Lakeland Industries, Inc. Stock

Good afternoon and welcome to the Lakeland Fire + Safety Fiscal Second Quarter 2027 Financial Results Conference Call. [Operator Instructions].

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'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 will also discuss financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP, 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 slide of today's presentation. A press 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 + Safety President, Chief Executive Officer and Executive Chairman, Jim Jenkins; Chief Financial Officer, Calven Swinea; Chief Commercial Officer, Global Industrials, Cameron Stokes; Chief Revenue Officer, Barry Phillips; and Executive Vice President of EMEA Fire Sales, Kevin Rae.

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 Fire. 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 walk you 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 9 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 U.K. National Fire Chiefs Council National Firefighter PPE Framework, a 7-year program with a total potential value of up to GBP 220 million 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 3 product lines. Chemical protective grew 9% 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.

Fire 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. Fire represented 52% of net sales compared with 49% in the prior year quarter and 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. 3 items worth noting. The quarter absorbed approximately $600,000 of expedited freight tied to a strategic Fire inventory build 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 Calven 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 basic and diluted 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 LHD.

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%, up 280 basis points, demonstrating that margin improvement was structural and not solely attributable to the tariff refunds.

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 Interschutz trade show cost, new service location startup cost, and a full quarter of service operating cost.

On a trailing 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 $0.6 million of expedited freight for our Fire inventory build. The 410 basis point of sequential improvement is the clearest evidence yet that our margin 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 FY '26 and Q1 FY '27. 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.

Thank you, Calven. The second quarter reflected continued progress against our plan. Net sales increased 5.7% sequentially to $50.1 million. Gross margin improved to 37% from 35.9% a year ago and from 31.4% in the first quarter. And adjusted gross margin expanded 410 basis points sequentially to 37.7%. Adjusted EBITDA, excluding FX, more than doubled sequentially to $2.7 million. And we generated $5.4 million of operating cash flow in the first half, a $15.1 million year-over-year improvement.

Heading to the third quarter, our outlook is optimistic. We generated approximately $47 million of revenue in last year's third quarter at a gross margin well below where we are operating today and a cash operating loss. So the comparison ahead of us is a materially better one.

2 things to be clear about in the near term. We do expect the timing of certain fire orders to shift into the fourth quarter, and we expect some near-term impact from repositioning parts of the portfolio and reallocating capital toward our higher growth opportunities. We believe those actions strengthen the business.

Looking ahead, 4 themes frame our outlook: a higher mix of turnout gear at higher volumes and higher margin; industrial improvement in building North America and Asia, with the third quarter shaping up materially better year-over-year; another quarter of sequential margin improvement; continued simplification and repositioning the business geographically for higher revenue, our independent service provider platform, United States, Canada, and Mexico.

We remain focused on generating positive cash flow from operations in fiscal 2027 and driving sustainable margin and EBITDA improvement. We want to thank all our customers, partners, and team members worldwide for their continued trust and commitment, and especially those first responders around the world who risk their lives every single day to protect us all.

With that, we will now open the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of Mark Smith with Lake Street Capital.

I wanted to dig into the gross margins just a little bit more. Great jump up to 37%. Looks like helped a little bit by tariff refund. I'm just curious, any additional insight you can give us into the underlying gross margin run rate here as we look at second half, especially as you said it looks good versus the comparables from second half last year.

I apologize. It seems as if we may have some technical difficulties. Please stand by. All right, gentlemen, you may proceed.

Sorry, we got disconnected, Mark, just as you were asking us a question about margins. Hello?

Jim, can you guys hear me now?

Yes, we can.

Perfect. I just wanted to ask about gross profit margin a little bit. Good improvement sequentially and year-over-year, but just curious if you can give us more insight into second half of this year and, excluding the tariff refund, what the underlying gross margin run rate looks like here in second half.

Sure, Mark. Yes, so the tariff refund, not expecting a significant impact to second half of the year. I think we were going to see, though, the build off of where we were kind of in the normalized, if you want to call it, a normalized run rate, which was in the mid-30s.

I think we'll see continued improvement with the growth on the Fire and the improvement in turnout gear. All those are higher margins, so we'll see strengthening in the second half of the year, kind of continuing the trend from Q1 to Q2, and a little bit of improvement in Q3 and Q4.

Perfect. And then you bring up Fire Services, still a small piece of the business. I think you guys said about $3.5 million. But curious, kind of, what kind of trends that business is having as we think about revenue and margin, and even any insight into, kind of, your capital outlay for building out some of these new locations like Denver.

Yes. So building out a location, a greenfield, is roughly about $350,000 to $500,000 of capital. So that, from a return on investment, for my money, I like that model. The trend in the industry is quite positive. I've got Barry on the line here who drives our Fire growth here and particularly is very -- is a lot closer to this than I am in the U.S., and I might defer to Barry to respond to some of these questions as well. Barry?

Absolutely. We have -- with Denver just starting to open up this month, just got our validation. The short side of that cost basis for the $350,000 to $500,000 is a size that's worked out well for us in opening up the Fresno earlier in the year and then Denver now.

Looking at the greenfield opportunities is where we're going to focus on some of those expanded sites where we're being called in by departments in the regions that we're spotting based on the size of departments and the demand in the areas.

Okay. And maybe if I squeeze in one more question here, just, you guys talked a bit about kind of simplifying the business and just kind of looking through areas that really maybe aren't producing acceptable returns. Can you just elaborate any more on what kind of portfolio actions you're maybe looking at today?

Yes. We're looking at geographies where we can consolidate warehousing and other sort of synergies in markets. We've got a European fire presence and a European industrial presence and likely consolidating some of that, I think, would be a healthy exercise. We're kind of looking hard into how that might play out.

We're doing similar exercise. We're taking a look at some of our manufacturing footprint and where we should be and where it doesn't make a lot of sense for us to be, and whether we'd be drawing away from capacity from some of the folks that are at capacity at this point. So we're still running that out, but I would expect some meaningful changes in the next 6 months that inure to the bottom line beneficially, I think, into fiscal '28.

Our next question comes from the line of Michael Shlisky with D. A. Davidson.

A lot of moving parts in what grew and what shrunk in the Fire business and what changed in Fire. But when I back everything out, did you -- are you suggesting that the organic growth or some kind of consistent year-over-year measure of growth was 10% in the quarter here?

I just want to make sure that, that's -- that I am thinking about this correctly, that you really are, when all is said and done with some of the one-time items and large contracts, you do see a kind of high single digit or even 10% growth rate in that business in the near to medium term?

Yes, Mike. That's what we are seeing is the high single, low double-digit growth in the fire space organically.

And that is what you saw in the quarter once you strip out a couple of the larger stuff and...

Yes. I mean, when you think about it, there's a tender that we had last year for the Italian government that was $3.1 million or $3.2 million. Now look, tenders come and go, and those are good things, but you don't necessarily bank on those. So if you back that out and you back out $3.7 million of HPFR, you're staring at $46-ish million. And we did $50.1 million.

Okay. And when you think about, speaking of tenders, when you think about what was announced in the U.K. and Hong Kong and Thailand and elsewhere throughout the last couple of months, that adds up to -- could be well over 1 year, 1.5 years of top line just from those contracts alone, if I'm reading it correctly. So can you maybe comment on the timing of when these will flow to the bottom line, if it's going to be 7 years or less for most of it? How does that play out?

Well, yes. I mean, you've got the -- I think we as we described in the press release on the U.K. tender, and I have Kevin Rae on the phone here to talk about that a little bit. But we were sort of one of a couple of winners in that. And now the process begins where we are competing with 3 or 4 others for opportunities within the U.K., but they're all starting to commence on that front.

Kevin, I don't know if you want to talk a little bit about that, but before you do, some of these others, some come quicker. Some take a little bit longer depending upon the region. And we would expect to continue to drive additional tender wins into this quarter that will be reflective both -- part of them will be reflected in this quarter and part of them will be reflected in future quarters. It's just a function of how each of those tenders operates. But Kevin, I don't know if you want to talk a little bit about -- I mean, that GBP 220 million opportunity obviously is not GBP 220 million, but it is a significant longer term opportunity.

Yes. Thanks, Jim. Yes, it's a 7-year scheme, which basically, we qualified for now on multiple sectors, but we only qualified for the gloves, the turnout gear, the boots. And that means that we can actually really use the benefit of the work we've done over the last 2 years in new product development.

We're very well positioned. There are 25 brigades in the U.K. and they go at different times when they need new contracts, but there will be a considerable amount coming up in the next 12 to 18 months. So we've got an exhibition and a big meeting next week. And we've got a pretty solid picture of how that looks and some really strong prospects.

Okay, okay. Maybe one last one for me. I just wanted to get a sense of the cadence in the third and fourth quarters here. Your comments, Jim, on the fire orders being made in the fourth quarter, but some of the areas still being pretty strong. Does this suggest that we'll be seeing sequential growth from 2Q into 3Q and then 3Q into 4Q? Is that the right way to look at it? And is that a good platform for 2028?

Yes, that's correct. That's correct. Yes, that is what we're seeing based on our pipeline and order flow, yes.

Our next question comes from the line of Gerard Sweeney with ROTH Capital Partners.

Just wanted to talk about OpEx or operating expenses. I mean, revenue looks solid improvement, gross margins heading in the right direction. But obviously, I think there were some -- maybe some one-time items, Interschutz on the OpEx line. Some expedited freight, some ISP build out. Can you frame that out a little bit to what should SG&A or operating expense be running at? And what is truly one time and what is -- maybe needs to be leveraged through some revenue expansion, i.e., like the ISP stuff?

Yes. I mean, I'll let you answer that.

Yes, I think -- and Gerry, exactly on ISPs that will be leveraged through revenue going forward. There'll be a little bit -- still a little bit of a build probably in the third quarter, but we'll see the ISPs take off, especially the new ones that have come online. Interschutz is once every 5 years. So that's -- we won't see that for a while. And of course, that was the German fire show.

And then the expedited freight, we needed to move some product to be in the right places internally to support Fire growth, and we've done that. And I think we're now positioned, but you're not going to see that. Of course, it'd be supported by revenue going forward, but it would be -- if we do any type of expedited freight, it'll be directly attached to a PO and we'd have revenue support. But in general, no. That will go away, looking down the road.

But I will say the OpEx line for us is something that we are keenly aware of. I need to get it -- I need to get that into the mid to high 20s as opposed to the 30% where it is now, 32%, I think, this quarter. That's got to come down. And then the FX stuff is stuff that we're going to have to -- we have to find a way. That has become -- as the dollar weakens, that is not a good thing for us. And so we're going to be looking at some hedging strategies on that as well.

Is that -- I mean, is that hedgeable? I mean, that's not Argentina, correct?

Well, a lot of it's Argentina, but it's Europe. It's other -- I mean, the RMB is actually stronger than it's been in 15 years. So all those things are sort of impacting how we play. The other thing we're doing in Latin America is we're moving inventory as quickly as we can because as the peso declines, that impacts our FX hit. So Argentina is rapidly moving on inventory, and that will, I think, help alleviate an area where we can't hedge.

And Gerry, we also have a $1 million bond that will probably, this time next year, come to fruition that gets released that will actually help us in Argentina next year. So -- but it's what we're working on.

Got it. ISP, obviously, really good business. Nice returns, et cetera. I think you said $3.5 million probably across the portfolio. Curious if you -- and you're adding Denver, and I think you added expansion in another location, California, Arizona, I forget, I apologize. But what is the capacity of that business on a revenue front? I'm not sure if that's readily available, but I'm just curious as to -- as it stands today quantitatively, qualitatively. Yes. Sorry.

If they're in a market that's growing, and most virtually every one of these are, you get to capacity at between probably $2.5 million to $3.5 million. It depends upon the size of the facility. But that's not limiting to us because we'll just build out the facility or find an additional facility.

One of the things we did in Riverside was we ended up expanding in Riverside so that we could have the rental capacity there. And then we also built into Fresno because Riverside was servicing that market. And so Fresno picked up a lot of that additional demand as well.

And we'll probably daisy chain our way up to the Northern California because Fresno is starting to service opportunities in the North that we probably need additional location on that front as well. I would expect, as I said, we've got opportunities in the Midwest, we've got some opportunities in Texas, we've got some opportunities on the East Coast, all of which may be either built or bought, probably more likely to build.

Got you. But if I look, you have $3.5 million, I mean, just with your footprint today, could you be doing $5 million or $6 million of revenue per quarter? Just roughly?

We could. We could be with the growth that we got planned. Absolutely.

And then you're looking in newer locations geographically outside of what you're already...

That's correct.

[Operator Instructions] And it looks like we have reached the end of the question-and-answer session. And therefore, I'd like to turn the call back over to Jim Jenkins for closing remarks.

Thank you, operator. Thank you all for joining us for today's call, and thank you to our customers and distributor partners worldwide for trusting us with your safety. Lakeland continues to be well positioned for long-term growth, and we look forward to sharing our continued progress on the next call. If we were unable to answer any of your questions today, please reach out to our IR firm, MZ Group, and we would be more than happy to assist.

Thank you. This concludes today's conference. And you may disconnect your lines at this time. We thank you for your participation.

Good afternoon and welcome to the Welcome to the Lakeland Fire and Safety Fiscal First 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 revenue and cash flow from operations for fiscal year 2027, financial and business trends, business prospects, and management expectations for future performance that constitute four looking statements under federal securities law. 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 four-letter 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, 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 results was issued this afternoon and is At this time, I would like to introduce your hosts for this call, Lakeland Fire and Safety's President, Chief Executive Officer and Executive Chairman, Jim Jenkins, Chief financial officer Calvin Sweeney, chief commercial officer Global Industrials Cameron Stokes, chief revenue officer Barry Phillips, and executive vice president of EMEA.

Fire and 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 first quarter entered April 30th, 2026. Our first quarter results reflect continued progress across several important areas of the business as we position Lakeland Fire and Safety for stronger performance through the balance of fiscal 2027. Calvin will walk through the financials in detail shortly, so I will provide you with a brief overview here. Best sales for the quarter were 47.4 million, an increase of 0.7 million or 1.4 percent compared to 46.7 million in the prior year period. reported by 11% growth in fire services. Net income was approximately 0.4 million or 4 cents per basic and diluted share, a meaningful improvement from a net loss of 3.9 million or 41 cents per basic and diluted share in the first quarter of fiscal 2026. adjusted EBITDA excluding FX improved to 1.1 million compared to 0.6 million in the prior year period and adjusted gross margin improved modestly on a sequential basis to 33.6% compared to 33.5% in the fourth quarter of fiscal 2026.

