Lakeland Industries, Inc. (LAKE) Q4 2025 Earnings Conference Call April 09, 2025 04:30 PM ET

Company Participants

Jim Jenkins - President, Chief Executive Officer & Executive Chairman
Operator - Conference Call Operator
Moderator - Conference Call Moderator
Roger Shannon - Chief Financial Officer & Secretary

Conference Call Participants

Mark Smith - Analyst, Lake Street Capital
Jerry Sweeney - Analyst, Roth Capital Partners
Mike Schleske - Analyst, DA Davidson

Operator

Good day and welcome to the Lakeland Fire and Safety fiscal 2025 fourth quarter and full year financial results conference call. All lines are in place on a listen only mode and the floor will be open for your questions and comments following the presentation. During today's call, we will make statements relating to our goals and objectives for future operations, financial and business trends, business prospects, and management's expectations for future performance that constitute forward-looking statements under federal securities laws.

Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our SEC filings. Our actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call.

On this call, we will also discuss financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP, including adjusted EBITDA, including FX and adjusted EBITDA excluding FX margin, organic sales, organic gross margin, organic SG&A operating expenses, 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. A press release detailing these results crossed the wire this afternoon and is available in the investor relations section of our company's website, ir.

lakeland. com. At this time, I would like to introduce your host for this call, Lakeland Fire and Safety's President, Chief Executive Officer, and Executive Chairman, Jim Jenkins, and Chief Financial Officer and Secretary, Roger Shannon.

Mr. . Jenkins, the floor is yours.

Jim Jenkins

Thank you, Operator, and good afternoon, everyone. Thank you for joining us today to discuss the results of our fiscal 2025 fourth quarter and year-end, January 31, 2025. For those of you new to the Lakeland story and our strategy, we are a global manufacturer of personal protective equipment, apparel, and accessories with a head-to-toe portfolio of premium fire service brands and mission critical industrial PPE.

Our management team is implementing strategies to accelerate growth and margins within the global fire turnout gear and industrial PPE markets with an acquisition focus on the fragmented fire industry. Our product portfolio includes firefighter protective apparel and accessories, high-end chemical protective suits, limited use disposable protective clothing, durable woven garments, high visibility clothing, gloves, and protective sleeves across our globally recognized brands, Lakeland Fire and Safety, Viridian, Eagle, LHD, Jolly, and Pacific Helmets. Over the last year and a half, we have closed four strategic acquisitions that have improved Lakeland's competitive advantage within our focus markets, which I will speak to momentarily.

Finally, we operate from 18 locations in 14 countries with sales representatives from in 23 countries outside the US, and product sales in more than 50 countries. Lakeland Fire and Safety's mission critical product portfolio includes North American and globally certified fire turnout gear, safety helmets, fire boots, particulate blocking hoods, and fire gloves for our fire services segment. Our industrial segment includes a wide range of high quality safety products, including chemical suits, PPE, and disposable coveralls, high-performance FRAR, and woven garments and safety boots.

In the past year, we have completed four strategic acquisitions that added product line extensions and innovative new products and expanded our global markets, channels, and customers. The acquisitions have expanded our footprint in North America, Europe, Asia, Oceania, LATAM, and the Middle East with strategic distributors and partnerships in each region. These acquisitions are a part of our initiative to build a portfolio of premium global firebrands under Lakeland Fire and Safety in this fragmented market, available globally through strategic distribution partners across 78 countries.

These include Viridian closed in December 2024, LHD closed in July 2024, Jolli Scarpe closed in February 2024, and Pacific Helmets closed in November 2023, plus Eagle closed in December 2022. Each of these acquisitions has placed our company in a strong position across our focused product categories and markets, supported by continued and increasing investment in our global fire footprint, owning and operating our own manufacturing facilities, acquiring complementary companies or products that expand, and enhancing product offerings and or geographic customer territories, and investing in sales and marketing resources in countries around the world. We feel this provides Lakeland with a strong competitive position with respect to delivery lead times.

With a company-owned manufacturing footprint and strong market share positions in top global markets that create a barrier to entry, Lakeland is positioning itself as the acquirer of choice. In addition, we own 14 patents with the US Patent and Trademark Office and 76 trademarks. 2025 and 2026 to date has been a momentous period of transition and progress for Lakeland.

During the quarter, we closed an oversubscribed $46 million public equity offering. The proceeds utilized to pay down our loan agreement, substantially improving our balance sheet and improving net debt ratio and resulting in expected cash interest savings of approximately 2.5% million annually. The capital also positioned us to accelerate further growth in the fragmented higher margin $2 billion fire protection segment in the largest global markets.

We completed strategic acquisitions that added product line extensions, innovative new products, and expanded global markets, channels, and customers as part of our initiative to build a portfolio of premier global fire brands under Lakeland Fire and Safety in these fragmented markets, including Viridian, LHD, Jolly Scarpe, and previously Pacific Helmets. To further support our growth and profitability, we have embarked on a project to enhance, modernize, and consolidate our company-wide ERP systems. Our acquisitions of five new entities over the past two years has resulted in eight additional ERP systems that need to be brought under Lakeland's IT control environment.

In December, we began implementing a company-wide enterprise resource planning system, which will roll out in phases over the next several years. We expect to complete the first phase by the end of this fiscal year. Likewise, we are also undertaking an integration of our global operating and manufacturing resources which includes certification integration, procurement integration, and production capacity layout.

We have kicked off a company-wide Lean Six Sigma project on the direction of a master black belt within our operations team. On the logistics front, we have deployed strategies that focus on a worldwide approach to shipping and distribution, including the completed centralization of our European warehouses at Venlo Netherlands, the negotiation of the 2025-2026 freight contract, and a global logistics optimization program. We assembled a new and experienced management team, including myself, Roger Shannon as CFO, and Helena Ahn as COO.

