Lakeland Industries, Inc.

Good day and welcome to the Lakeland Fire and Safety Third Quarter 2026 Financial Results Conference Call. All lines have been placed on a listen-only mode, and the floor will open up for your questions 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 laws. Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of the 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 will also discuss financial measures derived from our financial statements that are not determined in accordance with the US GAAP, including adjusted EBITDA, excluding FX and adjusted EBITDA, excluding FX margin, organic sales, adjusted growth profit, adjusted organic gross margin, and adjusted operating expenses. 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 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 the company website, iratlicklin.com. At this time, I would like to introduce you to our host for this call, Lakeland Fire and Safety's President, Chief Executive Officer and Executive Chairman, Jim Jenkins, Vice President, Finance, Calvin Sweeney, Chief Revenue Officer, Barry Phillips, and Chief Commercial Officer, Cameron Stokes. 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 third quarter-ended October 31, 2025. We continued revenue momentum in the third quarter of 2026 despite a challenging tariff and macroeconomic environment as we focused on recent acquisition synergies, increasing our market share within the fragmented $2 billion fire protection sector in the largest global markets and growing our industrial products business. Calvin will go over the financials in more detail shortly, so I'll provide you with a brief overview. We achieved net sales of 47.6 million, representing a 4% year-over-year increase driven by a 31% increase in fire services products. In the U.S., our sales increased 25% year-over-year to 15.2 million. We continue to anticipate growth in our fire services, both organically and through our acquisitions, as well as in our industrial segments in the months and years ahead. Adjusted EBITDA excluding FX was $200,000, a decrease of $4.5 million, or 95%, compared with $4.7 million for the comparable year-ago period. Sequentially, our adjusted EBITDA decreased $4.8 million, or 96%. Adjusted gross profit as a percentage of net sales in the third quarter was 31.3% versus 41.7% in the comparable year-ago period and decreased 612 basis points sequentially from 37.4% in the second quarter. Our adjusted gross margin percentage decreased in the second quarter of fiscal 2026 compared to the same period last year, primarily due to lower acquired company gross margins, increased material and freight costs, and tariffs. Margins in the acquired businesses were impacted by increased material costs. This shortfall is meaningful, and it's important to emphasize that the EBITDA impact this quarter was driven by both revenue and gross margin shortfalls. The two are inseparable. The revenue misses directly reduced gross profit dollars, removing the operating leverage we depend on to convert volume into earnings. Even if margins had held, the lower revenue base would have pressured EBITDA. Conversely, the margin compression amplified the effect. EBITDA underperformance reflects the combined impact of lower volume and reduced margin per dollar of revenue, not margin deterioration alone. SG&A remained disciplined and broadly in line with expectations. The quarter broke on revenue and gross profit dollars, not on expense growth. Several factors contributed to the margin compression. Freight-in and tariffs ran above forecast. Throughput and mix inefficiencies affected COGS labor and are mixed shifted from higher margin categories. Moving on, the strategic acquisitions of California PPE and Arizona PPE expanded our global fire footprint into the U.S. personal protective equipment, decontamination, repair, and rental markets and added approximately $5 million of annual recurring revenue. Arizona PPE is the leading UL-certified independent service provider for performing advanced decontamination, inspection, and repairs on firefighting garments for the Arizona market. California PPE is a leading and rapidly expanding UL-certified ISP in the California firefighting services market, one of the largest fire markets in the United States. From these two outstanding companies, we intend to continue growing the North American service segment of the global fire services market by leveraging the combined strengths and experience of Lakeland's LHD service offerings in Asia and Australia with the outstanding teams from Arizona PPE and California PPE to develop a strong North American platform. Lakeland LHD was awarded an approximately USD 5.6 million three-year contract to provide advanced decontamination, managed care, and maintenance services for the Hong Kong Fire Services Department's firefighter protective gear, one of the largest emergency response organizations in Asia. A contract running through 2028 covers advanced decontamination services as well as comprehensive care and maintenance of an estimated 14,500 firefighter ensembles each year. This award underscores our strong presence in the Asia Pacific market and reinforces the trust placed in our services by one of the region's most respected fire services organizations. Additionally, we completed a $6.1 million sale and partial leaseback of our Decatur, Alabama warehouse property to an unrelated party in connection with capital reallocation initiatives, resulting in a gain of $4.3 million. as well as strengthening the balance sheet and providing financial flexibility for future growth. The third quarter reflected the impact of tariff uncertainty, inflation effects, and the associated mitigation strategies we have employed since the election. Beyond tariffs, we also faced raw material inflation and rising supply chain costs that also contributed to the impact on both revenue and gross margin. Revenue softness was visible across our portfolio in the U.S., Canada, Latin