Q4 2023 Cadre Holdings Inc Earnings Call

Participants

Matt Berkowitz; IR; The IGB Group

Warren Kanders; CEO & Chairman of the Board; Cadre Holdings Inc

Brad Williams; President; Cadre Holdings Inc

Blaine Browers; Chief Financial Officer; Cadre Holdings Inc

Jeff Van Soinderen; Analyst; B. Riley Securities

Jordan Lyonnais; Analyst; BofA Global Research (US)

Matt Koranda; Analyst; Roth MKM

Sheila Kahyaoglu; Analyst; Jefferies LLC

Mark Smith; Analyst; Lake Street Capital Markets, LLC

Bert Subin; Analyst; Stifel, Nicolaus & Company, Inc

Presentation

Operator

Good afternoon, and welcome to cadre Holdings Fourth Quarter and Full Year 2023 conference call. And today's call is being recorded and all lines have been placed on mute. If you would like to ask a question at the end of the prepared remarks, please press the star key then the number one on your touchtone phone. At this time, I would like to turn the conference over to Matt are goods of The IGB Group for introductions and the reading of the Safe Harbor statement. Please go ahead, sir.

Matt Berkowitz

Thank you, and welcome to today's conference call to discuss cadre fourth quarter and full year results. Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements and we make these statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face cadre and industry, the markets in which we operate. More information on potential factors that could affect Cogo's financial results is included from time to time and contracts. Public reports filed with the Securities and Exchange Commission. Please note that we have posted presentation materials on our website at w. w. w. dot contract dash holdings.com, which supplement our comments this evening and include a reconciliation of certain non-GAAP financial measures. I'd like to remind everyone that this call will be available for replay through March 19th, 2024, starting at 8 P.M. Eastern time tonight. A webcast replay will also be available via the link provided in today's press release as well as on Padres website.
At this time, I'd like to turn the call over to Coventry's Chairman and CEO, Warren Kanders.

Warren Kanders

Good afternoon, and thank you for joining Cogo's earnings call to discuss our results for the fourth quarter and full year 2023. I am joined today by our President, Brad Williams, and Chief Financial Officer, Blaine Broward, finishing up the fourth quarter and closing the year strong in 2023 I continue to be very proud of the focus and execution of our management team has demonstrated in achieving record results for annual revenue, adjusted EBITDA, gross margin and adjusted EBITDA margin our management team's consistent implementation of the cadre operating model continues to drive this strong performance. The results, in my opinion are impressive, and we are exceptionally proud of them. Revenues were up 5.4%. Gross profit increased 14.2%. Adjusted EBITDA increased 13.3%, and our adjusted EBITDA margin grew from 16.5% in 2022, 17.8% in 2023.
We have spoken often about the high free cash flow characteristics of our company and those we look at for M&A and 2023 bears that out with net cash from operating activities growing from $46.4 million in 2022 to $73.2 million in 2023, an increase of 57.8%. We, as a team are pleased that we have been able to deliver for our shareholders and we hope to continue doing so I have commented on prior calls about the macros driving our business and those remain largely the same today. Looking at the US, it tends to be true that public safety becomes top of mind during presidential election years. It is also worth highlighting the crime rates, while down somewhat over the last year or so, remain relatively high compared to where they were pre pandemic internationally, geopolitical conditions continue to be tense and crime rates and internal friction. We're also higher in many countries in which we operate. Having said that, the ongoing conflicts in Ukraine and the Middle East have still not impacted our businesses in any material way. We do expect as these events eventually come down, there may be an opportunity for cadre to play a larger role through a number of our products, mostly notably through our EOD. offerings.
Lastly, I'd like to talk about our M&A program. As I am had particularly happy about the recent progress we have made in that effort. We were in a prolonged period characterized by cheap debt financing that contributed to transaction valuations that seemed out of whack following that as interest rates started to go up, we had a period where business owners of all kinds were hesitant to accept that M&A conditions were changing. Now we seem to be settling into a more normal environment where interest rates are high relative to recent history, but only slightly elevated compared to a longer-term look back, this is important for contract because this debt environment causes valuations to moderate and more importantly, gives cadre an advantage in pursuing targets.
Given the strength of our balance sheet and our ability to act quickly, we close the iCore transaction in January, which was the Letter of Intent I referred to on our last call. In the case of Alpha's safety from the time we went exclusive with the seller and still signing. We were able to complete documentation in roughly four weeks based upon the support of our bank group to provide incremental borrowings and the substantial cash position we had built up over time in each of these cases, being patient and disciplined about our M&A approach paid off and were able to buy in quick succession to margin accretive businesses with solid growth prospects.
A few more words, in particular about Alpha's safety, the safety, I wanted to highlight our long-term strategy. We have said since our IPO and all along that we would eventually pursue acquisitions of safety-related, highly engineered Technical Products, businesses that diversify our Company and give us additional growth avenues. Alpha's safety is just that. So acquisitions substantially increases our TAM in a market with outstanding macro tailwinds, we believe we can build into a sizable platform on par with some of our bigger product areas like duty gear, armor or EOD. equipment. We are actively looking at a number of tuck-ins for Alpha, but it's also worth noting we will continue to look at further diversification plays that are consistent with our strategy and the M&A criteria we have consistently communicated.
In conclusion, I am proud of our results for this quarter and the full year. We are happy to be able to provide our initial earnings guidance for 2024, which includes the impact of our recent acquisitions.
Looking ahead, we are optimistic about our prospects for 2024, and we expect we will be able to make additional traction on our M&A program this calendar year.
With that, thank you for being with us today, and I will turn the call over to Brad. Brad, over to you.

