended December 31, 2020 compared to the year ended December 31, 2019 was impacted by a business sale. In June 2019, we sold Mustang, which manufactured and sold mainly inflatables, including small combat craft, whitewater rafting solutions, life rafts and marine doors and windows. The sale of Mustang did not meet the criteria for classification as discontinued operations as the deconsolidation did not represent a strategic shift in the business. As result of the Mustang sale, our financial information presented in this prospectus is not comparable between periods. Expense contributions from the divestiture for each of the respective period comparisons generally were not separately identifiable due to the integration of this businesses into our existing operations or were insignificant to our results of operations during the periods presented.
Net sales.   Product segment net sales decreased by $22.2 million or 6.1%, from $365.9 million to $343.7 million for the year ended December 31, 2020 as compared to 2019, primarily driven by the sale of Mustang, which contributed $18.8 million in net sales in 2019 before its sale. Excluding the impact of Mustang, net sales decreased $3.4 million in 2020 as compared to 2019, reflecting an $11.4 million increase in the commercial channel (expansion of direct-to-consumer sales), a $4.0 million increase in the U.S. state and local agencies channel and a $3.2 million increase in funded research and development projects partially offset by a $14.4 million decrease in the international channel due to shipment timing for a customer contract and a $7.6 million decrease in the U.S. federal agencies channel due to shipment timing for certain products. Distribution segment net sales increased by $6.8 million or 8.6%, from $78.2 million to $84.9 million for the year ended December 31, 2020 as compared to 2019, due to an increase in the U.S. state and local agencies channel. Reconciling items consisting primarily of intercompany eliminations were ($24.0) million and ($23.3) million for year ended December 31, 2020 and 2019, respectively.
Cost of goods sold.   Product segment cost of goods sold decreased by $25.3 million, or 10.7%, from $236.4 million to $211.0 million for the year ended December 31, 2020 as compared to 2019 primarily related to the sale of Mustang, which contributed to $12.9 million in cost of goods sold in 2019 before its sale. Excluding the impact of Mustang, cost of goods sold decreased by $12.4 million, principally from cost improvement projects and product portfolio mix. Product segment gross profit as a percentage of net
 
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sales increased by 3.2% to 38.6% in 2020 from 35.4% in 2019 mainly driven by price increases, and the aforementioned reasons. Distribution segment cost of goods sold increased by $3.1 million, or 5.0%, from $61.7 million to $64.8 million for the year ended December 31, 2020 as compared to 2019 primarily due to higher costs to acquire products. Distribution segment gross profit as a percentage of net sales increased by 2.6% to 23.7% in 2020 from 21.1% in 2019 mainly driven by an increase in firearm and ammunition sales in the second quarter of 2020. Reconciling items consisting primarily of intercompany eliminations were ($24.1) million and ($23.3) million for year ended December 31, 2020 and 2019, respectively.
Selling, general and administrative.   SG&A decreased by $17.6 million, or 14.2%, for the year ended December 31, 2020 as compared to 2019. Excluding the impact of Mustang, which contributed $5.3 million to SG&A in 2019, these costs decreased by $12.3 million. The decrease is primarily related to a $7.6 million goodwill impairment expense recorded in 2019 compared to no goodwill impairment in 2020, lower travel in 2020, marketing and healthcare costs of $3.4 million, and a $2.1 million reduction in bad debt expense due to overall improvement in collection efforts.
Restructuring and transaction costs.   Restructuring and transaction costs increased by $4.9 million, for the year ended December 31, 2020 as compared to 2019. The increase primarily relates to an increase in legal fees of $1.3 million related to a U.S. Federal Trade Commission matter relating to our sale of VieVu, LLC, an increase in consulting for debt restructuring of $1.9 million and an increase in transactions costs and consulting of $1.4 million. See Note 13 “Commitments and Contingencies” in our audited consolidated financial statements included elsewhere in this prospectus for a discussion of our sale of VieVu, LLC.
Related party expense.   Related party expense increased by $0.5 million for the year ended December 31, 2020 as compared to 2019. The increase primarily related to a $1.0 million transaction fee paid to Kanders & Company, Inc., a company controlled by our Chairman of the Board in connection with the execution of the Term Loan Agreement. In 2019 Kanders & Company received compensation from Cadre of $0.5 million due to sale of Mustang.
Other general income.   Gains in other general income increased by $3.3 million, or 43.5%, for the year ended December 31, 2020 as compared to 2019. The increase is primarily related to a gain from Ontario facility asset sale of $6.2 million as well as earn-out stock payments from Axon Enterprise, Inc. (“Axon”) for $4.7 million as compared to 2019 that included a $3.0 million gain from Mustang sale and $4.6 million in earn-out stock payments from Axon.
