Earnings Call Transcript - LAKE Q4 2025

Operator, Operator

Good day, and welcome to the Lakeland Fire and Safety Fiscal 2025 Fourth Quarter and Full Year Financial Results Conference Call. All lines have been placed on a listen-only mode and the floor will be opened 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 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, CEO

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 who are new to Lakeland and our strategy, we are a global manufacturer of personal protective equipment, apparel, and accessories with a comprehensive portfolio of premium fire service brands and mission-critical industrial PPE. Our management team is executing strategies to boost growth and margins within the global fire turnout gear and industrial PPE markets, focusing on acquisitions in the fragmented fire industry. Our product range 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 from our well-known brands, including Lakeland Fire and Safety, Veridian, Eagle, LHD, Jolly, and Pacific Helmets. Over the last year and a half, we have completed four strategic acquisitions that have enhanced Lakeland's competitive position within our targeted markets. We operate from 18 locations in 14 countries, with sales representatives in 23 countries outside the US and product sales in over 50 countries. Our mission-critical product portfolio in Lakeland Fire and Safety 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 features a variety of high-quality safety products, including chemical suits, PPE, disposable coveralls, high-performance FR/AR and woven garments, and safety boots. The acquisitions we completed last year added product line extensions and innovative new products while expanding our global markets, channels, and customer base. These acquisitions have strengthened our presence in North America, Europe, Asia, Oceania, LATAM, and the Middle East, supported by strategic distributors and partnerships in each region. They are part of our initiative to create a lineup of premium global fire brands under Lakeland Fire and Safety within this fragmented market, leveraging strategic distribution partners across 78 countries. This includes Veridian, acquired in December 2024, LHD in July 2024, Jolly Scarpe in February 2024, and Pacific Helmets in November 2023, in addition to Eagle, acquired in December 2022. Each acquisition has positioned us strongly within our focused product categories and markets, backed by ongoing investment in our global fire footprint, our own manufacturing facilities, complementary acquisitions that enhance our product offerings or geographic reach, and investments in sales and marketing worldwide. This setup gives Lakeland a competitive edge regarding delivery lead times. Our company-owned manufacturing footprint and strong market share in key global markets create significant barriers to entry, making Lakeland the acquirer of choice. Additionally, we hold 14 patents and 76 trademarks. The years 2025 and 2026 have been significant for Lakeland, marked by transition and progress. During the quarter, we successfully closed an oversubscribed $46 million public equity offering, using the proceeds to pay down our loan agreement, greatly improving our balance sheet and net debt ratio, and saving around $2.5 million in annual cash interest. The capital position allows us to drive further growth in the fragmented higher-margin $2 billion fire protection segment across the largest global markets. We also executed strategic acquisitions that enhanced our product line and expanded our global channels and customer base as part of our initiative to create a portfolio of leading global fire brands under Lakeland Fire and Safety. To support our growth and profitability, we have begun an initiative to enhance, modernize, and consolidate our enterprise resource planning systems across the company. Our acquisitions in the past two years have resulted in eight additional ERP systems that need to be integrated into Lakeland's IT environment. In December, we started implementing a company-wide ERP system, set to roll out in phases over the next several years, with the first phase expected to be completed by the end of this fiscal year. We are also integrating our global operating and manufacturing resources, which encompasses certification integration, procurement integration, and production capacity layout. We launched a Lean Six Sigma project across the company, guided by a Master Black Belt from our operations team. On the logistics side, we have implemented strategies for global shipping and distribution, including the centralization of our European warehouses in Venlo, Netherlands, negotiating our 2025/2026 freight contract, and an optimization program for global logistics. We have assembled a new and experienced management team, including myself, Roger Shannon as CFO, and Helena An as COO. We are executing a turnaround strategy focused on efficiency, accretive acquisitions, and synergies to drive growth and value. We appointed Barry Phillips as Chief Revenue Officer and Cameron Stokes as Chief Commercial Officer, Global Industrial, to lead initiatives that stimulate revenue growth, strategic market expansion, and increased market share. With our global workforce of over 2,000 team members, we welcomed Laurel Yartz as CHRO to oversee our most valuable asset—our employees. I want to briefly address the topic of tariffs. The situation has changed again today, and while I will provide more details later, I want to emphasize that we are actively taking steps to minimize the impact of tariffs through inventory buildup and production shifts. As global circumstances continue to shift, we aim to navigate a