We are actively managing several identifiable timing, certification, transition, and operational execution factors, with clear actions underway to improve conversion of visible revenue opportunities into stronger profitability as the year progresses. Calvin will provide additional detail on our margin bridge shortly. Demand across our fire services platform remains encouraging. Our NFPA 1970 The 2020-70-2025 certified head-to-toe fire portfolio was showcased at both FDIC 2026 and more recently More recently at Interstitutes, where customer engagement, tender activity, and sales opportunity were strong. We believe the breadth of our certified portfolio, including turnout gear, boots, gloves, gloves, hoods, and helmets provide the meaningful competitive advantage as fire departments and distributors increasingly look for complete reliable solutions from a global provider. Our service platform also continues to build momentum as an important recurring revenue and customer retention opportunity. Through our independent service provider, or ISP, platform, we provide inspection, cleaning, repair, rental, and decontamination services for fire departments and other safety customers. are deepening customer relationships, creating additional touch points with fire departments, and building a recurring service service model that can support higher quality revenue over time.

We continue to believe service can become an increasingly important differentiator for Lakeland Fire and Safety, not only as a revenue contributor, but as a way to strengthen retention, cross-selling and long-term customer value. As As part of this strategy, we expect to open another ISP location in Denver, Colorado, and we are expanding our Arizona PPE facility in Phoenix to support continued growth in the United States. We've also added a CO2 decontamination machine in Fresno, California to enhance our decontamination capabilities. and broaden the services we can provide to fire departments and first responders. Unlike traditional wash-only service models, CO2 cleaning allows us to offer a more advanced decontamination solution designed to help remove harmful contaminants from turnout gear and related PPE while supporting faster turnaround, improved garment care, and broader customer service options. The addition of CO2 capability further differentiates our service platform and strengthens our position as a full-service fire safety partner. In addition, we are actively pursuing small strategic M&A candidates in attractive and growing geographies within North America, where we believe we can expand our service footprint, strengthen customer relationships, and build a more durable recurring revenue platform. In Europe, we continue to make meaningful progress repositioning LHD, including the relaunch of the LHD brand at Interschutz.

We also appointed Sasha Mueller as LHD's Director of Sales. Sasha is a veteran fire and safety executive. We view the first and second quarters as transitional for LHD as we onboard new, highly regarded sales talent, right-size the German operation, and continue driving operational improvements. And while Middle East uncertainty has temporarily slowed project timing and frozen service and regional budgets, we remain focused on converting identified opportunities, improving margins, and positioning LHD for stronger performance in the back half of fiscal 2027. Kevin will provide additional details on EMEA in a moment. Eagle also continues to be well-positioned following its recent notification of an intended award under the National Fire Chiefs Council National Fighter-Fighter PPE framework in the United Kingdom. And Eagle gloves, hoods, and turnout gear continue to gain strength in the United States, Latin America, and Asia as part of our broader global fire portal. portfolio.

More broadly, backlog across our U.S. fire business, including both Viridian and Legacy Lakeland fire products, continues to grow. And we are seeing similar fire-related opportunities develop across Latin America, Mexico, and Asia as the updated NFPA standards create additional customer interest in certified turnout gear, gloves, hoods, helmets, and boots. The breadth of this activity reinforces our confidence in the long-term growth potential of our global fire platform. On the industrial side of the business, we are seeing signs of improvement in areas that had previously been affected by tariff uncertainty and broader macroeconomic headwinds. Our facilities in Vietnam and China, where we produce primarily industrial products, remain at capacity, supported by improving demand and better order visibility. We are encouraged by this progress, but remain disciplined in managing production, inventory, and customer demand to ensure that improved volumes translate into stronger operating performance. Our disposable business also remains an important part of the portfolio.

While demand has improved in certain industrial channels, we have not yet seen a meaningful recovery in the United States, nor have we seen any meaningful uptick in oil and gas turnaround activity. We believe that our U.S. industrial business can gain traction in the latter half of the fiscal year 27, and the oil and gas business remains a future opportunity as maintenance and turnaround schedules normalize. But we are taking a measured view until order patterns become more consistent. meantime, we are focused on channel execution, pricing discipline, inventory alignment, and positioning the U.S. disposal business to benefit when end market demand strengthens. Separately, we are beginning to see emerging demand for certain protective products tied to Ebola preparedness planning, and we recently received related orders from hospitals in Europe, Hong Kong, and Latin America. While we view this as a positive indication of Lakeland's continued relevance in high-risk protective applications, we are treating this as an incremental opportunity rather than a core forecast driver. During the quarter, we completed the divestiture of our high-performance FR and high-vis product lines for approximately $14 million in cash proceeds. This transaction simplified the business, strengthened our balance sheet, improved liquidity, and allows us to concentrate resources more directly on our core fire services and industrial protective products. businesses.

The divestiture is consistent with our broader effort and to reduce complexity, improve focus, and allocate capital toward the areas where we believe Lakeland has the strongest long-term growth and margin opportunities. We also strengthened our governance and executive team during the quarter with the appointment of Lee Rideau to our board of directors, the appointment of Calvin Sweeney as chief financial officer, and the appointment of Kevin Ray as executive vice president, EMEA fire sales. Lee previously served as chief executive officer of NASDAQ listed Transcat and his strategic and M&A integration experience in the industrial markets is a valuable addition to our board. As we look ahead, our priorities are clear. We are making meaningful progress in strengthening margin visibility, accountability, and operating discipline across each business, product line, and region. Our teams are focused on the key levers that drive performance, inventory management, cost control, price discipline, product production efficiency and improved sales conversion. As these actions continue to build momentum, we expect margins to improve over the course of fiscal year 27, supported by traction from tenders, new sales opportunities, and growing service revenue.

We expect this momentum to begin showing through in the second quarter, although Q2 should be viewed as a stepping stone rather than the full measure of the improvement opportunity. As these actions continue to build, we expect revenue growth, margin improvement, and EBITDA expansion to become more visible in the back half of fiscal year 27, supported by inventory normalization, tender conversion, new sales opportunities, and growing service revenue. Based on our current demand trends, the strength of our FHIR services platform, the continued development of our services business, and the actions underway to improve margin and cash generation, we continue to expect high single-digit revenue growth and positive cash flow from operations in fiscal 2027. With that, I'd like to passed a call to our Chief Commercial Officer, Cameron Stokes, to provide an update on our industrial and chemical critical environment business.

Thank you, Jim. Turning now to industrial and chemical critical environment. Our industrial business showed improved momentum across most regions in the first quarter, with the US and Canada the only businesses not exceeding budget. Latin America at 119% to plan and Asia at 132% to plan delivered the strongest regional performances in Q1, attributable to disciplined commercial execution of Lakeland's safety story and tight alignment with our channel partners. The conflict in the Middle East has extended our lead times into Latin America, so we are focusing considerable efforts on mitigating any risk to our performance through tight alignment between our commercial and operations teams. Looking across product lines, chemical improved in most regions. Critical environment remains a recovery priority, but we anticipate a very strong second quarter that gets us back on plan for the year. key actions are better forecasting, demand planning, capacity resolution, and a stronger end-user demand generation. Disposables performed well overall despite a significant US NIS with pricing and portfolio actions expected to support continued momentum in Q2.

Movens remain on track from a demand standpoint, though the purchasing patterns of our largest Latin American customers have required some timing adjustments in our forecast. From an outlook standpoint, the US team is being reset around clearer expectations, stronger channel engagement, improved portfolio, and improved customer experience. portfolio positioning, and a better pipeline discipline. We're building a stronger end user approach in the U.S., engaging departments and end users directly to create pull-through demand for our channel partners, improved specification influence, and helping our distributors win more business with Lakeland. strong indications that Canada will rebound in the second quarter including a strong performance in May and are confident Canada will achieve its budget expectations for the year. Structural changes and new leadership in Mexico and Europe continue to show strong returns as pipelines are robust and performance is becoming more consistent and predictable. Overall, we are cautiously bullish on the outlook for industrials this year, with heightened attention on accelerating the turnaround in the United States. I will now hand the call over to our Chief Revenue Officer, Barry Phillips, to provide an update on our fire services business.

Thank you, Cameron. Turning to the fire services, revenue for the first quarter was $23.4 million, an increase of $2.4 million, or 11%, compared to $21 million in the prior year period. Our fire segment represents approximately 49% of total revenue, reflecting the continued transformation of the business. The first quarter was a milestone period for our fire portfolio. We achieved NFPA 1970 certifications for Pacific Helmets, Jolly Boots, Veritas, and in turnout gear, boots and gloves, and Lakeland turnout gear and gloves, giving customers the ability to order a complete head to toe certified range across our brands. At both FDIC in the U.S. and Interstitzen Germany, we showcase the full head-to-toe product portfolio and our unified brand portfolio under the Lakeland Fire and Safety umbrella. Interschutz is the largest firefighting trade show in the world, held only every four years in Hanover, Germany. And new product introductions included new Pacific Structural Firefighting Helmets, new Jolly Structural Boots, new Lakeland Extraction Gloves, and a new range of Lakeland and Viridian Structural and Wildland Gear material and reflective trim options to provide advanced performance and value.

Sales activities accelerated through these certification achievements and with our attendance at both FDIC and internships and our market outreach, and we've now generated new product demand growth that has outpaced our prior manufacturing and stock capacity. As a result, our open order backlog has risen to historic levels. To meet that demand, manufacturing ramp-up activities are underway at Lakeland, Viridian, Pacific, and Jolly. On the service side, we opened a Greenfield ISP in Fresno, California. We're seeing U.S. Air Force decontamination services growth in Arizona PPE and California PPE as expanded capacity and facility upgrades to integrate our new CO2 decontamination capabilities. Through our California ISP and our CO2 offering, we're introducing advanced decontamination performance combining wet wash and CO2 cycles to provide firefighters with the highest level of decontamination efficacy at a Riverside, California facility. Looking ahead to the second quarter, new NFPA product demand has created an open order backlog we expect to meet our Q2 budget projections in key NFPA markets for firefighting gear produced to order, while stock products such as helmets, gloves, are moving out at a high double-digit pace.

Global tender opportunities are building and the interships trade fair reinforced our global late-land fire and safety head product range and brand portfolio to the international market. We are adding sales resources in North America and Europe to strengthen direct department interaction and our strategic distribution network development, and we've strengthened our sales support and marketing teams to drive lead generation, follow-up, and reporting. Our operations team is building production capabilities to match demand and deepening the market. Decontamination service demand continues to grow in our U.S. and Australian sites. Our CO2 decontamination equipment has been installed in Riverside and is projected to be operational by the third quarter. And we'll have our new Colorado PPE site in development now in Denver. I'll now pass the call on to Executive Vice President of EMEA Fire Sales, Kevin Ray, for an EMEA update.

Thank you Barry. Turning to EMEA, EGLE which delivered double digit growth in the first quarter expects opportunities to expand in the back half of FY27, following its recent notification of an intended award under the National Fire Chiefs Council National Firefighter PPE Framework in the UK. This is a framework with a total potential value of 220 million over a seven-year term across all on-order suppliers. expect this framework to present additional opportunities as it moves into implementation. In addition to the UK framework, and while not always reflected directly in EGLE's reported revenue, EGLE's products continue to gain traction across the broader Lakeland fire and safety platform. Eagle gloves are now seeing increased adoption in the United States, while Eagle turnout gear, gloves and hoods, continue to gain momentum in Latin America and Asia, further supporting the growth of global head-to-toe fire offering. Looking ahead to the second quarter, we expect continued momentum in LHD Australia, where decontamination services, supported by added unbudgeted activity and stronger than expected customer demand, are expected to drive continued growth. With respect to LHD Germany, the second quarter should be viewed as a transitional period as we onboard new highly regarded sales talent right size the German operation and continue driving operational improvements. During the quarter, we completed the transition of LHT Germany's operations from Vesseling to a third-party logistics model with DECA's logistics, and we appointed a veteran fire and safety executive, Sascha Muller, as LHT Director of Sales.

As we move production and logistics activity elsewhere within the platform and the German team become more focused on commercial growth, we expect margin improvement. So that benefit is likely another quarter or two away. While Middle East uncertainty has temporarily slowed project timing and frozen certain regional budgets, we remain focused on converting identified opportunities, improving margins, and positioning LHD, the strong performance, in the back half of fiscal 2022. And while not reflected directly in EMEA sales, the expected ramp up of JOLI NFPA certified boots sales in North and South America should support improved JOLI performance as the year progresses and further strengthen our position as a global head to toe fire provider.

I will now hand the call over to Kelvin to review the financials. Thank you, Kevin, and good afternoon, everyone. I'll provide a brief overview of our fiscal 27 first quarter financials before diving into the details. Net sales were $47.4 million for the first quarter of fiscal 27, an increase of $0.7 million or 1.4% compared to $46.7 million in the first quarter of fiscal 26. Adjusted gross margin was 33.6% compared to 35.2% in the prior year period, and improved modestly on a sequential basis from 33.5% in the fourth quarter of fiscal 26. adjusted operating expenses at student FX were 14.8 million, down from 15.9 million in the prior year period. Net income was approximately $0.4 million or $0.04 per basic and diluted chair compared to a net loss of $3.9 million or $0.41 per basic and diluted chair in the first quarter of fiscal 26. Adjusted EBITDA excluding FX was approximately $1.1 million for the quarter compared to $0.6 million in the first quarter of fiscal 26 with an adjusted EBITDA excluding FX margin of 2.3% compared to 1.3% in the prior year period.

We ended the quarter with cash and cash equivalents of $17.4 million, up from $12.5 million at the end of fiscal 26. Turn to a few additional highlights for the quarter. On the top line, sales revenue of 47.4 million, increased 44% over year over year, with fire services growing 11% year over year basis, driven by Latin America, Mexico, and Viridian. First quarter revenue came in as expected, despite lower performance in North America, primarily due to the sale of inventory and intellectual property of our HDFR and high-vis product line at the end of March. Adjusted gross profit was $15.9 million, and adjusted gross margin was 33.6%, compared to $16.5 million and 35.2%, respectively, in the prior year period. low-interest and product costs in the broader macroeconomic environment continue to weigh on margin improvement. Adjusted operating expenses were $14.8 million, down $1.1 million from $15.9 million in the prior year period. operating expenses increased compared to the fourth quarter, mainly due to seasonality, while our cost reduction initiatives reduced operating expenses by 1.1 million year over year. Adjusted EBITDA excluding FX was $1.1 million, up 79.6% from $0.6 million in the prior year period, with an adjusted EBITDA excluding FX margin of 2.3% compared to 1.3% in the prior year period.

