Cadre Holdings Inc

NYSE:CDRE

Earnings Call Analysis

Financial Performance and Order Backlog

The company reported a robust full year revenue of $482.5 million and adjusted EBITDA of $85.8 million, surpassing their own guidance. Although the fourth quarter saw a less favorable product mix, they managed to improve gross margins to 39.9%, up by 70 basis points from the previous year. Order backlog remained strong at $126.7 million as of December 31, marking an $8.8 million increase since the beginning of the year.

Strategic Acquisitions and Market Positioning

The company has showcased significant progress in their M&A strategy, acquiring ICOR Technology, a provider of EOD robots, and Alpha Safety, a leader in nuclear safety solutions. These acquisitions bring in recurring revenue streams and highlight the company's penetration in mission-critical sectors. The bolstering of their portfolio indicates robust growth opportunities, particularly in ensuring public safety which is of high priority in global markets.

Shareholder Value and Dividend Growth

Dedication to shareholder returns is evident, with 9 consecutive quarterly dividends paid since going public. Moreover, the company recently increased its dividend to $0.35 per share annually, a commendable 9% hike, reflecting their commitment to capital distribution among shareholders.

Innovation and Consumer Trends

The company's focus on innovation led to a 24% growth in duty gear sales in the fourth quarter year-over-year. The launch of INCOG X holster and the APEX body armor vest system showcase the company's dedication to enhancing personal safety. APEX, in particular, is positioned as a revolutionary product that is expected to set new standards in agility and comfort for law enforcement personnel.

Prospects of Recent Acquisitions

Alpha Safety, specializing in radiation protection, contributed $44 million in revenues with impressive EBITDA margins exceeding 20%. It serves crucial missions in environmental safety, national security, and nuclear energy, making the acquisition a strategic move that expands the company's total addressable market to an estimated $8 billion. Similarly, ICOR Technology brought in approximately $19 million of revenues with strong EBITDA margins, enhancing the company’s EOD robot offerings. Both acquisitions have high-margin revenues with long-term contracts, indicating stable and predictable financial benefits for the future.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon, and welcome to Cadre Holdings Fourth Quarter and Full Year 2023 Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mat Berkowitz of the IGB Group for introductions and the reading of the safe harbor statement. Please go ahead, sir.

[Matthew Berkowitz]

Thank you, and welcome to today's conference call to discuss Cadre's 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 the industry and the markets in which we operate. More information on potential factors that could affect Cadre's financial results is included from time to time in Cadre's public reports filed with the Securities and Exchange Commission. Please note that we have posted presentation materials on our website at www.cadre-holdings.com, which supplement our comments this 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 19, 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 Cadre's website. At this time, I'd like to turn the call over to Cadre's Chairman and CEO, Warren Kanders.

[Warren Kanders, executive]

Good afternoon, and thank you for joining Cadre'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 Browers.

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, as 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 to 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 U.S., it tends to be true that public safety becomes top of mind during presidential election years. It is also worth highlighting that crime rates, while down somewhat over the last year or so, remain relatively high compared to where they were prepandemic. Internationally, geopolitical conditions continued to be tense and crime rates and internal friction are 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 calm 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 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 seems out of WACC. 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 Cadre 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 closed the ICOR transaction in January, which was the letter of intent I referred to on our last call. In the case of Alpha Safety, and the time we went exclusive with the seller until signing, we were able to complete documentation in roughly 4 waves 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 we're able to buy in quick succession 2 margin-accretive businesses with solid growth prospects.

A few more words in particular about Alpha Safety are warranted 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 Safety is just that. This acquisition substantially increases our TAM in a market with outstanding macro tailwinds that 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, executive]

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. We'll 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. While 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 order backlog, which was $126.7 million as of December 31, an $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 ICOR 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 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 9 consecutive quarterly dividend 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 Cadre's long-term sustainable growth remain intact. Cadre's life-saving mission is more critical than ever as public safety initiatives continue to be prioritized in both the U.S. 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 Cadre. 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 EOD 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. Cadre'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 duty gear 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 INCOG X holster, which we launched in partnership with Haley Strategic.