Interest expense.   Interest expense decreased by $5.5 million, or 18.3%, for the year ended December 31, 2020 as compared to 2019 primarily due to voluntary debt repayments on our outstanding debt. See “Liquidity and Capital Resources — Debt” below.
Loss on extinguishment of debt.   Loss on extinguishment of debt increased by $0.2 million due to losses associated with debt restructuring in 2020.
Other (expense) income, net.   Other (expense) income, net increased by $2.3 million, for the year ended December 31, 2020 as compared to 2019 primarily due to $4.5 million realized gains on the appreciation of Axon stock received in connection with the sale of VieVu, LLC, offset in part by a $2.3 million stock collar transaction we entered in order to mitigate the impact of market volatility on our equity securities. The stock collar was settled at the time the equity securities were sold in December 2020 and resulted in a loss of $2.3 million. See Note 3 “Investments in Equity Securities” in our audited consolidated financial statements included elsewhere in this prospectus for more information.
(Provision) benefit for income taxes.   Income tax benefit increased by $10.4 million for the year ended December 31, 2020 as compared to 2019 primarily due to the release of a valuation allowance on a portion of our deferred tax assets. Our effective tax rate in 2020 was (37.9)% as compared to 6.9% in 2019. See Note 14 “Income Taxes” in our audited consolidated financial statements included elsewhere in this prospectus for more information.
 
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NON-GAAP MEASURES
This prospectus includes EBITDA, Adjusted EBITDA and Adjusted EBITDA Conversion Rate, which are non-GAAP measures that we use to supplement our results presented in accordance with U.S. GAAP. EBITDA is defined as net income before depreciation and amortization expense, interest expense and Provision (benefit) for income tax. Adjusted EBITDA represents EBITDA that excludes restructuring and transaction costs, other general income, other (expense) income, net, contingent consideration and other, long term incentive plan (“LTIP”) bonus, and goodwill impairment as these items do not represent our core operating performance. We also present Adjusted EBITDA Conversion Rate, which we define as Adjusted EBITDA less capital expenditures divided by Adjusted EBITDA. We use Adjusted EBITDA Conversion Rate as a measurement of the cash generation capacity of our underlying operations, exclusive of impacts relating to our capital structure.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Conversion Rate are performance measures that we believe are useful to investors and analysts because they illustrate the underlying financial and business trends relating to our core, recurring results of operations and enhance comparability between periods. Adjusted EBITDA is identical to the financial metric used under our existing credit facilities to measure our covenant compliance and is also considered by our Board and management as an important factor in determining performance-based compensation. Adjusted EBITDA Conversion Rate is a liquidity measure that we believe provides investors and analysts with important information about our core, recurring cash generation trends, which are an indication of our ability to make acquisitions, incur additional debt or return capital to investors, after making the capital investments required to support our business operations.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Conversion Rate are not recognized measures under U.S. GAAP and are not intended to be a substitute for any U.S. GAAP financial measure and, as calculated, may not be comparable to other similarly-titled measures of performance of other companies. Investors should exercise caution in comparing our non-GAAP measures to any similarly titled measures used by other companies. These non-GAAP measures exclude certain items required by U.S. GAAP and should not be considered as alternatives to information reported in accordance with U.S. GAAP.
The table below presents our EBITDA, Adjusted EBITDA and Adjusted EBITDA Conversion Rate reconciled to the most comparable GAAP measure for the periods indicated:
Three months ended March 31,
Year ended December 31,
(in thousands)
2021
2020
2020
2019
Net income (loss)
$ 6,864 $ 4,252 $ 38,453 $ (1,928)
Add back:
Depreciation and amortization
3,539 3,850 14,733 15,443
Interest expense
5,044 6,669 24,388 29,848
Provision (benefit) for income taxes
3,482 315 (10,578) (142)
EBITDA
$ 18,929 $ 15,086 $ 66,996 $ 43,221
Add back:
Restructuring and transaction costs(1)
321 1,334 5,822 918
Other general income(2)
(10,950) (7,630)
Other (expense) income, net(3)
44 (680) (2,659) (395)
Contingent consideration and other(4)
(1,227)
LTIP bonus(5)
952
Goodwill impairment(6)
7,585
Adjusted EBITDA
$ 20,246 $ 15,740 $ 57,982 $ 43,699
Less: Capital expenditures
(788) (1,262) (4,708) (3,082)
Adjusted EBITDA less capital expenditures
$ 19,458 $ 14,478 $ 53,274 $ 40,617
Adjusted EBITDA conversion rate
96% 92% 92% 93%
(1)
Reflects the “Restructuring and transaction costs” line item on our consolidated statement of operations which in 2020 is primarily transaction costs composed of legal and consulting fees compared to 2019
 
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which is primarily termination benefits and relocation of employees associated with consolidating or closing of facilities. For the three months ended March 31, 2021, and 2020 it primarily includes transaction costs composed of legal and consulting fees.
