Lakeland Industries, Inc.

Good day and welcome to the Lakeland Fire and Safety Fiscal Second Quarter 2026 Financial Results Conference Call. All lines have been placed in a listen-only mode and the floor will be open for 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's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our SEC filings. 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'll also discuss financial measures derived from our financial statements that are not determined in accordance with the U.S. GAAP, including adjusted EBITDA, excluding FX, and adjusted EBITDA, excluding FX margin, organic sales, adjusted gross profit, adjusted organic gross margin, and adjusted operating expenses. A reconciliation of each of the non-GAAP measures discussed in this call to the most directly comparable GAAP measure is presented in our earnings release and or the supplemental slides filed with our earnings release. A press release detailing these results was issued this afternoon and is available in the Investor Relations section of our company's website, ir.lakeland.com. At this time, I'd like to introduce your host for this call, Lakeland Fire and Safety's President, Chief Executive Officer and Executive Chairman, Jim Jenkins. and Chief Financial Officer and Security Secretary, Roger Shannon. 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 2026 second quarter and the July 31, 2025. We continue to build momentum in the second quarter of 2026, despite the challenging tariff environment, as we focus on recent acquisition synergies, increasing our market share within the fragmented $2 billion fire protection sector in the largest global markets and growing our global industrial products business. Roger will go over the financials in more detail shortly, so I'll provide you with a brief overview. We achieved record net sales of $52.5 million, representing a 36% year-over-year increase, driven by a 113% increase in fire service products and the ongoing momentum from our recent acquisitions. In the U.S., our net sales increased 78% year-over-year, to 22.1 million, and in Europe, our net sales increased 113% year-over-year to 15.1 million. We anticipate continued robust growth in our fire services, both organically and through acquisitions, as well as in our industrial segments in the months and years ahead. Adjusted EBITDA, excluding FX, was 5.1 million, an increase of 2.4 million, or 89%, compared with the 2.7 million for the comparable year-ago period. Sequentially, our adjusted EBITDA increased 4.5 million, or 740%. Adjusted gross profit as a percentage of net sales in the second quarter was 37.4% versus 41.1% in the comparable year-ago period, but increased 220 basis points sequentially from 35.2% in the first quarter. Our adjusted gross margin percentage decreased in the second quarter for fiscal 2026 compared to the same period last year. primarily due to lower acquired company gross margins, increased material costs, and tariffs, partially offset by a reduction in profit and ending inventory. Margins in the acquired businesses were impacted by increased material costs and amortization of the write-up and inventory as part of purchase accounting. A largely anticipated $3.1 million boot order through Jolly Scarpe also contributed materially to the quarter as part of our previously awarded four-year supply contract from the Italian Ministry of the Interior, which provided 47,500 intervention boots for firefighters. Our manufacturing facility in Romania provides high production flexibility, and every detail of the boot was custom designed to fully meet the fire brigade's requirements. Additionally, we are diligently working to bring an NFPA-certified JOLI boot to the U.S. markets, the world's largest market for fire turnout gear. While this launch has taken longer than originally anticipated due to certification backlogs, we expect to bring the boot to the U.S. market in the first half of 2026. YALI's strong brand has a well-established reputation for producing high-quality, innovative, professional footwear designs and manufacturing in the growing first responder safety market. Additionally, the recent announcement of our facility closures and the $6.1 million sale and partial leaseback of our Decatur facility further strengthens our balance sheet and support our M&A activity. The sale was part of the company's previously disclosed financial and operational initiatives aimed at streamlining global operations and improving profitability. Lakeland has begun a search for a new upgraded warehouse, logistics, and lab facility in a more strategic location to replace the Decatur facility. Combined with our previously announced closures, which include the planned closures of our warehouse facility in Hull, England, and Viridian Manufacturer Facility in Quitman, Arkansas. These initiatives are expected to streamline global operations, improve profitability, and generate annual savings of approximately $1 million for the remainder of fiscal 2026. We have further identified and are executing initiatives expected to yield an additional $3 million in annualized savings, with the benefits anticipated to materialize in the second half of fiscal 2026. We believe these efforts will enable higher margins and build a more agile and cost-effective Lakeland in the longer term. On the capital markets front, during the quarter-ended June 30, 2025, we saw an increase in reported institutional holdings by 447,000 shares, or 6.2%, to 7,622,035 shares, and the number of institutional holders rose to 94 from 82. Most notably, our recent inclusion on the Russell Broad Market 3000 Index and Russell 2000 Index due to our expanding market capitalization