Brad Williams

Thank you, Warren. On today's call, Blaine and I will provide a Q4 update and business overview, including recent trends, M&A developments and financial performance, followed by a Q&A session will begin on slide 6. Strong and recurring demand for our best-in-class mission critical safety products, combined with progress implementing our operating model, continue to drive our financial performance during the fourth quarter, our full year revenue of $482.5 million and adjusted EBITDA of $85.8 million. Both exceeded our guidance ranges our Q4 product mix was less favorable than previous quarters due to lower EOD. volume. As expected, our gross margins were 39.9%, an improvement of 70 basis points year over year. We maintained a strong orders backlog, which was $126.7 million as of December 31st and $8.8 million increase since the start of the year. Importantly, we've also delivered on strategic objectives related to M&A. As Warren mentioned, in January, we acquired iCore technology, a trusted global supplier of high quality, reliable, innovative and cost-effective EOD robots. And this week, we announced the completion of our acquisition of Alpha's safety, a leading nuclear safety solutions company. We're incredibly excited to integrate these businesses, both of which support mission critical initiatives with highly visible recurring revenue and compelling growth opportunities with insurance customers. Blaine will speak more on these transactions later on the call. It's important to highlight that with our low CapEx model, we continue to generate strong free cash flow, enabling cadre to take advantage of these attractive growth opportunities and explore additional M&A at the same time, we paid nine consecutive quarterly dividends since going public. We are committed to returning capital to shareholders and recently raised our dividend to $0.35 per share on an annualized basis, a 9% increase.
Turning to slide 7, I'd like to reiterate that the macro tailwinds supporting country's long-term sustainable growth remain intact. Country's life-saving mission is more critical than ever as publicly public safety initiatives continue to be prioritized in both the US and abroad. Cadre is ideally positioned to capitalize on these secular tailwinds over the medium and long term.
On Slide 8, you'll see the latest market trends affecting our business. I'll briefly discuss a few and their impacts on Calgary. We have not seen any changes in geopolitical conditions that create a more immediate opportunity for us to contribute safety products and equipment.
As we have mentioned previously, we still expect as ongoing conflicts eventually abate.
Cadre could play a larger role likely through our various VOD offerings.
Turning to our supply chain, we've continued to see improvements and today, the majority of our supply chain is stable. Before moving to M&A, I'd like to briefly discuss consumer trends and new product introductions. Country's commitment to innovation is a key differentiator and allows us to maintain our premium position in our core markets. On the consumer side, we saw 24% growth in beauty care sales in Q4 year over year, driven by our focus on new products in this space. We continue to hear highly positive feedback on our NCOGX. Holster, which we launched in partnership with daily strategic in January. At the SHOT Show, we introduced Apex ground-based braking, considerable body armor Vest System that redefines the standards of agility and comfort for those who dedicate their lives to safeguarding others, inspired by the evolution of sports performance and designed to meet the dynamic demands of law enforcement. Apex is not just a carrier. It's a paradigm shift in personal safety at the core of APEX like revolutionary for peace carrier design that seamlessly integrates two site panels with front and rear counterparts. This unique configuration allows for unparalleled articulation, ensuring the armor moves fluidly with the body offering coverage during every twist and turn of duty. We're very early in the launch of Apex, but the feedback has been overwhelming. Our Armour team is focused on spending time, training our channel partners and fielding many inquiries as we work to get the product in the hands of our customers.
I'll now turn the call over to our CFO Blaine Browers.