(2)
Reflects the “Other general income” line item on our consolidated statement of operations. 2020 included a gain from a long-lived asset sale as well as earn-out stock payments, whereas 2019 included a gain from Mustang sale in addition to earn-out stock payments.
(3)
Reflects the “Other (expense) income, net” line item on our consolidated statement of operations. 2020 included realized gains on equity securities offset in part by a stock collar transaction we entered into in order to mitigate the impact of market volatility whereas 2019 included unrealized gains on equity securities offset by losses on foreign currency transactions. For the three months ended March 31, 2021, other (expense) income, net primarily includes losses on foreign currency transactions. For the three months ended March 31, 2020, other (expense) income, net primarily includes realized gains on foreign exchange transactions and unrealized gains on an investment in equity securities.
(4)
Reflects a gain on the settlement of contingent consideration offset partially by debt extinguishment write-offs.
(5)
Reflects the cost of a cash-based long term incentive plan awarded to employees that vest over three years.
(6)
Reflects primarily goodwill impairment expense in 2019 relating to our Distribution reporting unit. Refer to our consolidated financial statements and notes thereto included elsewhere in this prospectus for a discussion of our goodwill impairment expense.
Adjusted EBITDA increased by $4.5 million for the three months ended March 31, 2021 as compared to 2020 primarily due to an increase in net income for the period and an increase in the add-back for the provision for income taxes. Adjusted EBITDA increased by $14.3 million for the year ended December 31, 2020 as compared to 2019 primarily due to an increase in net income for the period partially offset by an increase in the deduction for benefit for income taxes.
 
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LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to our ability to generate sufficient cash flows to meet the cash requirements of our business operations, including working capital needs, capital expenditures, service debt, acquisitions and other commitments. Our principal sources of liquidity have been cash provided by operating activities, cash on hand and amounts available under our revolving credit facility.
As of March 31, 2021, we had cash and cash equivalents of $17.4 million and net cash provided by operating activities of $16.8 million. We believe that our cash flows from operations and cash on hand, and available borrowing capacity under Debt (as described below) will be adequate to meet our liquidity requirements for at least the 12 months following the date of this prospectus. Our future capital requirements will depend on several factors, including future acquisitions and investments in our manufacturing facilities and equipment. We could be required, or could elect, to seek additional funding through public or private equity or debt financings; however, additional funds may not be available on terms acceptable to us, if at all.
Debt
As of March 31, 2021 and December 31, 2020, we had $211.9 million and $212.8 million in outstanding debt, net of debt discounts and debt issuance costs, respectively, primarily related to the term loan facility (the “Term Loan”).
Term Loan
Prior to 2019, we executed a $279.0 million Term Loan and Security Agreement, as amended and restated (the “Original Term Loan”). On November 17, 2020, we settled the Original Term Loan and executed a $225.0 million Term Loan and Security Agreement (the “Term Loan Agreement”) with certain financial institutions as lenders and an agent. The Term Loan (the “Term Loan”) was issued with a maturity date of May 17, 2026.
The Term Loan includes a feature for delayed draws up to $30.0 million (the “Delayed Draw Maximum Amount”) to consummate permitted acquisitions under the Term Loan Agreement with such feature terminated on November 17, 2021 (the “Delayed Draw Termination Date”). Any delayed draw amounts will have an accompanying fee of 1.00%. The Term Loan Agreement bears interest at an applicable rate of LIBOR plus 6.50% or Base Rate plus 5.50% if we report a Leverage Ratio of less than or equal to 5.00 to 1.00 or a rate of LIBOR plus 7.00% or Base Rate plus 6.00% if we report a Leverage Ratio greater than 5.00 to 1.00. For applicable rate determination, LIBOR is the higher of 1.00% or the LIBOR for a term equivalent to such period. Refer to notes to our consolidated financial statements and notes thereto included elsewhere in this prospectus for a discussion of our debt. The Term Loan Agreement contains certain restrictive debt covenants, which require us to: (i) maintain a minimum fixed charge coverage ratio of 1.10 to 1.00, which is to be determined for each quarter end on a trailing four quarter basis and (ii) maintain a quarterly maximum leverage ratio of 7.50 to 1.0 until September 30, 2022, and then 7.00 to 1.00 until September 30, 2024, and thereafter 6.50 to 1.00, which is in each case to be determined on a trailing four quarter basis. The Term Loan Agreement also contains a cross-default clause whereby a violation of one may constitute a violation in the other causing an acceleration of payments. We were in compliance with all financial covenants during the periods presented in this prospectus.
