Earnings Call Transcript - LAKE Q1 2026

Operator, Operator

Good day, and welcome to the Lakeland Fire and Safety Fiscal First Quarter 2026 Financial Results Conference Call. During today's call, we may discuss our goals and objectives for future operations, financial and business trends, business prospects, and management's expectations for future performance, which are considered forward-looking statements under federal securities laws. These forward-looking statements reflect management expectations based on currently available information and are not guarantees of future performance; they involve certain risks and uncertainties that are more fully described in our SEC filings. Our actual results, performance, or achievements may differ significantly from those expressed or implied in these forward-looking statements. We do not have an obligation to update or revise any forward-looking statements to reflect events or developments after this call. We will also address financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP, including adjusted EBITDA, adjusted EBITDA margin excluding FX, 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 measures is included in our earnings release. A press release with these results was issued this afternoon and can be found 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, along with Chief Financial Officer and Secretary, Roger Shannon. Mr. Jenkins, the floor is yours.

James M. Jenkins, CEO

Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss the results of our fiscal 2026 first quarter ended April 30, 2025. We continue to build on the momentum from our fiscal 2025 revenue growth in the first quarter of 2026 as we focus on accelerating growth within the fragmented $2 billion fire protection sector in the largest global markets. Roger will go over the financials in more detail shortly, so I will provide you with a brief overview. We achieved record net sales of $46.7 million, representing a 29% year-over-year increase driven by a 100% increase in fire services products and the ongoing momentum from our recent acquisitions. In the U.S., our net sales increased 42% year-over-year to $22.5 million, including organic U.S. growth of $2.1 million or 15%. And in Europe, our net sales increased 102% year-over-year to $12.1 million. Gross profit as a percentage of net sales decreased to 33.5% from 44.6% for the comparable period year ago period. Robust growth in our organic and acquisition-driven fire services vertical in the U.S. market was partially offset by weakness in Canada and Latin America, where margins are typically above our corporate average. Additionally, as expected, lower gross margins from our recent acquisitions, including the impact of purchase accounting, continue to reduce corporate gross margins. Adjusted EBITDA, excluding FX, was $0.6 million, which was a decrease of $3.2 million compared with $3.8 million for the comparable year ago period. SG&A as reported increased $6.3 million from the first quarter of fiscal 2025, while organic cash SG&A increased year-over-year by $1 million, mostly driven by labor costs and outbound freight. Capital expenditures of $1.2 million principally related to capital investment in our new enterprise resource planning system. In December, we began implementing a new company-wide SAP ERP system, which will enhance, modernize and consolidate our disparate company-wide systems to further support our growth and profitability. The first quarter reflected the full impact of tariff uncertainty and the associated mitigation strategies we have employed to build inventory. Our diversified manufacturing footprint makes us well equipped to adapt to shifting trade dynamics and minimize potential disruptions. This flexibility enables us to maintain stability across our supply chain and production processes even in the face of uncertainty. Even so, we did see lower sales in Canada and a delay in expected sales in Latin America, two of our higher-margin geographies due to the tariff uncertainty. Our focus remains on strengthening customer relationships, driving operational efficiency