Blaine Browers

Thanks, Brad. I'll kick off my comments with a review of our M&A strategy and two recent acquisitions as investors familiar with cadre, now that we're committed to a patient and disciplined approach to M&A and use our very selective criteria as we evaluate our funnel. Our targets are niche businesses with high cost of substitution, high margins, leading market positions and recurring revenue profiles, review potential transactions within three categories. Those that will expand our suite of core safety products, those that will grow our geographic footprint and those that will enable us to enter new adjacent verticals.
Our acquisition of Alpha safety, which I'll cover on slides 11 to 14 falls into the third category. We've long signaled our intention to diversify contracts platform by targeting leading manufacturers of mission critical safety products in attractive verticals, acquiring Alpha's safety both accomplish this strategic objective and is consistent with the established M&A M&A criteria we prioritize with its leading niche market position, high cost of substitution, strong brand recognition and resiliency through market cycles. It's an ideal cadre of business.
Also, I'd like to underscore that Alpha safety has defensible recurring revenue and highly visible growth prospects. Its partnership with key customers are approaching 40 years with high margin revenues tied to contracts and committed purchase orders. 2023 revenues were $44 million and EBITDA margins exceeded 20%. Alpha's safety suite of highly engineered technical products and services focused on radiation protection are outlined in Slide 12. These include engineered containers, ventilation and contamination, field services and maintenance, advanced transportation containers, specialty filters and radiometric instrumentation, their diversified portfolio of products for a portfolio of products and services, span the nuclear value chain and are best understood by highlighting the three key nuclear missions. They serve first and the largest by revenue is environmental safety. Approximately 50% of Alpha's 2023 revenues relate to this mission and Alpha provides advanced engineered containers, ventilation containment solutions and analysis services for the cleanup initiatives that relate to decades of U.S. nuclear, material processing and handling. These include Department of Energy, mission critical and mandated cleanup efforts spanning numerous sites from decades of nuclear weapons development and government-sponsored Nuclear Energy Research.
Second is natural national security missions, which reflect ongoing and expanding national defense initiatives for Alpha's safety. This involves advanced engineered container solutions and specialty filters as the U.S. ramps at the plutonium pit production.
Third, related to nuclear energy. This key mission includes the decommissioning and decontamination of legacy nuclear power plants alpha provides and engineered container solutions and ventilation containment systems. Increasing global demand for sustainable energy sources will drive demand for both legacy and new nuclear power. As a reminder, Alpha does not transport themselves or taking the custody nuclear material.
Turning to slide 13, you'll see that this acquisition immediately expands countries total addressable market combined with cadre that service all serviceable addressable market in our core categories. This now represents an opportunity of up to $8 billion based on complex and evolving industry needs and macro tailwinds. Nuclear Safety presents an opportunity for consistent organic growth and upside through additional M&A. Specifically, we're excited about the platform that exists to pursue add-ons that realize synergies, enhance capabilities and expand the customer base.
In summary, we're very pleased to acquire Alto safety look forward to executing on our growth plans has a leading market position across all its key product lines and a large total addressable market with long-term industry tailwinds.
Financial profile strong highlighted by a highly visible and predictable revenue, supported by long term contracts and recurring purchase orders, protected products and limited competition drive EBITDA margins greater than 20% for alpha.
Next, let me take a moment to discuss our accretive acquisition of iCore Technology announced in December. As you'll see on the right side of slide 15, this was another transaction that checked many of the boxes. We look for an acquisition target. Icore is a trusted global supplier of EOD robots with a leading market position, strong strong brand recognition, compelling macroeconomic trends, resiliency through cycles, recurring revenues and high margins. The business in its most recent fiscal year ended during the summer achieved approximately $19 million of revenues with EBITDA margins in excess of [20%] headquartered in Ottawa, Ontario, iCore strategically located near the national headquarters of the Canadian Department of National Defense and the Royal Canadian Mounted Police and is also in close proximity to cadre EOD business message, which is also based in Ottawa. The addition of iCore meaningfully expands our ability to provide mission critical EOD robots to law enforcement agencies and military organizations, which is an area that we are intimately familiar, we expect to be able to take advantage of cadre scale and extensive sales channels to further penetrate Icoria key markets regarding both acquisitions of Icoria and Alpha safety, where in the initial phases of integration, our top priorities include working with teams relate to finance accounting, IT, legal and compliance. We look forward to implementing core cadre operating tools in the coming months.
In terms of our M&A expectations for the remainder of the year, we continue to be pleased with the uptick in activity in M&A markets, and we are working diligently through our funnel to find other businesses that fit well within our criteria.
Turning now to a summary of progress financial performance. Slide 1718 detail detail our Q4 results. As you can see on slide 17, fourth quarter net income of $9.6 million or $0.25 per share increased 45% as compared to last year's Q4. For the full year, revenue, adjusted EBITDA gross margin and adjusted EBITDA margin were all the highest since inception as we continue to roll out our operating model and manage the positioning of our portfolio of premium products.
We've made significant progress driving margin expansion, illustrated on slide 18 as net sales and adjusted EBITDA growth year over year, including our 2024 guidance, which I'll discuss in more in a moment at its midpoint, this outlook implies full year revenue and adjusted EBITDA growth of 16.5% and 23.5% respectively. This follows a year in which we increased revenue, about 6% and adjusted EBITDA, 13%.
On slide 19, we present our capital structure as of December 31st. While the M&A market was quiet for the last 12 to 18 months, cadre continued to accumulate cash on the balance sheet, allowing us to close these two transactions in Q1 and still have what we believe to be a responsible pro forma net leverage ratio of around [two times]. This includes both acquisitions adjusted EBITDA contributions. Based on our last 12 months, we provide new 2024 guidance.
On slide 20, we expect net sales to be between $553 million and $572 million. Our adjusted EBITDA guidance range of between $104 million and $108 million dollars implies adjusted EBITDA margins of 18.8%. This will be a continuation of our strong margin performance and substantially beat our record 2023 adjusted EBITDA margins of 17.8% right now, we expect quarterly revenue splits to be similar to 2023 with Q2 and Q3 being our strongest revenue quarters. But please keep in mind, this can be impacted by our customers and their demand timing.
Outside transaction expenses, we expect SG&A to be fairly level through the year. We do expect a stronger margin and revenue in Q1 compared to Q4 as our mix normalizes. But please note, this excludes any impact from inventory step-up related to acquisitions, which will create some headwind on margins and net income.
I'll now turn it back to Brad for concluding comments.