We have all executed strategy like Lakeland's, a turnaround efficiency focus with accretive acquisitions and synergies to accelerate growth and value. We appointed Barry Phillips as Chief Revenue Officer, and Cameron Stokes as the newly created role of Chief Commercial Officer, Global Industrial, to drive sales initiatives for revenue growth, strategic market development, and expanding market share. Finally, with our global employee base of over 2,000 team members, we have brought on Laurel Yartz as our CHRO to help manage our most important asset, our people.

So, I'm going to go off script just briefly and say that we're going to discuss tariffs Obviously, the world changed again today at 1.18% with a true social tweet, and I'll go back on script now, but I just want to advise everyone that this is obviously a fluid situation as we sit at this moment. I will discuss tariffs in more detail later, but I want to highlight that we have initiated measures to minimize the tariff impacts through inventory buildup and production shifts. As global conditions continue to evolve, we remain focused on navigating a dynamic macroeconomic environment with resilience and agility.

While increasing tariff pressures and broader economic uncertainties exist, we view these as opportunities to further strengthen our operations and adaptability. Recent trade tensions and new tariff announcements have added complexity to global markets. However, our diversified manufacturing footprint positions us well to respond to these changes and minimize disruption.

By staying proactive, we are working to ensure continuity, stability, and efficiency across our procurement and production networks. While some leading indicators suggest the potential for a cyclical slowdown, we are preparing thoughtfully for a range of economic scenarios. Through a continued focus on financial discipline, deepening customer partnerships, and driving operational excellence, we are building a stronger, more resilient foundation for a longer-term success.

Importantly, we are well positioned with two relatively recession-resistant sectors. industrial and fire, giving us confidence in our ability to weather near-term challenges. While we are not completely insulated from the uncertainty surrounding global tariff developments, we are moving forward with clarity and confidence.

We have taken a number of steps to mitigate the effects these tariffs might have. First, we increased that inventory by 14.2% million, which as of January 31, 2025, totaled 82.7% million. While developments are changing by the day, including just a few hours ago, where the majority of the tariffs were paused for 90 days, we are focusing on production shifts to incur the lowest possible tariffs on our products.

In the North American marketplace, our tariff mitigation initiatives include cross-certification of Lakeland's Mexico-produced fire turnout gear by Viridian for production in the US. All Viridian turnout gear is currently manufactured in the US, and these facilities have the capacity to manufacture the Lakeland brand of turnout gear. Additionally, our Mexico facility is becoming certified to produce Viridian turnout gear for the Canadian and Latin markets in our Mexico facility.

Immediately following our acquisition of Viridian, Lakeland's Mexico and Viridian's U.S. operations began sharing compliance under NFPA 1970 and technical documentation to facilitate cross-production initiatives. We are also pleased to learn that over 90% of our Mexico-produced products that fall under the provisions of the USMCA trade agreement are not subject to additional tariffs. In Asia, these measures include exploring other lower tariff regions for manufacturing industrial products, along with communicating expected price increases or surcharges to channel partners for products made in Vietnam and China.

We are continuing to closely monitor the Vietnam tariff situation as a significant portion of our U.S. disposable products are manufactured at our Vietnam facility, and we are hopeful that the just announced pause in tariffs for Vietnam and most other countries will become permanent. In the meantime, we are continuing to assess the possibility of manufacturing disposable products at our newly acquired U.S. manufacturing facilities or other Lakeland facilities around the world. One final note is that only a limited range of China-produced products are imported into the U.S., and we believe that we do not have a material risk of retaliatory tariffs from foreign entities as we manufacture only a limited set of products in the U.S. for non-U.S. countries, primarily Viridian turnout year.

Looking back at fiscal 25 and ahead to fiscal year 26, I can confidently say that we now have the right management team in place to execute our strategies, focusing on strategic acquisitions and synergies to accelerate growth and create value. These strategic acquisitions have grown our global presence and head to toe portfolio brands. The completed acquisition of Viridian in particular has expanded Lakeland's global fire service portfolio with Meridian's leading firefighter protective apparel offerings.

We still have a very robust M&A pipeline and we are focused on new opportunities to further consolidate the fragmented fire market with the newly raised capital and are accelerating free cash flow to support this acquisition strategy. We also made two key sales leadership appointments in fiscal 25 and as well as new regional sales leaders in Asia and Europe. And we are already very encouraged by the early performance from these professionals.

We have also successfully combined the North American sales forces for Viridian and Lakeland's fire turnout offerings and implemented a global fire sales strategy. As I just spoke to, our tariff mitigation strategy is already underway with an inventory buildup and production shifts across the U.S., Mexico, and Asia that will incur the lightest burden possible on Lakeland and our customers. We have also employed logistics strategies that focus on a worldwide approach for shipping and distribution to optimize efficiencies and lower costs.

These strategies and our experience management team's execution of them are translating into strong financial performance. We are well capitalized with a strong balance sheet and expanding free cash flow growth to fund our fire services acquisition strategy and initiatives. With that, I'd like to pass it over to Roger to cover our financial results.

Roger Shannon

Thanks, Jim, and hello, everyone. I'll provide a quick overview of our fourth quarter and fiscal year 2025 financials before diving into the details. Revenue for the quarter grew $15.4% million, or 49.3%, compared to the fourth quarter of fiscal 2024. For the fiscal full year 2025, revenues increased $42.5% million, or 34.1%, to $167.2% million.

Consolidated gross margin increased by 420 margin points versus Q4 of last year from 40.1% to 41.1% from 35.9% and held at 41.1% for both fiscal years 2025 and 2024. Operating expenses increased by $4.3% million or 29.7% from 14.5% million to $18.8% million in the fourth quarter of fiscal 2025 and by $22.2% million or 49.1% from $45.2% million in the fiscal year 2024 to $67.4% million in fiscal 2025 due to inorganic growth, acquisition expenses, restructuring and other non-recurring expenses, and increased organic SG&A operating expenses, primarily compensation and professional fees. Net loss was $18.4% million or negative $2.42% per diluted earnings per share for the fourth quarter in fiscal 2025 compared to $1 million or a loss of 13 cents per share per diluted share for the fourth quarter of fiscal 2024. For fiscal 2025, net loss was $18.1% million or $2.43% per diluted earnings per share. compared to net income of $5.4% million, or 72 cents per diluted earnings per share, for fiscal year 2024.