and maintaining sound financial stewardship. Our positioning within two relatively recession-resistant sectors, industrial and fire continues to provide us with a solid foundation. We are not entirely insulated from the uncertainties surrounding global tariff developments, but we are navigating this period with clear priorities, thoughtful planning and strong confidence in our long-term outlook. To mitigate the effects of potential imposed tariffs, net inventories increased by $3.1 million, totaling $85.8 million as of April 30, 2025. To comment further on our tariff mitigation measures, in North America, we employ cross-certification of Lakeland's Mexico produced fire turnout gear by Veridian for production in the U.S. All Veridian turnout gear is currently manufactured in the U.S., and these facilities have the capacity to manufacture Lakeland branded turnout gear. Our Mexico facility is also becoming certified to produce Veridian turnout gear for the Canadian and Latin American markets. We have shared compliance under NFPA 1970 between our Mexico facility and Veridian with technical documentation to facilitate cross-production initiatives. It's important to note that over 90% of our Mexico produced products, which fall under the provisions of the USMCA trade agreement are exempt from additional tariffs. In Asia, we are exploring other lower tariff regions for manufacturing industrial products while communicating expected price increases or surcharges to channel partners for products made in Vietnam and China. We are continuing to assess the possibility of manufacturing disposable products at our newly acquired U.S. manufacturing facilities or at other Lakeland facilities worldwide. 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 and only a limited range of China-produced products are imported into the U.S. We also believe that garment manufacturing is not the primary focus of the administration's tariff policies. While our revenue was close to our internal expectations, tariffs did cause regional delays in the industrial space with additional factors affecting revenue, including currency issues as well as the production issues and product offering updates at Pacific Helmets. The tariff-related delays were most apparent in Canada and Latin America, although our outlook for these regions remains positive. We believe momentum in these markets will rebound once uncertainty around tariffs subsides. Additionally, we continue to believe that a significant Jolly fire boots order originally anticipated for shipment in Q2 of fiscal '25 is still likely to materialize. While timing remains subject to the Italian government's final procurement steps, we remain encouraged by ongoing engagement and the customers' reaffirmed intent to proceed. As such, we anticipate sequential growth in gross margins and adjusted EBITDA, excluding the impact of FX in the second quarter, aided by the improving global tariff environment and reduction in necessary mitigation strategies. Looking ahead into the remainder of fiscal year 2026, we remain focused on growing revenue in our fire services and industrial verticals, implementing operating and manufacturing efficiencies to achieve higher margins, significantly reducing operating expenses and continuing to navigate tariff uncertainties. We are also continuing to execute on our strategic acquisition strategy by realizing cross-selling and operational synergies to accelerate growth while pursuing additional opportunities in the fire suit rental decontamination and services business. We maintain a robust M&A pipeline and are in active conversations to explore new opportunities for further consolidating the fragmented fire market, utilizing our strong balance sheet to support this acquisition strategy. With the four recently completed acquisitions, which added product line extensions, innovative new products and expanded our global footprint, we are strongly positioned to grow our global head-to-toe fire portfolio and to generate long-term value for our shareholders. With that, I'd like to pass the call to Roger to cover our financial results.

