Earnings Call Transcript - LAKE Q2 2025

Operator, Operator

Good day. And welcome to the Lakeland Industries’ Fiscal 2025 Second Quarter Financial Results Conference Call. All lines have been placed 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 US GAAP, including adjusted EBITDA, excluding FX and adjusted EBITDA, excluding FX margin. 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. At this time, I would like to introduce you to your host for this call, Lakeland Industries President, Chief Executive Officer and Executive Chairman, Jim Jenkins. Mr. Jenkins, the floor is yours.

Jim Jenkins, CEO

Thank you, operator. Good morning, everyone. Thank you for joining us today to discuss our fiscal 2025 second quarter results, which ended on July 31, 2024. We appreciate your continued interest in Lakeland Industries. I always want to begin our call by thanking 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. Finally, I want to thank our Lakeland team and 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 teams as we continue to execute our growth strategies. As previously announced, we closed on the LHD acquisition in early July. LHD is a leading provider of firefighter turnout gear, accessories and personal protective equipment, cleaning, repair and maintenance with an annual revenue of approximately $27 million. This strategic move enhances our global fire services offerings and footprint and continues our small, strategic and quick SSQ growth strategy. LHD Group increases Lakeland's ability to serve firefighters in Germany and Australia, two of the largest fire markets in the world, and the Hong Kong region with an expanded range of high-quality rescue gear as well as care and maintenance services. LHD's product range includes structural, wildland and industrial fire and rescue gear, technical rescue equipment and stationware, and it complements Lakeland's existing fire service offerings. LHD Care provides a holistic approach to protecting clothing maintenance, including laundry services and repairs, a software app for tracking the progress of those services and sample production. As the global focus on firefighter health and safety increases, this offering further protects firefighters from environmental contaminants and helps ensure the longevity and effectiveness of firefighting gear while also introducing an attractive recurring revenue stream that Lakeland plans to leverage and expand. Along with our Pacific Helmets and Jolly acquisitions, LHD allows Lakeland to offer our head-to-toe fire offering to a larger geographic audience. As we have discussed previously, this acquisition reflects our commitment to executing and accelerating the pace of our SSQ M&A strategy. We still have an attractive and robust SSQ acquisitions pipeline and we will continue to search for opportunities that further position Lakeland to execute our growth strategies and invest strategically to broaden and diversify Lakeland's range of products and end markets. I trust everyone has had the opportunity to review the press release and Q2 earnings deck we published last evening. I encourage you to follow along in the earnings presentation as Roger and I review our results. Our earnings presentation gives me the opportunity to introduce Lakeland Fire & Safety. This exciting new corporate and brand identity reflects our evolution as a company and reinforces our dedication to provide comprehensive innovative solutions for the first responder and worker safety sectors. Lakeland Fire & Safety will integrate our existing portfolio of outstanding brands, including Eagle, Pacific, Jolly and LHD, as well as any future acquisition creating a consolidated safety solution for fire customers. Reviewing our performance, it's clear that while we saw significant revenue growth overall, we encountered some challenges in the second quarter that impacted our results. Nonetheless, we believe that our earnings shortfall for the quarter was a matter of timing and integration, both with our new North American industrial product market representative and newly acquired companies, and we remain confident in our full year projections. While we remain very optimistic about our relationship with our new North American industrial product market representative, LineDrive, the transition during the quarter of coverage for certain large North American channel partner accounts resulted in some slippage in Q2 orders. LineDrive continues to build pipeline opportunities with national accounts and we believe these sales will accelerate in the second half of the year. Additionally, delays in the shipment of fire orders from Jolly and Eagle affected our second quarter revenue. We expect these substantial orders to ship in the third and fourth quarters. Pacific Helmets had a solid sales quarter as we continue integrating their products in the Lakeland sales channels. I'm pleased to report that LHD Germany has resumed manufacturing and we remain very optimistic about their growth opportunities. Turnout gear production at LHD's German entity had flowed to a trickle due to a lack of liquidity under the previous ownership and a multi-year backlog was created as a result. Beginning with and even leading up to our acquisition, suppliers resumed