Lakeland Industries, Inc.

Good afternoon and welcome to the Lakeland Fire and Safety Fiscal Second Quarter 2027 Financial Results Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. During today's call, we may make statements relating to our goals and objectives for future operations, including our goals for cash flow from operations and margin improvement for fiscal year 2027, financial and business trends, business prospects, and Management Expectations for Future Performance that constitute forelicking statements under federal securities laws. Any such forelicking 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 forelicking statements. We're going to take 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 U.S. guide, including adjusted EBITDA, adjusted EBITDA excluding FX, adjusted EBITDA margin, adjusted EBITDA excluding FX margin, adjusted gross profit, adjusted gross margin, and Adjusted Operating Expenses, excluding FX. A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in the supplemental slides of today's presentation. A fresh release detailing these retail 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 would like to introduce your host for this call. Lakeland Fire and Safety President, Chief Executive Officer and Executive Chairman Jim Jenkins, Chief Financial Officer Calvin Sweeney, Chief Commercial Officer Global Industries Cameron Stokes, Chief Revenue Officer Barry Phillips, and Executive Vice President of EMEA Fire Sales Kevin Ray. 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 2027 second quarter ended July 31, 2026. Our second quarter results reflect continued progress in the underlying business, with sequential improvement across revenue margin and profitability. Net sales were 50.1 million, down 4.5% year over year, but up 5.7% sequentially, supported by a 12% sequential increase in FHIR. Excluding 3.7 million of prior year revenue from the product lines we divested, in March, net sales increased 2.8%. Gross margin was 37% compared with 35.9% a year ago and 31.4% in the first quarter. And adjusted EBITDA, excluding FX, more than doubled sequentially to 2.7 million. Rather than walking through everything we announced during the quarter, I want to highlight important business updates that I believe matter most. First, tender wins. These are important because they are often recurring revenue opportunities for several years. We secured multiple tender and contract awards across nine countries globally spanning fire, disaster response, law enforcement, industrial, and utility markets. These included notification of an intended award across multiple product categories under the UK National Fire Chiefs Council National Firefighter PPE Framework, a seven-year program with a total potential value of up to 220 million pounds across all awarded suppliers. as well as significant contract wins across Asia Pacific and Latin America. We have significantly expanded our offering of certified products and manufacturing capacity across fire and critical environments, strengthening capacity, supply chain flexibility, and support for higher value growth opportunities, which enhances our margin profile for the long term. Certification and product development work continues across our product lines. our higher growth recurring revenue fire services platform while repositioning the broader operating footprint. This includes our Denver ISP startup planned to open this month. ISPs generate recurring revenue and support higher margin revenue over time in our high growth space. Our industrial businesses generated 24 million of revenue in the second quarter, down 10.8% on a reported basis, excluding 3.7 million contribution from the divested product lines in the prior year quarter, industrial revenue increased approximately 3%. Growth was led by three product lines. Chemical protective grew nine and critical environment grew 28%. Critical environment is back on plan following the forecasting, demand planning, and capacity actions we put in place earlier in the year. Our primary manufacturing facilities remain at capacity, supported by improving demand and better order visibility. Our priorities for the balance of the year are channel execution, pricing discipline, inventory alignment, and converting the demand we are seeing into revenue and margin. FHIR revenue was $26.1 million in the second quarter, up 2% from $25.6 million a year ago, and up approximately 12% from $23.4 million in the first quarter. FHIR represented 52% of net sales compared with 49% in the prior year quarter in the first quarter. Growth was broad-based. Helmets increased 41%, hoods increased 66%, and turnout gear increased 5.5%. Adjusting for the prior year tender and current year service acquisitions, comparable fire revenue grew approximately 10%. Demand continues to strengthen as customers transition to the updated NFPA standards. Our certified head-to-toe portfolio spanning helmets, turnout gear, boots, and gloves lets customers order a complete certified range from a single global provider, and we believe that breadth is a real competitive advantage. On the fire services side, revenue grew 78% year over year with our independent service provider business contributing $3.5 million in the quarter, and we are accelerating investment in that platform. Three items worth noting, the quarter absorbed approximately $600,000 of expedited freight tied to a strategic fire inventory bill and Foreign Exchange was a meaningful headwind with a significant impact of $1.3 million compared with $43,000 a year ago. Our finance team is taking a hard look at hedging strategies where they are reasonably available and financially appropriate. During the quarter, the company also recorded a non-cash goodwill impairment charge of approximately $3.2 million related to LHD attributed exclusively to the performance and revised outlook of LHD Germany. The impairment reflects the accounting valuation of Goodwill at a specific point in time. It does not represent a cash outflow, affect the company's liquidity, or impact its ability to invest in strategic priorities. We have taken actions to address the performance of LHD Germany, including leadership and organizational changes, and are executing a broader repositioning of the business focused on improving operating performance, cost structure, and long-term returns. LHD's operations in Australia and Hong Kong continue to perform well, and the impairment charge is not reflective of the performances of those businesses. Lastly, the resolution of the Monterrey Lease Matter resulted in a $1.9 million second quarter gain and the permanent elimination of approximately $400,000 in related quarterly cash usage, removing an ongoing obligation and supporting our broader effort to simplify the business, reduce complexity and provide greater clarity into our underlying operating performance. Inventory ended the quarter at $74.9 million down $2.8 million sequentially and $15.3 million year over year. Inventory is starting to move and we expect that trend to continue as sales increase in the coming quarters. With that, I'd like to pass the call to Calvin to walk through the financial results.