Roger D. Shannon, CFO

Thank you, Jim, and hello, everyone. I’ll provide a quick overview of our fiscal 2026 first quarter financials before diving into the details. Revenue for the quarter grew by $10.4 million year-over-year to a record $46.7 million, an increase of 29% compared to the first quarter of fiscal 2025. Consolidated gross margin decreased to 33.5% from 44.6% for the first quarter of fiscal 2025. Operating expenses increased by $6.3 million or 45% from $14 million to $20.3 million in the first quarter of fiscal 2026, primarily due to inorganic growth, acquisition expenses, and higher organic operating expenses. The net loss was $3.9 million or $0.41 per basic share, in contrast to net income of $1.7 million or $0.22 per basic and diluted earnings per share for the first quarter of fiscal 2025. Adjusted EBITDA, excluding foreign exchange, was $0.6 million for the quarter. Cash and cash equivalents were $18.6 million on April 30, 2025, compared to $17.5 million on January 31, 2025. In our first fiscal quarter of 2026, the increase in net sales was driven by 100% growth in the Fire Services segment, a $10.5 million increase year-over-year. Sales from our recent acquisitions accounted for $9.9 million of the increase, while organic sales grew by $600,000 or 2% over the prior year. Organic revenue reached $36.9 million, up from $36.3 million for the first quarter of fiscal 2025, reflecting strong growth in the U.S. and Europe, somewhat offset by weakness in Latin America and Canada. In the important U.S. market, our organic fire services business grew by $1 million or 32% year-over-year, and our U.S. industrial organic business saw an increase of $1.1 million or 9.7%. Gross profit for the first quarter of fiscal 2026 was $15.6 million, down $0.6 million or 4% compared to $16.2 million for the first quarter of fiscal 2025. The gross margin percentage decreased in the first quarter of fiscal 2026 due to changes in the geographic revenue mix, alongside lower margins in our acquired businesses, primarily due to the impacts of purchase accounting and higher manufacturing and freight costs. Margins in the acquired businesses were influenced by the amortization of the write-up in inventory as part of purchase accounting. Our organic gross margin percentage decreased to 35.9% from 44.6% in the first quarter of fiscal 2026, mainly due to lower sales in our higher-margin Latin American and Canadian markets and the impact of material price variance allocations. Due to system limitations, our purchase price variances compared to standard costs were reflected in the cost of goods sold instead of being partially capitalized into inventory. We expect this impact to reverse in future quarters. Operating expenses rose by $6.3 million or 45% from $14 million for the first quarter of fiscal 2025 to $20.3 million for the first quarter of fiscal 2026. These expenses increased due to the acquisitions of Veridian and LHD, which added $3 million, alongside severance costs, litigation expenses, and selling expenses. Adjusted operating expenses increased by $3.3 million, primarily due to the operating expenses of acquired companies. The operating loss was $4.6 million for the first quarter of fiscal 2026, compared to an operating profit of $2.2 million for the first quarter of fiscal 2025, reflecting the previously mentioned impacts. Operating margins were negative 9.9% for the first quarter of fiscal 2026 compared to 6.1% for the same period in fiscal 2025. The net loss was $3.9 million or $0.41 of earnings per diluted share for the first quarter of fiscal 2026, in contrast to net income of $1.7 million or $0.22 of earnings per diluted share for the first quarter of fiscal 2025. Adjusted EBITDA, excluding foreign exchange for the first quarter of fiscal 2026 was $0.6 million, down by $3.2 million or 84% compared with $3.8 million for the first quarter of fiscal 2025. The decrease was largely driven by previously mentioned materials purchase variance and higher organic SG&A expenses, as well as an increase in profit and ending inventory from our tariff-related inventory build during the quarter. At the end of the quarter, total profit and ending inventory amounted to $1.3 million. Revenue for the trailing 12 months ended April 30, 2025, stood at $177.6 million, reflecting an increase of $45.3 million or 34% versus the Q1 fiscal 2025 trailing 12-month revenue of $132.3 million, with our recent fire services acquisition supporting Lakeland's continued growth. Trailing 12-month adjusted EBITDA, exclusive of the impacts of foreign exchange, was $14.1 million compared to $16.5 million for the previous quarter's trailing 12 months. The shortfall was a direct consequence of revenue declines in key high-margin regions, the previously described purchase variance, and higher-than-expected SG&A expenses, including increased travel, trade show participation, commissions, and additional costs related to the Veridian acquisition. Given that we completed four major acquisitions in the past year, the full integration and implementation process takes time, but we anticipate that these benefits will translate into improved financial performance in the coming quarters. The gross margin percentage dropped in the first quarter of fiscal 2026 due to the geographic revenue mix combined with lower margins in our acquired businesses and elevated manufacturing and freight costs. Organic