In January, at the SHOT Show, we introduced APEX, a groundbreaking concealable 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 lies a revolutionary 4-piece carrier design that seamlessly integrates 2 side 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 armor team is focused on spending time training our channel partners and filling 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, executive]

Thanks, Brad. I'll kick off my comments with a review of our M&A strategy and 2 recent acquisitions. As investors are familiar with Cadre know, 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. We view potential transactions within 3 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 Cadre's platform by targeting leading manufacturers of mission-critical safety products in attractive verticals. Acquiring Alpha Safety both accomplished this strategic objective and is consistent with the established 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 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 Safety's suite of highly engineered technical products and services focused on radiation protection are outlined on 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 and services span the nuclear value chain and are best understood by highlighting the 3 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 and 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 national security missions, which reflect ongoing and expanding national defense initiatives. For Alpha Safety, this involves advanced engineered container solutions and specialty filters as the U.S. ramps its plutonium pit production.

Third, related to nuclear energy. This key mission includes the decommissioning and decontaminating of legacy nuclear power plants. Alpha provides an 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 take into custody nuclear material.

Turning to Slide 13, you'll see that this acquisition immediately expands Cadre's total addressable market. Combined with Cadre's 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 Alpha Safety and 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 is strong, highlighted by highly visible and predictable revenues, 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 ICOR 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 in an acquisition target. ICOR is a trusted global supplier of EOD robots with a leading market position, 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, ICOR is strategically located near the national headquarters of the Canadian Department of National Defense and the Royal Canadian Mountain Police and is also in close proximity to Cadre's EOD business, Med-Eng, which is also based in Ottawa. The addition of ICOR 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's scale and extensive sales channels to further penetrate ICOR's key markets.

Regarding both acquisitions of ICOR and Alpha Safety, we're in the initial phases of integration, our top priorities include working with teams related 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 Cadre's financial performance, slide 17, 18 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 is 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 31. 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 2 transactions in Q1 and still have what we believe to be a responsible pro forma net leverage ratio of around 2x. 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 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 of 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, executive]

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's life-saving mission. Looking forward, the recent M&A that we've executed to acquire ICOR 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 optimized results will drive margin expansion and increase profitability as we continue to grow our business.

Supported by a 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 open up the lines for Q&A.

[Operator]

[Operator Instructions] Your first question comes from Jeff Van Sinderen with B. Riley.

[Jeff Van Sinderen, analyst]

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

[Brad Williams, executive]

Yes. 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 launched to the market. We've talked about new products tripping potentially those replacement cycles. And to date, whether it's been body armor or holsters or other products, we have not seen even products with strong value propositions in that premium position typically aren't tripping 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 is definitely being accepted as we continue to take it out to customers.

[Jeff Van Sinderen, analyst]

Okay. Good to hear. And then 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 that maybe Alpha 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, executive]

Yes. So Jeff, I would say overall, everything is 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 3 different categories that Blaine just walked through. Next week is the largest show within the ALPHA market segment, the Waste Management Symposium in Phoenix. 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.

[Operator]

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

[Jordan Lyonnais, analyst]

On the police 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 growth going forward? If there's just less offices per holster or if it's looking at bundling. So that way, there is more products going through. They're on a refresh cycle.

[Brad Williams, executive]

Yes. So good -- appreciate the question. So from a bundling perspective, within the end 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 particularly, you'll have body armor contracts that come up, you'll have holster contracts that come up and there's different decision-makers within each of those categories. So even though head count has been down through COVID and defund the police, we'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 a tailwind for us as we go forward, pushing us along. So as that headcount continues to be filled, there's opportunities for new equipment for those folks.

[Jordan Lyonnais, analyst]

Got it. Okay. And then just a follow-up to -- so the acquisition with Alpha Safety it being just such a drastic change in industry to go into it, I could appreciate that it hits all of the strategy components of it. Should we expect another branch off into a totally different industry than police gear, nuclear supply going forward?

[Brad Williams, executive]

I mean, time frame to be determined, but absolutely, 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 root is on and we're proud and happy to serve those markets. But at 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 have a great marriage of folks that are very familiar with the operating model and then folks that have a really deep expertise in the industry. And we feel like that is a great marriage and really allows us to be successful in the market by kind of pulling the best of both worlds. So we have the nuclear vertical now, but absolutely, we'll continue to look at other verticals now and in the future.

[Operator]

Your next question comes from Matt Koranda with ROTH MKM.