is a significant milestone resulting from our revenue and global momentum. The second quarter reflected the impact of tariff uncertainty and the associated mitigation strategies we have employed since the election. Our diversified manufacturing footprint enables us to adapt effectively to shifting trade dynamics and minimize potential disruptions. This flexibility enables us to maintain stability across our supply chain and production processes, even in the face of uncertainty, including in the Latin American industrial space, one of our high margin geographies. Our focus remains on strengthening customer relationships, driving operational efficiency, and maintaining sound financial stewardship. Our positioning within two relatively recession resistant sectors, industrial and fire, continues to provide us with a solid foundation. We are not entirely insulated from the uncertainty surrounding global tariff developments, but we are navigating this period with clear priorities, thoughtful planning, and strong confidence in our long-term outlook. Looking ahead into the remainder of fiscal 2026, we remain focused on growing revenue in our fire services and industrial verticals, implementing operating and manufacturing efficiencies to achieve higher margins, significantly reducing operating expenses, and continuing to navigate tariff uncertainties. We are also continuing to execute on our strategic acquisition strategy by integrating acquired companies and realizing cross-selling and operational synergies to accelerate growth while also pursuing opportunities in the fire suit rental, decontamination, and services business. Efforts to integrate and optimize our recent fire services product acquisitions are going well. We are particularly excited about our recent Viridian acquisition and are very pleased with the efforts of the Meridian and Lakeland sales and operations team to integrate the business and expand sales opportunities. To expand our firefighter protection offerings and further consolidate the five-minute fire market, we are continuing to pursue M&A opportunities within the fire suit rental, decontamination, and services business, particularly within the United States. Our acquisition pipeline remains strong with its recurring revenue services channel, and we are actively engaged in several strategic discussions that align with our growth strategy with expected activity in the second half of the year. We will utilize our strong balance sheet to support this acquisition strategy with a focus on efficiency, reducing costs, and financial and operational agility. With the four recently completed acquisitions, which added product line extensions, either made of new products, and expanded our global footprint, we are well positioned to grow our global head-to-toe FIRE portfolio and generate long-term value for our shareholders. With that, I'd like to pass the call to Roger to cover our financial results and updated guidance outlook.

Thanks, Jim. Hello, everyone. I'll provide a quick overview of our fiscal 2026 second quarter financials before diving into the details. Revenue for the quarter grew $14 million year over year to a record $52.5 million, an increase of 36% compared to the second quarter of fiscal 2025. Consolidated gross margin decreased from 35.9 percent from 39.6 percent for the second quarter of fiscal 2025, while our adjusted gross margin decreased to 37.4 percent as compared to 41.4 percent in the year-ago period. Adjusted operating expense increased by $1.4 million from $13.2 million in Q2 of last year to $14.6 million the second quarter of fiscal 2026, primarily due to inorganic growth. Net income was $800,000 or eight cents per basic and diluted earnings per share for the second quarter of fiscal 2026, compared to a net loss of $1.4 million or 19 cents per basic and diluted earnings per share for the second quarter of fiscal 2025. Adjusted EBITDA excluding FX was $5.1 million for the quarter, an increase of $2.4 million, or 90%, compared with $2.7 million for the second quarter of fiscal 2025. Adjusted EBITDA excluding FX margin in the second quarter of fiscal year 2026 was 9.6%, an increase of 270 basis points from 6.9% in the second quarter of fiscal 2025, and an increase of 830 basis points from 1.3% in the first quarter of fiscal 2026. Cash and cash equivalents were $17.7 million on July 31st, 2025, compared to $17.5 million on January 31st, 2025. On a consolidated basis for the second quarter of fiscal year 2026, domestic sales were $22.1 million representing 42% of total revenues, and international sales for $30.4 million, accounting for 58% of total revenues, as our recent Meridian acquisition contributed to increased U.S. revenue. This compares with domestic sales of $12.4 million, or 32% of the total, and international sales of $26.1 million, or 68% of the total, in the second quarter of fiscal year 2025. Looking at our second quarter of 2026, our quarterly revenue continued to grow both organically and through acquisitions. Sales from our recent acquisitions accounted for $9 million of the year-over-year revenue increase, while organic sales increased $5 million, or 14%, over the prior year. Sales to the fire services product line increased by $13.6 million year-over-year, driven by $5.2 million in sales from Viridian and a net increase in sales of $7.3 million from LHD and Jolly, as well as organic fire services growth of $1.2 million. Adjusted gross profit for the second quarter of fiscal 2026 was $19.6 million, an increase of $3.8 million, or 24%, compared to $15.8 million for the second quarter of fiscal 2025, due primarily to higher organic and inorganic sales, partially offset by lower gross