gross margin percentage decreased to 35.9% from 44.6% for the first quarter of fiscal 2026, primarily due to lower sales in our higher-margin Latin American and Canadian markets and the material price variance allocations. As we transition to new systems, we expect to ensure that purchase variances are accurately identified and recorded in line with inventory capitalization standards. The primary effect of this variance pertains to the timing of expense recognition rather than operational performance, introducing short-term volatility into our gross margin reporting. We foresee a corresponding improvement in gross margins in future quarters as this timing difference stabilizes. Adjusted EBITDA, excluding foreign exchange for the first quarter of fiscal 2026 amounted to $0.6 million, a decrease driven by this purchase variance that was fully expensed through COGS instead of being partially capitalized. As noted earlier, the $3.2 million drop in adjusted EBITDA, excluding foreign exchange stemmed from materials purchase variance, which we expect to reverse in subsequent quarters. We anticipate sequential growth in gross margin and adjusted EBITDA, excluding foreign exchange in the second quarter. Reviewing our performance for the first quarter, our recent acquisition, Veridian, contributed $4.4 million in revenue during the quarter. Combined revenues from Eagle, Pacific Helmets, Jolly, LHT, and Veridian reached $15.6 million, and we expect these to accelerate as we fulfill open orders and leverage cross-selling opportunities, including Jolly’s significant fire orders that were postponed to the first half of fiscal 2026. In our organic business, our Latin American operations experienced a 12% decrease in sales year-over-year, mainly due to shipment timing and tariff impacts. However, in Asia, we noted a 15% increase in sales year-over-year. We are enthusiastic about the new sales leadership we have established in Asia and are encouraged by growth in both China and new Asian markets beyond China. Our European revenue, including Eagle, Jolly, and our recently acquired LHC business, rose by $6.1 million or 102% to $12.1 million. We continue to identify excellent sales opportunities in Europe and are committed to its growth. Our U.S. revenue grew by 42% to $22.5 million, driven by ongoing growth in the Lakeland Fire Services business, alongside a $1.1 million or 10% rise in our U.S. industrials business. In terms of product mix for the first quarter, our fire services business grew by $10.5 million or 100% compared to the same period last year, representing 45% of total revenue, propelled by our recent LHD acquisition, a full quarter of Veridian sales, and organic growth in the U.S. and for Eagle as we begin to see gains from our head-to-toe strategy. For our industrial product lines, disposables accounted for 28% of revenue during the quarter, while chemicals made up 13%. The remaining industrial product lines, including FR/AR, high-performance, and High-vis, constituted 14% of sales. Now turning to the balance sheet, Lakeland concluded the quarter with cash and cash equivalents of approximately $18.6 million and long-term debt of $24.7 million. This is in contrast to $17.5 million in cash and $16.4 million in long-term debt as of January 31, 2025. By April 30, 2025, we had $19.8 million in borrowings outstanding under the revolving credit facility, with an additional $20.2 million of available credit under the loan agreement. We remained in compliance with all credit facility covenants. Net cash used in operating activities amounted to $4.8 million for the three months ended April 30, 2025, compared to net cash provided of $300,000 for the three months ending April 30, 2024. This increase was driven by a net loss of $3.9 million and a $3 million increase in working capital, offset by noncash charges of $2.1 million. Capital expenditures reached $1.2 million for the three months ended April 30, 2025, primarily related to investments in our new ERP system. At the end of Q1, inventory totaled $85.8 million, up from $82.7 million at the end of Q4 of fiscal year 2025, attributed to inventory buildup in anticipation of increased sales in the first half of fiscal 2026, a delayed shipment of a large boot order from Jolly, and tariff mitigation initiatives. The inventory of acquired companies totaled $15 million. Year-over-year, our organic inventory increased by $14.8 million compared to the quarter ending April 30, 2024. Organic finished goods amounted to $37.2 million in the first quarter of fiscal 2026, an increase of $9.4 million year-over-year and up $700,000 quarter-over-quarter. Organic raw materials reached $32.2 million in the first quarter of fiscal 2026, rising by $4.9 million year-over-year and $1.2 million quarter-over-quarter. Despite margin pressure in Q1, we remain confident in our fiscal year outlook, expecting revenue between $210 million to $220 million. Due to lower margins and higher operating expenses in the first quarter, we are trending toward the lower end of our previously stated FY 2026 adjusted EBITDA, excluding foreign exchange guidance of $24 million to $29 million. This reflects near-term order delays and uncertainty related to tariffs. Looking further ahead, we believe our cost discipline, acquisition strategy, and operational improvements will position the company for faster growth over the next 3 to 4 years.

