Our next company, Cadre Holdings. We've got the CFO and President. We have Blaine Browers and Brad Williams. Thank you guys for coming.
You're welcome.
Thank you for having us.
It's an effort to come over here. Maybe a good place to start, 'cause I think to a lot of investors in Europe, Cadre is a new thing. Could you just give a couple minutes on, you know, what the company does, the mission, the vision, that kind of thing, so people can get a better understanding of Cadre?
Absolutely. fairly new publicly traded company. we went public via IPO in November of 2021.
Yep.
Overall, as a company, we're over 55 years old, an old company focused on mission-critical products, in other words, a protective equipment for first responders, globally is what we do and we specialize in. Our mission is together we save lives, which we take very seriously at our company. When you look at the type of products that we manufacture and we equip first responders with, we directly, you know, save their lives and bring home men and women on a daily basis. In a nutshell, that's who we are.
Maybe if you can walk through some of the product lines.
Yeah. Absolutely.
That'd be great.
We have a lot of different brands that we've acquired over the years, but we have three main categories that make up the majority of the revenue and also the profitability. The first one is bomb suits, so in our EOD space, explosive ordnance disposal. Those are the marshmallow-looking, large, astronaut-looking suits that we engineer up in our Ottawa facility. For that category, we're the global leader. We supply most militaries and law enforcement around the world, and we estimate our shares in that 85% range. We've amassed a large amount of share in that category over the years. The second category is where the company started over 55 years ago, which is with holsters.
We started as a company innovating, designing, and manufacturing holsters that are protective holsters for law enforcement. If you walk up to a law enforcement officer and you were to try to take their weapon from them, or military folks that have the type of holsters that we have, you would likely not be able to get the weapon out of the holster. That's why that's also a product that saves lives. That's the second category for us. It's a very important category. It's one of the highest. It's actually the highest profitability category for us in the company. Then the third category is body armor, so everything from hard armor to soft armor. That's, you know, helmets, plates, shields, soft body armor, worn by like patrol people, for example, out on the streets.
What we don't do in the body armor category is typically supply to militaries, okay? What we found over the years is, you know, the product is much different. Law enforcement product is typically a fitted product so that you get the best optimized protection for each officer versus military products are more small, medium, large, extra-large. There's a lot different sizing involved. Then the margins are much lower in the military side of things versus law enforcement.
You know, one of my first questions here is, how do you think about the international business, be it here in the U.K., both from an organic perspective and an M&A perspective?
With those 3 main product categories, you know, I mentioned high share in bomb suits globally. Our holster business in the U.S., we estimate, you know, 9 out of 10 agencies have our holsters in the U.S. from a law enforcement perspective. With body armor in the U.S., our share is in that high 30%, low 40% range in law enforcement. Our growth opportunity is outside the U.S. from an inorganic and organic growth perspective. Our strategy is obviously to protect our core of where we're at today in those end markets, mainly in the U.S. and in Canada, and then begin to expand over into Europe. Even though we already have a footprint there with manufacturing facilities and our brands are known, we're just working on accelerating our growth in that area.
From an M&A perspective, we did an acquisition in January of last year, a holster company in Italy, and that was our next step around expanding our share in Europe. Even though we have our premier brand in Europe already, this is another brand that's a competitor. Now we have 2 brands to go to the market with. That was one of our steps to that growth. For body armor, that was more of a also an M&A play for us because the body armor market in Europe is very fragmented. There's a lot of different players by country, you know, within body armor. We continue to look for potential acquisitions in that space and, you know, wanna build out our current footprint there for us to continue to accelerate that one and grow.
Do you think there's more opportunities in armor or duty gear?
You know, it's really both because our share, you know, for example, in Europe is significantly lower than the States in both of those categories. It'll just be a different growth path. Now we have the Radar, the holster company that we acquired in January, so that gives us the footprint locally that we need to expand and to grow. For body armor, we feel like we'll need to do some M&A work before we really get to that growth point that we're looking for.
Got it. Got it. When the company went public, I think your initial plans were to double the company over 4 years, right? From 21 to 25.
Mm-hmm.
Is that still on the table? Is that what you're thinking? Has anything changed that? I guess as investors, how should we think about that?