Our year-over-year operating expense reduction more than offset lower gross and we expect probability to improve if margins recover and operating expenses remain stable. Moving to our discussion of revenue and adjustability of a diet excluding FX on a 12-month basis. Our 12-month revenue of 193.3 million reflects the meaningful top-line growth in the business as delivered over the past year, including the full contribution of our fire acquisitions. On a 12-month basis, adjusted EBITDA excluding FX of 7.7 million reflects the margin pressure we experienced during the year which we are actively working to recover. As quarterly margins improve through the balance of fiscal 27, we expect the trading 12-month trend to follow with meaningful operating leverage as gross margin recovers. This slide 11 walks through our gross margin in adjusted eventide bridges versus the Prairie or First Corps. As I noted, adjusted gross margin was 33.6% in the first quarter compared to 35.2% a year ago, while improving sequentially from 33.5% in the fourth quarter of fiscal 26.

First quarter gross margin was below our expectations, but the drivers were clear, identifiable, and not structural. The quarter was impacted by approximately 330 basis points of items that were primarily timing related, transitional or tied to deliberate investment decisions designed to support future growth. The largest impact was product mix, which represented approximately 150 basis points for margin pressure. A meaningful portion of that was tied to the acceleration of finished goods inventory for NFPA certified products, particularly at Jolly as we prepare to support U.S. fire market launch. We made the decision to build inventory ahead of revenue conversion because product availability is essential to capturing demand, create a short-term headwind, but also positions us to serve customers, support distributors, and convert sales as certified product becomes available. We also incurred approximately 80 basis points of pressure from additional NFPA certification costs and transition costs associated with prior certified products. These costs are part of moving through the certification transition and preparing the updated product offering for market and they do not represent a permanent change in the economics of the business.

Approximately 70 basis points of pressure came from the release of previously capitalized freight costs as inventory was reduced. While this affected gross margin of a quarter, it was tied to a positive balance sheet action, reducing inventory and improving working capital discipline. Finally, our Fresno, California ISP startup costs represented approximately 30 basis points of margin pressure. These costs relate to the continued build-out of our ISP platform and should be viewed as investment in a growth initiative, not ongoing margin erosion. Looking ahead, we are focused on sustaining and expanding our margin progress through the rest of the fiscal year. Production volumes improved, certification related transactions costs moderate, and recent tender wins and sales opportunities convert to revenue, we expect adjusted gross margin to continue to expand through the year. To support that, we strategically increased inventory in key fire categories, including Jolly Boots, Pacific Helmets, and Viridian Gloves, and an expedited freight as we move product faster to support customer demand and market launches.

Those freight costs were released through margins related sales were realized, and we expect any near-term impact to be temporary rather than a prolonged headwind. The key point is straightforward. First quarter margin pressure was driven by timing, certification transition, inventory positioning, capitalized freight release, and startup costs, not by a loss of pricing power or fundamental deterioration in the business model. As these items normalize and revenue conversion improves, we expect margin performance to improve through fiscal 27. Adjusted EBITDA excluding FX improved to approximately $1.1 million from $0.6 million in the prior year period, primarily driven by operating expense reductions, which more than offset lower gross margin. That brought our adjusted EBITDA FX margins to 2.3%, up from 1.3% a year ago. Slide 12 shows our revenue mix for the first quarter of fiscal 27 alongside fiscal 25 and fiscal 26, and the transformation of the business is clear on both a product and geographic basis. On the product side, FHIR represented approximately 49% of revenues in the first quarter, continuing the strategic pivot we have made over the past several years from approximately 21% of revenues in fiscal 24 to approximately 38% in fiscal 25 to approximately 49% in fiscal 26. of our shift toward the higher growth global fire protection sector in the recent sale of HVFR and Hy-Vee has further simplified this picture.

Geographically, our mix reflects a more diversified global footprint across the US, Europe, Latin America, and Asia, providing broader exposure to the global fire protection market. As our acquired businesses integrate and fire gross margins recover toward their structural potential, our growing fire concentrations are becoming meaningful margin-sharing. tailwind. Now turning to the balance sheet and cash flow. Let's look at the end of the first quarter with cash and cash equivalents of $17.4 million and working capital of approximately $92.4 million. Cash increased $4.9 million versus the end of fiscal 26. As of April 30, 2026, we had borrowings of $23.8 million outstanding under our revolving credit facility with an additional $16.2 million of available credit under the loan agreement. The company was in compliance with all its debt covenants as of quarter end.

Net cash provided by operating activities was $5.8 million in the quarter, a significant improvement from the use of cash of $4.8 million in the prior year period. Significant change was due to the HPFR and high VIZ sale in the accounting for the 11.4 million in net proceeds in related gain of 6.5 million. Through the quarter we had 14 million in credit line borrowings offset by 19.1 million in payments on our debt facilities. We continue to work toward an asset-based lending structure that we believe will further strengthen our liquidity position and provide greater flexibility as we execute our operating improvement plan. Looking now toward inventory, at the end of the first quarter, inventory was $77.7 million, down approximately $4.8 million from $82.5 million at the end of fiscal 26, mainly due to the sale of HPFR and high bids. We would expect the pace of inventory reduction to moderate in the coming quarters as sales increase as we strategically build inventory in select fire categories to support demand. Inventory optimization remains one of the key levers in our path to improve flea cash flow generation, and we will continue to manage it in a disciplined, demand-driven manner.

With that, I'd like to turn the call back over to Jim before we begin taking questions.

Thank you, Calvin. The first quarter reflected continued progress against our plan. Net sales grew 1.4% to 47.4 million, driven by 11% growth in fire services. Adjusted EBITDA, excluding FX, improved to 1.1 million from 0.6 million a year ago, and adjusted gross margin improved modestly on a sequential basis to 33.6% compared to 33.5% in the fourth quarter of fiscal 26. Our NFPA 1970-2025 certified head-to-toe FHIR portfolio was showcased in both FDIC 2026 and Interschutz, where customer engagement, tender activity, and sales those opportunities were strong. While the first quarter reflected a number of transitional operating items, we do not view the underlying drivers as structural. Importantly, this is not a demand story. And across our fire services platform, our service business and key industrial channels remains healthy, and our focus is on converting that demand cleanly into revenue, margin, and delivery performance.

As we move through the balance of fiscal 2027, our priorities are clear. Convert recent tender wins and sales opportunities across fire services, improve operational execution, and drive sequential margin improvement. Improve margin visibility, accountability, and operating discipline by business, product line, and region with inventory management, cost control, pricing discipline, production efficiency, and approved sales conversion remaining central to our plan. Continue building our service platform as an important recurring revenue and customer retention opportunity, deepening customer relationships, creating additional touch points with fire departments, and strengthening retention, cross-selling, and long-term customer value. Over time, we believe service can become an increasingly important differentiator and a higher quality market. more recurring source of revenue for the business. Advance our balance sheet flexibility, including our work toward an asset-based lending structure to support our operating improvement plan. Based on current demand trends, the strength of our fire services platform, the continued development of our services business, and the actions underway to improve margin and cash generation, we continue to expect high single-digit revenue growth and positive cash flow from operations in fiscal 2027.

And we expect margins to improve over the course of the year. year as we gain traction from tenders, new sales opportunities, and stronger service revenue. We are grateful to our customers, distribution partners, and team members worldwide for their continued trust and commitment, and especially to those first responders around the world who risk their lives every single day to protect us all. With that, we will now open the call for questions. Operator? Thank you.

We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star keys. moment please while we post poll for questions. Our first question comes from the line of Jerry Sweeney with Roth Capital Partners. Please proceed with your question.

Good evening, Jim and Calvin and team. Thanks for taking my call. Hey, Jerry. Obviously, it sounds like the fire business is starting to take off. tenders and you discussed the backlog, I think, really expanding. Where is that backlog today versus maybe six months ago and how do we look at that transitioning into revenue over the course of the rest of this year? And does it continue to expand? So, in other words, are there even more opportunities?.

and growth out there? Yes, so Jerry, a couple things have changed over the course of the last six months. Obviously, the first being the certification process. that had delayed some decisions, had delayed some tenders. And so, we had reverted, as I think we had explained earlier to selling sort of a lower volume, revenue volume, lower margin products. products are now being enhanced by obviously the turnout gear which is sort of the gem of the of the offering in the in a fire portfolio And yes, I think we're seeing clear visibility to that. I think I'd like to have Barry Phillips sort of chime in to what he's seeing, because he's seeing a lot more of that out on the field. And he and I are talking daily about how that's growing. And the challenges now are not so much on the sales, pulling in sales front, but more on the... making sure that Helena and her team on the ops side, you know, can produce the product for the sales that we're generating.

Yes, thanks, Jim. Hi, Jerry. The backlog is tied primarily to turnout gear. typically in the eight to 12 week lead time, manufacturing lead timeframe, which we're pushing out a little bit on that because of capacity. We are building that up and ramping up in both Mexico and the US, so Poverty and Lakeland. And then the bit of the pipeline on even the commodity products like helmets and boots, we couldn't ship from production until we received certification, which was the middle of March. and then bulk shift a lot of that stuff over here. So we're starting to flow that product into the field, and that's ramping up very quickly. So, and the order of pace is staying a little bit ahead of the ramp up, but our operations team is doing a great job to catch up.

Is this order pattern, is this, I don't want to call it the new normal because I know the NFPA standards sort of held things off. But how do we think about this order pattern versus historical normal levels? Are we outpacing it? Is there some long runway to this? Will it take several years to work through this? What's the thinking on this front?.

Well, I think to start, by way of example, you look at the UK tender, that's a seven-year program. $220 million of value that has just kicked off. You know, I think Kevin's on the call. Kevin, maybe you can talk a little bit about how that works. And, you know, it doesn't happen overnight, obviously, but I think that process has just started for us. And we're one of only a handful of winners that are going to be able to participate in that process over the next seven years.

Yes, sure, Jim. It's a framework which has taken two years to prepare for. in terms of trialing against 10 different companies and isolated down to a framework of about four in most categories. So we're in the mix now, and there are 25 brigades throughout the UK who will order at different time intervals in the next seven years, and they will be replaced with replenishments. So it's an ongoing building picture. and we're very pleased to be successful in getting the categories of hoods, gloves, boots, and the main one, which is structural fire kit. There's a good position. It's also good testimonial for other markets.

the world. Got it. No, that's helpful. So that's what I figured. It's an extended opportunity across the board. Switching gears to, I think, the ISP or the cleaning service, obviously that sounds as though it's going very well. You're looking to grow organically. a little bit of detail on how fast that business is growing and if you're you're comfortable enough, you know, how much of, what portion of, or how much revenue is it generating over a quarterly basis and what we should think about that on a growth, growth.

because I believe it's hyper fragmented and still early in its development. It is, Jerry. That is an area that we are urgently moving on. It's a growth market. It's a growing addressable market. My view is it's growing faster than, certainly than the fire product market. And, you know, as a reflection, I think of the of the concerns that, you know, politicians and firefighters have about keeping firefighters safe after they've been on a call and keeping them out of harm's way. So, you know, we've got a great leader, you You know, we actually - that was a talent acquisition in the context of purchasing California PPE and Arizona PPE, right? and Mike Glaze and Mike has, um, you know, significant contacts really throughout the country, um, in the U S and, you know, he continues to drive those, that network. And, you know, we would expect, uh, regionally to be, you know, covering most of, uh, really the West coast and probably the mountain West, um, uh, And, you know, really within a fairly significant radius of those regions, you know, you know, as we move and we don't have to do it through M&A.

I think if you look at what we've done, after the acquisition of California PPE and Arizona PPE, we built, we're building out, We built out the Fresno location. We're building out a Denver location. We're increasing the capacity in the Arizona area. location. So the growth is coming and it's coming because I think we've identified a a level of service that I think a lot of fire departments are not used to. So we continue to drive that. I think the model and you know, if you if you talk to Barry and Helena, they will tell you that that we want to have a uniform franchise in that regard. So if you walk into Fresno or if you walk into anywhere else in the country where you might have a location, they all look the same.

That's what is not the case right now in that marketplace. So you do mention it's fragmented, you know, from a revenue perspective, I guess I'd ask Calvin to chime in on the revenue front. I know it has been growing significantly. We've been investing in those projects. I think the EBITDA margins are significant for us. And I think it's, you know, for us, you know, if I could get that to a $50 million, $60 million critical mass in revenue, the EBITDA margins are significant. but the margins are pretty significant and I think really drive a different sort of view of our company and its value.

Gary, this is Calvin. It's running in the $4 to $5 million per quarter range right now. Got it. We still have Fresno starting up and then the new one in Denver coming along.

Got it. And of course, we've also, let's not forget, I'm sorry, Jerry, let's not forget Australia and Hong Kong. Hong Kong is just the Energizer bunny. They just keep moving, they do well. Australia has seen a major uptick because the service level has been so good. And unfortunately, I guess fortunately for us, but unfortunately for Australia, there has been a very significant uptick in wildfires. So wildfire season has kicked off there, has generated, you know, significant amounts of issues for the firefighters who need to to get their gear cleaned. And of course we have some other departments who had just decided that they want more cleanings, more frequent cleanings, better cleanings.

And so, as I think we sort of articulated in the press release and in our discussion today, that that was sort of an unexpected, unbudgeted surprise for us to the good. Got you, okay.

I'll jump back in here. I appreciate it. Thank you. Thank you. Our next question comes from the line of Mike Schliske with DA Davidson.

proceed with your question. Hi, and thanks for taking my questions.

I wanted to start from the OpEx line first. I guess there's two questions. first you were down year over year, which was impressive. This reminds me of exactly what's going on with bringing the year over year OpEx run rate down. And then secondly, as you go through the year, the first quarter, first fiscal quarter, a couple of big trade shows like FDIC in it, does OpEx actually go down further in 2Q through 4Q on a run rate basis. Let me give that to you Calvin.

Thank you. Yes, Mike, the restructuring efforts and cost control that we put in beginning at the end of Q3 and Q4 last year, our goal was to drive down 1.1 million. Again, that was over for restructuring and cost. in a lot of regions and consolidation in some areas. So that's where the savings came from. You're right. We've got Q1 and Q2 are going to include some trade show expense that starts to decline in the second half of the year.