James M. Jenkins, CEO

Thank you, Roger. In conclusion, we continue to demonstrate strong net sales growth driven by a 100% year-over-year increase in our fire services and strong growth in both the U.S. and in Europe of 42% and 102%, respectively. Our near-term strategy is focused on growing top line revenue in our fire services and industrial verticals and implementing operating and manufacturing efficiencies to achieve higher margins while navigating the ongoing environment surrounding tariff uncertainties. Long term, our 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 markets served. Our acquisition pipeline remains strong, and we are engaged in active discussions aligned with our growth strategy. We maintain a fortified balance sheet from our $46 million oversubscribed capital raise in January and have identified up to $4 million in cash savings, excluding the Veridian consolidation. With our expectation of continued top line revenue growth in our fire services and industrial verticals, combined with operating and manufacturing efficiencies, we are maintaining our fiscal year 2026 guidance range for revenue of $210 million to $220 million and adjusted EBITDA, excluding FX, in the lower end of a range of $24 million to $29 million. As we look toward the future, we are confident that our continued focus on cost discipline, targeted acquisitions and operational enhancements will serve as key growth drivers over the next 3 to 4 years. As we scale, we anticipate steady expansion in EBITDA margins moving into the mid- to high teens range over the next 3 to 5 years, driven by improved efficiencies, a stronger product mix and disciplined pricing execution across the platform. With that, we will now open the call for questions.

Operator, Operator

Our first question is from Gerry Sweeney with ROTH Capital Partners.

Gerard J. Sweeney, Analyst

I have a few questions that I would like to explore, particularly regarding gross margins and several factors affecting them. Roger, you mentioned the impact of purchase variance and amortization write-up on some products sold, and that these might reverse over time. Could you provide more details on how significant that headwind was this quarter and what we can expect in the next couple of quarters? When can we anticipate seeing the net benefits?

Roger D. Shannon, CFO

As you likely saw on the graph, we were talking about the bar chart about the impact to EBITDA. The total increase to manufacturing cost was close to a $3 million impact to adjusted EBITDA. And we think a fairly significant part of that relates to a full flow-through of the purchase variance into COGS rather than being capitalized into inventory. Again, it's a systems-related issue as we related, it's just not possible at a detailed product-by-product level to break that out at the level that's required for auditors and for financial statements. And similarly, on the purchase accounting, we're in early days of purchase accounting with Veridian. We're kind of still going through that. I guess the kind of the good news on that one is they tend to have fairly light in finished goods because of it being made to order. And we're coming up kind of toward the end of the purchase accounting impact on Jolly. And as you can imagine, being about halfway through with LHD, we're kind of about halfway in the middle. So kind of as I think about that, thinking about the numbers, I think the impact was somewhere in the $500,000 range or about a 1% impact to gross margins.

Gerard J. Sweeney, Analyst

That is separate from the –

Roger D. Shannon, CFO

Yes, the purchase accounting was about a 1% impact to gross margins. And like I said, we've got about 8 months left on Veridian, and we're about halfway through LHD. The impact from the cost variance was you would expect larger than that. It was, say, 2 to 3 margin points, I would estimate. In addition to, as I mentioned in the notes, while it has not been as large as it had been in some quarters, we did have a slight headwind again in the property lending inventory compared to last quarter where we had a big reversal. And that relates to, again, getting to a build of inventory as part of our tariff mitigation strategies.

James M. Jenkins, CEO

Gerry, the good news is that on the purchase variance, that should reverse in Q2 and Q3 as inventory sold through. So we'll see sort of a natural lift, I would think in that. The purchase accounting, we're still working our way through that.

Gerard J. Sweeney, Analyst

Got you. But part of that headwind was you built the inventory and for future sales and that caused some of the issues. Got it.

James M. Jenkins, CEO

Yes. Correct.

Gerard J. Sweeney, Analyst

What about operating expenses? Operating costs were over $20 million, which I believe was higher than many had anticipated. There are a lot of figures being discussed here. Can you clarify if there are any one-time costs or adjustments we should consider? I noticed some adjustments mentioned at the end, but I haven’t had the chance to examine them in detail. Could you guide me on where SG&A might fit in?

