Lakeland Industries, Inc.

Good day, and welcome to the Lakeland Industries Fiscal 2025 Third Quarter Financial Results Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. During today's call, we may make statements relating to our goals and objectives for future operations, financial and business trends, business prospects, and management expectations for future performance that constitute forward-looking statements under federal securities law. Any such forward-looking statements reflect management expectations based upon currently available information and are not guaranteed of future performance and involve certain risks and uncertainties that are more fully described in our SEC filing. Our actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. On this call, we will also discuss financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP, including adjusted EBITDA excluding FX and adjusted EBITDA excluding FX margin. A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in our earnings release. A press release detailing these results crossed the wire this afternoon and is available in the Investor Relations section of our company's website At this time, I would like to introduce your host for this call, Lakeland Industries President, Chief Executive Officer, and Executive Chairman, Jim Jenkins, and Chief Financial Officer and Secretary, Roger Shandy. Mr. Jenkins, the floor is yours.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us today to discuss the results of our fiscal 2025 third quarter ended October 31, 2024. For those of you new to the Lakeland story and our strategy, we are a global manufacturer of personal protective equipment, apparel, and accessories with a head-to-toe portfolio of premium fire service brands and mission critical industrial PPE. Our management team is implementing strategies to accelerate growth and margins within the global fire turnout gear and industrial PPE markets with an acquisition focus on the fragmented fire industry. Near-term, our strategy is to leverage a leading market position in fire protection, premium brands, and accretive M&A to accelerate profitable growth in the higher margin $2 billion fire protection sector in the largest global markets. Our long-term strategy is to grow both our fire services and industrial PPE verticals with our strategically located company-owned capital light model focusing on operating and manufacturing efficiencies to achieve higher margins with positioning to grow faster than markets served. These strategies and this experienced management team's execution of them are translating into strong financial performance with fiscal year 2025 guidance equating to at least 28% year over year top line growth with positioning for mid to high single digit organic growth ahead. We are well capitalized with a strong balance sheet and expanding free cash flow growth to fund our fire services acquisition strategy and initiatives above current guidance. Importantly, our tenured new management team has successfully executed a similar strategy to Lakeland's, a turnaround and efficiency focus with accretive acquisitions and synergies to accelerate growth and create value. Lakeland Fire and Safety's mission-critical product portfolio includes North American and globally certified turnout gear, safety helmets, fire boots, particulate blocking hoods, and fire gloves for our fire services segments. Our industrial segment includes a wide range of high-quality safety products, including chemical suits, PPE, and disposable coveralls, high-performance FRAR, and woven garments and safety boots. This slide shows our global head-to-toe fire services portfolio comprised of five premium brands that combine, operate, and serve our customers on a global scale. Fire products are available globally through strategic distribution partners across 78 countries with a focus in the three largest regional markets for firefighter turnout gear, North America, Germany, and Australia. Additionally, our Eagle brand has a strong presence in the Middle East, as does LHD in Asia. The third quarter was marked by robust sales led by our head-to-toe fire services segment to a growing geographic customer base with a 61% sequential and 245% year-over-year increase. Our focus on this segment is driven by a growing global market with a highly fragmented competitor set without a dominant player. Fire services business has better visibility and margins as compared to other segments, and we believe Lakeland can become a top three competitor through our strong family of brands, acquisition strategy, and superior lead times and customer service. Overall, the quarter met our expectations as robust organic and inorganic fire services growth was supported by a rebound in U.S. sales and ongoing European, Asian, and Latin American growth. As well, expanding opportunities in Latin America, new sales leadership in Asia, and an expected large fire services shipment in Europe contributed to our results. To summarize, we saw strong net sales in the third quarter, increasing 45% to 45.8 million, led by a 245% increase in fire services products. Gross profit increased 39% to $18.6 million due to strong revenue growth and organic margin improvement. We remain confident in our growth strategy and expanding market opportunities in fire services and industrial safety products. Our commitment remains unwavering, and I'm excited about the remainder of this fiscal year. Looking ahead to fiscal 2025, based on our existing backlog and our outlook for the remainder of the year, we are maintaining guidance for our 2025 fiscal year. Please note that these expectations include the announced Jolly Boots, Pacific Helmets, and LHD Group acquisitions. We remain confident in our global sales platforms and earning ability for the last quarter of the year, and we are reaffirming expectations for fiscal year 25 revenue of at least $165 million. Additionally, we reaffirm our expectations for fiscal year 25 adjusted EBITDA, excluding FX, to be at least $18 million. With that, I'd like to pass it over to Roger to cover our financial results and provide an outlook for the rest of the year.