Yeah, absolutely. you know, a key part of, you know, we talked a lot about early, you know, pre-IPO and post-IPO, why are you public? you know, a lot of that is really accelerating that journey. You know, we can certainly say one of the really compelling things about Cadre that we didn't get to is the refresh cycle, so the recurring revenue side of the business, but also the low CapEx needs. We generate a relative large amount of cash on an annual basis 'cause our CapEx needs, our ongoing CapEx needs is really about 1% of revenue in a given year. You know, occasionally it goes up maybe to 2, but those are one-off. A building expansion, capacity, et cetera.
If you think about that framework of 1% CapEx, you know, a good margin, high margin business, you generate, you know, a lot of cash, and that gives you the ability to continue to make acquisitions and pay them down. We had that discussion of private public, right? We could have done the just generate cash, acquire, lever up, pay down. Really, we thought the unique opportunity, and, you know, Warren Kanders, our CEO, had done this prior as Armor Holdings, is larger acquisitions with access to the capital markets to really accelerate that journey. If you do a little homework, right, Armor Holdings was a fantastic success story by Warren, of which Cadre is a component of that. It was acquired back from BAE. You know, that still exists.
We still believe in that heavily, that there's M&A opportunities both, you know, within our core markets in law enforcement and military, but also outside. When we think about Cadre, we don't think about it as a military law enforcement company. We think about it more broadly as a safety company, right. A company that unites. That really opens the aperture on the M&A side. You know, doubling it, I think it's absolutely still out there. The markets have been. When I say markets, the M&A market's certainly tougher, right. I think there's. We've talked a lot about that disconnect between sellers and buyers. I think we're hearing more instances of sellers being a little more open, but there's also a lot of hesitancy, right. What we're hearing most often is, you know, "We're gonna wait." Right.
We'll talk in a few months. Let's see what happens." I think everyone's waiting to see what the Fed does. Certainly recently with the breaking news in the last couple weeks in the U.S. with the banks has created a little more turmoil and I think hesitancy around those markets. The good news is we're still generating cash, right? We closed the year less than a point and a half from 1 times leverage. We have cash on the balance sheet. We have an undrawn revolver. We have lots of options, and we have a supportive bank group, right? We have a bank group who's been with us for a long time, very supportive of acquisitions. You know, we're still bullish on that.
I think the piece we can't control, right, is just that the speed and the amount of acquisitions that happen in the period, right? We're gonna still internally run the business. We're gonna continue to work the funnel hard on M&A, those will come, right? I think looking at Warren's track record and history, the one thing that really sticks out is that discipline around M&A. You know, and really what Warren and I think we're all good at is having that discipline that there are deals, you know, we've talked about where, hey, you're a turn or two off, you know, and what do you do? Do you kinda pay more than you're comfortable with to get the deal, or do you just kinda say, "Hey, we're happy with what we bid, and we'll stay there"?
That's what we do. We stay at that, what we're bid, where we're comfortable, where we know we can generate value and returns, you know, for our investors. The timing will happen, right? Since Warren's been in the industry since, you know, the early nineties, he's had numerous instances where he's followed businesses, looked at businesses numerous times over the year, and the time just hasn't been right, and Warren has that patience to wait until the time is right and the price is right.
Yeah. Way back when, we covered Armor Holdings before it got bought. Yeah, we know the model well. Just maybe just reversing course a little bit, we talked a little about Europe. Are there opportunities in Latin America and Asia, and how do you think about those markets?
Yeah. We currently have share with most of our product categories, even beyond the three large ones that we just talked about within those regions. You know, our target, you know, from a more aggressive growth standpoint and, you know, just from, you know, that breakthrough for us would be in the European side of things. When you look at some of the price point levels, you know, within, you know, certain regions, you know, we're typically priced at that, you know, premium price point, high value, highly featured products, some of the best, most comfortable, lightest body armor out there, and then the same for holsters and bomb suits. You know, we'll... we're still in those regions, and we'll continue to work those regions.
We have excellent third-party distributors around the world, that wake up every day, and they work on that share for us. From our perspective, where we're gonna give it the additional juice will be in the European market.
Got it. Got it. Got it. Maybe back to M&A a little bit, and the recent turmoil in the particularly regional banking markets. Do you expect that to shake out some stuff? I mean, get valuations maybe more in line? I know it's real close and that, you know, it was just a week ago, but, you know, I know in kind of my, in my broader practice, we've heard some small companies rumbling about things, and I don't know if you're comfortable saying if you expect that to be some sort of catalyst or not.