Great. Thanks for that. And then maybe I missed this, but from a pricing perspective, Given the high price of oil and the high price of fuel, have you been able to properly price for some of the more very recent inflation?.

and getting things shipped globally. We've done a really, really good job of managing our freight expense. I think I will tip the cap to Helena and her team on that front. We've actually driven our freight costs down over the course of the last,.

a couple of months if I'm correct. Is that right, Calvin? Yes. Great, great. Maybe one last one for me is on the inventory and working capital situation. If you back into it, you may have to see sales be up like double digits or almost double digits for the rest of the year to kind of meet, Jim, your comments on the high-skill-digit growth. And I'm curious, Calvin, how you maintain - a reasonable working capital level given a company that could be in double digit growth for a couple of quarters to come here and possibly even the first part of about 2028. Just give us a little bit as to how you're able to make that happen. and have the availability of products for people when they need them.

Yes, that's the key. That's, of course, in the capable hands of our ops team. It's about, and it's one, it's getting the proper visibility to the opportunities and making sure that we're, we make the initial investment in raw materials, of course, then we'll have the conversion, but that's really going to be, stocking that's once maintained the appropriate inventory levels for kind of our standard, the normal moving product. And then we are going to have to make a little bit of investment, or we're going to have to make an investment in the fire materials. beginning now as a matter of fact, as we see the increased demand. So we're going to have to fund that through careful management of accounts payable and management of our accounts receivable. And then, of course, we're looking at the APL, which will give us some financial flexibility as we work through that.

Got it, got it. Thank you. I'll pass it along. Appreciate it.

Thank you. Our next question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.

Hi guys, I wanted to dig in a little bit more on the ISP business here. You broke out, I think Calvin you said, four, four and a half million dollars per quarter roughly today. I assume that's globally. Can you give us insight into what the US business is doing there? And then maybe speak to kind of the organic fire services growth domestically in the U.S. and kind of how that trended during the quarter.

Yes, Mark, it's a little less than half of that right now. You've got the two primary sites that we acquired and then the expansion into Fresno And then you've got, of course, we'll have the Colorado, which we're in the process of standing up now, I think we're going to see continued growth one just through the greenfields and just through the expansion. They're not done growing the ones that we've acquired. We're looking at an expansion of the Phoenix site. It's just not big enough to handle the business that they've got currently and having to kind of move some of that business has to get moved over to California. But we are looking to make sure that we can handle that. We'll start that. We're looking at that expansion now.

Mark, we're also looking to expand...

Go ahead, Calvin, sorry, go ahead. Go ahead. I was going to suggest, I was also going to say that we're also looking to expand in Australia. We're outgrowing the facilities that we have in Brisbane and in Sydney so that we're looking, our ops team is taking a hard look at expansion there as well because demand is now hitting us a little bit where we want to be able to respond to that.

Okay. And in the ISP business, just as we look at it and maybe globally, um, I'm curious if you can give us more info on kind of unit economics per location, you know, the maybe revenue per site, contribution margin, you know, all that kind of stuff. ROIC that you're seeing on these businesses as you invest in them.

Mark, I think you can see that they're going to do they're going to do at least, a reasonable site is going to do at least two million and then you're looking at upper double digit and a little bit higher.

EVA dot contribution. Okay. And by the way, that's not a cap. That's where we expect to see them, but the growth rate on those are, you know, we will not cap at 2 million. You know, we have been, you know, what we saw at Riverside when we purchased Cal PPE was he was blowing through that number far beyond that number. And we had to, that's why we had to open up the Fresno site, one to provide opportunities within central California, but also to free up additional space and needs and demand activity in the Southern California market where he resided. So, I mean, the good news is you're not capping out at those. We're seeing them hit that. two million mark and then we're making decisions about expanding the businesses there or looking for other locations within close proximity.

I don't know if you guys have talked about it, but approximate build-out costs. If we looked at Denver, for instance, as you build that out organically, what is the cash cost on building out a new location?.

markets 350 to 500,000. We've seen it closer to the 350. Just giving kind of a wide range to cover.

for fall potentials. Okay. Perfect. Last one for me, just as we think about capital allocation, with the cash that you brought in from the divestiture this quarter and kind of expectations on free cash flow this year, what's kind of the ranking or hierarchy as we look at capital allocation from debt, pay down, You know potentially at some point bringing a dividend back ISP expansion etc. Where are you looking at putting the cash to work?.

Yes, I'll start. Yes. Calvin, I guess I'll start. Look, I think on the capital allocation front, You know, we have operating needs right now, just in terms of making sure we've got enough inventory to drive the growth we have in the fire production, as well as industrials in other parts of the world. We mentioned that U.S. was a little sluggish. Other parts of the world are not. And we've got, you know, we wanna make sure we're driving capacity and efficiencies at our plants at Vietnam and China. And then on the additional capital allocation from my money, these green fields are a lot more attractive to me than necessarily than the M&A focus because the return on the investment is fairly significant and fairly early. And so I can invest 350 to 500 in a business that I know I can get to 2 million in a 12-month.

I've got, I mean, the return on my investment is pretty swift. Okay. Sorry about that, Calvin. Go ahead. No, that's exactly it.

It's the focus that Jim just mentioned. Okay. And then debt repayment and others kind of falling under that. And if you'll follow up on that kind of status on where we are on transition to, you know, a new ABL.

Yes. We're well on our way with the ABL. We've got options. We're trying to find the best price deal for us right now. And we're well under our, we're well within covenant with our current bank. So we're not going to rush into it. We're going to be smart about it and try and pick the best deal we can.

Perfect. Thank you. Thank you. Our next question comes from the line of Matthew Galenko with Maxim Group. Please proceed with your question.

Hey, thanks for taking my question. I'm wondering just maybe big picture if you could talk about how the synergies are emerging or, you know, appearing to emerge between the I guess the products business on the fire side and the services, you know, are you seeing, interplay between them or is services almost running independently at this point? And where do you see that going in the future?.

Yes, Matt. So it is an ISP and the first word is independent and we want to be very careful about how we manage those businesses. Right now, stand alone, those businesses do incredibly well. We think, could we provide our product for a rental opportunity? Could we provide our products if opportunistically, if fire department were to come and say, we're not happy with what we're currently utilizing. Yes, we would probably look at that, but we're going to clean, we're going to be of agnostic when it comes to what we want to clean. Uh, we're not going to be critical of anybody's gear. That gear is utilized to protect firefighters and they've made a decision to be protected by that gear. Uh, So we want to be very careful about any kind of cross-selling that we're doing here that would, you know, harm what I view to be our need to stay independent.

Because these businesses will grow without the cross-selling component, and that cross-selling component will be an extra added benefit. But I still want to be cautious about that. I guess I'd like to have Barry chime in on that because I think he's got some insight on this as well.

Yes, it very much is an independent component of the business. There are opportunities that become available just because if you're servicing a fire department well, you become part of the fire department to some extent. And you gain some insight on when there's opportunities and they're looking for something else. But that's not to be run through the ISP. That's just to make another connection with somebody else to provide the support that could be from the rest of our organization on the selling side. The service piece needs to be respectful and supported as such. But then there's other aspects of service that you get involved in or can get involved in are New South Wales.

ISP LHD in Australia has become such a tight partner with the fire service there that they're now decontaminating a broader range of equipment and supporting them in other ways and starting to do some things where we've been working with our software and asset tracking and and things like that as well. So there's a broader range of services you can provide, some added tie-in, whether it's cleaning equipment and support, But still at the same time remaining as a service provider and consultant of support.

Got it. That's helpful. Then maybe just how should we think about the attach rate to the CO2 cleaning or sort of having both methods as part of the decontamination process? local governments to push for that or, you know, do you think that'll be a, you know, kind of the predominant decision or too early to tell?.

I think, Matt, we're starting to see, you know, it's interesting, a year ago, I would have told you too early to tell. And in fact, there was considerable debate, I think, among the fire world about the I think the benefits have been made pretty clear. I think the NFPA standard, and Barry, you can correct me if I'm wrong here, is 50% efficacy. You throw in CO2 in the mix with a wet wash and then a CO2, potentially you're talking about very close to almost 100% efficacy. for the fire chief to make a decision about protecting his people, um, or his or her people, um, um, I think it's a pretty easy decision. It's maybe a little extra cost, but it's, you know,.

sleeping better at night. Yes, to support that, that's correct, Jim. It is 50% is the standard, the baseline, the minimum to be recognized as a certified ISP. And the fact that the CO2 and certain levels of wet wash with the right machines and the and detergent can get to very high levels, but they are different in what they're good at. it's the combination of the two that gets the range of materials out depending on what type of environment you've been exposed to. Where one, if it's a, if it's a, a, a, a, A lithium ion battery fire and what contaminants come from that, you're going to look more towards CO2. Others, solvents and oils and greases and smoke, wet wash will be better. But the combination of the two is what provides the strongest solvents. efficacy performance. All right. Thank you. Thank you.

I would now like to turn the call back over to Mr. Jenkins for his closing remarks.

Thank you, Operator. Thank you all for joining us for today's call, and thank you to our customers and distributor partners worldwide for trusting us with your safety. Lakeland continues to be well positioned for long-term growth, and we look forward to sharing our continued progress on the next call. If we were unable to answer any of your questions today, please reach out to our IR firm, MZ Group, who would be more than happy to assist.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.

Good afternoon, and welcome to the Lakeland Fire & Safety Fiscal Fourth Quarter and Full Year 2026 Financial Results Conference Call. [Operator Instructions]

During today's call, we may make statements relating to our goals and objectives for future operations, including our goals for revenue and cash flow from operations for fiscal year 2027. 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's expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties are more fully described in our SEC filings. Our actual results, performance or achievements may differ materially from those expressed or 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, adjusted EBITDA excluding FX, adjusted EBITDA margin, adjusted EBITDA, excluding FX margin, organic revenue, 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.

First 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 would like to introduce your host for this call, Lakeland Meyer and Safety's President, Chief Executive Officer and Executive Chairman; Jim Jenkins, Chief Financial Officer, Calven Swinea Chief Commercial Officer, Global Industrials Cameron Stokes, Chief Revenue Officer, Barry Phillips; and Executive Vice President of EMEA Fire Sales, Kevin Rae. 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 20,264th quarter and full year ended January 31, 2026. The fiscal 2026 was a year of meaningful top line growth and important strategic progress for Lakeland. Kevin will walk through the financials in detail shortly, so I will provide you with a brief overview here. For the full year, net sales increased $25.4 million or 15.2% to $192.6 million, driven by continued strength in fire services.

In the fourth quarter, net sales were $45.8 million, down $800,000 or 1.7% from the prior period. U.S. sales increased 35.1% for the full year to $81.6 million and increased 7.1% in the fourth quarter to $19.6 million. Europe also grew meaningful for the full year, increasing $12.1 million or 28.7% while fourth quarter year of sales were down $2.4 million due primarily to timing on LHD and jolly orders.

On profitability, adjusted EBITDA, excluding FX, was $7.2 million for the full year and $1.3 million in the fourth quarter. Gross margin was 32.9% for the full year and 32.2% in the fourth quarter. Those results were below our expectations, and I want to be direct about why. We grew revenue at a strong rate, but we did not convert that growth into the earnings we expected. We view this as an execution issue, not a demand issue. The underlying demand environment across our core markets remains intact.

We operated in a volatile cost environment during fiscal 2026, freight inflation, raw material pressure, tariffs and certification timing delays exposed weaknesses in our planning and pricing response that we are actively addressing. Against that backdrop, I want to note something important. The fourth quarter generated approximately $2 million of operating cash, delivering that level of cash on lower revenue than the third quarter reflects improved discipline across the organization. Stronger cost control and better day-to-day execution.

We are seeing early signs and actions we have been taking are beginning to work. Subsequent to the fiscal year-end, we completed the divestiture of our HP and high dense product lines into national safety apparel, generating approximately $14 million of cash proceeds. This transaction simplifies the business and allows management to concentrate fully on our core bus services and industrial protective product lines where we see the greatest long-term opportunity.

On the product side, we achieved a significant milestone with numerous NFPA 19702025 certifications across our brand portfolio. Products including late-structural turnout and proximity gear, Meridian Globes and fire particulate blockinhoods, Jolly boots and Pacific helmets are now fully satisfied, enabling customers to order from a complete head-to-toe NFPA certified range of products across Lakeland's brands. This certification was a meaningful commercial unlock and we look forward to showcasing our portfolio at FDIC 2026 next week.

We strengthened the organization with several important appointments. Calven Swinea was named Chief Financial Officer in February 2026 and having served as interim CFO in December 2025. And Kevin Rae was recently -- just recently named Executive Vice President of EMEA Fire sales. You will be hearing more from both of them shortly. We also welcome [indiscernible] to our Board of Directors in early April. We previously served as CEO of NASDAQ-listed Transcat and his invaluable business and strategic M&A integration experience in the industrial market with a strong track of execution across both organic growth and acquisition-driven strategies will be a valuable addition to our governance.

During the year, we completed the acquisitions of Arizona PPE and California PPE expanding our U.S. fire services distribution and rental capabilities with ISP locations in Arizona, California and soon Denver. California PP also opened a new state-of-the-art facility in Fresno, providing compliant decontamination inspection and repair services to California fire departments. These recurring revenue service businesses strengthen our fire platform and build long-term customer relationships.

We also completed the $6.1 million sale and partial leaseback of the cater, Alabama warehouse property generating an approximately $4.3 million pretax gain and reducing our fixed cost exposure. And Lakeland was added to the Russell 3000 and Russell 2000 indices in June of last year, reflecting our growing market profile. Alongside these actions, we are working to further strengthen liquidity and flexibility through our pending ABL facility, which we expect to close soon, although there can be no assurance that the ABL facility will close on that time line or at all.

The Bank of America covenant waiver has been secured, and we anticipate to be in covenant throughout fiscal '27. Taken together, these steps reflect a company that is not standing still, but that one is actively reshaping its operating model to support improved performance. From a macro standpoint, fiscal 2026 was affected by tariff uncertainty, freight inflation, raw material cost pressure and certification timing delays across both fire and industrial. Those factors pressured production efficiency, revenue timing and gross margin.

We also saw a softer performance in select areas in the fourth quarter but do not view the issues in front of us as demonstration. We view them as timing, execution and cost challenges that are addressable and that is an important distinction. As we move into fiscal 2027, we are encouraged by the progress already underway and continue to make structural improvements that we believe will strengthen the business over the long term.