Thanks, Jim, and hello, everyone. Looking at our third fiscal quarter of 2025, Lakeland delivered sales of $45.8 million compared to $31.7 million for the third quarter last year. Organic revenue comprised 75% of our total sales. 25% of our Q3 revenue came from our recent acquisitions. On a consolidated basis for the third quarter of fiscal year 2025, domestic sales were $15.4 million, or 34% of total revenues, and international sales were $30.4 million, or 66% of total revenues. This compares with domestic sales of $15.1 million, or 48% of the total, and international sales of $16.6 million, or 52% in the third quarter of fiscal 2024. During the third quarter of fiscal 2025, the company saw sales growth in North America, Latin America, Asia, and Europe. Organic revenue increased 7.3% to $34 million for the third quarter of fiscal 2025, compared to $31.7 million for the third quarter of fiscal 2024, showing the results of a focus on efficiency. Gross profit for the third quarter of fiscal 2025 was $18.6 million, an increase of $5.2 million, or 38.9%, compared to $13.4 million for the third quarter of fiscal 2025. Gross profit as a percentage of net sales decreased to 40.6% for the third quarter of fiscal 2025, from 42.2% in the third quarter of fiscal 2024. Gross margin performance declined in the third quarter of fiscal 2025 due to lower margins from LHD and Jolly, particularly driven by the amortization of the step-up in basis of acquired inventory and higher inbound freight expense in anticipation of fourth quarter sales. Organic gross margins increased by 200 basis points to 44.2% for the third quarter of of fiscal 2025 compared to 42.2% from the third quarter of fiscal 2024. Operating expenses increased by $8 million or 82.5% from $9.7 million for the third quarter of fiscal 2024 to $17.7 million for the third quarter of fiscal 2025. Operating expenses increased due to inorganic growth acquisition expenses, non-recurring expenses, and increased organic SG&A operating expenses, primarily professional fees. Operating profit was $800,000 for the third quarter of fiscal 2025, compared to an operating profit of $3.6 million from the third quarter of fiscal 2024, due to the previously mentioned impacts. Operating margins were 1.8% for the third quarter of fiscal 2025. compared to 11.4% for the third quarter of fiscal 2024. Net income was $0.1 million or one cent per diluted earnings per share for the third quarter of fiscal 2025, compared to net income of $2.6 million or 34 cents per diluted share for the third quarter of fiscal 2024. Adjusted EBITDA excluding FX for the third quarter of fiscal year 2025 was $4.7 million, an increase of 0.2 million or 4.9% compared to 4.5 million for the third quarter of fiscal 2024. The increase in adjusted EBITDA excluding FX was driven primarily by margin improvement in our organic sales mix and contributions from JOLI and LHD partially offset by higher SG&A expenses. On a trailing 12 month basis, Lakeland's TTM revenue as of Q3 of fiscal 2025 is $151.8 million. This is an increase of 29.4 million, or 19%, versus the Q3 FY24 TTM revenue total of $122.4 million. On a trailing 12-month basis, Lakeland's TTM adjusted EBITDA, excluding the impacts of FX, as of Q3 of fiscal 2025 was $14.7 million. This is an increase of 0.5 million or 3.4% versus Q3 FY24 TTM adjusted EBITDA excluding FX total of 14.2 million. On slide 10, we provide additional details driving the year-over-year changes in our gross margin percentage and adjusted EBITDA excluding FX. Reviewing our performance, while we saw significant growth overall, revenue growth overall, we continued to face some challenges that impacted our results, yet we remained confident in our full year projections. In the second quarter, both Jolly and Eagle had substantial fire orders delayed to the late third and fourth quarters. These orders began shipping in Q3 and further contributed to our results. Sales results from our recent acquisition, LHD, which we acquired on July 1st, has resumed, and we are accelerating production in anticipation of delivering on multi-year back orders in the fourth quarter. Revenues