LHD credit terms and discounts based on Lakeland's financial strength. We have added new production capacity and are focused on working down the significant backlog by the end of our fiscal year. LHD's Australian operations, including its service business, remain strong and we remain optimistic that we can leverage and replicate their outstanding service and care model in other parts of the world. We also recently learned that LHD Hong Kong secured a renewal with the Hong Kong Fire Department with committed contract revenue increasing from $3.5 million to $5.3 million from September ‘24 to September ‘25. Looking at our organic business, we were again very encouraged by the growth in our Latin American operations with a 63% increase of sales year-over-year. LatAm now represents close to 20% of Lakeland's total sales and they continue to grow. Our outstanding LatAm team is continually identifying and capitalizing on new market opportunities and we expect further growth in that region. Our LatAm team is having tremendous success growing our woven products. We are working to expand our fire services offering in LatAm. And we expect to introduce new industrial products from the Lakeland portfolio into that region going forward. We've also recently put our Mexican sales operation under our LatAm management team and we are optimistic that they can replicate their success in that country. Even so our Q2 sales in Mexico were up 58% year-over-year, we also saw double-digit sales growth year-over-year in Canada, Asia, India and rest of the world. We are very excited about the new sales leadership we have put in place in Asia and we are encouraged by growth we are seeing both in China and the new Asian markets outside of China. While our US sales were affected by the sales coverage transition that I discussed earlier, our European sales also remained soft in the quarter. We are taking concrete and immediate steps to improve our industrial sales offerings, selling efforts and customer service in Europe. We see very good sales opportunities in Europe and we are committed to returning that region to a growth trajectory. From a product perspective, our fire service business continues to grow with a 34% increase year-over-year. This solid performance was driven by our recent acquisitions and the increased demand in this segment. Our industrial product lines grew $2.4 million or 10% over the same period last year, led by our woven products, particularly in LatAm, as mentioned earlier. Disposable products declined 2% year-over-year and chemical product sales were flat due primarily to the LineDrive transition and weakness in Europe, partially offset by growth in Asia, Canada, Mexico and our rest of world markets. Disposables represented 32% of revenue for the quarter while fire grew to 31% and chemicals increased to 20%. The remainder of our industrial products, including FRAR, high performance and Hi-Vis accounted for 17% of sales. Our FRAR high performance products declined 7% year-over-year and Hi-Vis declined 23%. Before turning the call over to Roger, I want to take this opportunity to acknowledge the outstanding work of our two new sales executives and welcome a new member of the executive team. Barry Phillips, our Chief Revenue Officer and Cameron Stokes, VP of Global Industrial Sales, have now been in place for two months and they're having an immediate impact across our organization. Barry brings a wealth of experience in the fire services industry, having led sales, marketing and product development across leading manufacturing and distribution companies, as well as serving on regulatory and advisory boards. Cameron Stokes is a highly accomplished industrial sales professional, having worked for 12 years in industrial sales leadership roles at Ansell, as well as other leading organizations. Both bring a passion for engaging the end user customer and a commitment to growth and excellence. I'm also pleased to welcome Laurel Yartz to Lakeland's executive team as our new Chief Human Resources Officer. Laurel brings over 30 years of experience in global human resources leadership, primarily in Fortune 500 and private equity companies. Her extensive background includes senior strategic roles leading cultural and business transformation. As our CHRO, Laurel will be responsible for enhancing Lakeland's people strategy and fostering a culture focused on growth, innovation, flawless execution, customer satisfaction and continuous improvement. Her proven track record of aligning talent to the operational, commercial and functional vision of the business and the spirit of developing teams and driving revenue growth will be crucial as Lakeland continues to execute on its global fire services and industrial safety growth strategies. So to summarize, after a strong start in Q1 of fiscal 2025, we saw a slowdown in our organic sales in Q2, which impacted our profitability. We remain confident in our growth strategy and expanding market opportunities in fire services and industrial safety products. Our commitment remains unwavering and I'm excited about the remainder of this fiscal year. So with that, I'd like to pass it over to Roger to cover our financial results and provide an outlook for the rest of the year.