Brad Williams

Thank you, Blaine. We are highly pleased with our strategic execution in 2023, which is reflected in our strong fourth quarter and full year financial results. Our teams have done an outstanding job, and these stellar results are a testament to their hard work and commitment to cadre life-saving mission.
Looking forward, the recent M&A that we've executed to acquire iCore and Alpha safety sets up 2024 to be another record year. Based on the ongoing implementation of our operating model. We are confident that the team's relentless focus on constant improvement and Optimiz results will drive margin expansion and increased profitability as we continue to grow our business, supported by robust acquisition pipeline as well as macro tailwinds related to increasing public safety budgets and favorable industry dynamics. We believe cadre is ideally positioned to continue to expand our platform and further enhance our market leadership over the long term.
With that, Operator, please now open up the lines for Q&A.

Question and Answer Session

Operator

At this time, I would like to remind everyone in order to ask a question, please press star one. Your first question comes from Jeff Van Sinderen with B. Riley. Please go ahead.

Jeff Van Soinderen

Good afternoon, everyone. And let me just say congratulations on the strong reported metrics and on your recent acquisitions I realize it's early, but I'm just wondering your thoughts on the new APEX thus product. Is it possible that could drive some sort of an upgrade or replacement cycle?

Brad Williams

Yes, great. Great question, Jeff, and thanks for the comments. In terms of replacement cycles since going public, we've had quite a few new products that we've launched to the market. We've talked about new products tripping potentially those replacement cycles. And today, whether it's been body armor or posters or other products, we have not seen even products with strong value propositions in that premium position typically are tripping on one of our customers from that current cycle that we're in. So we'll see. But at this point, we don't expect that trend to change. But the innovation has definitely been accepted as we continue to take it out to customers.