Roger D. Shannon, CFO

Yes, a few things. Our travel expenses were up considerably in Q1, and we expect those to back off pretty stiffly. We had the FDIC fire show in the first quarter. And quite frankly, there was just a significant amount of travel by the executive team really all around the world as we were visiting the different acquisition sites, manufacturing sites. And that's naturally was going to taper off, but we've put some additional measures in place, and that's part of that $4 million in costs that we've identified that we're focusing on and potential cost cutting. Other things that were up in the quarter G&A labor were up a bit year-over-year, again, kind of getting the right people in the right places. The outbound freight, freight number was up quite a bit related to, again, inventory movements related to tariff strategies, and we would kind of expect that to more normalize going forward.

James M. Jenkins, CEO

Roger, if I just add on the freight, there was sort of a window when there was a loosening on the tariffs that there was a buildup of freight demand and the freight costs came in abnormally high for that period of time. We're working through that now on the procurement front to reduce that for us in the coming quarters. And we've got a strategy to do that. And frankly, there's also just going to be a natural lowering of that as this starts to normalize.

Roger D. Shannon, CFO

I think just the last thing I'd add, we had increases from the acquired company OpEx. And having just closed on two of those, we're kind of going through that as we speak as part of the integration and kind of rationalization process. So that's really starting to ramp up. So that will kind of be ongoing over the next couple of quarters.

Gerard J. Sweeney, Analyst

You've identified $4 million in cost reductions. Does that amount come from operating expenses, or is it a combination of operating expenses and cost of goods sold?

Roger D. Shannon, CFO

That is for the OpEx.

James M. Jenkins, CEO

Yes, that's the OpEx. That's the SG&A discipline, I think, optimizing procurement, streamlining overhead and then consolidating some of our acquired companies.

Gerard J. Sweeney, Analyst

Got it. Some of it is just natural consolidation. One last question, I’ll jump back in line. When I head over to the growth side, there's obviously a big opportunity for you. Can you maybe give us a little detail on how things are going? Growth was up, as you highlighted, but some of it was certainly from acquisitions. I'm really interested in the head-to-toe strategy and bundling. What are we seeing on that front and what opportunities do we have as we move forward?

James M. Jenkins, CEO

I'll start, and Roger, you can jump in. We've got much greater engagement with our customers and are seeing many more opportunities, including some larger ones that we hadn't anticipated. This increase in engagement is largely due to the focus we adopted from our Veridian acquisition and their glove strategy. Veridian sells gloves, which are easier to handle in major metro markets compared to other products. Firefighters go through gloves quickly and need replacements, and the Veridian Glove is highly regarded in the market. They've secured Dallas and L.A. Fire Department as customers, indicating significant opportunities even in lower-cost commodity products. We have brought in a new leader at Pacific Helmets, and with Barry Phillips’ strong product management skills, I expect real growth there. We are identifying opportunities globally and have just closed a deal with the Korean fire department, which, while not huge, represents a new market for us. We’re taking deliberate steps to prune and focus on these opportunities, with Pacific Helmets being one of them. With LHD, we anticipated the backlog and customer issues we needed to address, and we are seeing improvements. Additionally, our brand, Lakeland, is experiencing significant opportunities. Unfortunately, there are some exciting developments we can't disclose yet, but we hope to announce some wins in the coming weeks.

Gerard J. Sweeney, Analyst

And those developments are wrapped around that sort of head to toe. I mean, whether gloves give you an opportunity.

James M. Jenkins, CEO

They're fully equipped from head to toe and are collaborating on potential offerings that include a Pacific helmet, Veridian turnout gear, Veridian boots, Veridian gloves, or Lakeland turnout gear and Veridian gloves. Our portfolio allows us to approach this with multiple strategies, enhancing our engagement with customers and focusing more on our channel partners. Additionally, Roger and his team are providing real-time operational visibility for different regions to help us identify opportunities to adjust margins when creating a complete head-to-toe offering.