Roger Shannon, CFO

Thanks, Jim, and hello, everyone. Looking at our second quarter 2025, Lakeland delivered sales of $38.5 million compared to $33.1 million for the second quarter last year. Organic revenue comprised 85% of our total sales and 15% of our Q2 revenue came from our recent acquisitions, including one month of sales from LHD Group. On a trailing 12-month basis, Lakeland's TTM revenue as of Q2 of fiscal 2025 is $137.7 million. This is an increase of $18.6 million or 16% versus the Q2 of fiscal 2024 TTM revenue total of $119.2 million. Year-over-year organic sales decreased by $300,000 in Q2, impacted by slightly lower sales in the US and ongoing weakness in European markets, offset by continued robust growth in Latin America, which increased 63% compared to the second fiscal quarter of fiscal year 2024. We were also encouraged to see double-digit growth in Canada, Mexico, Asia, India and our rest of world markets. Lakeland's domestic sales were $12.4 million or 32% of total revenues and international sales were $26.1 million or 68% of total revenues. This compares with domestic sales of $15.2 million or 46% of the total and international sales of $17.8 million or 54% of the total in the second quarter of fiscal 2024. Regarding product mix for the second quarter, our fire services business grew by $3 million or 34% versus the same period last year as we start to see gains from our head-to-toe strategy. Our industrial product lines grew $2.4 million or 10% over the same period last year, led by our woven products, particularly in Latin America. Disposables declined 2% year-over-year and chemical products were flat due primarily to the LineDrive transition as Jim discussed. We are seeing significant growth in the woven product category driven by outstanding performances in Latin America. Disposables represented 32% of revenue for the quarter, while fire grew to 31% and chemicals increased to 20% of our revenue. The remainder of our industrial products, including FRAR high performance and Hi-Vis accounted for the remaining 17% of sales. Reported gross profit was $15.2 million for the second quarter of fiscal year 2025, an increase of $1 million or 7% compared to $14.2 million in the second quarter of fiscal 2024. Our reported gross profit as a percentage of net sales was 39.6% for the second quarter of fiscal 2025 compared to 42.9% for the second quarter of fiscal 2024. Gross profit was negatively affected by 3.8% from the integration of newly acquired companies, including a 0.9% impact from the amortization of acquired assets relating to the purchase accounting step up of acquired inventory at Jolly and LHD and by 3.4% due to the impact of profit in ending inventory, partially offset by higher organic gross profit as we show in Slide 8. While our operating expenses increased to $16.8 million for the quarter, $2.4 million of the increase was SG&A from our newly acquired companies and $2.6 million of the increase was due to acquisition-related expenses, non-cash expenses, including higher depreciation and amortization from purchase accounting for acquired companies, non-recurring expenses, including restructuring and Argentina related FX expenses. The increase in organic SG&A operating expenses was due primarily to professional fees. Lakeland reported an operating loss of $1.6 million for the second quarter of fiscal year 2025 compared to an operating profit of $3.7 million for the second quarter of fiscal 2024. Operating margins were negative 4.1% for the second fiscal quarter, down from 11.3% for the second fiscal quarter of last year. The decrease in operating income is due to previously mentioned margin issues and the increases in operating expenses. Tax impact for the quarter was a benefit of $420,000 resulting in an effective tax rate of 23%. Lakeland reported a net loss of $1.4 million or $0.19 per basic and diluted share compared to net income of $2.5 million or $0.33 per basic share and $0.32 per diluted share last year. Adjusted EBITDA excluding FX for the second quarter of fiscal 2025 was $2.7 million or an adjusted EBITDA excluding FX margin of 6.9%. This compares to $4.7 million or a margin of 14.3% for the second quarter of fiscal 2024. As shown on Slide 8, the decrease in adjusted EBITDA excluding FX was driven by the previously mentioned profit in ending inventory, higher manufacturing costs associated with the inventory build and increased SG&A. Adjusted EBITDA from our acquisitions were lower than our expectations due to slippages but are expected to improve in the second half of the year. Also as we explained in our earnings press release, the profit in ending inventory that affected our gross profit and gross margins in the quarter is expected to reverse and be a benefit in the second half of the year once that inventory is shipped. On a trailing 12 month basis, Lakeland's TTM adjusted EBITDA, excluding the impacts of FX as of Q2 of fiscal 2025 is $14.5 million. This is an increase of $1.3 million or 10% versus the Q2 FY 2024 TTM adjusted EBITDA excluding FX, which totaled $13.2 million. Now turning to the balance sheet. Lakeland ended the quarter with cash and cash equivalents of approximately $24.9 million and long term debt was $29.5 million. This compares to $28.4 million in cash and $13 million in long term debt as of April 30, 2024. The decrease in cash was due primarily to debt repayments during the quarter and the net increase in our long term debt was mainly related to the acquisition of LHD Group in July, partially offset by repayments on our credit facility. At the end of Q2, inventory was $67.2 million, up from $56.1 million at the end of Q1 FY25, primarily due to LHD, Jolly, Eagle and organic sales that are expected to ship in the second half of this current fiscal year. Year-over-year, we saw a reduction in our organic inventory of $5 million versus the quarter ended July 31, 2023. Capital expenditures for the three months ending July 31, 2024 were $600,000. We still expect FY25 capital expenditures to be in the range of $2 million to $3 million as we develop additional in-house fire service manufacturing capacity and replace existing equipment in the ordinary course of operations. The Monterey expansion, which we discussed last quarter remains on pause as we continue to assess weather-related damage to our leased building. Looking ahead to the rest of fiscal 2025. Based on our existing backlog and our outlook for the remainder of the year, we are maintaining guidance for our 2025 fiscal year. Please note that these expectations include the announced Jolly Boots, Pacific Helmets and LHD Group acquisitions. We remain confident in our global sales platforms and earning ability for the second half of the year and we are reaffirming expectations for fiscal year 2025 revenue in the range of $160 million to $170 million. Additionally, we reaffirm our expectations for FY25 adjusted EBITDA, excluding FX to be between $18 million and $21.5 million. With that overview, I would like to turn the call back over to Jim before we start taking questions.