Yeah. We're hopeful that a number of things that could happen would be, you know, catalysts around M&A and, you know, ideally some of this creates maybe possibly a flight to safety, right? Some smaller companies looking for a home in a larger company. The one thing that we're proud of as a company is our reputation, not just with our end users, but also, you know, our competitors, our suppliers, et cetera, in the industry. We do a lot of work what we call organic deals, meaning they're cold calls, right? Not a process-driven deal where, you know, someone in the organization, whether it's Brad or someone else, picks up the phone and starts to develop that relationship.
There's a good mix in Cadre of, you know, folks like Brad and myself who are newer to the industry, right? Kinda five and six years. We also have folks who have spent their whole careers, you know, in the industry. When you start to pair that up, you get a really, right, Warren, you get a really unique perspective of a lot of relationships, right? We got a compelling company to sell and I think kind of bridge together. The hope is kind of that or maybe kind of the rate side of it creates some freeing up of that long logjam. Yeah, I'm sure there's people that know a lot more about what will happen in the future.
Yeah. No, I was just curious.
Yeah.
How do you think about, you know, if you're dealing with the companies, with founders, do you like to keep them around, have some sort of burnout, I mean, or do you just want to get rid of them? I mean, how do you culturally, how do you think about that?
No, talent to us is extremely important, overall. You know, one of the criteria we look for, you know, number one or number two in a given product category or in a marketplace, right? Those companies got to that point, for a reason.
Yeah.
Typically, it's due to leadership, right, overall. We actually, you know, as we're going in and we're doing diligence, and we're talking with companies, and maybe it's a, you know, could be a 6-month, you know, buying cycle, or it could be a 2-year buying cycle, right? We wanna take time to make sure we get to know the team really well and understand what they wanna do as they go forward. You know, we're always hopeful and looking for folks who wanna be there for the long term.
Yeah
... you know, overall. You know, if not, then that actually gives us a pause sometimes, you know, to kind of step back and try to figure out, well, if that's not the case, what do we do from a succession planning standpoint? You know, I do feel like, you know, we've been really, really good at attracting talent here, for a small, private company before we became public, and then actually now beyond that. We've got a lot of folks on the team that have, you know, larger publicly traded, company experience and, mixed with the existing team, and we're doing just a phenomenal job together.
Yeah.
That kind of bridges a little bit into the integration, I think, in the approach of what Brad was mentioning. It's not a one-size-fits-all, right? It's very much a customized approach for every deal. We've gotten questions of, "Hey, are you gonna integrate the back offices or integrate the commercial teams in every, you know, every acquisition you do?" That's very dependent upon the circumstances, the business and the situation, right? You know, as Brad mentioned, there's folks that have larger company experiences like myself and Brad, and it's that ability to really use the right tools, find the right way to get the value out of the business. You know, one thing we don't wanna do is we buy these businesses, don't wanna break them, right?
It's really important for us to understand whether that's a, you know, the owner of the business who maybe is the one of the key ingredients of, you know, how do you keep them in the business? How do you kinda create the succession planning around it? Again, it's really a, not a one-size-fits-all, which creates some uniqueness, I think, for sellers.
Yeah, sure. When we think about the EOD business, it's a high margin business, but it's also tends to be lumpy.
Mm-hmm.
How should we think about trends in that business over the long term?
Yeah. Over the long term, the business grows, right? The number of end users doesn't grow, right? It's a fairly stable number. There's a limited amount of EOD techs in the world. What does happen, though, and this is what the team does a really fantastic job of, is staying on the very edge of the technology curve, right? What you have if you go back to maybe 2 suits ago is not a dumb suit. It's not a smart suit, right? Today, you have voice-activated controls in the suit, right? 2 suits ago, it wouldn't have been. It would've been buttons, right? It's a continuing evolution, right?
They also have a very close connection with, you know, the DOD, and they're thought of as the thought leaders in the impact of blasts on people. What that does is we do a lot of funded R&D with the U.S. Department of Defense to stay on that cutting edge. We've won consecutively the next generation, you know, bomb suit development program. What you're seeing is more and more of sensorization, right? If you're familiar with IVAS, for instance, it's the idea of how do you sensorize the foot soldier on the ground, you know, the same thing is starting to spread. There's that component over the long run, the users may not change, the price tag does change, right? The recycle or replacement cycle does not change.