Both Q4 and fiscal 2025 were affected by a $10.5% million goodwill impairment at Eagle and Pacific Helmets and a $7.6% million write-off of our investment at BodyTrack. Adjusted EBITDA excluding FX was $6.1% million for the quarter and $17.4% million for the full fiscal year 2025. Cash and cash equivalents were $17.5% million on January 31st, 2025 compared to $25.2% million on January 31st of 2024. Looking at our fourth fiscal quarter of 2025, net sales were $46.6% million for the fourth quarter fiscal 2025, an increase of $15.4% million or 49.3% compared to $31.2% million for the fourth quarter of fiscal 2024. Sales from our recent acquisitions accounted for $12.1% million of the increase while organic sales increased $3.3% million or 11% over the prior year.

Sales of the fire services product line increased $14.7% million year over year due to $8.2% million in sales from LHD acquired in July 2024 and organic fire services growth of $2.6% million. JOLI acquired in February of 2024 also contributed to our growth in fire services. The significant increase in fire services was complemented by $1.5% million or 12% increase in disposable sales, primarily in the U.S., partially offset by seasonal weakness and high performance in Wovens.

On a consolidated basis, for the fourth quarter of fiscal year 2025, domestic sales were $18.3% million or 39% of total revenues. and international sales were $28.3% million or 61% of total revenues as our recent acquisitions continue to skew growth internationally. This compares with domestic sales of $12.7% million or 41% of the total and international sales of $18.5% million or 59% in the fourth quarter of fiscal 2024. Gross profit for the fourth quarter of fiscal 2025 was $18.7% million an increase of $7.5% million or 67% compared to 11.2% million for the fourth quarter of fiscal 2024. Gross profit as a percentage of net sales increased to 40.1% for the fourth quarter of fiscal 2025 from 35.9% for the fourth quarter of fiscal 2024.

Gross margin percentage increased in the fourth quarter of fiscal 2025 due to strong organic sales results partially offset by lower gross margins from our recent acquisitions. Organic gross margin percentage increased to 48.5% from 35.8% for the fourth quarter of fiscal 2024, due primarily to a $2.2% million reversal of profit and ending inventory and positive product mix. Operating expenses increased by $4.3% million, or 29.7%, from $14.5% million for the fourth quarter of fiscal 2024 to $18.8% million for the fourth quarter of fiscal 2025.

Operating expenses increased due to inorganic growth, acquisition expenses, various non-recurring expenses, and increased organic SG&A operating expenses, primarily compensation and professional fees. Adjusted operating expenses increased $3 million, primarily due to inorganic growth. Operating loss was $10.7% million for the fourth quarter of fiscal 2025 compared to an operating loss of $3.3% million for the fourth quarter of fiscal 2024, due primarily to impairments of goodwill at our EGLE and Pacific subsidiaries into the above-mentioned impacts. Operating margins were negative $22.9% million for the fourth quarter of fiscal 25 compared to negative 10.5% for the fourth quarter of fiscal 2024. Net loss for the quarter was $18.4% million or negative $2.42% per diluted earnings per share for the fourth quarter fiscal 2025.

compared to one million dollars in the prior year primarily due to non-cash goodwill impairment at eagle and pacific helmets and an equity impairment equity investment impairment related to the investment in body track which has generated losses since its initial acquisition and has required repeated rounds of financing to maintain operations in february 2025 body track entered insolvency proceedings in the united kingdom through january 31st 2025 we recognized a total of 1.5% million in losses from our investment in BodyTrack. As of January 31st, 2025, we recorded an impairment loss of $7.6% million for the remaining recorded value of the equity method and convertible notes investment. As part of the liquidation process, We secured the intellectual property rights and all existing inventory and we intend to devote some resources to body track in a way that does not take away from our core business as we believe it is a viable connected worker workplace safety system that has not been properly positioned.

Adjusted EBITDA excluding FX for the fourth quarter of fiscal year 2025 was $6.1% million, an increase of $2.7% million or 79.4% compared to 3.4% million for the fourth quarter of fiscal year 2024. The increase was driven by higher revenue, including contributions from LHD, the expected reversal of profit and ending inventory, and margin improvements in our organic sales mix, partially offset by higher manufacturing expenses. Moving on to our fiscal full year 2025 results, net sales were $167.2% million for the fiscal year 2025, an increase of $42.5% million, or 34.1%, compared to $124.7% million for the fiscal year 2024.

Fire services line was a key driver of revenue growth, increasing $36.5% million, or 137.7% year over year. The execution of the company's acquisition strategy and the acquisitions of Pacific in November 2023 and Jolly, LHD, and Viridian in FY25 accounted for $33.1% million in the increase. The significant increase in fire services was complemented by an $8.1% million increase in our wovens, disposables, and chemical products, partially offset by a $1.1% million decline in our high-visibility products.

On a consolidated basis for the fiscal year 2025, domestic sales were $60.4% million or 36% of total revenues and international sales were $106.8% million or 64% of total revenues as our recent acquisitions continue to skew growth internationally. This compares with domestic sales of $55.2% million or 44% of the total and international sales of $69.5% million or 56% of the total in fiscal year 2024. Gross profit from fiscal year 2025 was $68.7% million, an increase of $17.5% million, or 34.2%, compared to $51.2% million for fiscal year 2024. Gross profit as a percentage in net sales was 41.1% for fiscal years 2025 and 2024. Organic gross margin percentage increased to 45.3% from 41.1% for fiscal year 2024, driven by increases in fire services and favorable product mix.