Jim Jenkins, CEO

Thank you, Roger. I'll conclude by saying that our strategy and focus has not changed. Prospects for both our industrial and fire businesses are bright. The value proposition between these two business models continues to be unique and resonates in the market. We continue to expect high single digits organic growth and the sales pipeline continues to strengthen. We expect the impact of the timing of our sales will reflect stronger second half sales and gross profit margins. We're making progress on our operational improvements and expect to see productivity improvements in the third quarter. Our operations team is also focused on productivity improvements in the short term in parallel to their longer-term multi-year efforts across the organization. We still believe and expect significant margin leverage as operational initiatives progress and our period ending inventory is sold off. We continue to work on improving the effectiveness and efficiency in our processes, databases and systems as we look to eliminate redundancy and improve our analytics. Over the longer term, we expect to be even more competitive to take market share and improve our scalability, predictability and profitability. In other words, we plan to drive a better business model. Acquisitions remain an integral part of our growth plan and we expect to continue growing our M&A pipeline and methodically pursuing our SSQ M&A strategy. With that, we will now open the call for questions.

Operator, Operator

Certainly. At this time, we will be conducting a question-and-answer session. Your first question for today is from Gerry Sweeney with ROTH Capital.

Gerry Sweeney, Analyst

I want to begin with the revenue aspect. It seems that core base revenue is performing reasonably well, with expected growth in the high single digits going forward. However, it also appears that some of the revenue mix has been affected by what I refer to as LineDrive friction as we transition into that relationship. Can you provide any insights on how much revenue was impacted by the shift of some sales to LineDrive?

Roger Shannon, CFO

Gerry, during our first-quarter end review with LineDrive, we examined each account carefully and identified which ones remained unchanged and which ones were impacted. While I can't discuss specifics on an account-by-account basis, we had the right individuals on the call who analyzed the details and provided insight into the situation. It's not unexpected to see some friction, especially with the transition of around 33 large national accounts as our team shifts to focus more on end user engagement while the LineDrive regional and headquarters teams take over. In terms of our USA sales, we experienced a year-over-year decline of about $2.8 million in Q2, largely due to this transition and the associated friction. Additionally, other variables like the unpredictable timing of oil and gas turnarounds can either hinder or help our progress. Nonetheless, we remain optimistic about capturing market share and further enhancing our value proposition in the US market. As mentioned in our guidance, we still anticipate improvement in the second half of the year.