You know, in addition, we've talked a bit about, you know, sensors, and there's this blast sensor, right? This, there's this push, you know, it started in the U.S., and it's starting to kind of feed outside of how do we better understand what we're putting our men and women in armed forces through, right? What are they being exposed to, whether that be explosives or even concussion from like a 50 caliber machine gun? How do we measure that? How do we protect them, keep them safe? That's becoming an exciting piece. You have the EOD, which will continue to grow. I think it'll grow like we've talked about the overall business. There will be ups and downs just because of that limited number of users in a given year.
If you have a heavy refresh, right, they're not refreshing every year, right, 7 to 10 years, it'll take a little bit of time. That continue to push the envelope of giving the users the best experience, the safest experience, and now kind of giving them more visual cues, communicating back with, you know, the command vehicle, et cetera. Very exciting, but there are gonna be years like, you know, we talked about in guidance for this year for 2023, where they're gonna be down this year. That doesn't portend anything for the future. The future stays the same.
What, just curious, like what's the life cycle of a suit? Typically, how long do you keep one around and...
Generally 7 to 10 years. You know, majority of the replacement comes down to if you think about a fleet refresh would be we're moving up to the next generation, right? We're moving up from suit A to suit B. A lot of what happens in between is not the suits being used in wartime, but training. There's a lot of wear and tear in training. These guys, these men and women are on their knees or crawling, so the suits are getting torn up. In between those, the fleet refreshes, you have the individual replacements.
Think of it this way, too, you know, wear a holster, you know, there's a big variation in pricing depending on the rig and the setup. You know, you're talking $150, you know, $200. You know, to outfit a patrolman with all of our products, you're talking, you know, $1,800 with our, just our products. A SWAT team member, you know, they need additional gear and protective gear, so you double that one to $3,600-$3,800. Then for a bomb suit, you're talking average selling price is about $36,000, right? This is not an inexpensive buy for, you know, these technicians that are out there. You know, this is a suit that is saving their life, so they definitely invest in it.
That's an interesting segue to another question that I had. Although police budgets have been going up, numbers of police officers haven't. How do you guys think about that? Just from a business perspective, how do you think that'll resolve itself? Yeah.
Yeah. Yeah. No, it's a good, it's a good question. You, you mentioned budget. You know, just a couple things to add there. When you look over the long, long run over history, police budgets usually, you know, 2.5%, 3%, right?
Yeah.
Is typically where they're sitting from a growth standpoint when you look at overall growth. And, you know, our type of products fall into that protective equipment. When you prioritize what you're gonna spend, if there is some kind of a spending crunch, are you gonna buy a uniform for an officer, or are you gonna buy body armor, right? You're gonna buy body armor instead of a uniform. Our products are really critical to that budget, so typically we're getting prioritized over top of spending. As the last few years have happened, we had COVID, we had defund the police that was going on at the same time. There were confidence, you know, and depends on where you're at, had been lost in certain areas. Officers' jobs became more difficult, right?
There have been a lot of retirements out there. With those retirements, it's been difficult for agencies to recruit, you know, additional, you know, new folks and feet on the street. We're actually seeing it also globally in certain areas and certain regions. Being an officer is a very, very tough job. The way we look at it is it's not affected our business today, all right. Because when you look at all the different product categories we have, you look at the protective nature of them, you look at us, how we are from a global perspective, even though we're, you know, most of the business is weighted in the U.S. and versus outside, we feel like it's a long-term tailwind. I can't put an exact number on it.
Probably 3-5 years is what we think it'll take. There are some limiting factors for them. If you had a lot of recruits today that were raising their hand and signing up, and they're making it through recruit classes, recruit classes will be the bottleneck, okay? They can only take on so many recruit classes that are a certain size to get people trained and get them out in the field. It's no different than any other company when they're trying to expand their capacity in manufacturing or customer service or anything else. There's that finite number of people you can add at one time. You know, that could be an area that becomes a bottleneck as things continue to move up and improve.
We have seen some pockets of, in the U.S. that is, of increased hiring, you know, especially in the Southeast. The Southeast has done, you know, some different things around recruiting, you know, bonuses and attracting people out of high-cost areas of the U.S. moving into the Southeast. Overall, that just moves existing officers, right, from other regions of the country into those regions. It's gonna be a long road ahead of us. We think it's a nice tailwind for us as we go forward, and we'll continue to track it and monitor it.