Revolving Credit Facility
We have a revolving credit facility (“Revolving Credit Facility”) that provides total committed capital of $50.0 million which is allocated into US and Canadian categories of $45.0 million and $5.0 million respectively. As of March 31, 2021 there were no outstanding borrowings under the Revolving Credit Facility. In November 2020, we entered into an amendment to the Revolving Credit Facility agreement, which gave consent to the Term Loan debt refinancing and extended the terms of the Revolving Credit Facility agreement to November 2025. As of March 31, 2021 and December 31, 2020, the availability, less outstanding letters of credit, under the Revolving Credit Facility was $45.7 million and $41.3 million, respectively. Availability to borrow under the Revolving Credit Facility is calculated by applying a borrowing advance rate to eligible accounts receivable and inventory, which is reported to the bank in the form of a borrowing base certificate. As of March 31, 2021 and December 31, 2020, we had outstanding letters of credit of $2.9 million and
 
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$2.7 million, respectively. The Revolving Credit Facility contains various affirmative, negative and financial covenants which we consider to be customary for such borrowings, requires us to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00, to be determined monthly (and on a trailing twelve month basis) during certain testing periods, as more particularly described in the Revolving Credit Facility agreement, and includes certain limitations on cross-border intercompany transactions. We were in compliance with all financial covenants during the periods presented in this prospectus.
New Credit Agreement
On July 23, 2021 (the “Closing Date”), Safariland, LLC, as borrower (the “Borrower”), the Company and certain domestic subsidiaries of the Company, as guarantors (the “Guarantors”), entered into a credit agreement (the “New Credit Agreement”) with PNC Bank , National Association (“PNC”), as administrative agent, and the several lenders from time to time party thereto (together with PNC, the “Lenders”) pursuant to which the Borrower may borrow, on a senior secured basis, up to (i) $100,000,000 under a revolving credit facility (including up to $15,000,000 for letters of credit and up to $10,000,000 for swing line loans), and (ii) $150,000,000 under a term loan (the “New Term Loan”), each maturing on July 23, 2026. Commencing December 31, 2021, the New Term Loan requires scheduled quarterly payments in amounts equal to 1.25% per quarter of the original aggregate principal amount of the New Term Loan, with the balance due at maturity. No borrowings were made under the New Credit Agreement on the Closing Date and the New Credit Agreement provides for certain conditions precedent to be satisfied for any borrowings to be made under the New Credit Agreement, including the completion of the Company’s initial public offering of shares of its common stock on or prior to September 30, 2021, and the repayment in full of our existing Revolving Credit Facility and Term Loan with each of Bank of America, N.A and Guggenheim Credit Services, LLC, respectively. On the date that such conditions precedent are satisfied and the borrowings are made (the “Funding Date”), the New Credit Agreement will be guaranteed, jointly and severally, by the Guarantors and, subject to certain exceptions, secured by a first-priority security interest in substantially all of the assets of the Borrower and the Guarantors pursuant to a mutually agreed Security Agreement and a mutually agreed Guaranty and Suretyship Agreement.
The Borrower may elect to have the revolving and term loans under the New Credit Agreement bear interest at a base rate or a LIBOR rate, in each case, plus an applicable rate. The applicable rate for these borrowings will range from 0.50% to 1.50% per annum, in the case of base rate borrowings, and 1.50% to 2.50% per annum, in the case of LIBOR borrowings. The New Credit Agreement also requires the Borrower to pay a commitment fee on the unused portion of the loan commitments. Such commitment fee will range between 0.175% and 0.25% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio.
The New Credit Agreement also contains customary representations and warranties, and affirmative and negative covenants, including limitations on additional indebtedness, dividends, and other distributions, entry into new lines of business, use of loan proceeds, capital expenditures, restricted payments, restrictions on liens on the assets of the Borrowers or any Guarantor, transactions with affiliates, amendments to organizational documents, accounting changes, sale and leaseback transactions, dispositions, and mandatory prepayments in connection with certain liquidity events. The New Credit Agreement contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, failure to make payment on, or defaults with respect to, certain other material indebtedness, bankruptcy and insolvency events, material judgments and change of control provisions. Upon the occurrence of an event of default, and after the expiration of any applicable grace period, payment of any outstanding loans under the New Credit Agreement may be accelerated and the Lenders could foreclose on their security interests in the assets of the Borrowers and the Guarantors.
The foregoing description of the New Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the New Credit Agreement, which is included as an exhibit to the registration statement of which this prospectus forms a part.