We are tightening forecasting strengthening accountability and putting more structure around sales and production planning. As an example, inventory ended January at $82.5 million and is down meaningful from October as we meaningfully from October as we continue to better align supply with demand. We are entering fiscal 2027 with a simpler portfolio, improved internal discipline and a pipeline that continues to build. We are now tracking modestly ahead of budget entering fiscal 2027, and our forecast is clear: convert demand into more consistent, repeatable financial performance, improved forecasting better align sales and operations, increased utilization and drive stronger margins and cash flow.

Based on the foundation we have built, we are comfortable providing goalposts for fiscal 2027 and a single -- a high single-digit revenue growth and a clear line of sight to positive cash flow from operations. Taken together, these steps reflect a company that is not standing still, but one that is actively reshaping its operating model to support improved performance.

With that, I'd like to pass the call to our Chief Commercial Officer, Cameron Stokes, to provide an update on our industrial and chemical critical environment businesses.

Thank you, Jim. Turning to industrial and chemical critical environment. For the fourth quarter, Chemical revenue increased $0.3 million to $5 million, demonstrating continued strength in that product line. Disposables revenue decreased $0.9 million and wovens revenue decreased $1 million in Q4, reflecting the macro headwinds Jim referenced, particularly softer performance in the North American industrial markets late in the quarter.

For the full year, these 3 product lines combined represented approximately 49% of total revenue, with disposables at 27%, Chemical at 11% and wovens performing at 11%. On the strategic side, the divestiture of our high-performance FR and high BIS product lines meaningfully simplifies the industrial portfolio. These lines required significant management attention and resources that we are now redirecting towards higher-margin, faster-growing opportunities within chemical critical environment and core industrial protective apparel.

The decision to divest was the right one, and it sharpens our focus on the product lines where we have a competitive differentiation and credible path to improve improving profitability. Within the business, we are seeing differentiated performance across our product line so far in fiscal 2027. Chemical critical environment is outperforming driven by continued demand from industrial and pharmaceutical end users, while wovens are tracking to plan with good visibility into pipeline.

Disposables faced the most pressure during the year driven by tariff-related cost increases and softness in select North American markets, and we have defined specific recovery initiatives underway at the account level to address that gap. From a competitive standpoint, we are not seeing broad-based shifts across the market. The movement we are seeing remains limited and localized and competitors have generally not responded with meaningful price action to date.

At the same time, fuel and logistics instability has become a more relevant variable across the market than tariff uncertainty. That backdrop reinforces our focus on tighter channel discipline better market segmentation and more targeted execution by product line and end market. Our strategy for growing these lines is straightforward. Continue to develop products and expand the range of certified high-performance offerings, disciplined strategic pricing to protect improve margins as cost pressure needs to reach a broader set of end users and reduced distributor concentration while optimizing operations to drive better utilization at our manufacturing facilities.

I'd like to note that the industrial segment tends to see its highest seasonal activity in the spring when scheduled maintenance shutdowns at nuclear, coal, oil and gas and chemical facilities drive meaningful order actuary. We are entering that period now and our teams are positioned to execute on the incoming demand.

Looking ahead into fiscal 2027, our industrial priorities are clear. We are tightening demand forecasting and improving the alignment between sales commitments and production planning. We're also actively pursuing pricing actions where cost increases warrant them. We are working to improve manufacturing utilization at our Mexico and Vietnam facilities as we consolidate our footprint and transition production from India into those sites. The tariff environment remains a factor but we are working through mitigation strategies and believe we can manage the impact without structural disruption at our cost base -- or to our cost base.

Overall, the industrial and chemical business is stable and we are focusing on converting that stability into consistent improving profitability throughout fiscal 2027.

I will now hand the call over to Chief Revenue Officer, Barry Phillips, to provide an update on our fire services business.

Thank you, Cameron. Now turning to fire services. Revenue for Q4 was $21.7 million, an increase of $0.5 million or approximately 2% compared to the prior year. For the full year, fire service revenue grew $30.6 million or 48.6% to $93.6 million. This is a significant milestone. Our Fire segment now represents approximately 49% of our total revenue, a significant transformation from where we stood just 2 years ago when it represented approximately 21%. I -- the full year growth was supported by contributions from Viridian, LHD, Jolly and Pacific Helmets as well as Arizona PPE and California PPE. These acquisitions have expanded our geographic reach, broadened our product offering and positioned us as the heat to provider in global fire protection. A platform we believe is unique in the market.

Fire demand is increasing as certification cycles are completed and tender time lines are tracking on schedule across multiple regions. These have been timing delays rather than structured demand issues. Opportunities remain in the pipeline and have simply shifted later than expected. Our tender pipeline is active globally and we continue to see strong engagement from the fire departments and the procurement agencies across the regions we serve.

We also saw meaningful international wins during the year, including significant emergency follow-on orders from the National Fire Department of Columbia and order from the Fire and Rescue Department of Malaysia and a fire equipment tender award from ANAC, Argentina's National Civil Aviation Administration. A particularly important milestone was receiving numerous NFPA 19702025 additional certifications across our portfolio, enabling customers to order a complete head to toe range across our brands for the first time. These certifications are a commercial unlock that we've been working toward and we look forward to showcasing the full portfolio at FDIC 2026.

On decontamination and services, our ISP business is growing faster than initially projected and the greenfielding and ISP M&A pipeline remain robust. California PPE's new Fresno location opened in January 2026, and our Denver location is expected to open in the summer of 2026. -- this recurring revenue model builds long-term customer relationships, generates predictable cash flow and positions us well as the fire departments increasingly invest in gear maintenance and NFPA 1950 compliance.

Fire service margins remain structurally sound as volume normalizes and tenders convert margins are expected to recover without requiring broad pricing actions. LHD Germany is stabilizing, and we expect a formal relaunch of the brand at Intercept's 2026 in June this summer and with leadership in Kevin Rae driving momentum across our EMEA brands.

Looking ahead into fiscal 2027, we have the strongest backlog in Lakeland Fire's history. We expect continued success with our head-to-toe offering and anticipated tender wins in Europe and the U.S. Our new NFPA product portfolio rollouts are well underway, and we look forward to showcasing our entire lineup at FDIC next week. I'll now pass on the call to Executive Vice President of EMEA Fire, Kevin Rae for an EMEA update.

Thank you, Barry. Before I begin, I'd like to provide you with a bit of my background. I have over 20 years of leadership experience in personal protective equipment and fire safety across the U.K. and EMEA. I joined Lakeland upon our acquisition of Eagle Technical Products where I served as a Managing Director since 2013; and then Vice President of EMEA Fire and Global M&A integration from 2022. And so just recently, having remained Executive Vice President EMEA fire sales, helping to shape Lakeland's fire strategy across the region and integrate key acquisitions into a unified operating platform.

Turning to EMEA. Europe revenue for the fourth quarter was $12.1 million, down $2.4 million versus the prior year period. This was driven primarily by the timing of LHD and Jolly orders as well as delayed government tenders and macroeconomic conditions across several markets. For the full year, Europe revenue grew $12.1 million or 28.7% to $54.2 million, a strong result that reflects the full year contribution of LHT and Joli.

The Q4 softness that we have discussed is a timing story. It's not a structural one. The tender pipeline is intact and underlying demand dynamics across the region remain supportive. On LHD Germany, specifically, conditions in that market have been challenging and we've been direct about that. We are actively restructuring with us to reduce the overhead and to rightsize the cost base for the current conditions.

Stabilization is underway, and we are planning a formal relaunch of the LHD brand at. This is the largest fire industry event in the world, and it's only held every 5 years. So this really is a significant commercial moment for us. Interset will serve as our EMEA platform launch for the combined Lakeland fine safety brand. We intend to demonstrate our integrated head offering to the European market at this event and show what our portfolio now looks like as an integrated head store offering. We view it as a pivotal opportunity for LHD Germany, in particular, as our European Fire brand broadly.

Our LHD Hong Kong and LHD Australia businesses secured new contracts during the year that solidifies those operations and build a stronger foundation for future growth in the Asia Pacific region. Late-stage tenders across the region are up, and the quality of ear pipeline has improved meaningfully. Integration across the acquired EME businesses is beginning to unlock unlock access and scale that we could not operating this brand independently.

We are now seeing we estimate to be over $5 million of incremental business opportunities flow directly through intercompany collaboration within the group. These are cross referrals, shared supply chain economics and joint initiatives. -- and that represents a growing of previously untapped sources of revenue. This dynamic is extending beyond the EMEA and beginning to manifest in Asia, Latin America and North America as well which speaks to the stability of the integrated platform.

Our objectives from here is clear: to improve the convergence across our late-stage pipeline, to convert intercompany opportunities into tangible recurring revenue and to continue building a more balanced and predictable tender pipeline across the region. I'll now hand over call to Calvin to review the financials.

Thank you, Kevin, and hello, everyone. I'll provide a brief overview of our fiscal '26 4th quarter financials before diving into the details. Net sales were $45.8 million for Q4 of fiscal 2016, a decrease of $0.8 million or 1.7% compared to $46.6 million for the fourth quarter of fiscal '25. Adjusted gross profit for the fourth quarter of fiscal '26 was $15.4 million, a decrease of $4.4 million or 22% compared to $19.8 million for the fourth quarter of fiscal '25.

Adjusted gross margin was 33.5% in Q4 compared to 42.4% in the fourth quarter of fiscal '25. Adjusted operating expenses, excluding FX, were $14 million up from $13.7 million in the prior year. Net loss was $6.2 million or $0.61 per diluted share compared to a net loss of $18.4 million or $2.2 per diluted share in the fourth quarter of fiscal '25. Adjusted EBITDA, excluding FX, was approximately $1.3 million for the fourth quarter compared to $6.1 million for the fourth quarter of fiscal '25. Adjusted EBITDA, excluding FX margin was 2.9%.

Turning to the full fiscal year. Net sales were $192.6 million for fiscal '26, an increase of $25.4 million or 15.2% compared to $167.2 million for fiscal '25. Adjusted gross profit was $66.4 million from fiscal '26, a decrease of $4.7 million or 6.6% and compared to revenue of $1.1 million for fiscal '20. Adjusted gross margin was 34.4% for the full year compared to 42.5% in fiscal '25. Adjusted operating expenses, excluding FX, increased 10.2% to $59.2 million for fiscal '26 from $53.7 million for fiscal '25.

Adjusted EBITDA, excluding FX, was approximately $7.2 million for fiscal '26 compared to $17.4 million for fiscal '25 with an adjusted EBITDA, excluding FX margin of 3.7%. Net loss was $25.3 million or $2.63 per diluted share compared to $18.1 million or $2.43 per diluted share for fiscal '25. Looking at the fourth quarter in more detail. Geographically, U.S. revenue increased $1.3 million or 7.1% to $19.6 million for Q4. Europe revenue decreased $2.4 million to $12.1 million reflecting timing of orders from HT and Jolly. Asia revenue increased by $7 million or 19.4% to $4.3 million. Latin America revenue was $3.8 million, down modestly versus the prior year period.

Adjusted EBITDA excluding FX for Q4 fiscal '26 was approximately $1.3 million compared to $6.1 million for the fourth quarter of fiscal '25. The decrease was primarily driven by the decline in gross margin related to the factors I just mentioned. Adjusted operating expenses, excluding FX, were $14 million in Q4 and and is planned sequentially across the prior 3 quarters, demonstrating that our expert system has held their business scale.

The key driver of the year-over-year adjusted EBITDA decline was gross profit compression not expense growth. As gross margin recovers through utilization improvement, pricing discipline, mix management and supply chain optimization, EBITDA will follow with meaningful operating leverage. Adjusted gross margin decreased to 33.5% in the fourth quarter of fiscal '26 from 42.4% in the fourth quarter of fiscal '25, a decrease of approximately 890 basis points.

The primary driver for product mix shift as fire services grow as a proportion of revenues at lower initial margins, manufacturing under utilization in Mexico and Vietnam; raw material cost pressure elevated inbound freight and duties and execution gaps in production plan. Partially offsetting these headwinds, Q4 showed sequential improvement in freight and duties versus Q3 and and a more favorable sales mix in the quarter.

Adjusted EBITDA, excluding FX, decreased from approximately $6.1 million in the fourth quarter fiscal '25 to approximately $1.3 million in the fourth quarter of fiscal '26, a decrease of $4.8 million or 78%. Gross profit compression was the dominant driver. Operating expense changes were minimal year-over-year, confirming that expense discipline has held. The pant to EBITDA recovery was primarily through gross margin improvement, which we are addressing through unit improvement, pricing discipline, mix management and supply chain optimization.

For the full year, adjusted gross margin was 34.4% compared to 42.5% for fiscal '25, a decrease of approximately 810 basis points. full year bridge reflects 3 primary themes. First is mix. Our fire acquisitions entered the portfolio at lower gross margin profile than our legacy industrial lines and Inspire grew to approximately 49% of revenues blended margin came under structural pressure.

Second, cost heads. Raw materials, tariffs and related freight costs impacted the full year. Third, underutilization, the manufacturing capacity in Mexico and Vietnam size for higher volumes to fixed cost deleverage and appeared to below target output was significant. We are addressing all 3 through manufacturing footprint consolidation, supply chain restructuring and targeted pricing actions. Adjusted EBITDA, excluding FX, decreased from approximately $17.4 million in fiscal '25 to approximately $7.2 million in fiscal '26, a decrease of $10.2 million or 59%. The gross profit progression was the primary driver. Reviewing our revenue mix over the past 3 fiscal years, the transformation is clear on both a geographic and product basis. On the geographic side, Europe grew from approximately 13% of revenues in fiscal '24 or approximately 25% in fiscal '25 and approximately 28% of fiscal '26 result of our LHD and Jodi acquisitions, expanding our European fire platform.

The U.S. has remained at approximately 42% in fiscal '26 reflecting the growth of Brazilian Arizona BP and California PPU, offsetting softness in industrial. This geographic diversification provides better exposure broader exposure for the global fire protection market.

On the product side, fire went from approximately 21% of revenues in fiscal '24, approximately 38% in fiscal '25 to approximately 49% in fiscal '26. To us, this is the clearest illustration of our strategic pivot for the higher margin, higher growth global fire protection sector. Disposables moderated from approximately 40% to 27% is fire grid. The divestiture of acinar and Hides further simplified this picture heading into fiscal '27. As our acquired businesses integrate and fire gross margins recover towards the structural potential our growing fire concentration should become a meaningful margin tailwind.