margins. Adjusted gross profit is a percentage of net sales decreased to 37.4% for the second quarter of fiscal 2026 from 41.1% for the second quarter of fiscal 2025 but we did see a sequential increase of 220 basis points from the first quarter of fiscal 2026 due primarily to an anticipated partial reversal of a purchase price variance expense recognized in the prior quarter. On an adjusted basis, operating expenses excluding foreign exchange were $14.6 million in the fiscal second quarter more accurately showcasing the decreases in both our organic and inorganic segments resulting from the new cost reduction initiatives. On a sequential basis, adjusted operating expenses decreased by $1.3 million, or 8.1%, due to focused cost control measures in the previously mentioned initiatives. Adjusted EBITDA excluding FX was $5.1 million for the fiscal second quarter, an increase of $2.4 million, or 90% compared to $2.7 million for the second quarter of fiscal 2025 and an increase of $4.5 million or 740% compared with $600,000 for the first quarter of fiscal 2026. This significant increase was the result of record revenue and OpEx improvements along with sequential margin improvement, which drove adjusted EBITDA excluding FX margin higher by 270 basis points to 9.6% in the most recent quarter. It increased from 6.9% in the second quarter of fiscal 2025 and 1.3% in the first quarter of fiscal 2026. Adjusted EBITDA excluding FX margin in the second quarter of fiscal year 2026 was 9.6, an increase of 270 basis points from 6.9%. Revenue for the trailing 12 months in the July 31st, 2025 was $191.6 million, an increase of $53.9 million, or 39%, versus the Q2 fiscal 2025 trailing 12-month revenue of $137.7 million. with our recent fire services acquisitions supporting Lakeland's continued revenue growth. Threading 12 months adjusted EBITDA, excluding the impacts of FX, was $16.5 million, compared to $14.5 million for the prior quarter's drilling 12 months. The improvement was driven by higher revenue and expense reductions resulting from initiatives undertaken beginning midway through Q2. We expect this positive trend to continue into the second half of fiscal year 2026. Considering that we've completed four major acquisitions in the past 12 months, the full integration and implementation of which requires some time, we believe the resulting synergies and efficiencies will begin to translate into even stronger financial performance in the coming quarters. Adjusted gross margin percentage decreased in the second quarter of fiscal 2026 to 37.4% compared to 41.1% in the same period last year due to lower acquired company gross margins, increased material and supply chain costs, tariffs, and higher inventory reserves, partially offset by lower profit and ending inventory expenses versus the prior year. Margins in the acquired businesses were impacted by increased material costs and amortization of the write-up and inventory as part of purchase accounting. Adjusted organic gross margin percentage decreased to 39.3% from 41% for the second quarter of fiscal 2026, primarily due to increased sales in lower margin regions. Adjusted gross margins did increase sequentially by 220 basis points as previously mentioned from the first quarter of fiscal 2026 due primarily to anticipated partial reversal of the purchase price variance expense recognized and as we discussed in the previous quarter and a partial quarter of expense reductions from the previously discussed operational cost reductions adjusted EBITDA excluding FX for the second quarter of fiscal 2026 as mentioned was 5.1 million an increase of 2.4 million compared with 2.7 million for the second quarter of fiscal 2025. the increase was driven by strong performances in north american sales sales from acquired companies notably viridian and lower profit in the inventory expenses partially offset by increased material and supply chain costs and tariffs We anticipate sequential growth in gross margin and adjusted EBITDA, excluding FX, in the third quarter. Reviewing our performance for the second quarter, our most recent acquisition, Viridian, contributed $5.2 million in revenue during the quarter, and LHD added $5.4 million across all three subsidiaries, Germany, Australia, and Hong Kong. We expect sales from all of our fire services subsidiaries to accelerate as we fulfill open orders, capitalize on cross-selling opportunities, and roll out Jolly and Pacific products to the U.S., the world's largest fire market. Looking at our organic business, our U.S. revenue increased 78% to $22.1 million from $12.4 million, driven by continued growth in our Lakeland fire services and industrial businesses. Our European revenue, including Eagle, Jolly, and our recently acquired LHC business, grew 113% to $15.1 million. We continue to see very good sales opportunities in Europe and are committed to its growth trajectory. Our Latin American and Mexican operations experienced a $3.6 million decrease in sales from $9.1 million in the year-ago period to $5.4 million in the current quarter, primarily due to ongoing delayed purchase decisions resulting from tariff uncertainty. In Asia, however, we saw sales increase 6% year over year from $3.5 million to $3.7 million in the current quarter. Regarding product mix for fiscal year to date 2026, our fire services business grew to 47% of revenues versus 38% for fiscal year 2025, driven by a full quarter of Meridian sales and organic gains in the U.S. For our industrial product lines, disposables accounted for 27% of the year-to-date revenue, while chemicals accounted for 12%. The remainder of our industrial products, including FRAR high-performance and high-vis, accounted for 14% of sales.