 
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Cash Flows
The following table presents a summary of our cash flows for the periods indicated:
Three months ended March 31,
Year ended December 31,
(in thousands)
2021
(Unaudited)
2020
(Unaudited)
2020
2019
Net cash provided by operating activities
$ 16,832 $ 14,878 $ 45,419 $ 7,414
Net cash (used in) provided by investing activities
(788) 4,329 19,784 26,372
Net cash (used in) provided by financing activities
(1,490) 7,766 (64,902) (32,417)
Effects of foreign exchange rates on cash and cash equivalents
13 (110) 52 (139)
Change in cash and cash equivalents
14,567 26,863 353 1,230
Cash and cash equivalents, beginning of period
2,873 2,520 2,520 1,290
Cash and cash equivalents, end of period
$ 17,440 $ 29,383 $ 2,873 $ 2,520
Net cash provided by operating activities
During the three months ended March 31, 2021, net cash provided by operating activities of $16.8 million resulted primarily from net income of $6.9 million and changes in operating assets and liabilities of $2.4 million. Changes in operating assets and liabilities were primarily driven by an increase in accounts payable and other liabilities of $10.7 million offset in part by increases in accounts receivable of $5.6 million and inventories of $2.5 million.
During the three months ended March 31, 2020, net cash provided by operating activities of $14.9 million resulted primarily from net income of $4.3 million and changes in operating assets and liabilities of $7.0 million. Changes in operating assets and liabilities were primarily driven by a decrease in accounts receivable of $8.5 million.
During the year ended December 31, 2020, net cash provided by operating activities of $45.4 million resulted primarily from net income of $38.5 million and changes in operating assets and liabilities of $17.4 million. Changes in operating assets and liabilities were primarily driven by a decrease in accounts receivable of $11.8 million.
During the year ended December 31, 2019, net cash provided by operating activities of $7.4 million resulted primarily from net loss of $1.9 million, adjusted non-cash items of $16.6 million partially offset by changes in operating assets and liabilities of $7.2 million. Non-cash items included depreciation and amortization of $15.4 million and goodwill impairment of $7.6 million partially offset by non-cash consideration received from sale of VieVu, LLC of $5.2 million and gain on sale of Mustang of $3.0 million. Changes in operating assets and liabilities were primarily driven by a decrease in accounts payable and other liabilities of $19.7 million offset by a decrease in accounts receivable of $8.7 million and a decrease in inventories of $5.7 million.
Net cash (used in) provided by investing activities
During the three months ended March 31, 2021, we used $0.8 million of cash from investing activities, consisting of purchases of property and equipment of $0.8 million.
During the three months ended March 31, 2020, we provided $4.3 million of cash from investing activities, primarily consisting of proceeds from sale of equity securities of $5.6 million offset by purchases of property and equipment of $1.3 million.
During the year ended December 31, 2020, we provided $19.8 million of cash from investing activities, primarily consisting of proceeds from disposition of property and equipment of $12.4 million and proceeds from sale of equity securities of $14.4 million.
During the year ended December 31, 2019, we provided $26.4 million of cash from investing activities, primarily consisting of proceeds from the sale of Mustang of $26.9 million.
 
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Net cash (used in) provided by financing activities
During the three months ended March 31, 2021, we used $1.5 million of cash in financing activities, primarily consisting of principal payments on the Revolving Credit Facility $88.6 million, principal payments on insurance premium financing of $0.9 million and principal payments on the Term Loan of $0.6 million offset in part by proceeds from Revolving Credit Facility of $88.6 million.
During the three months ended March 31, 2020, we provided $7.8 million of cash from financing activities, primarily consisting of proceeds from the Revolving Credit Facility of $110.8 million offset in part by principal payments on the Revolving Credit Facility of $96.2 million, principal payments on insurance premium financing of $0.8 million and principal payments on the Term Loan of $6.1 million.
During the year ended December 31, 2020, we used $64.9 million of cash in financing activities, primarily consisting of proceeds from Revolving Credit Facility of $382.1 million, proceeds from the Term Loan of $219.6 million, offset by principal payments on the Revolving Credit Facility of $384.2 million and principal payments on the Term Loan of $276.4 million.
During the year ended December 31, 2019, we used $32.4 million of cash in financing activities, primarily consisting of proceeds from the Revolving Credit Facility of $383.5 million, offset by principal payments on the Revolving Credit Facility of $406.4 million.
Contractual Obligations
The following table summarizes our significant contractual obligations as of December 31, 2020 by period:
(in thousands)
Total
Less than
1 year
1-3 Years
3-5 Years
More than
5 Years
Lease obligations(1)
$ 16,692 4,513 7,917 3,865 397
Debt(2) 225,811 3,496 4,544 4,545 213,226
Interest on debt(3)
90,125 17,033 33,520 32,868 6,704
Total contractual obligations
$ 332,628 25,042 45,981 41,278 220,327
(1)
Includes future minimum lease payments required under non-cancelable operating and capital leases.
(2)
Includes scheduled cash principal payments on our debt, excluding interest, original issuance discount and debt issuance costs.
(3)
Represents the estimated interest payments on our outstanding debt, assuming a 7.5% interest rate, which was the weighted average interest rate applicable to our borrowings at December 31, 2020.
There have not been any significant changes to the contractual obligations for the three months ended March 31, 2021.