[Matt Koranda, analyst]

Just wanted to explore the '24 outlook a little bit more, if I could. Just any help in terms of thinking about what ICOR 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 to 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 you mentioned a potential acquisition, I assume that is not embedded in the guidance for the full year.

[Blaine Browers, executive]

Maybe start in reverse order. Yes, the guidance is only what we own today. So Alpha, ICOR as well as the core Cadre business. When it comes to guidance, Matt, we're taking a pretty conservative view, right? Both these acquisitions are within the last 60 days, right? It's closed within the last 60 days. So we're really holding them flat to what we've disclosed previously for both revenue and margins. So we want to take a pretty conservative view here. It's early days, right? As 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 reevaluate guidance, but we thought it best to be prudent at this point on the guidance, and we'll continue to evaluate.

[Matt Koranda, analyst]

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, body armor. And just any change in sort of the stated growth algorithm and pricing algorithm that you've had historically for 2024.

[Blaine Browers, executive]

I'd say at the core, what we strive for, Matt, has not changed, which is getting the price that we believe the products deserve, making sure we're fighting the inflationary pressures. So that really has not changed as we look out. The productivity component has 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 in 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's probably the single biggest improvement. I think that we've been most pleased with this year is folks really kind of diving into that side of that world, doing it really well. We had a great exit in the back half of last year, and momentum has really just continued. Growth dynamics, it continues to be, I would say, the same as what we've communicated. The police protection budget is still at that kind of 3-ish plus or minus percent growth. In pricing, I would say it's kind of the same that we talked about in the back half. 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, analyst]

Okay. Great. And if I could sneak one in just near term. I know you helped out with seasonality, Blaine. But 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 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, executive]

Yes. We absolutely had some EOD projects that moved out from Q4 into Q3. So that -- or sorry, Q4 into Q1, and that is -- that is included in that comment I have around Q1 of 2024 being up from 2023 Q4 sequentially. And that's both on top line as well as margin rate. So we're seeing that mix normalize getting back to more margins similar that we saw prior to Q4 last year.

[Operator]

Your next question comes from Sheila Kahyaoglu with Jefferies.

[Sheila Kahyaoglu, analyst]

Congratulations on the momentum you've had so far. I wanted to see if you guys could walk us through a margin bridge for the year. Just looking at the incrementals at the midpoint of the '24 guide, it implies 25% versus the 40% you did in the past year. So maybe if you could just walk us through the moving pieces of margin on mix, price, productivity assumptions and obviously ICOR and Alpha filtering in too?

[Blaine Browers, executive]

Yes. We can talk through it at a high level, Sheila. We don't get too granular on individual drivers. But maybe kind of starting with productivity offsetting our labor and other variable inflation with some contribution to the bottom -- to the margin at that point, price, 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 than Q4 to Q1 sequentially, more so than for the full year because on the full year, when we think about the drivers, the higher-margin product lines of duty here and Med-Eng, 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 2 segments, products and distribution. The distribution margins are there in the low 20s, whereas product is in the low 40s. And these 2 businesses we bought had similar margin 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. 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, we'll naturally pick up some favorable mix as we get down to EBITDA. Others than that we have no significant…

[Sheila Kahyaoglu, analyst]

And then I wanted to…

[Blaine Browers, executive]

FX. Sorry. Go ahead, Sheila.

[Sheila Kahyaoglu, analyst]

No, no. Back to you, sorry.

[Blaine Browers, executive]

I was going to say other than that, no significant FX pressure one way or the other that we're considering.

[Sheila Kahyaoglu, analyst]

Okay. I wanted to ask a top line question just on the nuclear vertical versus, say, law enforcement, I think you said nuclear is growing at 2x the rate 4 to 6 versus law enforcement 2 to 4. Kind of can you just talk about the selling priorities, how you think about the growth of those markets? Is price different in either of those markets? And maybe if you could just expand on the addressable market growth.

[Brad Williams, executive]

So I think the best way to look at the nuclear side of things, Sheila, is within the 3 categories that Blaine talked about, that's 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 Blaine 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 2 important drivers to the macros in the business that we see.

[Operator]

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

[Mark Smith, analyst]

You've hit on some of these a little bit, but just wanted to hit as the business is more diverse now with multiple international, domestic and local agencies. You talked a bit about police budget, 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 or things that we should be looking for?