dynamic macroeconomic environment with resilience and adaptability. Despite increasing tariff pressures and broader economic uncertainties, we see these as opportunities to strengthen our operations. While recent trade tensions and new tariffs complicate global markets, our diversified manufacturing capabilities enable us to adapt effectively. By being proactive, we aim to maintain stability and efficiency throughout our procurement and production networks. While some indicators hint at possible cyclic slowdowns, we are preparing thoughtfully for various economic conditions. Our focus on financial discipline, deepening customer relationships, and achieving operational excellence is supporting a resilient foundation for long-term success. Importantly, we are well-placed within two relatively recession-resistant sectors—industrial and fire—bolstering our confidence in managing near-term challenges. Although we are not entirely immune to the uncertainties surrounding global tariffs, we are advancing with clarity and confidence. We have implemented measures to mitigate potential tariff impacts, including increasing net inventory by $14.2 million, which totals $82.7 million as of January 31, 2025. Although developments are changing rapidly, we are concentrating on production shifts to minimize tariffs on our products. For the North American market, our tariff mitigation strategies include cross-certification of Lakeland's Mexico-produced fire turnout gear by Veridian for US production. All Veridian turnout gear is currently made in the US, and these facilities can accommodate the manufacture of Lakeland turnout gear. Our Mexico facility is also becoming certified to produce Veridian turnout gear for the Canadian and LATAM markets. After acquiring Veridian, Lakeland’s Mexico and Veridian US operations began sharing compliance under NFPA 1970 and technical documentation to facilitate cross-production. We are pleased to report that over 90% of our products produced in Mexico that fall under the USMCA trade agreement are not subject to additional tariffs. In Asia, we are considering other lower-tariff regions for manufacturing industrial products and are communicating potential price increases or surcharges to channel partners for products made in Vietnam and China. We are closely monitoring the Vietnam tariff situation, as a significant portion of our US disposable products are made at our Vietnam facility, and we hope that the recent pause in tariffs for Vietnam and most other countries becomes permanent. Meanwhile, we are assessing the option of manufacturing disposable products at our newly acquired US facilities and other Lakeland locations worldwide. Lastly, only a limited range of products manufactured in China are imported into the US, and we do not anticipate a significant risk of retaliatory tariffs from foreign entities, as we produce only a small number of products in the US for non-US markets, primarily Veridian turnout gear. Reflecting on fiscal 2025 and looking ahead to fiscal year 2026, I can confidently assert that we have the right management team in place to carry out our strategies focused on strategic acquisitions and synergies to enhance growth and create value. Our strategic acquisitions have broadened our global footprint and our portfolio of brands. Notably, the acquisition of Veridian has significantly enriched Lakeland's global fire service portfolio with its top offerings in firefighter protective apparel. We maintain a robust M&A pipeline and are exploring new opportunities to further consolidate the fragmented fire market with our newly raised capital, aiming to accelerate free cash flow to support our acquisition strategy. In fiscal 2025, we also appointed key sales leadership and regional sales leaders in Asia and Europe, and we have already seen positive early results from these professionals. We successfully integrated the North American sales teams for Veridian and Lakeland's fire turnout offerings and established a unified global fire sales strategy. As stated earlier, our tariff mitigation strategy is already in motion with inventory buildup and production shifts across the US, Mexico, and Asia, aimed at minimizing the financial impact on Lakeland and our customers. We have also put logistics strategies in place to optimize efficiencies and reduce costs through a global approach to shipping and distribution. These strategies and the effective execution by our experienced management team are generating strong financial results. We are well-capitalized with a solid balance sheet and growing free cash flow to support our Fire Services acquisition strategy and initiatives. Now, I'd like to turn the call over to Roger to discuss our financial results.

Roger Shannon, CFO

Thanks, Jim, and hello, everyone. I'll give a brief overview of our fourth quarter and fiscal year 2025 financial results before we get into the specifics. Revenue for the quarter increased by $15.4 million or 49.3% compared to the fourth quarter of fiscal 2024. For the entire fiscal year 2025, revenues rose by $42.5 million or 34.1% to $167.2 million. Consolidated gross margin improved by 420 basis points versus Q4 of last year, increasing from 35.9% to 41.1% and maintaining that level for both fiscal years 2025 and 2024. Operating expenses grew 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 fiscal year 2024 to $67.4 million in fiscal year 2025, mainly due to inorganic growth, acquisition expenses, restructuring, non-recurring expenses, and higher organic SG&A costs, predominantly in compensation and professional fees. We reported a net loss of $18.4 million or negative $2.42 per diluted share for the fourth quarter of fiscal 2025, compared to a net loss of $1 million or $0.13 per share for the fourth quarter of fiscal 2024. For the entire fiscal 2025 year, the net loss was $18.1 million or $2.43 per diluted earnings per share, down from net income of $5.4 million or $0.72 per diluted earnings per share in fiscal year 2024. Both the fourth quarter and fiscal 2025 results were impacted by a $10.5 million goodwill impairment related to Eagle and Pacific Helmets, along with a $7.6 million write-off of our investment in Bodytrak. 