Jeff Van Soinderen

Okay. Good to hear. And I know you mentioned targeting completion. I think you said one more acquisition this year, at least. And then just wondering if you would be more inclined to lean into a deal on that maybe Alfa had in its pipeline or if there are other deals that you have in your own pipeline, maybe in other verticals. Just I guess any other thoughts around kind of maybe what you might lean into targeting this year?

Brad Williams

Yes. So Jeff, I would say overall, everything's on the table. When you look at the funnel, we have a good mix within the categories that you mentioned. We're especially keen on the alpha acquisition. And we've talked a lot about the solid macros within the three different categories at that point. Just walk through on next week is the largest show within the on the alpha market segment, the waste management symposium in Phoenix and and I'll be there at that show and we'll be walking the show and spending time within their acquisition funnel that they basically walked us through through the diligence process. So we're pretty excited about potential opportunities there, but we also have other opportunities within the funnel that we'll just see and capitalize on those when we get the chance.

Jeff Van Soinderen

Okay. Thanks for taking my questions. I'll take the rest offline.

Brad Williams

Thanks, Jeff.

Operator

Your next question comes from Jordan Lyonnais with Bank of America. Please go ahead.

Jordan Lyonnais

Hey, good afternoon and thank you for taking the question. On the absolute budget growth, I guess the trend is real when we think about the headlines on retirements from officers how does that change, how you guys are bundling products looking for that show going forward if there's just less officers per host or if it's looking at bundling so that way there is more products going through their own refresh cycle.

Brad Williams

Yes, so good. I appreciate the question. So from a bundling perspective, with in market segment, especially within law enforcement, where we have, as you know, quite a bit of share. You don't necessarily see a bundling of products.
Okay? So there's even though you have law enforcement agency A., the decision makers and influencers within that agency can be different depending on the product categories. So typically you'll have some you'll have body armor contracts that come up. You'll have holster contracts that come up and there's different decision-makers, which within within each of those categories. So you know, even though headcount has been down through COVID and defund the police, you've seen headcount stabilize as they continue to recruit and add folks within the organization. So as we've said before, we consider the increase of headcount as a long-term headwind or tailwind for us as we go forward pushing us along. So is that headcount continues to be field. There's opportunities for new equipment for those folks.

Jordan Lyonnais

Got it. Okay. And then just a follow-up to the acquisition. Without the safety being the I just had such a drastic change in industry to go into. I can appreciate that it hits all of the strategy, components of it. Should we expect another branch off into a totally different industry than please gear nuclear's supply going forward?

Blaine Browers

Yes. I mean timeframe to be determined, but yes, absolutely. That's that's in the cards when we think about cadre, we think about really a diversified, highly engineered safety company. So we don't think about it as a military and law enforcement only company. That's certainly where our roots on and we're proud and happy to serve those markets. But the core what underlines and what we believe makes cadre special is the way we operate and the way we operate is agnostic when it comes to end markets. And if you think about a good portion of the management staff here didn't grow up in the law enforcement military markets and have joined and been able to be successful. And we had a great marriage of folks that are very familiar with the operating model and then folks that have a really deep expertise in industry, and we feel like it is a great marriage. It really allows us to be successful in the market by kind of pull on the best of both worlds and so we have the nuclear vertical now. But absolutely, we'll continue to look at other verticals now and in the future.

Jordan Lyonnais

Great. That's helpful. I appreciate it. Thank you, guys.

Blaine Browers

Thank you.

Operator

Your next question comes from Matt Koranda with ROTH MKM. Please go ahead.

Matt Koranda

Thanks for the questions on. Just wanted to explore the 24 outlook a little bit more if I could on just any help in terms of thinking about what iCore and Alpha would contribute to that revenue outlook? And then maybe just how much like-for-like growth if we were to kind of compare them what they did in 23. Are we counting on much growth from those acquisitions on sort of a like-for-like basis? And then just wanted to also make sure I'm clear. I think I know the answer, but some that you mentioned a potential acquisition.