Jim Jenkins, CEO

Gerry, as our relationship with LineDrive progresses, we are gaining more insight into their pipeline strategy and how they manage it. Our team is holding weekly meetings with them, and both Roger and I, as sales leaders, are conducting regular check-ins. I have a monthly call with the CEO of LineDrive, and we also review our progress every 90 days. We are currently very focused on ensuring that our relationship with LineDrive aligns with our expectations. They have a strong incentive to meet those expectations as their success depends on growth. I believe we're all aligned in the same direction now. As Roger mentioned, we might have faced some initial challenges that we could have anticipated, but overall, we are very confident in this relationship and its future direction.

Gerry Sweeney, Analyst

I mean, I personally probably should have expected some lumpiness in transitions like that, especially with larger accounts. But Jim, you’ve kind of touched upon it on the pipeline. As you look at the pipeline of sales process, I think it was what 33 accounts they took over, plus I think there's maybe some others. What does that building pipeline look like versus maybe what you were doing in sales previously?

Jim Jenkins, CEO

There are a few changes happening. While I won't dive into specific details about the pipeline, I can share that our current approach to managing pipelines, both with LineDrive and our sales team, is solid. This approach differs from the past, especially with the addition of two new sales professionals and a focus on increased interaction with end users. Traditionally, information from channel partners may not always be as accurate as insights gained directly from end users. We are transitioning towards more direct engagement with them, which is making us feel more optimistic about the pipeline. We're just beginning this process, and LineDrive also has visibility into some end users through their relationships with various channel partners. It's a mix of art and science, but I feel much more assured about how we're generating our pipeline compared to six to nine months ago.

Gerry Sweeney, Analyst

Switching topics, I have a question for Roger regarding gross margins. I want to clarify the different factors at play. We experienced some effects from integration and possibly some profits or inventory gains at the end of the quarter, which I don't fully understand. There's also the aspect of future opportunities and optimization. I'm looking for insights on how gross margins might improve qualitatively in the upcoming quarters. It seems unclear whether this is related to the impact of purchase accounting or inventory. I believe it would be beneficial for everyone to grasp the situation on a comparable basis, including what transpired in the quarter and what the potential recovery might look like.

Roger Shannon, CFO

You're correct. This involves various GAAP and accounting considerations, but it's crucial to grasp the concept of profit in ending inventory as it impacts us nearly every quarter. This can be a benefit, as we've experienced in previous quarters, or a challenge, as we have also seen. I'd like to highlight that as noted in our presentation, we achieved a 4.4% margin uplift from our organic sales mix, which is very encouraging. We're actively improving manufacturing efficiencies and managing pricing on organic products. Essentially, you're looking at two aspects: the gross margin from acquired companies, factoring in the accounting for purchases. When we acquire a company, we must report the financials in a specific way. This means we reassess the value of all acquired assets to reflect market value. For instance, if there’s equipment that has already been fully depreciated, it still holds value, and we adjust the depreciation schedule accordingly. This quarter, our gross margins were influenced by the acquired companies, particularly Jolly, which had finished goods inventory at the time of acquisition. Since the finished goods inventory was recorded at fair value, we realize no margin when we sell these products. It's important to note that we usually need about a year to clear out the noise from these acquisitions since the inventory turns don’t initially contribute to gross margins. Although I believe it might create confusion for users trying to understand this, we did communicate clearly that the gross margins from these acquisitions, especially those without manufacturing capabilities, would be lower due to these factors. Additionally, we encountered other influences, such as the summer shutdown. We acquired LHD in July, coinciding with the vacation period in Europe, which added to our headwinds. This accounted for a 3.8 margin point decrease. Conversely, the inventory situation could be viewed positively, contributing 3.4 margin points. If we add 3.4 to the 39.6, we find ourselves at 43. Our operations consist of sales and manufacturing entities. When manufacturing creates a product, it contains an inherent margin. However, we can't recognize this margin until the product is sold to a customer due to consolidation accounting practices. We have built up inventory, and while some sales have been delayed, we anticipate shipping this inventory in the second half of the year. When that inventory is sold, it will revert to being a benefit, reversing that 3.4 points. I hope this breakdown isn’t too convoluted, but it's vital to understand that these dynamics occur with some regularity, though not always at this scale, especially given the significant buildup at Jolly and Eagle projected for the second half.