Thank you, Jim, and good afternoon, everyone. Net sales were $50.1 million down 4.5% from $52.5 million a year ago and up 5.7% sequentially from $47.4 million. Gross margin was 37% versus 35.9% a year ago and 31.4% in the first quarter. Adjusted gross margin was 37.7% up 410 basis points sequentially from 33.6%. adjusted operating expenses excluding FX were $16.2 million versus $14.6 million. Net loss was $4.9 million or $0.50 per basically included share versus net income of $0.8 million or $0.08 a year ago. The net loss for the quarter included the non-cash goodwill impairment charge of approximately $3.2 million related to LHT. Adjusted EBITDA excluding FX was $2.7 million versus 5.1 million a year ago and 1.1 million in the first quarter for a margin of 5.4%. We ended the quarter with cash of 17.9 million up from 12.5 million at year end. A few drivers behind those numbers. Gross profit was 18.5 million down 1.5% from 18.8 million with a year-over-year margin increase of 114 basis points. On tariff refunds and a favorable fire mix, partially offset by higher inbound freight. An important note on margins, excluding the net tariff benefit of $1.4 million, gross margin still showed a sequential improvement to 34% of 280 basis points, demonstrating that margin improvement was structural and not solely attributable to the tariff refund. Operating expenses were $20.6 million, up 7% from $19.3 million. adjusted operating expenses excluding FX were $16.2 million, up 11.1%, reflecting roughly $0.5 million of Intershoot's trade show cost, new service location startup cost, and a full quarter of service operating costs. On a training 12-month basis, revenue was approximately $191 million, and adjusted EBITDA excluding FX approximately $5.4 million. Both still carry the weaker back half of fiscal 2026, So the sequential trend is the better read. Gross margin improved 114 basis points on tariff refunds and fire mix, partially offset by higher inbound freight, including roughly $4.6 million of extra value freight for our fire inventory bill. The 410 basis point of sequential improvement is the clearest evidence yet that our marginal recovery processes are working. On adjusted EBITDA excluding FX, the move from $5.1 million to $2.7 million was about $0.7 million from adjusted gross profit and $1.7 million from higher adjusted operating expenses. The prior year quarter also carried a $3.1 million tender and revenue from the divested product line. The divested business lines contributed $0.5 million in adjusted EBITDA excluding FX in the comparable year ago. Fire was approximately 52% of revenue this quarter, up from roughly 49% in both Q2 FY26 and Q1 FY27. That is the clearest picture of our shift toward global fire protection. Geographically, the mix reflects a more diversified footprint. As fire margins recover toward their structural potential, that concentration should become a margin tailwind. On the balance sheet, we ended the quarter with cash of $17.9 million and working capital of approximately $90.8 million. Cash was up $5.4 million from year end, and total debt declined to $28.7 million from $32.3 million at January 31, 2026. We had $24.9 million drawn on the revolving credit facility with $15.1 million availability, and we're in compliance with all covenants. Most importantly, we generated $5.4 million of operating cash flow in the first half of fiscal 27, a $15.1 million improvement year over year. Inventory ended at $74.9 million, down $2.8 million sequentially, $7.6 million from $82.5 million at the end of fiscal 26, and $15.3 million year over year. And we did that while taking in expedited finished goods and building raw materials for fire. We expect the trend to continue as sales increase while building selectively in fire categories where availability is essential to capturing demand. With that, I'll turn it back to Jim.