[Brad Williams, executive]

No, not that we've seen. I mean, 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. So we continue to keep our ear to the ground. As you know, we have our company distribution that Blaine just talked about, where we have a lot of sales folks there that they're working with in agencies on a daily basis. And then we have our Safariland selling team that not only manages our third-party distributors in that channel, but they're folks that are within end-user agencies also on a daily basis.

And as we keep our ear to the ground, we're not seeing any major changes there, which is good. But what we do see is just 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, whether it's HyperX in the tactical side of things, our new consumer holster line, our new Vault series and then now the new APEX product, 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, analyst]

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

[Brad Williams, executive]

So on the blast sensor side of things, we're still sitting where we were at the last earnings call, which is we talked about originally there's 4 phases of the SOCOM program with blast 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 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, those are always coming in, coming out when you look at us globally, and there's various opportunities there that we're -- we always have in our sales funnel and always have a mix of what we call larger orders. And nothing has declined from a large order perspective in that mix. And then we continue to see a good, heavy recurring mix of our smaller recurring type business.

[Blaine Browers, executive]

Yes, maybe one way to think about it too is domestically with the high market shares, there's really very few, if no single projects or large contracts that would really drive the business one way or the other. One of the things maybe to kind of share that was -- I think we were pleased with and excited is, Brad, I just recently got back from a couple of site visits in Europe, in particular, focused. We had [indiscernible] spent some time with the team there and then also up in the U.K. and spent some time with them.

And one of the things that became apparent is those teams for us was really exciting to see the Lithuanian team, the U.K. team and the Italian team working together and this is one of the -- the synergies we've kind of mentioned before, really around having a presence in Italy that having these 3 teams together and having that expertise in the Italian market has started to open up some opportunities when it comes to body armor in Italy, which has not been a place we've historically competed. So these are going to be, one, it's not going to be a 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 home markets. So hopefully, that will…

[Operator]

Your next question comes from Bert Subin with Stifel.

[Bert Subin, analyst]

Blaine, just to start with a clarification. You said margins go up from 4Q to 1Q? And then sorry, I missed the last part of that. Did they sequentially rise or they get back down and then go back up later in the year?

[Blaine Browers, executive]

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

[Bert Subin, analyst]

Got it. Okay. Just a follow-up. I know you've got a few questions on this, but like if I do some [indiscernible] roadmap just from what you've disclosed, you're probably adding $55 million to potentially just under $60 million just pro forma sales. And so if we do the math on that relative to what you did in '23, that implies you going from a lower single-digit organic growth profile to a mid-single-digit profile. And it sounds like there's conservatism in that. Can you just walk through? I mean, is that incrementally new projects, improvement in EOD? Are there 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 police side. So I'm just curious if you could sort of walk through the change in profile from '23 to '24.

[Blaine Browers, executive]

Yes. The biggest single one that sticks out, Bert, and you mentioned at the beginning, is really EOD in particular. That is the one noncore cadre business that can be cyclical in nature. But cyclical really just because of the size of the orders. So we do expect them to be significantly up material for them up over the year. And another place we're really looking at growth is in the duty gear business. So when we look at that, that's above expectations when we think about kind of that core if we 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 implied kind of mid-single-digit growth versus low singles.

[Bert Subin, analyst]

Okay. And just on that -- on the duty gear side then, is that something temporary you're just seeing like a disproportionate amount of refresh? Or is that a combination of what you 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, executive]

Yes. This is really driven by some large international projects. The team has done a great job on winning or having line of sight too and then also the commercial growth. Brad's talked about it, but that their new product innovation in 2023 was really outstanding. Brad mentioned that 24% growth for duty gear in the consumer channel in Q4, which is just fantastic in a market that the team has really been focused. So between those 2, that's really driving that duty gear growth. Again, market share gains and if you think about U.S. Patrol, those are really tough to come by with our high share. But on the commercial side and international, we have real opportunities.

[Bert Subin, analyst]

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 there. And I know you got the plant in Tijuana. It doesn't sound like that's impacted margins. Just curious, an update there if you're able to relocate some production or if you're just offsetting that with price?

[Brad Williams, executive]

Yes. No, I appreciate the question. So as mentioned before in some of the previous earnings calls, we were working on various inflation mitigation 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 to kind of diversify some of that product portfolio and some other different facilities to mitigate that risk, which we do and 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 it's keeping pace to what we expected.

[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, executive]

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

[Operator]

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