Operating expenses increased by $22.2% million or 49.1% from $45.2% million for the fiscal year 2024 to $67.4% million for fiscal year 2025. Operating expenses increased due to inorganic growth, acquisition expenses, restructuring and other non-recurring expenses, and increased organic SG&A operating expenses, primarily compensation and professional fees. Adjusted operating expenses increased from $38.9% million in FY24 to $53.7% million in FY25, driven by inorganic growth, higher sales expenses from increased revenue, and higher compensation of professional fees.

Operating loss was $9.3% million for fiscal year 2025 compared to operating profit of $6 million for fiscal year 2024 due to the above-mentioned impacts. Operating margins were minus 5.5% for the fiscal year 2025 compared to 4.8% for the fiscal year 2024. Net loss was $18.1% million, or negative $2.43% per diluted earnings per share for the fiscal year 2025, compared to net income of $5.4% million, or 72 cents per diluted earnings per share for fiscal year 2024. Adjusted EBITDA excluding FX for the fiscal year 2025 was $17.4% million, an increase of $1.7% million, or 10%, compared with $15.7% million for fiscal year 2024.

The increase was driven by higher revenue, including contributions from LHD, and margin improvements in our organic sales mix, partially offset by higher SG&A expenses and the impacts of foreign exchange. Cash and cash equivalents were $17.5% million on January 31, 2025, and working capital was approximately $101.6% million. Cash and cash equivalents decreased by $7.7% million and working capital increased by $18.4% million from January 31st, 2024, reflecting the impact of the company's acquisition strategy with the purchase of Jolly, LHD, and Viridian in 2025. Net cash used in operating activities was $15.9% million and the year ended January 31st, 2025. compared to net cash provided of $10.9% million in the year ending January 31, 2024.

The increase was driven by increases in working capital, primarily due to the inventory buildup in preparation for forecasted increases in sales in the first half of fiscal 2026, a large increase in accounts receivable resulting from LHD's catch-up of a multi-year backlog, and the delayed shipment of a large boot order from JOLI. As we collect on these sales, we expect this cash to be recovered in the first half of fiscal year 2026. Revenue for the trailing 12 months into January 31st, 2025 is $167.2% million, or an increase of $42.5% million, or 34%, versus the FY24 TTM revenue of 124.7%, with our recent fire services acquisition supporting Lakeland's continued revenue growth.

Trailing 12 months adjusted EBITDA excluding the impacts of FX was $17.4% million. This increase of $1.7% million or 10% versus full year of fiscal 2024. The shortfall in our annual adjusted EBITDA guidance was a direct result of the slippage of a large boot order at Jolly into fiscal year 2026.

Taking into account that we completed four major acquisitions in the past 12 months, full integration and implementation of which does take some time, we believe those benefits will begin translating into even greater improved financial performance that will be recognized in the coming fiscal year. Our fourth quarter consolidated gross margin increased by 420 margin points versus Q4 of last year to 40.1% due to improved organic margin, the profit and ending inventory reversal and the impact of the inventory write-off in the fourth quarter of last year, partially offset by lower inorganic gross margin, higher manufacturing and freight cost. Meanwhile, organic gross margin saw a strong improvement from 35.8% to 48.5% year over year due to a positive product mix and the reversal of the previously mentioned profit and ending inventory.

Gross profit as a percentage of net sales was 41.1% for fiscal years 2025 and 2024. Organic gross margin increased from 45.3%, increased to 45.3% from 41.1% for fiscal year 2024, driven by increases in fire services and a favorable product mix. Adjusted EBITDA excluding FX for the fourth quarter fiscal year 2025 was $6.1% million, an increase of 2.7%M dollars or 79.4% compared to 3.4%M for the fourth quarter of fiscal year 2024.

The increase was driven by higher revenue, including contributions from LHD, the expected reversal of profit at ending inventory, and margin improvements in our organic sales mix, partially offset by higher manufacturing costs. Reviewing our performance, while we saw significant revenue growth overall, we continue to face some challenges that impacted our results, yet we remain confident in our full-year projections. In the fourth quarter, Jolly had substantial fire orders delayed to the first half of fiscal year 2026.

Our most recent acquisition, Viridian, contributed $1.9% million in the fourth quarter, Revenues for LHD, Jolly, Pacific Helmets, and Viridian were a combined $13.2% million, and we expect those to accelerate as we deliver on open orders and cross-selling opportunities. Looking at our organic business, our Latin American operations decreased $7 million in sales year over year due to customer seasonal buying patterns. The TAM now represents 13% of Lakeland's total sales, and they continue to grow.

Our outstanding Latin American team is continually identifying and capitalizing on new market opportunities, and we expect further growth in that region. We're working to expand our fire services offering in the TAM, and we expect to introduce new industrial products from the Lakeland portfolio into that region going forward. We've also recently put our Mexico sales operations under our TAM management team, and we're optimistic that they can replicate their success in that country.

However, our Q4 sales in Mexico were down 15% year over year, where we are in the process of making sales team enhancements. We also saw sales decrease year over year in Asia. We are very excited about the new sales leadership we've put in place in Asia, and we're encouraged by the growth we're seeing both in China and in the new Asian markets outside of China.

Our European revenue, including Eagle, Jolly, and our recently acquired LHD business, grew by $10.8% million, or 292%, to $14.5% million. We see very good sales opportunities in Europe and are committed to its growth trajectory. Following a slowdown in the second quarter due to our line drive transition, we were pleased to see our U.S. revenue rebound to $18.3% million, or 36%.

driven by continued growth in our Lakeland fire services business and in disposables. Regarding product mix for the fourth quarter, our fire services business grew $14.7% million or 226% versus the same period last year, driven by our recent LHD acquisition and organic gains in the U.S. and from EGLE as we start to see gains from our head-to-toe strategy. Our industrial product lines grew $700,000, or 3%, over the same period last year, led by disposables, which grew 12% and represented 38% of the revenue for the quarter. Chemicals represented 10% of revenue for the quarter, while the remainder of our industrial products, including FRAR high performance and high-vis, accounted for 15% of sales.