America, and parts of EMEA. North America faced challenges with revenue down quarter over quarter, and Latin America came in below our plan due to macroeconomic conditions impacted by political uncertainty. Our acquired businesses also came in below our plan due to timing, certification delays, and material flow issues rather than underlying demand. As we step back, it's important to acknowledge that this softness is not isolated to Lakeland. Nearly all of our peers are reporting similar challenges, tariffs, freight, raw material inflation, and rising supply chain costs. This is not an excuse, but it is the reality of the environment we are operating in, and it reinforces that the pressure on margins is broad-based, not unique to us. At the end of Q3, inventory was 87.9 million, down from 90.2 million at the end of Q2 fiscal year 2026. We have recently initiated a series of targeted actions to optimize inventory levels across our entire organization. Looking ahead, we are highly focused on the upcoming tender cycle. which will position us for stronger execution and building momentum heading into calendar year 2026. Renewed tender activity is expected to increase demand for fire services in the U.S. and internationally and contribute to improved performance at EGLE and LAC Germany. We have approximately 178 million of global tender opportunities, including 38 million over 100,000 in value with high probabilities of success. These opportunities are positioning us for expanded operating leverage with expense reductions and expanded margins as tenders deliver margins above normalized profile. We are now starting to see tender wins for calendar one, 2026 across our entire product portfolio. Taken together, this past quarter was unacceptable. We missed our targets across multiple areas and as CEO, I take full responsibility for that performance. Our forecasting has not been reliable. and the gap between our internal expectations and actual results has grown too large. Because of this, we will be withdrawing formal guidance. Instead, we are shifting to a more disciplined operating model focused on measurable execution, cash generation, and transparency. To help lead us forward, we have also realigned our finance team with the appointment of Calvin Sweeney as interim CFO effective January 1st. You'll be hearing from Calvin in a moment. At the same time, it is important to recognize that this quarter occurred against a backdrop of unprecedented headwinds across virtually all of our global operations. These challenges affected not just Lakeland, but our peers as well, many of whom have publicly acknowledged similar pressures. Despite this environment, our long-term fundamentals remain intact, and our strategic condition has not changed. We remain extremely optimistic about the underlying demand signals we are seeing, a robust and global fire tender pipeline. the necessary U.S. refinery shutdown cycle ahead, our disciplined sales process, and clear signs of pent-up demand across nearly every region. We expect these headwinds to begin to ease as we move into calendar year 2026, and we continue to believe strongly in the long-term potential of both our fire and industrial strategies. This is not about lowering ambition. It's about rebuilding trust through results, not projections. We will provide regular updates on key operational milestones inventory reduction progress, margin improvements, and ERP and integration timelines. When our forecasting accuracy, sales cadence, and operational visibility improve to an acceptable standard, we will revisit reinstating guidance. For now, our full focus is on running the core business with rigor, improving forecast accuracy, and delivering sustainable, predictable performance. With that, I'd like to pass the call to Barry to provide an update on fire services.

Thank you, Jim. Looking at our fire services, revenue underperformed primarily because certification cycles and tender timelines extended longer than anticipated across multiple regions. These are timing delays rather than structural demand issues. The opportunities remaining in the pipeline, the majority have not been lost. They've simply shifted later than expected. We continue to believe that we have a high probability of success in securing 38 million of these opportunities within our total pipeline of 178 million. Our tender activity remains strong globally. Current delays reflect regulatory timing and administrative bottlenecks, and as Jim mentioned, competitors have cited similar headwinds. The underlying demand environment for fire services and protective gear remains intact. We remain highly confident in our major tenders currently in the late stages. Feedback from end users and procurement teams remain positive. Delays have been driven by certification cycles and administrative timing, not competitive losses, and our confidence remains high. Though we are not assigning timing commitments to these opportunities except to say majority of the 38 million of opportunities we believe will hit FY27. Fire service margins remain structurally sound. The temporary compression came from volume timing and low absorption during the delays. As volume normalizes and tenders convert, margins are expected to recover without requiring broad pricing actions. For our sales team, the priority is to build a dependable base of monthly sales that is not dependent on large tenders or seasonal cycles. This means expanding distributor engagement, tightening forecast accuracy, strengthening bid coverage across brands, and accelerating new product commercialization. Our global fire strategy remains intact heading into next fiscal year. The product portfolio is broader and stronger than at any time in the company's history. The Jolion FBA launch is progressing, LHD Europe is stabilizing, and we're positioning the entire FHIR platform across the upcoming global cycle. I'll now pass the call to Cameron to cover our industrial and chemical critical environment sectors.