Gerry Sweeney, Analyst

That leads to my question about gross margin. The inventory buildup occurs every quarter, but this quarter saw an unusually large increase, which definitely affected the gross margin. We generally take in lower gross profit dollars due to decreased revenues from sales.

Roger Shannon, CFO

That's right…

Gerry Sweeney, Analyst

But that makes sense. Last question, I know these are probably shorter questions but longer answers. The one thing that caught me, well, I don't know if I caught me off guard, but the $2.4 million in acquired, we'll say, SG&A or operating expenses from some of the acquired companies. Is that permanent or is some of that going to be transitionary as you integrate some of these companies, and how do we look at that?

Roger Shannon, CFO

We are currently reviewing our costs to reduce them. For LHD, we have identified some SG&A expenses that we believe are unnecessary, especially since we typically do not factor in significant reductions after acquisitions. Usually, we need to add sales representatives and resources. The same applies to Jolly, which has recently established a new manufacturing entity prior to our acquisition, in addition to its operations in Italy. We are exploring ways to improve their efficiency. Likewise, with Pacific, part of the SG&A costs stem from integration marketing efforts. Our teams have been traveling globally to train our Latin American and US teams, as well as attending trade and sales shows in their respective markets. As a result, we have observed an increase in selling expenses during this integration process.

Jim Jenkins, CEO

I mean, Gerry, some of this is an investment in our people. To Roger's point, we have some straightforward issues we can address. I'm currently speaking to you from Sydney, Australia, while my Chief Revenue Officer is in Argentina. We are in the process of growing this business, and there will be some costs associated with that. Roger's team is also heading to Romania soon to tackle these challenges. I expect that, of course, sales can resolve many issues, but we are evaluating certain expenses we can reduce.

Gerry Sweeney, Analyst

I prefer to have the infrastructure set up to boost sales rather than the alternatives. The inquiry was likely more about comprehending the model and its progression. I completely understand that, so I'll step back in line. Thank you, everyone.

Operator, Operator

Your next question for today is from Matthew Galinko with Maxim Group.

Matthew Galinko, Analyst

Can you discuss the pipeline with LHD? Is it reasonable to think that you can convert all of it, or do you anticipate some loss to competitors, and how do you see that progressing?

Jim Jenkins, CEO

What surprised Roger, the entire executive team, and me was the realization that the backlog issue is not solely a problem for LHD. Although the business was not managed particularly well and faced disruptions from suppliers, our competitors in Germany are experiencing similar delivery challenges. This is one aspect we found surprising; the backlog situation is not exclusive to us. We are closely examining these backlog opportunities to ensure we are not investing in projects that others have already decided to abandon, and for the most part, we are not encountering that situation. Currently, as we improve delivery terms and secure discounts on purchases with immediate cash payment, we are addressing margin considerations related to orders placed over a year ago when prices could have changed. This requires careful navigation with our customers. However, we are identifying methods to protect our margins, such as purchasing items on a cash-on-delivery basis for discounts rather than having them on our balance sheet before we receive them. We are actively pursuing these opportunities. Additionally, the individual we acquired from Eagle has proven to be a valuable addition, and he is dedicating significant time to help our partners at LHD reduce that backlog. I hope this clarifies your question.

Roger Shannon, CFO

I would just add that of the LHD revenue that we mentioned in the call, Germany, over the last year has only been about $8 million. The bulk of the stream currently is coming from Australia. We have the turnout gears as well as the services. So we see very significant upside in Germany, because like we said, like Jim said, other competitors are having the same delivery lead time issues. So we're working to bring on additional capacity as well as in housing some capacity for the Asian markets into our China facility. So we think there's a lot of upside. I've said before that if we just double the German, I'm going to be disappointed with that, because I think there's significant upside in the country.

Matthew Galinko, Analyst

And I guess on the subject of Europe, it sounds like you see opportunities in Europe that you aren't capturing now. What kind of levers can you pull to kind of go after that a little bit more effectively?