Off-Balance Sheet Arrangements
We do not engage in off-balance sheet financing arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
 
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CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Preparation of the financial statements requires us to make judgments, estimates and assumptions that impact the reported amount of net sales and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when the estimate or assumption is complex in nature or requires a high degree of judgment and when the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements. While our significant accounting policies are described in more detail in notes in our consolidated financial statements included elsewhere in this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Goodwill
Goodwill is initially recorded at the fair value. Goodwill represents the excess of the purchase price of acquisitions over the fair value of the net assets acquired. Goodwill is not subject to any amortization but is tested for impairment annually as of October 31, and when events or circumstances indicate that the estimated fair value of a reporting unit may no longer exceed its carrying value. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.
In evaluating goodwill for impairment, qualitative factors are considered to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is an impairment test is conducted by comparing of the fair value of a reporting unit to its carrying value, for which we use the discounted cash flow method of the income approach and market approach as management believes this is the most direct approach to incorporate the specific economic attributes and risk profiles of our reporting units into our valuation model. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We had three reporting units as of December 31, 2020: Safariland, Med-Eng, and Distribution.
We determine the fair value of its reporting units based on a combination of the income approach and market approach, weighted based on the circumstances. Under the income approach, the discounted cash flow model determines fair value based on the present value of projected cash flows over a specific projection period and a residual value related to future cash flows beyond the projection period. Both values are discounted using a rate that reflects our best estimate of the weighted average cost of capital of a market participant and is adjusted for appropriate risk factors. We perform sensitivity tests with respect to growth rates and discount rates used in the income approach. Under the market approach, valuation multiples are derived based on a selection of comparable companies and acquisition transactions and applied to projected operating data for each reporting unit to arrive at an indication of fair value.
During 2019, as a result of the decline in the forecasted financial performance for our Distribution reporting unit, we performed an impairment evaluation and determined that the carrying value of the goodwill of the Distribution reporting unit exceeded the implied fair value. The decline in the fair value of the Distribution reporting unit was primarily due to unfavorable performance in 2019 that was impacting operating margins and led us to use a higher discount rate due to an increase in the risk-free rate of return. We recorded a goodwill impairment charge of $7.6 million for the Distribution segment within selling, general and administrative expenses for the year ended December 31, 2019. No impairment losses were recorded during the year ended December 31, 2020.
Recently Adopted and Issued Accounting Pronouncements
Recently issued and adopted accounting pronouncements are described in notes to our audited consolidated financial statements included elsewhere in this prospectus.
Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible for exemptions from various reporting requirements applicable
 
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to other public companies that are not emerging growth companies, including, but not limited to, presenting only two years of audited financial statements, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation, and an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements.
In addition, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this provision of the JOBS Act. As a result, we will not be subject to new or revised accounting standards at the same time as other public companies that are not emerging growth companies. Therefore, our consolidated financial statements may not be comparable to those of companies that comply with new or revised accounting pronouncements as of public company effective dates.
 
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have in the past and may in the future be exposed to certain market risks, including interest rate, foreign currency exchange in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial condition or results of operations due to adverse changes in financial market prices and rates. These risks are not significant to our results of operations, but they may be in the future. We do not hold or issue financial instruments for speculative or trading purposes. There have not been material changes in market risk exposures as of March 31, 2021.
Interest rate risk
Changes in interest rates affect the amount of interest expense we are required to pay on borrowings under floating rate debt. As of December 31, 2020, we had $224.4 million in outstanding floating rate debt, based mainly on LIBOR. As of December 31, 2020, the applicable interest rate of the Term Loan Agreement bears interest at an applicable rate of LIBOR plus 6.50% or Base Rate plus 5.50% if we report a Leverage Ratio of less than or equal to 5.00 to 1.00 or a rate of LIBOR plus 7.00% or Base Rate plus 6.00% if we report a Leverage Ratio greater than 5.00 to 1.00. Based on LIBOR plus 6.5%, a 100 basis point increase or decrease in the applicable base interest rates under our floating interest rate debt would have resulted in a $2.5 million increase or decrease in our interest expense for the year ended December 31, 2020.
Foreign currency exchange rate risk
Our operations are geographically diverse and we are exposed to foreign currency exchange risk primarily for the Canadian dollar and Mexican peso, related to our transactions and our subsidiaries’ balances that are denominated in currencies other than the U.S. dollar, our functional currency. We do not currently hedge our foreign currency transaction or translation exposure, though we have done so in the past and may do so in the future. Significant currency fluctuations could impact the comparability of our results of operations between periods. A 10% increase or decrease in the value of the Canadian dollar to the U.S. dollar would have caused our reported net sales to increase or decrease by approximately $1.6 million for the year ended December 31, 2020, and a 10% increase or decrease in the value of the Canadian dollar to the U.S. dollar would have caused our reported net income to increase or decrease by approximately $1.0 million for the year ended December 31, 2020. A 10% increase or decrease in the value of the Mexican peso to the U.S. dollar would have caused our reported net income to increase or decrease by approximately $1.4 million for the year ended December 31, 2020.