Now turning to the balance sheet. Lakeland ended the quarter with cash and cash equivalents of approximately $17.5% million and long-term debt of $16.4% million. This compares to $15.8% million in cash and $31.1% million in long-term debt as of October 31, 2024.

The decrease in cash was primarily due to the buildup of inventory for 2026 growth initiatives, tariff mitigation, and the JOLI backlog. On January 24, 2025, we closed a public offering of common stock and full exercise of underwriters' option to purchase additional shares with gross proceeds of approximately $46 million. We used the net proceeds of the offering to pay down the outstanding principal under our loan agreement. As of January 31, 2025, we had borrowings of $13.2% million outstanding under the revolving credit facility and there was $26.8% million of additional available credit under the loan agreement.

Net cash used in operating activities was $15.9% million in the year ended January 31st, 2025, compared to net cash provided of 10.9% million in the year ended January 31st, 2024. The increase was driven by an increase in net inventories of $14.2% million, an increase in accounts receivable of $2.8% million, reduction in accrued expenses and other liabilities of $3.5% million, offset by an increase in accounts payable of $6 million. Capital expenditures were $1.9% million for the year ended January 31st, 2025, primarily for manufacturing equipment.

With respect to cash usage, although elevated during the quarter, this suggests strong demand from our customers as the usage was driven by increases in working capital of $18.4% million primarily due to a building inventory in preparation for the forecasted increase in sales in the first half of FY26, and the impact of clearing approximately 85% of the multi-year backlog at LHD, which we expect to recover in the first half of fiscal 2026. At the end of Q4, inventory was $82.7% million, up from $72.7% million at the end of Q3 fiscal year 2025, Due to the inventory build and preparation for the forecasted increases in sales in the first half of fiscal 26, a large increase in AR resulting from LHD's catch-up of a multi-year backlog and the delayed shipment of a large food order from Jolly and tariff mitigation initiatives. January 31, 2024 inventory of acquired companies totaled $24.4% million.

Year over year, we saw an increase in our organic inventory of $8 million versus the quarter ended January 31st, 2024. Organic finished goods were $28.7% million in Q4 2025, up $3.5% million year over year, and up $2.3% million quarter over quarter. Organic raw materials were $28.5% million in Q4 2025, up $3.9% million year over year, and up $600,000 quarter-over-quarter.

Now turning to our fiscal 2026 guidance. Based on our current backlog of orders and current expectations, we expect FY2026 revenue of $210 to $220 million. This revenue expectation includes the recent Viridian LHD, Jolly Scarpe, and Pacific Helmet acquisitions.

We expect FY2026 adjusted EBITDA, excluding any material negative impact from foreign exchange, of $24 to $29 million. This expectation also includes the Viridian, LHD, Jolly Scarpy, and Pacific Helmets acquisitions. With that overview, I'd like to turn the call back over to Jim before we begin taking questions.

Jim Jenkins

Thank you, Roger. I'll conclude by saying that we continue to demonstrate strong net sales growth driven by 10% sequential and significant 226% year-over-year increase in our fire services line and rebounding global growth across Europe, Asia, and Latin America. As I previously mentioned, near-term, our strategy is to leverage a leading market position in fire protection premium brands and M&A to accelerate profitable growth in a higher margin $2 billion fire protection sector in the largest global markets.

Our long-term strategy is to grow both our fire services and industrial PPE verticals with our strategically located company-owned capital light model focusing on operating and manufacturing efficiencies to achieve higher margins with positioning to grow faster than the market served. With a fortified balance sheet from our recent $46 million oversubscribed capital raise and growing top-line revenue in our fire services and industrial verticals combined with operating and manufacturing efficiencies, we are targeting fiscal year 2026 revenue of $210 to $220 million, and adjusted EBITDA excluding FX of $24 to $29 million. Before we move on to Q&A, I'd like to take a moment to address the goodwill impairment charge we recorded this quarter related to Eagle and Pacific Helmets, as well as the equity investment right off of BodyTrack.

We invested in BodyTrack in early calendar 2021 when we were flush with COVID cash. We viewed it as a venture investment in the connected workplace. We believe the product remains cutting edge, but the sales strategy needs improvement.

Once we secure the IP and other assets, we intend to focus on a strategy to monetize BodyTrack. This could include patent infringement enforcement, a modified channel strategy with specific end users in the Middle East and Latin American markets, where worker safety in high-temperature environments is vitally important for employers to understand on a real-time basis. About Eagle, the goodwill impairment really reflects the fact that a substantial amount of the purchase price was allocated to Goodwill given that EGLE had very few fixed assets utilizing a subcontractor manufacturing model.

There was also a certain lumpiness associated with EGLE's primary tender business. In fiscal year 2024, EGLE exceeded our forecast for it but missed an aggressive earn-out target. That earn-out, $3.5% million, was then added to an already significant Goodwill number.

EGLE performed profitably for us in fiscal year 2025 but missed its targets and sales were lower against fiscal year 2024, thus the write-off. We believe as we continue to introduce Eagle in markets they were not otherwise selling in, LATAM and Asia specifically, the lumpiness associated with Eagle's tender business will ease. With respect to both Eagle and Pacific Helmet, some of the impairment related to certain intercompany sales had excluded a substantial amount of their respective gross margins.

The non-cash adjustments resulted from a routine valuation reassessment under current market conditions at a moment in time. It's important to emphasize that this change does not reflect a decline in our confidence in the strategic value of Eagle or Pacific Helmets, nor does it impact our cash flow, liquidity, or ability to invest in future growth. As for Pacific Helmets, the underlying fundamentals of the acquired business remain solid and continues to align well with our long-term vision.