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 stood at $17.5 million on January 31, 2025, compared to $25.2 million on January 31, 2024. In our fourth fiscal quarter of 2025, net sales reached $46.6 million, an increase of $15.4 million or 49.3% from $31.2 million in the fourth quarter of fiscal 2024. Sales from our recent acquisitions contributed $12.1 million to this rise, while organic sales climbed by $3.3 million or 11% year-over-year. The Fire Services product line saw a year-over-year increase of $14.7 million, bolstered by $8.2 million from LHD, which we acquired in July 2024, and organic growth of $2.6 million, with contributions from Jolly acquired in February 2024. Additionally, disposable sales increased by $1.5 million or 12%, mainly in the U.S., although this was partially offset by seasonal weaknesses in high-performance woven sales. On a consolidated level, for the fourth quarter of fiscal 2025, domestic sales accounted for $18.3 million or 39% of total revenues, while international sales comprised $28.3 million or 61% of total revenues, reflecting our recent acquisitions leaning towards international growth. This represented a shift from domestic sales of $12.7 million or 41% of total revenues and international sales of $18.5 million or 59% of the total in the fourth quarter of fiscal 2024. Gross profit for the fourth quarter of fiscal 2025 reached $18.7 million, marking an increase of $7.5 million or 67% from $11.2 million in the fourth quarter of fiscal 2024, with gross profit as a percentage of net sales rising to 40.1% from 35.9%. The gross margin percentage improved in the fourth quarter of fiscal 2025 due to strong organic sales results, somewhat offset by lower margins from recent acquisitions. The organic gross margin percentage rose to 48.5% from 35.8% for the fourth quarter of fiscal 2024, driven mainly by a $2.2 million reversal of profit in ending inventory and an enhanced product mix. Operating expenses increased by $4.3 million or 29.7% from $14.5 million in the fourth quarter of fiscal 2024 to $18.8 million in the fourth quarter of fiscal 2025, due to inorganic growth, acquisition expenses, various non-recurring outlays, and heightened organic SG&A costs, chiefly in compensation and professional fees. Adjusted operating expenses rose by $3 million, largely because of inorganic growth. Our 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, primarily as a result of goodwill impairments at Eagle and Pacific and the aforementioned impacts. Operating margins were negative $22.9 million for the fourth quarter of fiscal 2025 compared to negative $10.5 million for the same period in fiscal 2024. The net loss for the quarter was $18.4 million or negative $2.42 per diluted share for the fourth quarter of fiscal 2025, contrasting with a $1 million loss in the prior year, mainly due to non-cash goodwill impairments at Eagle and Pacific Helmets along with an equity impairment related to our investment in Bodytrak, which has struggled financially since its initial acquisition and required several rounds of funding to stay operational. Bodytrak entered insolvency proceedings in the UK in February 2025. Up until January 31, 2025, we had recognized $1.5 million in losses from our investment in Bodytrak. We recorded an impairment loss of $7.6 million for the remaining value of the equity method in convertible notes investment by January 31, 2025. During the liquidation process, we secured the intellectual property rights and all existing inventory, and intend to allocate some resources to Bodytrak without detracting from our core business, as we believe it presents a viable connected worker safety solution that has not been adequately positioned. Adjusted EBITDA, excluding FX for the fourth quarter of fiscal year 2025 was $6.1 million, reflecting an increase of $2.7 million or 79.4% compared to $3.4 million for the fourth quarter of fiscal year 2024. This growth was driven by heightened revenue, contributions from LHD, the anticipated profit reversal in ending inventory, and improvements in our organic sales mix, although it was somewhat offset by higher manufacturing costs. Now, looking at our fiscal full year 2025 results, net sales were $167.2 million, an increase of $42.5 million or 34.1% compared to $124.7 million for fiscal year 2024. The Fire Services line was a key contributor to this revenue growth, increasing by $36.5 million or 137.7% year-over-year. Our acquisition strategy, including the acquisition of Pacific in November 2023 and Jolly, LHD, and Veridian in FY 2025, added $33.1 million to the revenue increase. The substantial rise in Fire Services was complemented by an $8.1 million increase in our woven, disposable, and chemical product lines, though it was partially offset by a $1.1 million drop in our high-visibility products. On a consolidated basis, for fiscal year 2025, domestic sales accounted for $60.4 million or 36% of total revenues, while international sales were $106.8 million or 64% of total revenues, reflecting our recent acquisitions that continue to shift growth internationally. This compares with domestic sales of $55.2 million or 44% of total revenue and international sales of $69.5 million or 56% in