 
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BUSINESS
Business Overview
For over 55 years, we have been a global leader in the manufacturing and distribution of safety and survivability equipment for first responders. Our equipment provides critical protection to allow its users to safely and securely perform their duties and protect those around them in hazardous or life-threatening situations. Through our dedication to superior quality, we establish a direct covenant with end users that our products will perform and keep them safe when they are most needed. We sell a wide range of products including body armor, explosive ordnance disposal equipment and duty gear through both direct and indirect channels. In addition, through our owned distribution, we serve as a one-stop shop for first responders providing equipment we manufacture as well as third-party products including uniforms, optics, boots, firearms and ammunition. The majority of our diversified product offering is governed by rigorous safety standards and regulations. Demand for our products is driven by technological advancement as well as recurring modernization and replacement cycles for the equipment to maintain its efficiency, effective performance and regulatory compliance.
As discussed below, we believe we have established leading market positions across our product portfolio through high-quality standards, innovation and a direct connection to the end users, including being a leading provider of explosive ordnance disposal technician equipment globally as well as a leading provider of safety holsters and a top provider of soft body armor for first responders in the U.S. We service the ever-changing needs of our end users by investing in research and development for new product innovation and technical advancements that continually raise the standards for safety and survivability equipment in the first responder market. Our target end user base includes domestic and international first responders such as state and local law enforcement, fire and rescue, explosive ordnance disposal technicians, emergency medical technicians (“EMT”), fishing and wildlife enforcement and departments of corrections, as well as federal agencies including the U.S. Department of State (“DoS”), U.S. Department of Defense (“DoD”), U.S. Department of Interior (“DoI”), U.S. Department of Justice (“DoJ”), U.S. Department of Homeland Security (“DHS”), U.S. Department of Corrections (“DoC”) and numerous foreign government agencies in over 104 countries. We have a large and diverse customer base, with our top 10 customers representing approximately 26% of sales, with no individual customer representing more than 6.5% of our total revenue, for the year ended December 31, 2020.
We are committed to honoring those who put their lives in danger through the SAVES CLUB®, which pays homage to first responders who experience a life-threatening incident in the line of work in which our armor or gear contribute to saving their lives. The club currently has 2,114 members and counting. With the help of our suppliers, distributors and first responder end users, we strive to fulfill the Company creed: Together, We Save Lives.
Industry Overview
The market for safety and survivability equipment serving first responders focuses on providing a diverse set of protective and mission enhancing products and solutions to our target end users. The market is driven by multiple factors including customer refresh cycles, growing number of personnel employed by first responder organizations, equipment replacement and modernization trends, greater emphasis on public and first responders’ safety and demographic shifts.
Body armor, explosive ordnance disposal equipment and duty gear comprise the core product areas in the safety and survivability equipment market and law enforcement personnel growth is a significant driver for our business. The U.S. Bureau of Labor Statistics projects the number of law enforcement personnel in the U.S. to increase at a faster rate than broader labor market growth over the 10-year period from 2019 to 2029, or 5%, from 813,500 in 2019 to 854,200 in 2029. Demand for first responder safety and survivability equipment is also fueled by increasing law enforcement budgets. Law enforcement budgets have grown significantly on a per capita basis since 2000, supported by increased spending in major cities and by federal agencies. Per the Bureau of Justice Statistics, in real dollars (adjusted for inflation), local police-protection spending per capita rose 29% from 2000 to 2017. In 2017, state and local real police protection spending per capita was $326 vs. $258 in 2000.
 
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The following charts highlight budget growth for major departments from 2008 to 2020 and for domestic state and local police protection spend from 2008 to 2018 (based on available data):
[MISSING IMAGE: tm2115376d3-bc_major4c.jpg]
[MISSING IMAGE: tm2115376d3-bc_domestic4c.jpg]
In addition to the macro industry trends, each of these product segments experience unique drivers in and of themselves. Increasing mandatory body armor use and refresh policies, evolving technical standards and increases in tactical or special weapons and tactics (“SWAT”) law enforcement personnel act as tailwinds to the body armor market. Meanwhile, the explosive ordnance disposal equipment market is driven by the continued emergence of new global threats while duty gear is driven mainly by product use and replacement cycles.
Our management estimates the annual addressable market for soft body armor (including tactical soft armor) in 2020 to be approximately $870 million. We also estimate explosive ordnance disposal equipment to have an addressable market of approximately $245 million over the seven-to-ten year life cycle of the products’ installed base. Finally, the annual addressable market for holsters for the global law enforcement and military and consumer markets is estimated to be approximately $380 million.