Since the acquisition, we've seen encouraging performance potential and opportunities to unlock greater synergies. To ensure we're driving the most value from this asset, we've taken several key actions. We've refined our integration plan to sharpen execution and improve cost efficiency.

To that end, we've hired a Lean Six Sigma black belt to drive Lean Six Sigma throughout the Pacific Helmet organization. We hired a managing director to lead these improvements. We have restructured certain parts of the business to better align with our growth priorities, including a rollout of a new wildland and structural helmet in the APAC region in time for the next tender season in early calendar 2026.

We also are reintroducing our Pacific helmet for the U.S. markets at FDIC today, where Roger and I are at the moment. And we're closely monitoring Pacific performance metrics to ensure accountability and momentum. We believe these steps will enhance long-term value for our shareholders and strengthen our overall position in the market.

This impairment charge reflects prudent accounting at a specific point in time, but our strategic focus remains unchanged, delivering a sustainable growth, disciplined capital management, and long-term shareholder value. With that, we will now open the call for questions, operator.

Operator

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

The confirmation tone will indicate your linings in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Moderator

One moment, please, while we poll for questions. Thank you.

Operator

Our first question is from Mike Schleske with DA Davidson. Please proceed with your question. Good afternoon.

Just taking my question. Sorry for any background noise. You can't hear me all that well.

I want to start with a question about the guidance that you put out. I guess what date or even time of day was that guidance made. And are you, I guess, you know, I guess given what happened a few hours ago, do you think now things, just because of the way costs are going to go for the first quarter or two years, Are you pointing towards the higher end of guidance just from that alone, or just some thoughts as to where the key variables are on tariffs as to how they might turn out.

Jim Jenkins

That guidance did not change as a result of what happened today. And frankly, there's still that uncertainty, and I think the guidance stands as is. I mean, we're one tweet away from a 46% tariff again.

Mike Schleske

So, you know, I guess I'm of the view at this point that we're sticking with our current guidance. I would agree with that.

Roger Shannon

It's hard to know from minute to minute what's going to happen. When we originally thought about our guidance and anticipated it, a combination of the mitigation steps that we had taken, an optimism that there would be cooler heads prevailing, and the fact that we would pass along the increase to customers all kind of factored in. If the increased tariffs at a higher level take place, then of course, you could expect revenue numbers to be higher, but possibly the margins to be lower, and then adjusted EBITDA probably would still, Well, it's kind of hard to model that, really, given all the different possibilities.

So let's just kind of leave it with, you know, we're confident with the range that we gave at this point in time, and we'll continue to keep everyone updated as we go throughout the year, quarterly. Okay.

Operator

That's fair. That's fair. And I just want to follow up on your comments, both earlier in the call and just at the very end there, Jim, about Polytrack.

I am relatively new here, so it's not like you intend to revamp it or – or keep that going, or is this more of a, uh, hopefully a profitable windup for the, for that business.

Jim Jenkins

I think what we've done is we've, we've basically taken the company's assets and those we, you know, we've got, um, we believe we've got an ability to utilize that asset in a way that, you know, it could be a revenue generator for us, um, and a couple of different avenues. Uh, obviously, you know, when you, when you take an asset like that with the multiple patents it has, You want to take a harder review as to whether anybody might be infringing that patent. There's certainly a way to monetize it that way.

But I guess more importantly and the easiest way to monetize it is to sell it differently. BodyTrack had a sales model that required you know, the end user to pay a significant upfront fee, and that was a result of a balance sheet that couldn't support that kind of a relationship. So Roger and I are of the view that we're going to roll it out a little differently, a little more strategically in regions where the reception for it was relatively strong, and we're going to do it utilizing, you know, our financial strength and the relationships that we have with channel partners and end users.

Roger Shannon

that end and i've already had a discussion with my last ham team who is excited about our getting that asset in the door i would just add that you know that body track was adding customers you know even in business even through their last day of business as a company like that grows cash flow becomes an issue and you know for the factors that jim just mentioned We weren't willing to put more cash into their model, and the most recent rounds of investment that we did contribute was as secure convertible loans. So that enabled us to call on that asset and to take that on. So now that we do own that IP and we own that inventory.

Operator

Got it. Very helpful. I will pass it along.

Thank you so much. Sure. Thank you.

Jim Jenkins

Safe travels.

Operator

Our next question is from Jerry Sweeney with Roth Capital Partners.

Jerry Sweeney

Good afternoon. How are you guys doing. So obviously tariffs are going to be top of everyone's mind.

We've already seen questions and you discussed. But As you look at mitigation strategies, what are the bigger challenges you face there. Obviously, you're a little bit more asset light manufacturing, a lot of it's sowing.

How challenging is it to move maybe some disposable manufacturing to the U.S.. And, you know, secondarily, you go ahead, then I'll ask another one.

Jim Jenkins

So, you know, a couple of ways we're exploring this, you know, only until recently did I just had this discussion with my COO earlier again today, so I want to make sure I was aligned with where she's looking at this. But, you know, we used to have a very large disposable operation in Mexico. We shifted strategically to fire turnout gear primarily in Mexico a couple of years ago.

And I think it was a decision that was made by the prior management team, and I think it was a smart one. But we've got people who are trained to do disposables there. And with the viridian capacity that we have, if these tariffs become – look, 10% is something we can live with, okay.

But if something were to go a little higher than that for Vietnam, the idea would be to crane back up those folks in Mexico – and then see if they can't thrive because some of the stuff that they'd be utilizing would be under the USMCA and would allow us to do that tariff-free. So, you know, Helena's got a plan for that. I mean, I think the worst case plan for us, frankly, would be a U.S. operation.

I think it would take us a lot longer to do it and to bring people up to speed. And we were looking very carefully at that. And even with the tariff from Vietnam, you know, it probably still would have been cost prohibitive for us to utilize the U.S. markets for those types of garments.