Roger D. Shannon, CFO

One thing I would point out that is possibly causing some timing issues this year is the evolution of another NFPA standard in 1970 and 1971. This change is expected to happen later this year. Anecdotally, it seems that there has been some hesitation in the U.S. around making purchases, as many are waiting for the new standard to be released. It hasn't turned negative, but there appears to be a strong desire to hold off on purchases. At our Veridian facilities, we are preparing and in many instances, it involves staging inventory until the product can be correctly labeled. We do not want to use the 1970 label when it requires the 1971 label. Essentially, it’s about managing inventory carefully for products that will be sold under the current standard while also getting ready for the new one.

James M. Jenkins, CEO

I want to emphasize that we are actively pursuing those certifications. Currently, the delay is with UL, which is the certifying body. To echo Roger's point, it’s important to obtain that certification and be an early mover because it’s similar to the approach people take when purchasing cars. If the new model is expected to be released in October, and you want to buy the 2026 model, you might hold off if you know the 2025 is still available. Therefore, we want to ensure we are prepared with the certification so that when firefighters request the 1970 certification, we can provide it. Our products are currently with UL for certification, and we are just waiting to hear back from them.

Operator, Operator

Our next question is from Mike Shlisky with D.A. Davidson.

Michael Shlisky, Analyst

If I read everything correctly, I heard your comments, kind of the bottom line organic growth in the quarter, I think it was 2%, if I'm mistaken, correct me. can you update us on your expectations for organic growth for the full year? Is it still high single digits? Or has that changed at all?

Roger D. Shannon, CFO

We experienced strong organic growth in the U.S., with nearly 10% growth in both our industrial and fire products. However, we saw a decline in Latin America, with a 12% year-over-year drop, as well as in Canada. These two regions, being higher-margin markets, had a significant impact on our overall gross margin. Despite these challenges, achieving a 2% growth across the company amidst the pressures in Canada and especially Latin America is encouraging. It's also promising to see growth returning in the U.S., and we're optimistic about the improvements we're observing in our Asian market.

Michael Shlisky, Analyst

Okay. And then to reach that full year goal and really your overall revenue goal for the year, do you need to have that Jolly order that's been kind of hung up here shipped during the year? Or is that kind of like a bonus on top of what you're already thinking you're going to be getting?

James M. Jenkins, CEO

I'm going to meet with the Italian government next week to express gratitude for our long-standing relationship and to gain a clearer understanding of the delivery timing. We've been in discussions with them for several months, and all signs are positive. I may have mentioned in the last call that the issue is not related to Jolly. The entire procurement division of the Ministry of Interior in Italy was under investigation, resulting in personnel changes due to a corruption case. This means we're now working with a new group of individuals in procurement, including a senior official whom I'll meet with next week. We're highly optimistic, and there's no indication of any issues regarding the quality of the product. We have a solid history as a customer, and it's mainly a matter of navigating the new internal dynamics. This aspect is crucial for our future projections, but I am confident in our ability to move forward successfully.

Michael Shlisky, Analyst

Okay. Perfect. And maybe lastly, just on the cadence of how the rest of the year is going to play out from an EBITDA perspective and some of the accounting machinations that happened here in the first quarter. Does it completely reverse in 2Q? Or is there some kind of gradual rollout that's going to happen for the rest of the year with kind of what was lost here and was gained for the rest of the year?

Roger D. Shannon, CFO

Yes. We have already observed an increase quarter-over-quarter. Part of this is due to the adjustments in the materials purchase price variance compared to the standard. Additionally, we expect to see the benefits of our cost containment and cost-cutting measures. Furthermore, we'll see the acceleration of our organic shipments from Latin America, Canada, and the U.S. I would advise against assuming that all the improvements will occur in the second quarter. We have seen growth each quarter, but we do anticipate better results in the second quarter.

Operator, Operator

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

Mark Eric Smith, Analyst

First off, I just want to look at the balance sheet a little bit here on inventories and just kind of your comfort level with where inventories are and maybe if there needs to be more build as we think about tariff mitigation.