Jim Jenkins, CEO

On the industrial side, our legacy business in Europe mainly focuses on that sector, where we predominantly work through our channel partners and distributors. We have strong relationships with our distributors, especially in the Benelux region. Recently, one of our larger distributors in that area merged with a French company, which we believe could create opportunities for us to increase our market share in Europe. We see a significant opportunity with one channel partner to drive growth. Additionally, our new industrial sales leader, Cameron Stokes, is emphasizing the importance of engaging end users. The entire executive team spent a considerable amount of time in Europe, particularly in Poland, with our industrial sales team. We are adopting a different sales approach that involves collaborating closely with our channel partners to establish ourselves as industry experts in the industrial market. While it may take some time to see results, we are beginning to assemble the right team and foster a positive attitude. Furthermore, there are clear growth opportunities in Europe for our fire products with Eagle, LHD, and Jolly.

Roger Shannon, CFO

I would like to mention that we are currently addressing challenges related to customer service delivery times and costs. Led by our operations team, we are overhauling our warehousing, logistics, and distribution processes to significantly reduce delivery times. Additionally, as Jim mentioned, we aim to adapt our approach and business model from Latin America to Europe. Our sales team is actively working to communicate this strategy along with training, the right approach, and the necessary product availability to ensure quick delivery to our customers. Furthermore, with Kimberly Clark selling their PBE business to Ansell, we see potential opportunities for market displacement, and our sales teams are already providing feedback on this. We are committed to simplifying collaboration in terms of delivery, lead times, product availability, and customer service.

Matthew Galinko, Analyst

My final question is about the opportunity to expand the service maintenance business from LHD into North America or other regions. You mentioned this in your prepared remarks, but now that you've had the business for a few weeks, do you plan to grow it organically or through acquisitions, and what do you anticipate from this expansion opportunity for the latter half of the year?

Jim Jenkins, CEO

I'm currently in Sydney at the largest trade show in Australia, AFAC, focused on fire services. I've spent significant time with our partners at LHD, and after touring their Sydney facility, I was truly impressed. I even shared videos of it with Roger and the team because I see great potential here. I've also discussed this with my Chief Revenue Officer, who has relevant experience. We're considering both organic and inorganic growth opportunities. I know our team in Latin America is exploring similar initiatives, and we've connected them with LHD. I anticipate conversations there soon. However, this process won't happen overnight; it requires time. Nonetheless, it's definitely on our radar. I see this as a significant opportunity, especially given the trend towards safer firefighting practices, which includes decontaminating gear to protect firefighters from carcinogens. Consistent cleaning of these suits is crucial, and this need is emerging globally, though it's still early in the development phase. We believe we have a competitive advantage in some promising markets.

Roger Shannon, CFO

I also want to mention the software that LHD Australia has, which we believe is scalable and deployable. We were aware of the services, but discovering this software was a really pleasant surprise as we explored it further.

Jim Jenkins, CEO

Yes, I mean, that's another opportunity to monetize and it's one that I think is probably a little bit longer term, 12 to 18 months before we get our arms fully around that. But right now, it is a total differentiator for LHD within the Australian market. And we want to be able to roll that out in other markets.

Matthew Galinko, Analyst

Just a quick follow-up on that. You mentioned more early innings on that, I guess, globally. But can you maybe touch on just what proportion of the fire equipment TAM is currently kind of entering those sorts of contracts, your best guess of kind of what the penetration of that opportunity is today?

Jim Jenkins, CEO

There are millions of suits around the world that need to be cleaned. Typically, each firefighter in those markets has two sets of suits. At this moment, I can't provide you with a specific number, but it is significant, and we have just started exploring this opportunity. We plan to approach it smartly and methodically, while also acting with urgency. I expect that over the next 12 months, we will begin to expand into other markets.

Operator, Operator

At this time, there are no other questions in queue. Thank you, operator. Thank you all for joining us on today's call. We appreciate your continued interest in Lakeland. We look forward to building on the strong momentum Lakeland has and sharing our successes with you in fiscal 2025. Have a great day. Thank you. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.