Now turning to the balance sheet. Lakeland ended the fiscal year with cash and cash equivalents of $12.5 million and working capital of approximately $96.5 million. This compares to $17.5 million in cash and working capital of approximately $101.6 million as of January 31, 2025. The hence decreased $5 million versus the prior year, reflecting $15.8 million of operating cash usage and $1.2 million of net investing outflows, offset by $12.5 million provided by financing activities.

As of January 31, 2026, we had total borrowings of $32.3 million with $28.5 million outstanding under the revolving credit facility with an additional $11.5 million of available credit under the revolver. Net investing activities included $6.2 million for the Arizona PPE and California PPE acquisitions, offset by $5.7 million proceeds from the Takeda warehouse sale. We applied 100% of those net proceeds to repay our revolving credit facility.

Importantly, Q4 generated approximately $1.8 million of operating cash demonstrating that our focus on cost discipline and working capital management is beginning to yield results. We are in advanced stages of negotiating an ABL facility, which we expect to close soon although they're giving no assurance that the AVO proposal will close on that time line are at all, Bank of America covenant waiver has been secured, and we anticipate to be covenant throughout fiscal '27.

We expect the ABL facility to further strengthen our financial flexibility and support growth initiatives in fiscal '27. Sequent to year-end, the divestiture of the HVFR and high-base product lines generated approximately $14 million in additional cash proceeds that is not reflected in year-end cash balances, further reinforcing our liquidity position.

At the end of Q4, inventory was $82.5 million, down approximately $5.4 million from $87.9 million at the end of Q3 fiscal '26 and essentially flat on a year-over-year basis despite revenue growing approximately 15%. Then year-over-year stability reflects meaningful progress on our supply/demand alignment initiatives. The quarter-over-quarter decline in inventory is low based, Organic finished goods were $36.3 million, down from $38.8 million in Q3. Organic raw materials were $30.9 million, down from $33 million in Q3. Reductions were also achieved across Meridian, LHT and Jolly as integration and plan process has improved.

Our immediate priorities have been in the U.S., industrial, where we saw the greatest opportunity to align balances the demand and improved working capital efficiency. Inventory optimization is 1 of the key levers in our path to improved free cash flow generation as inventory levels normalize further, carrying cost decrease in working capital is released. This helps our business to become more efficient operationally, and we see opportunities to continue this trend to an inventory lower in fiscal '27 and a disciplined demand-driven matter.

With that, I'd like to turn the call back over to Jim before we begin to take your questions.

Thank you, Calven. Fiscal 2026 was a year of significant transformation. We grew revenue 15.2% to $192.6 million, driven by a 48.6% growth in fire services built a head-to-toe global fire protection platform through multiple strategic acquisitions and made meaningful progress simplifying and strengthen the business, even as we navigated a challenging cost and operating environment. We are entering fiscal 2027 with key financial metrics, filling sequential improvement over Q4 2026.

The fourth quarter demonstrated that our operational discipline is improving. We generated positive operating cash flow, held expenses essentially flat and delivered adjusted EBITDA despite lower revenue versus Q3. These are early but tangible signs of the operational improvements we've been working toward. As we enter fiscal 2027, our priorities are clear. We will continue executing margin recovery actions across logistics, operations and pricing, including manufacturing footprint consolidation, continued efforts at cost containment across logistics and operations, including in the face of the Iran conflict and its potential impact on freight and supply chain costs, tightening forecasting accountability and implementing a stronger structure around sales and production planning, revised ERP rollout plan with our new implementation partner targeting the second half of fiscal 2027, actively drive greenfielding and M&A pipeline within our ISP space.

We opened our Fresno facility in January of this year, and Denver is expected to open in summer 2026, as Barry mentioned. Capitalize on the fire tender pipeline, including expected tender wins in Europe, and showcase our full NFPA certified portfolio at FDIC 2026, leverage our balance sheet to execute on our acquisition strategy, focused on fire turnout gear, decontamination, rental and services. Today, as we are now almost through fiscal first quarter 2027, I'm very optimistic about our business trajectory given the recent customer wins around the globe. -- the enhanced product development and differentiation with our new FirFLEX-ELETE L-100 structural firefighting boots, and recently achieved full headed total range of NFPA 19702025 certified product offerings across our brand portfolio.

Customer interest and demand is strong. Operationally, we are correctly positioned -- the core team is in place, and we are ready to capitalize on an amazing opportunity that's on the horizon for Lakewood. Based on these factors, we believe fiscal 2027 will see high single-digit revenue growth and a clear line of sight to positive cash flow from operations. We are grateful to our customers, distribution partners and team members worldwide for their continued trust and commitment and especially to those first responders around the world risk their lives every single day to protect all of us.

With that, I will now open the call for questions. Operator?

[Operator Instructions]

Our first question comes from the line of Gerry Sweeney with Roth Capital Partners LLC.

Wanted to start with the fireside. I think given some of the prepared comments, the comment was the largest pipeline in history. And I want to see -- some of this was definitely pushed out from 2025 due to government shutdown NFPA standards, et cetera. So I think we sort of anticipate a building pipeline. But the question is, how do we unlock this and maybe some more detail on the size of the pipeline and sort of how does it flow through for this year?

Yes. So I think I'm going to have Barry who's been working closely on that respond to that and then I'll chime in.

Yes, the comment was with largest open orders for Lakeland Fire in the company's history. So our open book of orders coming through scheduled forward production and the sale and invoice. That's the largest. The pipeline is the clearest view that we've been able to develop as we've been working through integrating our CRM software and program sales force globally and our sales operations team structuring it for a full view across the business. We now actually have over $130 million in open pipeline that's visible to us, over $22 million of that in higher probabilities over half. And we've got that view.

We're working diligently with our teams to keep active -- these are -- what we're seeing now is the opening of the spigot, so to speak, with the certifications coming through. departments have been waiting for that certification approval and then they start to look and bring things through. The FDIC is the key component that's next week, where most of the NFPA push is through the North and South America. And then we'll be rolling things out with the rest of the world on the big show in industries.

On that -- did you say FDIC, which is next week, is that -- after that show, would you get orders at that show? Type of opportunity that...

It's not an order writing show, but it's a very visible show -- it's Fire Department Instructors Conference, it's the longest standing fire show in North America. And 1 of the largest ones other than interests, which is 1 a 5 years. and more global. Departments will come and see kick the tires, some of them have already started to have input in for a field trial user trial, those sorts of things take place.

Sometimes you'll get orders for the commodity items, whether it's helmets boots, but if it's a larger department conversion, it's going to generally have some sort of a tender relationship or RFQ that will come into play.

That's helpful. And then switching gears slightly to the cleaning, the opportunity. Obviously, expanded in California. Arizona sounds like it's going well. You're going into Denver. How big is that business in terms of revenue today -- and how quickly can you grow that? Or do you have sort of a target that you want to grow to over the next couple of years?

Yes. So Jerry, I'll answer that. The goal is to get in the services space up to $30 million by fiscal 2028. We are ramping up that rapidly, and I would be very disappointed if it wasn't much sooner than that at this point. I think when we acquired Cal PP and Arizona PP, Calven correct me I'm wrong, maybe $4.8 million, $4.7 million, I think, in annualized revenue. They have significantly ramped that up. They are winning customers they're doing it the right way.

And the reason we're opening in Denver is -- I think I told you before that we're not going to just open it and hope they come. We have active customers who have said, "We need you to do this for us, and we needed to do it quickly. So when we opened Denver, we would expect several fibrates to be providing services for the moment we open that up. Fresno, we've seen similar -- what happened with Fresno is that we had so much activity at our Riverside facility. It was busting at it seems.

And so having Fresno and Central California allowed us to shift some of those opportunities to Fresno, while we were continuing to grow our opportunities in Southern California. While Fresno is working on that offload of capacity, they are also finding additional opportunities within Central California, adding to the Fresno mix. Arizona PPE, we're having a dialogue as a team now about expanding that footprint or increasing its warehouse capacity because they're sort of bursting at the scenes right now. So it's -- we're -- as opposed to last year, Gerry, where we were pulling stuff in from quarters on the fire front -- now we're trying to figure out how to make sure we can service it properly. Barry talks about the order -- the outstanding order flow that we have, we're driving -- that's driving us to do things.

We have our North American manufacturing leader camped out right now at Viridian because Iridium was so slow last year, we had some personnel issues where we had to move on some selling folks we've since added capacity to that plant and individuals to that plant so that we can fulfill order flow for the first and second quarter, we've got visibility into order flow now into the in the second quarter and part of the third quarter now.

So the idea here is we went from 3.5 weeks' worth of work at a place like Ceridian. -- to 8.5% or 9%, and that has obviously created challenges for us because we've got to make sure the customer gets that delivery in a timely way. That's how we differentiate. So in some of these ways, some of this stuff happened very quickly -- and we don't anticipate that momentum moving in the other direction. We think it's going to be -- and that's why we feel so optimistic because for for the first time, we have a production problem, not a sales problem.

On your guidance, you said high single digits. And I think on the chemical moving side of the commentary is sort of like it's stable. Is that high single-digit guidance a function of the visibility you're seeing on the fire side today?

Yes. It's a combination of that. And what we're also seeing on the -- look, the industrial segment, I'll just give you an example in the United States. I get something called Cleveland Research. I get that from our partners at Lindie in Cleveland Research is sort of a survey of industrial channel partners, large industrial channel partners and regionals and they're sort of taken where they think the market is going to be we have always been about Cameron's philosophy. It's always been about trying to steal market share, which is really important in a business that is mature as the industrial business.

But I will say that with the clear research report historically as the saying to me was a 0.5% growth in the market in the industrial market in North America, maybe maybe 0.8%. Well, now it's 5%. The forecast is 5%. So when you're racing and being the most nimble in a market, and you've now got the team in tow in your sales field that we didn't have historically and regional leaders that we didn't have historically that forms a lot of optimism on our front on the industrial space as well. And obviously, that -- you couple that with what we see in fire, both U.S. and globally.

I mean, Kevin Rae got his team in play in a lot of different opportunities that we would expect -- I mean we would expect to hear soon on several opportunities in Europe, where I think we've got we've got such close visibility to it, I'd be really stocked if we didn't win them. I look at places like the U.K. and -- great Britain, I would be -- I think we're in really good shape there.

One more quick question, I apologize. Margin, can you do a quick margin bridge. So it's around 32%. You're at 41% a year ago. So but if you have volume, you have like cost around logistics, input costs. and then pricing. Can you just bucket those 3 out real quick as to like how much of the downturn in margins each one that's played?

Gerry, the bulk of it is mixed. If the sales mix,, you've got kind of the freight -- your other -- your freight duties and materials costs gets you the the rest of the way. But the majority of it was the mix.

So if you say mix, would that mean if like fire volumes improve, that we should see an improvement in -- or saying the pricing of the gear with -- the margins, I think you're allowing at up the price.

It's really -- it's -- in terms of the fire services, your higher margin as the turnout gear and then you've got lower margin on -- we're currently in certification right now. We're working on getting certification from to be able to manufacture Viridian product in Mexico. I've talked about this for quite a while. UL has been backed up doing certifications for fire. That backup, I think, has subsided.

So I would expect to hear from them sometime in the summer. And then I can start manufacturing Viridian product in Mexico, and that is -- the Latin American market for Viridian is really the fastest growing. I can also -- I'm also looking for a certification for Lakeland product at Viridian so that were needed. I can win where departments require made in U.S. now manufacturing -- soon to be manufacturing LHD in China, and I'm currently manufacturing Eagle in China, where we can, where we don't have issues with proximity to some regions in Europe where Kevin will still use third-party contractors.

So yes, we're would expect those margins to improve. And as we garner critical mass, in the services business, while those services business don't necessarily have great gross margin, their EBITDA margins are significant. And that's why I have an urgent need to continue to drive growth in those businesses.

Got it. I'll jump back into coldquite a few questions, but thank you.

Our next question comes from the line of Michael Shlisky with D.A. Davidson.

It was a little hard to tell about how you feel a quarter-to-quarter about the organic growth rate throughout the year. Do you think it might set off the year slower than asset rate and end up at a higher rate -- or it could be a somewhat smooth year organically throughout the 4 quarters? I think historically, we started off a little slow in the beginning -- in the first quarter of the year, and you'll see improvement as we move throughout the year especially now since we're looking at picking up the certifications, we're thinking at the certifications and see the demand increase, and that did not happen.

That happened mid mid-first quarter. So it's going to take a little bit of time to those orders to come through. SP-10 Got it. Got it. On the ISP growth, it was interesting to see that you're opening in Denver, maybe sense as to maybe what was the start to finish? When did you first hear you should be opening in Denver? And what is the time frame from when that point was to when you're actually opened or about to be opening -- and are there any opportunities in other states or states beyond Denver once that's open and around this year.

Yes. So Barry, you're at the heart of the Denver opportunity right now. Why don't you answer that one?

So the Denver opportunity came to light just a few months ago. We've been -- our team and the leaders of our ISPs, Mike is very well connected and known across the country. He used to be with CAL FIRE. He ran their PPE program for many years before retiring and opening up California PPE. So we're well connected. We know who's doing what and where. We were aware of an opportunity because a major competitor pulled out of the region. We know some of the technology providers because we have partnerships with them for the cleaning gear that drives our high efficacy ratings.

And we found departments in that area that we're looking for us and actually spoke to Mike, in particular, about coming in and taking care of their products for them. So we've acted quickly. We've hired the leader for that site. She comes with strong background and experience in the industry, and we're in process of things up and running.

Our Fresno site, for example, as a footprint, we use that as a template to build out our sort of cookie-cutter franchise type of thought on it is how to quickly ramp up. We did that in about 1.5 months. The longest lead item is what the first is securing the site -- and then after that, it's getting UL certification. The other part is just we know what to do, where to set it up, how to set it up, how to set the flow in the process and what sort of resources we need to fulfill it.

And Mike, and the other part of the half of the question. Go ahead, Jim. Yes, I was going to say we've got several other opportunities that we're looking at from a greenfield perspective. that we're doing some market research on. Mike is checking out some opportunities in the Southeast. He's got a few meetings next -- actually, he's leading FDIC for a meeting in the Southeast to look at opportunity there. Obviously, we want to be in the Midwest. We -- what I would invite over the course of the next year would be probably another $3 million to $5 million.