Blaine Browers

I assume that is not embedded in the guidance for the full year maybe starting in reverse order yet the guidance is only what we've what we own today. So alpha iCore as well as the core cadre business.
When it comes to guidance, Matt, we're taking a pretty conservative view, right? These both these acquisitions are within the last 60 days credit closed within the last 60 days as we're really holding them flat to up what we've disclosed previously for both revenue and margin. So we wanted to take a pretty conservative view here. It's early days, right work, Les mentioned, we're just working on really the back office integration as we move through the year and get more comfortable and the teams get more comfortable with us. We'll continue to to reevaluate guidance, but we thought it best to be prudent at this point on the on the guidance, and we'll continue to evaluate.

Matt Koranda

Okay. Fair enough. And then I guess the if we hold it flat, I guess the implied growth in the core business is still pretty healthy. Just wanted to see if you could touch on sort of core pricing dynamics that you're seeing across duty gear, EOD on body armor. Just any change in sort of the stated growth algorithm and pricing algorithm that you've had historically for 2024?

Blaine Browers

I'd say the core what we strive for and that has not changed, which is you're getting getting the price that we believe the products deserve, making sure we're fighting the inflationary pressures that that really has not changed as we look out the productivity component, I've gotten a much more intense focus. I think the team has done a really great job. That's probably one area where as we look into 2024 will be one of the stronger years we've had and the team this is really goes out to the VP GMs and all the folks in the plant operations of getting really focused on that daily management, part of who we are and the operating model and continue to get a little bit better each day that that's probably the single biggest improvement. I think we've been most pleased with this year. So it's really kind of diving into that, that side of that world doing really well with a great exit the back half of last year. And momentum is really just continued growth dynamics. It continues to be, I would say the same as what we've communicated, the police protection budget still have that kind of three ish plus or minus percent growth and pricing?
Yes, I would say it's kind of the same that we talked about in the back half inflation, inflationary pressures are still there, certainly a lot less than post COVID, but more in line with what we saw last year. Certainly nothing below or above that.

Matt Koranda

Okay, great. And if I could sneak one in just near term. I know you helped out with seasonality, Blayne, but Tom, maybe just any thoughts on the first quarter in terms of top line growth? I noticed in the release you guys mentioned and this happens from time to time, just given the nature of the business, but the EOD business may have had a little bit of spillover or timing some challenges in the fourth quarter. So maybe just how to think about any contribution that that would bring to the first quarter and how we should think about modeling growth at least top line for the first quarter?

Blaine Browers

Yes, we absolutely had some EOD projects that moved out from Q4 into Q3 that are sort of Q4 into Q1, and that is a and that is included in that comment I have around Q1 of 2024 being your upfront from 2023, Q4 sequentially. That's both on the top line as well as margin rate. So we're seeing that mix normalize, getting back to more a margin similar to we saw prior prior to Q4 last year.

Matt Koranda

Okay. Very helpful. Very much. And I think you guys have.

Blaine Browers

Thanks.

Matt Koranda

Yes, absolutely.

Blaine Browers

Thank you.

Operator

Your next question comes from Sheila Kahyaoglu with Jefferies. Please go ahead.

Matt Berkowitz

Sheila, we can't hear you if you're on.

Sheila Kahyaoglu

Good afternoon, everyone, and thanks for the time and congratulations on the momentum you've had so far. And I wanted to see if you guys could walk us through a margin bridge for the year. I'm just looking at the incrementals at the midpoint of the '24 guide, it implies 25% versus the 40% you did in the past year. Maybe if you could just walk us through the moving pieces of margin on mix, price productivity assumptions and obviously Alticor and Alpha filtering into?

Blaine Browers

Yes, we can talk through it at a high level? Sure. We don't get too granular on individual drivers. But yes, maybe kind of starting with productivity, offsetting our labor and other variable inflation with some contribution to the bottom to margin. At that point, we priced meeting our expectations in the market, so offsetting material inflation. And then mix is a small contributor, but mix is really more relevant to Q4, then Q4 to Q1 sequentially, more so than for the full year to the full year, when we think about the drivers of the higher margin product lines due to year and met ends there. They're both slightly up, but it's not significant enough to drive significant margin improvement mix.
One of the elements here that we haven't spent a ton of time talking about is when you think about our two segments, product and distribution distribution margins are there in the low [20%s] was product is in the low [40%s] and these two businesses we bought have similar margins profiles to the rest of that product segment, in fact, slightly higher. So that's driving some of that margin expansion. But then you have a portfolio mix impact. As you think about distribution getting smaller now just a few years ago, distribution was about 25% of our revenue in a given year. Now it's getting closer to 20%. And as that happens over time, will naturally pick up some favorable mix as we get down to EBITDA.