But, I mean, there is real opportunity. We've got high performance we can manufacture in the U.S., and then we can also move the disposables from Vietnam, if we need to, to Mexico for the U.S. markets. And even prior to that, when the Vietnam tariffs were, I think, at 46%, India, I think, was in the mid-20s.

And we were also looking at options for utilizing India as well and training those folks up. Helena's already got them working on piecework, which means we're going to start to see, I think, a more productive flow of manufacturing from India. So we do have some optionality here.

And I think you're right. It doesn't happen overnight. The elves don't just magically sprinkle pixie dust and we turn to pivot.

But I have been overwhelmed in terms of how impressed I've been with Helena and her ability and resiliency to drive her team in ways I couldn't have imagined. And I think she's certainly as prepared as she needs to be to drive this pivot if it becomes necessary.

Jerry Sweeney

And my follow-up was that was – I basically answered it, but it was at what point does it not make sense to even move to the U.S.. And it sounds like the U.S. is the worst-case scenario, but Mexico by itself. Yeah, so Mexico has got enough – It's actually not too bad.

Jim Jenkins

No, they would be a USMCA-compliant use of PPE there. which would allow us to be able to sell that without a tariff. Got it.

Yep.

Jerry Sweeney

Okay, got it. And then you also talked about optimization programs, I think manufacturing, logistics, et cetera, but some of it sounded like it was around Pacific Helmets, but I'm assuming this may be company-wide at some point.

Jim Jenkins

It is. Our Lean Six Sigma program will be rolled out company-wide, and Roger has properly brought our Lean Six Sigma leader onto our ERP team to make sure that processes are not conflicting when we start putting business processes in with our ERP systems.

Jerry Sweeney

Got to ask a question, very well could be early, but any idea of how much friction, i.e. margin or points that they can improve or costs they can take out. Obviously, you've made a lot of acquisitions, so there's probably some low-hanging fruit that you can fix and move around, et cetera.

Jim Jenkins

Yeah, I mean, we've already done it at LHD, right. So we'll be looking at other alternatives. Pacific is certainly something we'll be looking at.

As we look at other improvements, I will tell you that the owner of Viridian believes that we've got some options there as well to consolidate LHD. I mean, look, part of the longer-term plan is to consolidate the operations of Viridian into probably one-ish operation in Iowa. But given the current tariff environment, we haven't really accelerated that.

And until we have a little more clarity on that, we're not going to.

Jerry Sweeney

That makes sense. Finally, that Jolly order, how big of an order was that in terms of maybe revenue and even potentially EBITDA.

Roger Shannon

Three million euros. Three million euros.

Jerry Sweeney

Three million euros. Got it. And that's just a push, correct.

Roger Shannon

Yep. Yes. Timing.

Yeah. It's built, ready to ship, and the latest is the customer is doing the inspections and the sign-off as we speak. And again, so it's been frustrating that it's pushed once already.

We had thought With a pretty good level of certainty that it was going to happen in Q4, but obviously it didn't. But it is teed up for the first half of this year.

Jerry Sweeney

Got it. So it's already manufactured. So that would have been, you know, that whole $3 million potential should have been.

The expectation was fourth quarter for that.

Jim Jenkins

Correct. And we would have made guidance with that. Yep.

Jerry Sweeney

Got it. Okay.

Moderator

I'll jump back in line. Thanks, guys. Sure.

Our next question is from Mark Smith with Lake Street Capital.

Mark Smith

Hi, guys. Just back on that jolly boot order. So that's not shipped yet, but are there any other backlogs or orders or anything that we should be looking at that's sitting out there today that maybe was delayed or that we would look for any shifts.

Jim Jenkins

Not that I'm aware of, no. Nope, that's the big one.

Roger Shannon

No, like we mentioned in the prepared notes, LHD did a phenomenal job of catching up this, you know, what was an average of two and a half years. There were some orders that were four years past due, and we'd made a strategic decision to deliver on those to, you know, we think that Lakeland and the LHD name is valuable and those people deserve to get their equipment. So, you know, we made a phenomenal strides in getting 85% of that done.

We've made operational efficiencies and improvements there, and Australia and Hong Kong are really clicking along. So we are very happy with that acquisition.

Mark Smith

Okay. And the next question, just any thoughts you can give around gross profit margins, and this is kind of excluding any changes on from tariffs, but just gross profit margins with strong organic margins mixed in with acquisitions. If we saw steady state today, any thoughts around where you feel like gross profit margin really moves to.

Roger Shannon

Yeah, that's a good question. We are very intently focused on the previously discussed aspirational targets of mid to high teens and adjusted EBITDA margin. I know I certainly understand why you're asking and need that.

We were very, very pleased with the organic gross margins being close to 50%. Our challenge certainly is these operational improvements at Pacific and then Viridian that we're just now undertaking. Viridian is currently in the low 30s in gross margin.

Jolly's gross margins were absolutely impacted in Q4 by by not shipping those orders. We've got some factory shop floor Lean Six Sigma initiatives going on there. So, the long and short of it is, I think, is the first step.

I'd like to see the acquisition gross margins kind of get into the mid-30s and start to kind of move up to 30s. At the same time, we talked about the efficiencies we expect to start getting from the ERP project and the fact that Viridian and EGLE and LHD, for that matter, run very leanly. So, their EBITDA margins are quite positive compared to their gross margins.

Mark Smith

Okay. And the last question for me is just as we think about the year, obviously, there's been a lot of acquisitions and changes over the last 12 months here. Just can you walk us through any kind of cadence of revenue or any maybe lumpiness that you have any insight into today that we should be watching for.

Jim Jenkins

Yeah, so on the lumpiness front, look, we've got, you know, part of the fire biz is sort of tenders, right. So you've got multiple tenders all over the world. that we're trying to participate in.