Roger D. Shannon, CFO

Speaking for myself, I don't believe there's a significant need for increased inventory build. I think we've positioned ourselves well with the inventory coming from China, particularly for the clean room. We mentioned this in our previous quarter and year-end call, where we discussed our progress in staging and building that inventory. Regarding our inventory from Vietnam, we anticipate continued progress towards a deal with that country. The administration has indicated that their concerns regarding imports are not focused on clothing and shirts. Therefore, we expect that situation to improve and likely stabilize around a 10% level for Vietnam. We’ve managed the situation and are communicating with our customers as needed. The uncertainties at this point involve the European Union. Our Jolly boots are produced in Romania, and we still expect to launch the NFPA North American fire boot in early fall of this year in the U.S. market, although the rollout has been slower than we initially anticipated. We don't foresee any major concerns coming from the Pacific and New Zealand regions, so we expect those to remain in the 10% range as well. Ultimately, I would like to see inventory levels start to decrease.

James M. Jenkins, CEO

Yes, that's where I am, Roger. We've made a strategic purchase to bring in that critical environment component. We will continue to focus on reducing that. I am confident about several opportunities in the pipeline that will help us narrow it down in the coming quarters. We have also increased our clean room capacity in Vietnam, so we are no longer dependent on China for that critical environment component.

Mark Eric Smith, Analyst

I wanted to revisit the gross margin aspect. Looking at the bar chart in your presentation, it seems that manufacturing costs are the largest challenge. There are several factors at play, so I’d like you to explain the organic challenges, such as labor and rising material costs. What specific issues are affecting this area, and what measures can be taken to address them, including any potential price increases you have implemented or are considering?

Roger D. Shannon, CFO

Part of the challenge is related to the pricing system we are using. Currently, we operate under a standard costing system, and with the tariff situation, we have been adding more vendors. This has resulted in a significant increase in the number of suppliers, and the standards for these new vendors are not fully established. Consequently, variances arise, and it becomes difficult to distinguish what should be classified as cost of goods sold versus what should go into inventory, leading to most of it flowing through cost of goods sold. In terms of gross margins, the impact from purchase accounting accounted for roughly one margin point. Year-over-year, the profit in inventory also influenced margins by about one point. I want to highlight that we currently have about $1.3 million in profit tied to inventory. Last year in Q1, we saw a $200,000 benefit, whereas this year it was a $300,000 loss, indicating about a $0.5 million year-over-year swing. We did observe significant fluctuations coming out of last year’s build. We are keeping an eye on this on a quarterly basis and anticipate that the $1.3 million in inventory profit will eventually be realized. Moreover, we are closely examining the gross margins of the acquired companies. We are engaged in discussions about enhancement opportunities with Veridian to improve their margins. Additionally, we have appointed a new Managing Director at Pacific who has faced some challenges concerning manufacturing and operational expenses. This new MD has been in the role for about five weeks and will be meeting with us next week for an initial assessment. There are also ongoing issues with Jolly, where gross margins and production efficiency still need improvement. All these initiatives are currently in progress.

Mark Eric Smith, Analyst

Okay. And my last question, just digging a little deeper on the SG&A here. I'm curious, as we look at the breakdown that you guys gave on kind of organic cash SG&A, just up a little bit year-over-year. I'm curious about the inorganic cash SG&A. It seems like these acquired companies are pretty clean, but are there opportunities to cut at all or to get more efficiencies within SG&A on some of these acquired companies?

James M. Jenkins, CEO

There absolutely is. I'm currently in Quitman, Arkansas at one of the former Veridian facilities, which is now our facility for glove manufacturing. I've spent the entire day with the team and our North American Global VP of Manufacturing, examining efficiencies within the plant, and we can achieve several improvements. Additionally, we have previously discussed consolidating Veridian into two operations in the shorter term and then one in the longer term. There are significant opportunities here to generate savings in the short, medium, and long term.

Operator, Operator

This concludes the question-and-answer session. I would now like to turn the call over to Mr. Jenkins for his closing remarks.

James M. Jenkins, CEO

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 you're 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. And for those of you attending the upcoming ROTH London Conference, June 24 through the 26, we look forward to seeing you there.

Operator, Operator

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