Sheila Kahyaoglu

Thanks. And then.

Blaine Browers

That, no significant FX,

Sheila Kahyaoglu

No. Sorry.

Blaine Browers

Just to add on that, no significant FX pressure one way or the other that we're considering.

Sheila Kahyaoglu

Okay. And I wanted to ask the top line question just on the, you know, nuclear protocol versus a law enforcement. And I think you said nuclear is growing at two times the rate four to six versus law-enforcement two to four kind of can you just talk about cross-selling priorities, how you think about the growth of those markets on is price different in either of those markets? And maybe if you could just expand on the addressable market growth.

Brad Williams

So yes, I think the best way to look at the nuclear side of things, Sheila, is within the three categories at Boeing talked about that at this point, really our focus area with the team when you look at the macros behind each of those.
So on the environmental side of things, as Mike said, in the prepared comments about 50% of the overall revenue there, which is a big part of the driving force behind the business. So that's one focus area for the team overall.
The second focus area is around DOE and Department of Defense side of things. So any of the National Nuclear Security type increases in budgets that we've seen over there as an increase those are really two important drivers to the up to the macros in the business that we see.

Sheila Kahyaoglu

Okay, great. Thank you.

Operator

Your next question comes from Mark Smith with Lake Street Capital Markets.

Mark Smith

I know you've hit on some of these a little bit, but just wanted to hit was the business is more diverse now with multiple international domestic and local agencies. You've talked a bit about police budgets, anything else as we think about this new vertical of nuclear as we think about budgets there as well as international and domestic kind of military budgets, any changes that you're seeing are things that we should be looking for?

Brad Williams

No, it's not that we've seen I mean the mark, the macros have been the same. And I know we keep repeating that over and over and over, we haven't seen any large shifts or changes from a macros perspective, both in law enforcement and then also any conflicts that are going on outside the U.S. internationally. And so we continue to keep our ear to the ground. As you know, we have our company-owned distribution that Blaine just talked about where we have a lot of sales folks there that are working with them in agencies on a daily basis. And then we have our Safari land selling team that not only manages our third party distribution in that channel, but they're folks that are with in user agencies also on a daily basis. And we keep our ear to the ground. We're not seeing any major major changes there, which is good. And but what we do see is just the continued spend per officer continues to be very solid across the board. And then our new products that we've talked about quite a bit on whether it's hyper X in the tactical side of things, our new consumer holster line, our new Vault series and then now the new APEX product, um, that's where you continue to either maintain or drive that share growth in some of these pockets of areas where our share is lower.

Mark Smith

Okay. And then we ask about it every once in a while here, just if there's any update on glass sensors. And similarly, are there any other new contracts that you see coming up domestically or internationally for any of your businesses that maybe present future growth opportunities?

Brad Williams

So on the blood center side of things, we're still sitting where we were at the last on your earnings call, which is we talked about originally there's four phases of the silicon program with glass sensors. We are in the fourth phase and we've delivered on the fourth phase. And what we've been told is we will get feedback on sometime here in the fourth quarter or the first quarter on that program overall.
Now keep in mind this program has gotten kind of pushed and pulled as we went along. So as long as the schedule remains that on their side of things and we get that feedback then we'll figure out what the next steps are. They'll actually tell us what the next steps are.
And then in terms of any new contracts or any additional contracts, some those are always coming in coming out on when you look at us globally and there's various opportunities there that we're all we always have in our sales funnel and always have a mix of what we call larger orders. And nothing is has declined from a large order perspective in that mix. And then we continue to see a good heavy recurring mix of our smaller return recurring-type business.