With the number of brands we have, we believe that our win rate is going to increase. But as we start, and I think I mentioned this even maybe six, nine months ago in Q2, when we had similar issues with Jolly, you've got some lumpiness associated with this stuff. And you know, until we get to that critical mass component, which I think is going to be in the next 12 months as we start seeing revenue start with a two, that those, that lumpiness component, I'm not going to be dependent upon, you know, a jolly boot order to ship, you know, on January 28th as opposed to February 4th to worry about whether I'm going to make that number.

So that's sort of where Roger and I sit, I think.

Roger Shannon

Yeah. And just give you, you know, just a little bit of context. As we look at this year, You know, we expect Q1 to be the lightest quarter, and then improving Q2 and then to Q3. Q3, you know, we would expect to be the strongest quarter, and then Q4 maybe just a hair below Q2.

Moderator

Excellent. That's helpful. Thank you.

Turlick.

Operator

Our next question is from Matthew Galenko with Maxim Group. Hey, Matt. Hey, Matt. Hey, good afternoon, guys.

Thanks for taking my questions. Maybe post-clearing the backlog in LHD in Europe, I guess what are the prospects at or how should we think about the run rate of that business. Or like are you rebuilding that pipeline as you sort of clear the backlog or how is business there.

Roger Shannon

Yeah, so, you know, when you think about LHD, you've got the Germany business, the Australia business, and the Hong Kong, and, of course, the Australia as well as the Hong Kong includes services. You know, we've got, with the clearing of the backlog, you know, we're probably still in the, you know, I'd call it the 8 million euro range for this year as we, you know, win new tenders, win new awards. There are some very uh interesting rfps that that i can tell you that we have not factored in to winning but that we're and we think about our you've guided some budget numbers but that we are that we know we're coming up that we're going to bid on and that and that our team uh there feels you know feels good about getting a good look at so um you know we've mentioned before that You know, we would be disappointed if we only double the revenue in Germany from LHD.

Of course, that's not going to happen overnight. And we're not, you know, like we did with others, we don't put a lot of hockey stick growth on the first year. Really, we're kind of getting past the backlog and going through some operational efficiencies.

We've got this first year really kind of flat from a projection perspective, but there certainly is potential upside there.

Moderator

Got it. Thank you.

Operator

And I guess my follow-up is thematically it seems, you know, obviously a lot of focus on tariffs and, you know, operations. But maybe if you could touch a little bit on, you know, growth initiatives as you see it. Is M&A still up in play this year. You know, is the services business still in play this year.

Kind of what are you thinking about and, you know, factors driving it.

Jim Jenkins

Yeah, look, on the organic front, we've got the right team in place. You know, we've really been together for about seven or eight months. And, you know, now this is the year, I think, where we're starting to, you know, move with, you know, with a real purpose together.

So on the organic front, I'm very optimistic with what we're doing. I look at what our industrial team's doing in Europe right now. And Europe has been a real disappointment on the industrial side for us for many, many years.

And I now have the right leadership and the right focus in that market. On the M&A front, you know, what we've acquired and the cross-selling magic that, you know, my chief revenue officer, Barry Phillips, is working is really quite impressive. And, you know, where I was at FDIC today, which is the largest fire trade show, you know, in North America and, you know, Barry knows everyone.

I mean, he literally knows everybody there. So including most of the firefighters. So I'm really, really energized by what he and Cameron are trying to do with our teams.

And, you know, we mentioned obviously in the, you know, during the call that we've added a lot of sort of middle management in our sales staff that, you know, I look at and I get even more energized when I see that. So that's sort of the organic front. On the M&A side, you know, Roger and I, I think, have a number of initiatives, and our pipeline is still significant and quite robust.

But the focus is going to be, you know, I think the deals will be a little smaller over the course of the next 12 to 18 months. I think we're looking at, you know, what we would call the decontamination business, you know, the service business. So we would, you know, we would anticipate probably the next 12 to 18 months looking at two or three of those.

And as I think I said before, those are Those companies are generally doing $3 to $5 million in revenue. There's a nice opportunity to scale those companies in markets where we have existing customers. So we think we're going to do something in the tune of two or three of those in the next 12 to 18 months.

And we see those as real nice opportunities for us to generate recurring revenue, high margin, and sort of a sticky customer.

Operator

Great. Thank you. And maybe if I could sneak one last one in there.

It sounds like Line Drive is doing well now. Are we kind of moving at full speed on that front or, you know, is there still work to be done.

Jim Jenkins

No, no, we're in a really good place with Line Drive. They're getting it where, you know, they're walking the halls of the Fastenals and the Valens and the Grangers of the world. So I just had a call with, you know, my colleague there.

late last week, we were trying to, at that point, work on a tariff strategy, and he was quite helpful on that front. But, you know, as we start getting more clarity and hopefully these 10% tariffs are, you know, all that we're going to see, you know, he's been very helpful, they've been very helpful, and our teams have really been working closely together So, yeah, our optimism is not waning at all and, in fact, is increasing with, you know, every day that we work with Line Drive.

Moderator

Great. Thank you. Thank you. Thank you.

There are no further questions at this time. I would now like to turn the call back over to Mr. . Jenkins for his closing remarks.

Jim Jenkins

Thank you all for joining us on today's call. I would also like to thank our customers and distributor partners worldwide for trusting us with your lives and safety. Our customers are heroes, and we never take that trust for granted.

I also want to thank our Lakeland team members across the company for their continued commitment and enthusiasm as we further delivered on our strategic initiatives this quarter. Lakeland continued to experience significant growth and change during this quarter, and I appreciate the hard work from our dedicated team as we continue to execute our growth strategies. If we were unable to answer any of your questions today, please reach out to our IR firm, MZ Group.

We would be more than happy to help and assist you.

Moderator

Thank you. This concludes today's conference call. You may disconnect your lines at this time.

Thank you for your participation.