for LHD, Jolly, and Pacific Helmets were a combined $11.4 million, and we expect those to accelerate as we deliver on open orders and new cross-selling opportunities. Looking at our organic business, we were again very encouraged by the growth in our Latin American operations with a 20% increase in sales year over year. LATAM now represents 11% of Lakeland's total sales and they continue to grow. Our outstanding LATAM team is continually identifying and capitalizing on new market opportunities and we expect further growth in that region. We're working to expand our fire services offering in LATAM, and we expect to introduce new industrial products from the Lakeland portfolio into that region going forward. We have also recently put our Mexico sales operations under our Latin American management team, and we are optimistic that they can replicate their success in that country. Even so, our Q3 sales in Mexico were up 25% year-over-year. We also saw double-digit sales growth year-over-year in Asia. We're very excited about the new sales leadership that we've put in place in Asia, and we're encouraged by the growth we're seeing in both China and new Asian markets outside of China. Our European revenue, including Eagle, Jolly, and our recently acquired LHD business grew by $11.2 million, or 350%, to $14.4 million. We see very good sales opportunities in Europe and are committed to its growth trajectory. Following the slowdown in the second quarter due to our line drive transition, we were pleased to see our U.S. revenue rebound to $15.4 million, driven by the continued growth in our Lakeland Fire Service business. While our year-over-year U.S. revenue growth was .3 million, or 2%, our quarter-over-quarter U.S. revenue growth was $3 million, or 25%. Regarding product mix for the third quarter, Our fire services business grew 13.7 million, or 245%, versus the same period last year, driven by our recent LHD acquisition and organic gains in the U.S. and from Eagle as we start to see gains from our head-to-toe strategy. Our industrial product lines grew 0.3 million, or 1.1%, over the same period last year, led by our chemical products and high-performance wear, which grew 9% and 8% respectively, while high-vis decreased 33% year-over-year. Disposables represented 27% of the revenue for the quarter, while fire grew to 42% and chemical was 11%. The remainder of our industrial products, including FRAR high-performance and high-vis, accounted for 19% of sales. Turning to the balance sheet, Lakeland ended the quarter with cash and cash equivalents of approximately $15.8 million, and long-term debt was $31.1 million. This compares to $24.9 million in cash and $29.5 million in long-term debt as of July 31, 2024. The decrease in cash was primarily due to the build of inventory to deliver on the LHD multi-year backlog and Q4 sales orders at Jolly, as well as ramping industrial orders and $3.4 million of debt repayment during the year. The net increase in our long-term debt was mainly related to the acquisition of LHD Group in July, partially offset by the previously mentioned repayments on our credit facility. Net cash used in operating activities was $12.5 million in the nine months ended October 31st, 2024. compared to net cash provided at $3.7 million in the nine months ended October 31st, 2023. The increase was driven by increases in working capital of $12.5 million, primarily due to a billed inventory in preparation for forecasted increase in sales in the fourth fiscal quarter of 2025 and the first quarter of fiscal 2026. Capital expenditures were $1.5 million for the nine months ended October 31, 2024, primarily for manufacturing equipment. At the end of Q3, inventory was $72.7 million, up from $67.9 million at the end of Q2 FY25, primarily due to LHD, Dolly, Eagle, and organic sales expected to shift in the fourth fiscal quarter of 2025. and the first quarter of fiscal 2026. Year over year, we saw a reduction in our organic inventory of $1.7 million versus the quarter ended October 31st, 2023. With that overview, I would like to turn the call back over to Jim before we begin taking questions.