You know, given some of the regional comments you made, does the company have, particularly in the US, more concentrated exposures in different regions, or is it pretty homogeneous across?
Yeah, we don't. That's from, you know, I mentioned being around over 55 years. You know, the company has focused on small, medium, and large agencies, okay? It's not like we have a concentration of any of those three in any certain region, okay? You know, since we've been around for a long time. You know, we take pride in that. We've got a, as I mentioned already, an exceptional third-party distribution network that we rely on, and they have feet on the street working every day out there with agencies. We have our own sales team that either works with the distributors or directly within customers because a lot of those are ex-SWAT folks, ex-patrol, FBI, you name it. They speak the language.
They understand what the problems are and what we can do with our products to solve those problems and make people feel, you know, really confident when they're out in the field and protected. You know, our premier brand, Safariland, has been around, you know, for a long time, and they trust that brand, whether it's on their holster or their body armor or other pieces of equipment. We've amassed that share, and there's no pocket in the U.S. where we're exposed one area versus another.
Okay. That's great. With the additional investment that was made in the Jacksonville facility, this year in 2023, what's the impact on CapEx, and when do you expect that to normalize? How much additional capacity does that give the company?
A couple things there. And Blaine already mentioned it, but from a CapEx perspective, we're typically running about 1% of sales CapEx-wise, and that's for our normal run the business, productivity projects, you know, doing what we do. That does not include any kind of larger CapExes around facility-type projects. This year, that's what we have. We have a larger CapEx for a facility project in one of our three facilities in Jacksonville, the holster facility. It's one of our holster facilities that we have in the company. That facility, we've seen tremendous growth over the last 3-5 years since I've been here. I've been here 6 years.
Okay.
It's from various things, just continue to maintain and grow that share of that holster category. One, all the U.S., major U.S. military branches, with when they did a lot of the gun chains outs, they moved to a new holster, which is ours, which is great. That facility, we've got about more than 3x the number of people in that facility now. This expansion is not about increasing our capacity. It's doing things that we need to get done for our associates, right? You can imagine if you got that many more 3x, at least, folks there, everything from break rooms to conference rooms in the facility to, you know, restrooms, you name it, parking, that's really what the focus is.
From a capacity standpoint, it's, that facility, we still have multiple shifts of extra capacity available. We're fine from that perspective. This is just to make sure we're focused on our associates and doing what's right for the team there so that we can work adequately.
I mean, that's a nice segue into another question. How have your supply chains been, and how has labor been for the company? Has it been difficult to retain people? Has it been difficult to attract people?
We're no different than anyone else.
Yeah.
You know, that's out there concentrated in the U.S. or globally. You know, we went through that cycle of, you know, it was difficult at times, right? To find, you know, certain labor pools and skilled positions that we need overall. We're past that now, you know, which is good. We've seen a lightening up of that overall. You know, where we're looking to expand capacity and we're adding, you know, direct labor, for example, in our manufacturing facilities, that's become much easier for us, okay, overall. We're definitely doing well there. You know, we have one facility, a large facility of ours down in Mexico, where there's been some pretty large statutory inflation increases in labor costs.
That facility is probably, you know, the one facility where we had the highest turnover, even though we're significantly below the industry in that region in terms of, you know, retention and turnover in that area. That team's done a phenomenal job with things like, productivity projects, automation, you know, to offset and work toward eating into that inflation that we've seen. We've done a great job in engagement in that facility too, engaging our associates and, you know, different programs we have and things that we do there so that, you know, it's just a great place to work.
We have a great team there overall, but, you know, we'll continue to monitor that one and, you know, working on various mitigation activities there so that, you know, if we need to continue to mitigate costs, you know, what do we end up doing that we're evaluating right now.
Have you had any difficulty getting any raw materials or any things that you need, or has that been reasonably-?
Yeah, like everybody else, right?
Yeah.
Everybody's probably going through the same thing. Ours is improved significantly. We didn't have as many problems as many companies out there.
Yeah.
When you look at our supply chain and our raw materials that we're, you know, procuring overall, our supply chain's not elongated for our most important raw materials. They're typically regional, okay. Take ballistic materials from our ballistic suppliers that we have. They're typically in the U.S. That's something we're able to reach into and grab fairly quickly versus those that had a lot of issues in various countries trying to get raw materials out of those countries. We didn't have as many problems, but we had problems. Those have let up.