Blaine Browers

Maybe one way to think about it too, is domestically with the high market shares really very few if no single projects or large contracts and really drive the business one way or the other. You're one of the things maybe to kind of share that was I think we were pleased with and excited as your brand. I just recently got back from a couple of site visits in Europe, in particular focused radar and spent some time with the team there. And then also in the UK and spent some time with with them. And one of the things that became apparent is those teams for us was really excited to see the Lithuanian team, the UK team and the Italian team working together. And this is one of the synergies we've kind of mentioned before, really around having a presence in Italy that having these three teams together and having that expertise in the Italian market has started to open up some opportunities when it comes to body armor and Italy, which has not been a place we've historically competed. So these are going to be [one], they are going to be 2% growth for the overall company, but they are meaningful ways for us to grow our share in Europe with that collaboration and having that additional footprint in there has been fantastic, and it was just great.
I think Brad and I both left really energized to see how well the teams are really collaborating and working together to find solutions and penetrate some of these these home markets. So hopefully, Alex.

Mark Smith

So yes, it does. Thank you.

Blaine Browers

Yes.

Operator

Your next question comes from Bert Sublin with Stifel.

Bert Subin

Please go ahead for a Brexit question. Blayne, just to start with the clarification. You said margins go up from 4Q to 1Q and then sorry, I missed the last part of that, that a sequentially rise or they get back down and then go back up later there.

Blaine Browers

We didn't talk so much about the rest of the year. Just now getting more about. I think we'd expect them to be fairly steady this year. But effort that's one we'll have to continue to monitor. It's very mixed driven as we saw in 2023. But right now it looks fairly flat for the year.

Bert Subin

Got it. Okay. On that, just to follow up, I know you've got a few questions on this, but like if I do some back-of-the-envelope math, just from what you've disclosed, you're probably adding $55 million to potentially just under $60 million pro forma sales. And so if we do the math on that relatively didn't play through. It implies you're going from a lower single digit organic growth profile to a mid single-digit profile. And it sounds like there's some conservatism in that. Can you just walk through? I mean, does that note incrementally new projects improvement, any of the other certain things that are happening outside of just price? Because it sounds like that's fairly stable and it doesn't sound like volumes are changing dramatically on the fleet side. So I'm just curious if you could sort of walk through the change in profile from 23 to '24?

Blaine Browers

Yes, that's the biggest single one that sticks out or in any mentioned beginning, it is really EOD in particular yet that is the one not core cadre business it has that can be cyclical in nature, but cyclical really just just because of the size of the orders. So we do expect them to be significantly up material for them up over the year. Another place we're really looking at growth is the duty gear business. So when we look at that, that's above expectations when we think about kind of that core, you said 2% to 3% growth there. Both those businesses are quite a bit above that overall average. And that's really what's changing that, that implies kind of mid-single digit growth versus low singles.

Bert Subin

Okay. And just on that on the Beauty Care side, then, is that something temporary you're seeing like it fortunately an amount of refresh? Or is that a combination of what you've talked about on share gain, which I think was a little more body armor, but I don't know if there's an opportunity there, too?

Blaine Browers

Yes, this is really driven by some large international projects. The team has done a great job on winning and are having line of sight to.
And then also the commercial growth surprise talked about it, but that their new product innovation in 2023 was really outstanding. And Brad mentioned that 24% growth for Beauty Care in the consumer channel in Q4, which is just fantastic in a market that the team's really been focused. So between those two, that's really driving that duty here growth, you'll get market share gains and the fitting by U.S. patrol on those are really tough to come by with our with our high share. But on the commercial side, international, we have real opportunities.

Bert Subin

Got it. Brad, I'll end with one for you. I think we talked previously about Mexico and seeing more near-shoring, and that was driving some inflation they're in and they got the plant in Tijuana doesn't sound like that's impacted margins. Just curious an update there, if you're able to when you relocate some production, are you just offsetting that with price?

Brad Williams

Yes. No, I appreciate the question. So I had mentioned before, in some of the previous earnings calls, we were working on various some inflation mitigation type type activities, and those aren't necessarily in the pricing realm outside the norm. That we've talked about in the past. So we've looked at various opportunities too, kind of diversify some of that product portfolio and some other different facilities to mitigate that risk, which we do in, quite frankly, in our larger parts of the business anyway. So those activities continue as the teams went forward on that project, and we're continuing to do well on it overall, and that's keeping pace to what we expected very thinking about the project.

Bert Subin

Yes. Thank you, Maria.

Blaine Browers

Yes.

Brad Williams

Thank you.

Operator

There are no further questions at this time. I will now turn the call back to Brad Williams for any closing remarks.

Brad Williams

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

Operator

This concludes today's conference call. Thank you, and have a great day.