Add-ons in a perfect world for a great yield. So we have another 3 to 5 between greenfield and acquired companies. And as I said, these acquisitions are much lower cost much higher rate of return from -- just from a pure synergy perspective because they kind of drive themselves and they can scale quite nicely and Mike knows how to scale them and knows how to identify the people within a region to help drive that growth. And he's already got sort of a business plan on that front to help drive that.

So I would envision 3 to 5 additional ones beyond Denver in North America. Kevin Rae has reached out to me. He wants 1 in Germany. I think it would make sense for us to do that. I think 3% to 5% in North America is probably for the next 12 months what I'd be focusing on them.

Great. And maybe 1 last quick 1 for me. Kevin, welcome. Last you got a head of EMEA fire. -- what's the structure of the sales relation globally? Is it someone that's going to be ahead of North America so that it's going to be hiring. I want to get a sense of the leadership structure we have a North sales Yes, we have a North America -- we had that already. He reports into Berry. Everybody reports other than Kevin, everyone reports up through Barry, Barry is ultimately responsible for our global strategy.

He and Kevin work together on the European side. I brought Kevin on board formally because, frankly, defacto, he's been a member of the management team for at least the last year, where he was helping integrate the Jolly and LHD brands.

Okay. Our next question comes from the line of Mark Smith with Lake Street Capital Markets.

You got Alex Jones on the line for Mark Smith today. First 1 for me. Gross margins have been under pressure all year. Walking into fiscal year 2017, what are the biggest drivers of margin improvement there? And what's the sequencing kind of look like? What gets better first versus what takes longer to come through? I think it's really going to be the sales mix trying to drive that. And what we see is with the increased demand on the fire side, especially in the higher value products. we'll see that starting really in -- we start to see that in maybe late Q1, but most likely Q2 is really really really start to see improvement.

And you add that to some of the synergies we're driving with manufacturing place for people like Eagle, products like E-builder products like LHC in China as opposed to utilizing third-party manufacturers and the move of Viridian's fire manufacturing for Latin America into Mexico, and we think that, along with selling more turnout year on the fire front really adds to the margin.

Okay. That's helpful. And then last 1 for me. The high performance in hybrid sales at about $40 million. It sounds like the balance sheet is the priority there for those proceeds. But -- is any of that set aside for bolt-on deals? Or any additional color on M&A would be great. Balance sheet.

Yes. The M&A opportunities will have. One of the reasons why we're looking at an ABL because we're in good shape either way. But 1 of the reasons we're looking at the ABL, we like a little more availability to do some of these smaller acquisitions. But whether we don't go that route or others, I mean it's -- we'll find a way to do it. And as I said, and not expensive deals.

Our next question comes from the line of Matthew Galinko with Maxim Group.

I think you mentioned $5 million in intercompany sales activity. I'm wondering how you expect that to evolve now that you have got a head postered kind of what do you expect from it? And next fiscal year.

We expect it to grow significantly. We've got we've got an NFPA boot now for Jolly that we are going to -- we just got certified, so we'll be rolling that out. And boots and gloves and helmets and hoods, it's very nice to say their in-stock products that we need to have. The reception of the helmets right now is significant and has exceeded our expectations. -- in the U.S. markets. So that is something that we think will continue to grow.

The boots, I think, were very well received in the war trials. So we'll see some pickup from that. And Kevin has only recently started to drive the sales teams within the Eagle -- not so much of the eves I think he's been doing it with ego, but more with LHP and with Jolly, sort of the cross-selling of the brands within the other markets. And Jay has been very well received in the Latin American market. And now that we have an NFPA boot where Latin America does like have the choice and FDA offering, we would envision an ability to be able to sell into that market as well. Do I have a dollar amount on that? I don't. But I would expect it to be -- we would be -- it's going to be really, from my perspective, very easy to be able to drive some of the growth in brands within a market like the U.S. that until these certifications are standardized and finalized, we were not able to sell.

Is also like to say across the globe, the brand is getting brand recognition. -- late in fine safety in the last 12, 18 months is becoming a much higher profile brand is gaining credibility across all the categories that we supply in. So we're seeing more inquiries of a higher quality. -- because of that.

And to add to that, these brands that were regional manufacturers the work for distribution globally with limited sales resources, now have the full Lakeland sales team around the globe. -- representing them. So they're getting in front of -- it's getting the sub-brands under the umbrella brand into end users and to key channel partners if they didn't have the opportunity in the past, and that's where it's growing. SP1 Thank you. And we have reached the end of our question-and-answer session. And therefore, I would like to turn the call back over to Mr. Jenkins for his closing remarks.

Thank you, operator. Thank you all for joining us for today's call, and thank you to our customers and distributor partners worldwide for trusting us with your lives and safety. Lakeland continues to be well positioned for long-term growth, and look forward to sharing our continued progress on the next call. We will also be attending FDIC 2026 in Indianapolis from April 20 to 25. So please stop by and say hello through there. If we were unable to answer any of your questions today, please reach out to our IR firm, MC Group, who will be more than happy to assist.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good day, and welcome to the Lakeland Fire and Safety Third Quarter 202 Financial Results Conference Call.

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 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 supplemental slides detailing these results was issued this afternoon and is available in the Investor Relations section of the company website, [email protected].

At this time, I would like to introduce you to our host for this call, Lakeland Fire in 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 3rd 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 were 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 2 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. Through throughput and mix in efficiencies affected COGS, labor and our mix 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 fire finance 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 2 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 3-year contract to provide advanced decontamination, managed care and maintenance services for the Hong Kong fire services departments, 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 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 Eagle and LHD 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 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 Calven Swinea as interim CFO effective January 1. You'll be hearing from Calven 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 results or projections. We will provide regular updates on key operational milestones, inventory reduction progress, margin improvements and ERP and integration time lines.

When our forecasting accuracy, sales cadence and operational visibility improved 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 time lines extended longer than anticipated across multiple regions. These are timing delays rather than structural demand issues. The opportunities remain 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 protected 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 in FY '27.

Fire service margins remain structurally sound. The temporary compression came from the 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 at any time in the company's history. The Jolly and NPA launch is progressing, LHD Europe is stabilizing and we're positioning the entire fire platform across the upcoming global cycle.

I'll now pass the call to Cameron to cover our industrial and chemical critical environment sectors.

Thanks, Barry. During the third quarter, industrial demand softened across several industrial channels faster than expected. Distributors reduced inventory, certain customers deferred purchases and competitive pricing tightened in pockets of the market. Our forecasting did not capture these shifts quickly enough, creating the variance between expected and actual performance. We are seeing cyclical adjustments in certain channels, not long-term erosion. Several customer segments and geographies show stabilization signals and we expect run rate predictability to improve as customer inventories normalize.

In response, forecasting has been unified into a consistent process across all industrial regions with more rigorous mid-month accuracy checks and tighter reconciliation with distributor data. We've shifted to channel-level segmentation, so forecasting reflects real behavior inside customer groups rather than broad regional assumptions.

Looking to our competitors, share movement has been limited and localized. Pricing pressure has increased in spots where certain competitors have short-term tariffs or sourcing advantages. We are addressing this with selective incentives aimed at volume stability while managing overall margin discipline.

Our sales strategy requires rebuilding distributor run rates reengaging customers who deferred purchases, tightening CRM and channel discipline and stabilizing the chemical and critical environment segment. These actions create a predictable foundation of volume. When delayed tenders, certifications and turnaround activity return, that volume becomes upside that drops directly to operating leverage.

The goal is stable, predictable growth driven by improved forecasting accuracy, stronger distributor engagement, recovery and delayed chemical and critical environment orders, disciplined channel management. We are focused on building consistency rather than volatility.

With that, I'd like to pass the call to Calven to cover our financial results.

Thank you, Cameron, and hello, everyone. I'll provide a quick overview of our fiscal 2026 3rd quarter financials before diving into the details.

Revenue for the quarter grew $1.8 million year-over-year to $47.6 million, an increase of 4% compared to the third quarter of fiscal 2025. Consolidated gross margin decreased to 29.7% from 40.6% for the third quarter of fiscal 2025 and while our adjusted gross margin decreased to 31.3% as compared to 41.7% in the year-ago period. Adjusted operating expenses increased by $0.4 million from $14.3 million in Q3 of last year to $14.7 million in the third quarter of fiscal 2026 primarily due to inorganic growth.

Net loss was $16 million or $1.64 per basic and diluted earnings per share for the third quarter of fiscal 2016 and compared to net income of $100,000 or $0.01 per basic and diluted earnings per share for the third quarter of fiscal 2025.

Adjusted EBITDA, excluding FX, was $0.2 million for the quarter, a decrease of $4.5 million or 95% compared with $4.7 million for the third quarter of fiscal year 2025. Adjusted EBITDA, excluding FX margin in the third quarter of fiscal 2026 was 5.5%, a decrease of 988 basis points from 10.3% and in the third quarter of fiscal 2025 and a decrease of 918 basis points from 9.6% in the second quarter of fiscal 2026.

Cash and cash equivalents were $12 million on October 31, and of 2025 compared to $17.5 million on January 31, 2025. On a consolidated basis, for the third quarter of fiscal 2026, domestic sales were $19.2 million representing 40% of total revenues, and international sales were $28.4 million, accounting for 60% of total revenues as our recent Veridian acquisition contributed to increased U.S. revenue. This compares with domestic sales of $15.4 million or 34% of the total and international sales of $30.4 million or 66% in the third quarter of fiscal 2025.

Looking at our third fiscal quarter of 2026, our quarterly revenue faced challenges globally. Sales from recent acquisitions accounted for $10.1 million, while organic sales were $37.5 million, Sales of the fire services product line increased by $6 million year-over-year, driven by $3.4 million in sales from Veridian as well as organic fire services growth of $3 million.

Adjusted gross profit for the third quarter of fiscal 2026 was $14.9 million, a decrease of $4.2 million or 22% compared to $19.1 million for the third quarter of fiscal 2025 due to lower sales, higher product costs and tariffs and impacted U.S. gross profit by $3.2 million versus Q2. Adjusted gross profit as a percentage of net sales decreased to 31.3% and the third quarter of fiscal 2026 from 41.7% for the third quarter of fiscal 2025.

On an adjusted basis, operating expenses, excluding foreign exchange, were $14.7 million in the fiscal third 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 were stable and increasing by $1 million or 1% due to focused cost control measures and the previously mentioned initiatives.

Adjusted EBITDA, excluding FX, was $200,000 for the fiscal third quarter, a decrease of $4.5 million or 95% compared with $4.7 million for the third quarter of fiscal 2025 and a decrease of $4.8 million or 98% compared with $5.1 million for the second quarter of fiscal 2026. The significant decrease was a result of lower performance in North and South America. Adjusted EBITDA FX margin was 0.5% for the most recent quarter, a decrease of 988 basis points from 10.3% in the third quarter of fiscal 2025 and a decrease of 918 basis points from 9.6% in the second quarter of fiscal 2026.

Revenue for the trailing 12 months ended October 31, 2025, was $193.5 million, an increase of $41.7 million or 27% and versus the Q3 fiscal 2025 trailing 12 months revenue of $151.8 million with our recent fire service acquisition supporting Lakeland's continued revenue growth. Trailing 12 months adjusted EBITDA, excluding the impact of FX, was $9.3 million compared to $11.7 million for the prior quarter's trailing 12 months. The decrease was driven by lower margin revenue mix increased material and freight costs and tariffs.

Considering we completed 4 acquisitions in the past 12 months, the full integration and implementation, which requires some time, we believe the resulting synergies and efficiencies will begin to translate into stronger financial performance in the coming quarters.

Adjusted gross margin percentage decreased in the third quarter of fiscal 2026 to 31.3% compared to 41.7% in the same period last year due to lower acquired company gross margins. increased material supply chain costs and tariffs. Margins in the acquired businesses were impacted by increased material costs. Adjusted EBITDA, excluding FX, was $0.2 million for the fiscal third quarter a decrease of $4.5 million or 95% compared with $4.7 million in the third quarter of fiscal 2025. The decline was driven primarily by significant revenue shortfalls in Latin America, our highest margin region and lower-than-expected sales in the U.S. fire and industrials.

Veridian, LHD and Eagle were also impacted by NFPA certification delays and slower tender conversion globally. These factors more than offset the reductions achieved in operating expenses. We are currently implementing an additional $1.3 million of cost reductions for the fourth quarter.

Reviewing our performance for the third quarter, our most recent acquisition of Veridian contributed $3.4 million in revenue during the quarter, and LHD added $6 million across 3 subsidiaries, Germany, Australia and Hong Kong. We expect sales from our fire services to accelerate as we fulfill open orders, capitalize on cross-selling opportunities and execute on our sales and tender pipeline.

Looking at our organic business. Our U.S. revenue decreased 3% to $15 million from $15.4 million, driven by declines in our industrial business due to tariff uncertainty. Our European revenue, including Eagle Jolly and our recently acquired LHD business, increased 6% to $15.2 million. We continue to see very good sales opportunities in Europe and are committed to its growth trajectory.

Our Latin American operations experienced a $0.8 million decrease in sales from $5 million in the year ago period to $4.2 million in the current quarter, primarily due to ongoing delayed purchase decisions resulting from political uncertainty. In Asia, sales decreased 19% year-over-year from $3.6 million to $2.9 million.

Regarding product mix for fiscal year-to-date 2026, our fire services businesses grew to 49% of revenues versus 39% for fiscal year 2025 driven by a full 9 months of region sales and organic gains in the U.S. For our industrial product line, disposables accounted for 26% of the year-to-date revenue, while chemicals accounted for 11%. The remainder of our industrial products, including high performance and high vis accounted for 14% of sales.

Now turning to the balance sheet. Lakeland ended the quarter with cash and cash equivalents of approximately $17 million and long-term debt of $37.1 million. This compares to $17.5 million in cash and $16.4 million in long-term debt as of January 31, 2025. As of October 31, 2025, our long-term debt of $37.1 million included borrowings of $33.2 million outstanding under the revolving credit facility with an additional $6.8 million of available credit under the loan agreement. We were in compliance with all our credit facility covenants.

In August, we sold our Decatur, Alabama property for $21 million less customary commissions and closing fees and applied 100% of the net proceeds to repay our revolving credit facility. Net cash used in operating activities was $17.6 million in the 9 months ended October 31, 2025, and compared to $12.5 million in the 9 months ended October 31, 2024. The increase was driven by a decline in profitability previously discussed, ERP implementation costs and an increase in working capital of $7.9 million.