We still have pockets of those that pop up from time to time, whether it's, you know, a supplier having an issue with trying to get labor or they also have a sub-supplier with some raw material type issues, things that are more single-sourced and, you know, more niche and specialty type raw materials than overall. We're doing well. The team's done a really phenomenal job at managing through those situations.
Gotcha. The commercial sales saw strong growth in the last year, right? What's behind that, and what's your expectation going forward?
The, the drivers for that, the commercial growth has really been the new product innovation and Cyalume. You know, one of the things, as part of the operating model, the duty gear the holster team did was a couple of years ago, they divided their engineering group to get a focus on commercial. Traditionally, Cadre has been a duty holster, right? Which is very different than a consumer holster or commercial holster. You know, that's where all the focus was. We have, you know, best in the world on that side. What would happen is you just didn't get the focus, right?
They carved out a brand new team of the engineering team to get focused on that commercial, make sure we're introducing products that meet those very different set of needs that happen in the industry. That commercial side is very fragmented, right? There's, you know, a number of competitors, I mean, a shocking number of competitors out there, right? There's a real opportunity for some consolidation, and that's the reason we're spending more and more time there. You know, frankly, it's a very profitable channel for us, right? That's a combination of, you know, our direct consumer, so our e-com, our safariland.com website, as well as working through Amazon and also our big box retailers. That's exciting for us, right?
That has been and that's been a growth since growth driver since we've had the company. It's a relatively small percentage of overall business, right? Just slightly above 10% of our overall revenue, but it is there and it's growing. The second piece is Cyalume, right? We acquired Cyalume over the, you know, May of last year. Cyalume has, you know, that same channel, right? They're using not maybe, not so much the big box, but e-com and Amazon, you know, for the chemiluminescence sticks. Those two both have really kind of driven that. We'd also do hearing protection through our e-com website as well, but it's really kind of been those, the more the holster is really driving a lot of that. You know, what do we expect going forward?
I think like a lot, like everyone out there, we've seen, you know, peers in there, in that shooting sports market announcing Q3 of last year as well as Q4, and there's mixed results, right? We're being a little cautious in that area. You know, we certainly believe we can continue to capture share. You know, that's not the question in our mind, it's what happens with the underlying market, right? That, that I think could get us, could offset, right? I think there's plenty of that share out there for us to get. It's just like everyone, we kind of look out there and you have the Fed and it's just not clear where the consumer is gonna head this year.
This might sound a little bit of a random question, but, is there opportunities in protective electronics? Is that kind of thing add-ons to what you currently do in the electronics world?
Yeah, there is. It depends on the product category, right?
Yeah.
There's some categories that, you know, we, you know, we would not go into just based on the market dynamics and the share, right? For example, Axon, right? They're in the body camera business, you know, and the TASER business. That's not a category that we would be interested in going into. There's other things from an electronics and software perspective that, you know, could be interesting, things that we have in R&D and things that we're looking at. Overall, we're not scared of electronics and software. When I was at a previous large publicly traded company, I led a software company for five years in that company in electronics and high tech type stuff.
And then I've got folks on the team that are here that also have done that too. That's there for us. We feel like no different than the bomb suit side of things that Blaine talked about a minute ago. I think you'll see as we go forward, more of the protective products become smarter.
Yeah.
as we move on.
Yeah. It would seem like there's an opportunity for that, you know?
Yeah. I will say that even if you brought something out tomorrow, right?
Yeah.
This, just like a lot of industries, our end customers are, you know, they don't like change, right? Especially when you're messing with the products that are protective products. It'll take time, as we, you know, as we work through those type of products and bring them out to the market for the adoption rate. It'll be a long one.
Yeah. you addressed this a little bit, but with the increasing wages in Mexico, does that mean bringing people back onshore?
I spoke about that, you know, a few minutes ago.
Yeah.
about Mexico and inflation and things like that we've seen.
That makes sense.
Somebody else asked us that question, too. Does that mean the work you're doing at the Jacksonville facility for holsters, does that mean you're gonna move some stuff from Mexico into that facility?
Yeah.
That's not the intent of that change. As I talked through, right, the intent is.