The international market is also poised for growth as foreign governments face increasingly complex safety challenges and seek to replace legacy equipment. Additionally, we foresee the demand for safety and survivability equipment from overseas markets to increase due to heightened awareness of the importance and effectiveness of such products and as countries are exposed to new threats. Our management estimates our addressable number of total law enforcement personnel outside the U.S. to be approximately 9,658,000, representing a substantial market opportunity.
Our management team believes that the safety and survivability equipment industry for first responders represents a stable and growing market with long-term opportunities. Given our strong market standing, direct connection to the end users, extensive distribution network, long history of innovations and high-quality standards, we believe we are well positioned to capitalize on the positive market dynamics.
Competitive Strengths
Leading, independent global provider of safety and survivability equipment for first responders.   Our history as a leading provider of high-quality safety and survivability equipment dates back to 1964. Our differentiated value proposition is built on superior quality combined with an unwavering focus on critical safety standards, making us the trusted brand name for first responders. Our extensive product breadth allows us to serve as a one-stop shop for our end users and their safety and survivability equipment needs.
Strong market positions.   Based on data we collect related to end users and publicly available information on awarded contracts and purchases, we believe we have leading market positions across multiple product categories through superior quality and performance differentiating us from our competition. By way of reference, we sell either concealable tactical or hard armor to 34 of the top 50 police departments in the U.S. by size. Likewise, we sell our duty retention holsters to 48 of the top 50 police departments in the U.S. by size. Furthermore, we are a party to multi-year contracts for the largest bomb suit teams in the world including the U.S. Army, U.S. Marine Corps and U.S. Air Force. Our products continually exceed stringent industry safety standards and are recognized for advancements in performance through innovation and technological enhancement.
 
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Mission-critical products with recurring demand characteristics.   Our products provide critical protection to their end users as well as those around them, with limited or no room for error. As a result, stringent safety standards and customary warranty provisions create refresh cycles on over 80% of the equipment we supply to ensure efficient and effective performance at all times. Demand associated with these refresh cycles drives a highly predictable recurring revenue stream. The majority of our remaining revenue is associated consumable products driving recurring sales based on replenishment needs.
Attractive macro-economic and secular tailwinds driving demand and visibility for our products.   The vast majority of our end markets are acyclical in nature as their demand is driven primarily by the first responder budgets and relatively unaffected by economic cycles. Our business has benefitted from key shifts serving as tailwinds to our growth strategy including the increasing focus on safety, replacement and modernization trends as well as demographic shifts and urbanization.
Compelling organic and inorganic growth roadmap.   Leveraging our differentiated product development process and technical knowhow, leading domestic market position and first mover advantage with our suppliers, we plan to drive profitable organic revenue growth via new product development and geographic expansion. In particular, international expansion is an especially important initiative in our organic growth roadmap due to the significant market share opportunity and increasing investments in safety and survivability equipment in various key geographic markets. We expect to supplement our organic growth through a targeted M&A program spanning our existing core products and markets as well as attractive adjacencies.
Attractive financial profile with strong EBITDA margins and free-cash-flow generation.   We generate strong profitability through diligent portfolio management of customers and contracts and continued focus on cost structure to drive operating leverage. Our strong profitability combined with minimal capital expenditure requirements result in high free-cash-flow generation, which is a key driver for our internal research and development initiatives and targeted M&A program. Our Adjusted EBITDA Conversion Rate is consistently greater than 90%.
Tenured management with significant public company platforms.   Our management team is comprised of executive officers with extensive experience at public company platforms including Armor Holdings Inc., Danaher Corporation, General Electric Company and IDEX Corporation. Together they bring an established track record of strong performance operating and growing public companies both organically and via acquisitions. This experience has created a differentiated approach to our operating model through their expertise in building a culture of operational and cultural excellence, complexity reduction, and innovation.
Long-term customer relationships across diverse end markets and geographies.   We maintain long-term relationships with over 23,000 first responders and federal agencies both domestically and internationally, with top customer relationships averaging an excess of 15 years. Our global presence spans over 104 countries across North America, Europe and other regions.
Products
We design and manufacture a diversified product portfolio of critical safety and survivability equipment to protect first responders. We maintain clear market-leadership positions in certain core product categories including body armor, explosive ordnance disposal equipment and duty gear. Over 80% of our product line is tied to customary or mandated refresh cycles of between seven and ten years, which drives a highly predictable, recurring revenue stream. The majority of the remaining revenue is associated consumable products. Our overall strategy is to drive growth by leveraging our leading market shares and competitively-differentiated offerings in each of our core product categories, including:
Body Armor.   We offer a full range of field-proven advanced armor solutions. Our products incorporate cutting-edge technology, innovative materials and processes in order to provide the best prote