Capital expenditures totaled $0.8 million for the 9 months ended October 31, 2025, primarily related to replacement equipment for our manufacturing sites and develop technology projects. We anticipate FY '26 capital expenditures to be approximately $1.2 million.

Lastly, given near-term headwinds and in order to prudently manage our cash, the company has made the decision to suspend its quarterly cash dividend on our common stock. We believe reinvesting profits into growth opportunities such as acquisitions, our market expansion is a better return for shareholders in the future. The payment of any future dividends will be at the discretion of the Board and will depend on the company's financial conditions, results of operations, capital requirements and any other factors deemed relevant by the Board.

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 specific categories. Our immediate priorities include U.S. industrial, Jolly, LHD and Veridian, where we see the greatest opportunity to align balances with demand and improve efficiency. Inventory of acquired companies totaled $14.3 million versus $7 million last year. $6 million of the acquired companies increase came from the Veridian acquisition and LHD's inventory increased by $1.3 million versus last year. Year-over-year, we saw an increase in our organic inventory of $7.9 million versus the quarter ended October 31, 2024.

Organic finished goods were $38.8 million in the third quarter of fiscal 2016, up $5.6 million year-over-year and down $0.5 million quarter-over-quarter. Organic raw materials were $33 million in the third quarter of fiscal 2026, up $2.1 million year-over-year and down $0.4 million quarter-over-quarter.

With that overview, I'd like to turn the call back over to Jim before we begin taking questions.

Thank you, Calven. In conclusion, we continue to demonstrate net sales growth, reflecting the strength of our underlying business. This growth is further supported by a 31% year-over-year increase in our fire services. our robust pipeline of approximately $178 million includes approximately $38 million in near-term high-probability opportunities, providing momentum heading into fiscal year '27.

We are now starting to see tender wins for calendar Q1 2026 across the entire product portfolio. These opportunities are positioning us for expanded operating leverage with expense reductions and expanded margins as tenders deliver margins above normalized profile.

Our near-term strategy is focused on navigating the continued challenges from the evolving macro environment while expanding top line revenue in our fire services and industrial verticals. By maintaining a focus on operating and manufacturing efficiencies, we believe we are well positioned to deliver higher margins and improve free cash flow all against the backdrop of ongoing macro uncertainties.

Looking long term, our strategy remains to grow both our fire services and industrial PPE verticals through our strategically located company-owned capital-light model. By maintaining a focus on operating and manufacturing efficiencies, we believe we are positioned to grow faster than the markets we serve. Our acquisition pipeline also remains robust with active discussions underway in line with our overall growth strategy. Although challenges have affected our forecasting ability and we have withdrawn our formal guidance, we expect top line revenue growth in the high single-digit revenue growth across global operations over the next 3 quarters.

We are targeting 10% to 12% adjusted EBITDA margins with incremental growth in EBITDA margins over the next 3 quarters. Looking further ahead, we expect 15% to 17% adjusted EBITDA margins over the next 3 years through cost discipline operational consolidation and targeted commercial investments. As we look forward to the future, we are confident that our continued focus on targeted acquisitions will serve as key growth drivers over the next 3 to 4 years. We are actively engaging in discussions aligned with our decontamination rental and services growth strategy. We look forward to sharing upcoming milestones in the weeks and months ahead.

With that, we will now open the call for questions. Operator?

[Operator Instructions] And our first question comes from the line of Gerry Sweeney with ROTH Capital Partners.

I wanted to talk about the fire service tenders, $38 million high probability. What makes you think they're high probability? And then the follow-on of that was would be that $178 million total, is there an opportunity for that to expand further, especially with some of the NFPA determinations coming out in the next couple -- hopefully, in the next month or 2.

Yes, Gerry. So Yes. So I'm going to -- I'm glad Barry is here. It's one of the reasons why I wanted to have Barry and Cameron here was to talk about some of these opportunities. And Barry, I'll let you sort of answer that because I know there's a number of buckets that those fall into those high probabilities.

Yes. Thanks, Jim. There are places there's 4 buckets to position ourselves in a high probability position is, are we the incumbent, so do we already have the business with that core relationship with that end department. Next would be is the competitor that's incumbent struggling in some manner. Additionally, we are also looking at where we can come in with multiple brand strategy. And with some of our portfolio that we have overlaps in year, for example, we can have more bids involved in the process. And lastly, if we're positioned well with the department and we're written into the specifications.

So Gerry, that $38 million is where all of those sort of 4 buckets fall for us. So that's why we view them as high probabilities. And then that $178 million, look, we had all the high probabilities, and we'll win some of the others in $178 million. But I think if you talk to any of our competitors, they'll say the same thing. Once these certifications and standards are adopted, sort of the floodgates should open over a period of time.

And again, I think -- what we're trying to caution is it's not going to -- it's going to happen, and it's going to happen during fiscal '27, but it's going to happen over a period of time during that fiscal year. I look at certifications and standards and they appear over a very long period of time, there's a 10-year sort of window for these standards. And kind of like the cicadas, they show up every 17 years, these standards kind of show up. And when they do, there's a bit of a loggerhead here that kind of gets kind of slows it down on the decision-making front.

I talked about this in prior calls about the '25 year automobile model versus the '26 and waiting. And this is exactly what's happened I think in the tender cycle that we're seeing is that these tenders, particularly in the U.S. and in areas where NFPA is becoming more rapidly accepted, those tenders have slowed. And so we'll see those pick up as soon as those standards are issued. But recently, we believe the standards were going to come into play in March 25. They were then extended to September of '25 and ultimately extended to March of '26. We have no reason to believe. And in fact, what we're hearing is that, that will be the date, the '26 should be to date, March '26 should be to date. So that's why we're feeling very bullish about where we're driving our fire opportunities.

Got it. And then on the margin front, if I heard you correctly, Obviously, there's a lot more costs, tariffs, raw materials, logistics, et cetera. But it sounded also -- that sounds as though you could recover those costs to just higher absorption or higher production levels and absorbing some of the overhead? Did I hear that correctly? Or could you walk through that?

That is correct. It's a function of getting ourselves at full capacity at a certain dollar amount where that operating leverage kicks in. So that's a critical component to it. The other is while you're waiting for tenders you're selling goods and gloves and boots and frankly, lower margin products to your captive customers who have those needs, and occasionally replacing turnout gear, but it's not 500 suits or 1,000 suits, it's 50.

So yes, it's actually a reflection of product mix. So typically, we'd be having a high range or more than 2/3 of our fire sales would be in custom-made turnout gear and the remainder being the commodity products, now we're in the higher range in the commodities while we're waiting for the turnout of your business to come back into -- with the new standard.

You kind of couple that in a perfect storm with what's transpired in Latin America, where we've had a significant reliance on Argentina, whether that was true or not, it was just the case. And you dropped that high margin and you dropped the high margin, you see some softness in the high-margin areas in Canada, and that generates sort of a perfect storm when you've got the industrials that have a geopolitical component and then we have a tender delay. I'm not suggesting those are excuses. Those are just -- we need to work our way around those excuses or those issues, and we are. And we're driving similar opportunities in industrial, and I can certainly have Cameron address that.

Got you. One more question. Obviously, multiple international acquisitions, global footprint. How important is getting the ERP system up and running to really give you visibility on those mechanics?

The ERP system, so there's a couple of places internationally where the ERP -- the systems you have are pretty solid. China has got a good system for Asia. We've got a nice system in Argentina for Latin America. And so those are -- we look at those as lower priorities. Veridian has a very solid ERP system as well. So the prioritization of this right now is North America, which we're driving towards a June, July rollout for our SAP implementation. And then the next phases are, frankly, to look at some of the acquisitions and folding some of those in. And then it's Vietnam and some other areas.

So it's going to take a prolonged period of time but getting the first step in place, which is North America, which is the sort of the brains of the organization, so to speak, the rest of the world is sort of the heart, having the brands of the organization with a solid system in place is going to service us mightily. Would you agree, Cameron?

Yes. Yes.

And our next question comes from the line of Mark Smith with Lake Street Capital.

I just wanted to ask about kind of certification delays. Can you give us an update on anything that changed on that since the end of the quarter?

Yes. So the certification -- the delays in certification, we knew that, that certification was coming in March of '26. We also know that all of our products are in the queue for certification with all of our competitors. And I don't believe there's any exceptions at this point, Barry. So I'll ask you -- I mean, to the extent that we don't expect any further delays on that front.

The one thing that is different in this cycle amongst my crew in this space. So this is actually the combination of 4 standards that were brought together as opposed to having a specific certification standard for firefighting gear. It now was grouped together where it includes firefighting gear, it includes SCA, PASS or Personal Alert Safety Systems as well as tactical peril, all under one standard. So that's forced now all the manufacturers to hustle in and go to the same sort of in agencies to address all these products that now need to be recertified. So there's quite a backlog at the certification agencies, which has been causing some of this delay for all of us.

Okay. And then if you think about kind of mitigate and offer to improve gross profit margin, can you just talk about headwinds and this one maybe you expect to normalize?

Look, I think on the headwind front, sort of the tariffs, I mean, you've got we got to see with the tariffs. We're addressing that as best we can with sort of programs with our suppliers, we're simplifying the product line and sort of shifting production towards the higher-margin categories as those certifications come online, which is a certification component. And the idea here obviously is to do that do an SKU rationalization, which we're in the middle of.

We're rationalizing -- I mean we've got in on the past from a legacy perspective. We've had thousands of SKUs that Helena and her team are rationalizing now down to a much more manageable number. And of course, we've got the targeted inventory reductions and we're about 1/3 of the way there towards year-end of about $6 million, and we're hopeful we can get a little bit north of that.

So go ahead, Barry.

Yes. Additionally, we are bringing third-party manufactured products into our own factories, in particular, with our turnover production.

Okay. And then lastly for me, thinking about tariffs, pipeline cost, raw material cost, can you just talk about pricing opportunities?

Are you talking about pricing increases?

Yes.

Okay. So yes, so we have our annual pricing increases that have been -- are being communicated in fire and in industrial. We've got a different -- obviously, there are different businesses. So we're addressing them differently. It's not going to be a one-size-fits-all. We have pivoted a little bit in the tariff range because we have seen competitive pressures on pricing in that regard.

We still are sitting on a significant amount of inventory in the CE space, the critical environment space that we're looking to move on that is not is not tariff driven because we've got it in the states now. So we are increasing cases. We're not going to do them across the board. We're going to do them strategically. We've done it in fire, and we're doing it in industrial, and those are driving some additional decisions.

Cameron's got an inventory reduction program that he can certainly speak to that is driving decisions because our year-end is February 1, and a lot of our channel partners have new budgets starting January 1. So we're introducing some programs here to help drive some inventory towards the end of this fiscal year. with customers that beginning January 1, we'll have new money to utilize for that.

And our next question comes from the line of Mike Shlisky with DA Davidson.

Just to start with, I want to maybe ask for a quick NFPA 101 here. As far as I could tell, you're paying member or paying a paying customer of this organization, people on the board on the committee that approve all these products. And now their action or their lack of action is now causing your business to struggle and other parts of the industry as well. I get that they need time to make sure that firefighter safety is obviously the most important priority. But do you know what they're doing at the NFPA to increase their approval throughput. It just seems like at this point, they're now affecting business activity among their members, and that sounds like a real issue.

NFPA is a standard writing body. They are not the certification agencies that certify the product. And the NFPA standard writing process, it involves a combination of end users, manufacturers and third-party experts that build up that committee and build up and write the standards that then go through the process and are reviewed on a 5-year cycle. So once the standard is written peer reviewed and approved and in process, then becomes the timing of -- from a manufacturing perspective is building to that standard, submitting to that standard of third-party agency and then basically waiting for the third-party agency to commit the approval or provide whatever actions well, generally UL has now all of our competitors and our products sitting there and they've got limited resources.

Okay. So now let's go the next question. They're a public company at this point. And their lack of action is now causing your business to suffer. So have you heard anything from those folks about how fast they're going to increased the throughput of approvals?

They are working with the resources that they have available to them and working through the process. We have -- there are options to go to other certification agencies and we use different certification agencies around the world, but we find the same level of performance to wrap. We are committed to push through as rapidly as possible and we'll continue to do so. It is a third-party agency and it's outside of our control.

Okay. Maybe last one on this topic. Who's paying the bill the NPA or Lakeland for the UL and other agency testing?

Each manufacturer pays for their certification activities.

Okay. SP1 Thank you for all the information. Moving on, on the Hong Kong deal in Malaysia, do you think those are going to provide an is margin benefit given the size and the footprint you have there? Should we expect to see some really good margins I guess, starting in fiscal '27 from those 2 contracts?

Yes. The Malaysia contract, certainly, that's a high-margin opportunity, long-term opportunity for us. Hong Kong continues to generate really decent margins for us. The tragedy that occurred in Hong Kong, exactly when you operate a business like this, strategies end up generating, frankly, opportunities. And in Hong Kong, our team set hours and hours and hours over time, helping that Hong Kong team as they thought those fires in those 4 buildings and people lost their lives.

They're going to need a lot of -- they're going to need a lot of new turnout gear as a result of that. And we've been on the phone periodically with our friends in Hong Kong driving that business. and they're suggesting to us that we'll see a bump in business there probably in the first quarter of fiscal '27.

Okay. Great. Sounds good. And then I guess, given this data, there's some -- quite a few contracts in the pipeline on the fire side. But given the status of -- you mentioned there are some customers or some competitors that were struggling, are you concerned at all in the pricing environment for what's being bid on today and some of the other folks out there might get a little bit of rationale if they're in a bit of a pickle financially?

Well, struggling can be at various different batches. Sometimes it's struggling just to perform and support and provide the equipment in a timely manner. One of the things the standard is also providing is there are requirements -- varied requirements in the fabrics that are being used in the products. So it's changing the buildup of those products, which is going to change the price point actually at a higher level in the marketplace because of the needs to incorporate the more advanced fabrics into the year.

Thank you. And with that, there are no further questions, I'd like to turn the call back over to Mr. Jenkins for closing remarks.

Thank you, operator. Thank you all for joining us for today's call, and thank you to our customers and distributor partners worldwide for trusting us with your lives and safety. Lakeland continues to be well positioned for long-term growth. If we were unable to answer any of your questions today, please reach out to our IR firm, MZ Group, who will be more than happy to assist.

Thank you. And with that, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time, and have a wonderful day.