Got it.
make changes for the associates in that facility. You know, we are looking at all options. We've been in that Mexico facility in Tijuana for over 25 years, okay? We've got a really, really great team there. We've got a concentration of folks that have been there for quite a long time that understand the products, understand the processes, love the industry, love our mission. You know, we enjoy being there, but you know, as we continue to move forward, we've got to find ways to, you know, work on that inflationary cost that's being handed down to us from the Mexican government.
Got it. How much of that can you pass through to...
The inflation-
We're pretty good at passing through.
Yeah.
Blaine can talk about it.
Yeah. We'll kind of broaden the question a little bit.
Yeah.
Not just talk labor inflation, but, you know, material inflation, right? Which is on, for you as consumers or, you know, in business, it's a real thing that's happened over the last couple years.
9.5% in the U.K. today, right?
Yeah.
That's, yeah.
It's real. Yeah.
Yeah.
We really, we kind of have two buckets to really focus on, right? What we said is, you know, on the price side, because of where we sit, you know, from a performance standpoint and presence and brand name of the product, you know, we're able to get price to offset the material inflation, but also, you know, get net a point of price above material inflation. That's our goal. That's what we've been able to achieve. When you think about the labor and, you know, utility inflation, so labor and overhead inflation, what we're really focused on there is productivity, right? Use that, those productivity projects Brad mentioned before to really offset that labor and overhead pressure.
You know, one of the things, we spent a lot of time over the past, you know, couple years, and it's picking up steam, is really focusing on automation. A lot of our operations are cut and sew, which has traditionally been not really very limited automation, and really spent a lot of time internally thinking about how do we start to take those steps to more fully automate the process, right, and get away from kind of user. There's lots of benefits there, and in a lot of cases, we're not talking about, you know, eliminating operators, right? You still have operators there to ensure quality, right? We're making a very important product. Quality is, you know, the most important, but you can have the best of both worlds.
You can have the human there to make sure things happen properly, and the machine has the repeatability, right?
Mm-hmm.
Between the two, I think you have a really great marriage, for the business and the products.
Got it. How should we think about kind of the core business growth over, say, the next year or two? What could be potential positive catalysts or maybe negative ones?
There's a few, and I think the. You know, we talk about the core growth, that's generally gonna be GDP, like, and that's really driven by the municipal budgets, right? Police budgets. I'd say the good news on that front is we're increasingly seeing an appetite, regardless of political party, to fund the police.
Yeah.
Which is, you know, has not been true, you know, recently. That's a very positive backdrop for us. Brad mentioned the counter to that is how do you get enough officers through the academies, which tend to be the bottleneck. There's that side of things. If they're able to solve that, I think that presents, you know, something unique. You know, we've talked a lot about the blast sensor, right? That's, you know, I don't think of that as a 2023 or a 2024. You know, think about it as a longer term opportunity driver, you know, in the company, because it is a new technology, right? You know, there's, it's a new adoption, and as Brad mentioned before, whether it's law enforcement or military, you know, slow to adopt.
Part of that's a good reason, right? We're cautious about making sure we're having the right equipment with the right operators and the right performance. The other thing out there that we talk a lot about and spend a lot of time is just the, we would consider them non-U.S. large opportunities. You see a lot of that now, sometimes in Central and South America, you know, in Europe as well. You know, the challenge with those larger opportunities is, you know, they're government funded, so you tend to see more pushing and pulling. It's a kind of a unique difference between the U.S. market for us and international markets. You know, when you think about law enforcement, you know, you know, we're based in Jacksonville, Florida. I'm sure there are 15 police departments within, you know, a 30-minute drive, maybe 40-minute drive.
There's just a lot of different departments all making independent decisions. Because you kind of move outside the U.S., whether that's, you know, Canada or, you know, South U.S. or into Europe, you tend to have larger national forces, police forces in many cases, who are making larger big buys and that have more impact if there is a push or a pull, right? There's just, it's a just different dynamic and they're, it's zero or one, right? It's, it's very digital when you have those. There's a number of those opportunities that as they flush through and we're excited about. It's, you know, still early and, we know we can't control the outcome there.
We have to continue to do what we do, which is provide the best products for our end users and, be there when they're ready and ensure we have the right product with the right lead time.
Great. Cool. I guess that's all the questions I have. Thank you both for spending the time and-
Thank you.
Thank you for inviting us. Appreciate it.
Appreciate it.
Thank you.
Thanks.