fiscal year 2024. Gross profit for fiscal year 2025 reached $68.7 million, an increase of $17.5 million or 34.2% from $51.2 million for fiscal year 2024. Gross profit as a percentage of net sales was 41.1% for both fiscal years 2025 and 2024. The organic gross margin percentage increased to 45.3% from 41.1% for fiscal year 2024, primarily driven by increases in Fire Services and a favorable product mix. Operating expenses for fiscal 2025 escalated by $22.2 million or 49.1% from $45.2 million in fiscal year 2024 to $67.4 million in fiscal year 2025. This increase was due to inorganic growth, acquisition costs, restructuring, other non-recurring expenses, and elevated organic SG&A operating costs, mainly in compensation and professional fees. Adjusted operating expenses grew from $38.9 million in FY 2024 to $53.7 million in FY 2025, influenced by inorganic growth, heightened sales expenses from increased revenue, and greater compensation and professional costs. Our operating loss for fiscal year 2025 was $9.3 million, a contrast to an operating profit of $6 million for fiscal year 2024, attributable to the previously mentioned factors. Operating margins were minus 5.5% for fiscal year 2025 compared to 4.8% for fiscal year 2024. The net loss was $18.1 million or negative $2.43 per diluted earnings per share for fiscal year 2025, down from net income of $5.4 million or $0.72 per diluted earnings per share for fiscal year 2024. Adjusted EBITDA, excluding FX for fiscal year 2025 was $17.4 million, reflecting an increase of $1.7 million or 10% compared to $15.7 million for fiscal year 2024. This rise was mainly driven by higher revenue, including contributions from LHD and margin improvements in our organic sales mix, slightly offset by elevated SG&A costs and foreign exchange impacts. Cash and cash equivalents were reported as $17.5 million on January 31, 2025, and working capital was around $101.6 million. Cash and cash equivalents fell by $7.7 million while working capital rose by $18.4 million from January 31, 2024, reflecting the impact of our acquisition strategy including the purchase of Jolly, LHD, and Veridian in 2025. Net cash used in operating activities totaled $15.9 million for the year ended January 31, 2025, declining from net cash provided of $10.9 million for the year that ended January 31, 2024. This increase was largely due to a rise in working capital, primarily from inventory buildups in anticipation of forecasted sales increases in the first half of fiscal 2026, significant increases in accounts receivable from LHD's efforts to clear a multi-year backlog, and delays in shipping a large order from Jolly. We anticipate collecting cash on these sales in the first half of fiscal 2026. For the trailing 12 months ended January 31, 2025, revenue was $167.2 million, reflecting an increase of $42.5 million or 34% when compared to FY 2024 TTM revenue of $124.7 million, with our recent Fire Services acquisition supporting Lakeland's sustained revenue growth. Trailing 12 months adjusted EBITDA, excluding the effects of FX, was $17.4 million, representing a $1.7 million increase or 10% compared to the full fiscal year 2024. The shortfall in our annual adjusted EBITDA guidance stemmed directly from the delay of a large Jolly boot order into fiscal 2026. Given that we executed four major acquisitions in the past 12 months, the full integration of these will take some time, but we believe those benefits will lead to improved financial performance recognized in the upcoming fiscal year. Our fourth quarter consolidated gross margin improved by 420 basis points relative to Q4 last year, reaching 40.1% due to better organic margins, profit reversals in ending inventory, and inventory write-offs from the previous fourth quarter, countered somewhat by lower inorganic margins and rising manufacturing and freight costs. Organic gross margin showed strong improvement from 35.8% to 48.5% year-over-year, influenced by a favorable product mix and the aforementioned inventory profit reversal. Gross profit as a percentage of net sales stood at 41.1% for both fiscal years 2025 and 2024. The organic gross margin increased to 45.3% from 41.1% for fiscal year 2024, motivated by growth in Fire Services and favorable product mix. Adjusted EBITDA excluding FX for the fourth quarter of fiscal year 2025 was $6.1 million, a rise of $2.7 million or 79.4% from $3.4 million for the fourth quarter of fiscal year 2024. This growth was propelled by increased revenue, contributions from LHD, expected profit reversals in ending inventory, and improvements in our organic sales mix, marginally countered by higher manufacturing expenses. In reviewing our performance, while we saw notable revenue growth overall, we faced challenges that affected our results, yet we remain confident in our full-year projections. In the fourth quarter, we saw significant fire orders from Jolly pushed to the first half of fiscal year 2026. Our latest acquisition, Veridian, brought in $1.9 million in the fourth quarter. Combined revenues from LHD, Jolly, Pacific Helmets, and Veridian reached $13.2 million, and we expect strong acceleration as we fulfill open orders and explore cross-selling opportunities. Looking at our organic business, we witnessed a $7 million year-over-year decline in sales in our Latin American operations due to customer seasonal buying patterns. LATAM now represents 13% of Lakeland's total sales and continues to grow. Our dedicated Latin American team is actively seeking and taking advantage of new market opportunities, with further growth anticipated in that region. We're planning to expand our Fire Services offerings in LATAM and expect to launch new Industrial products from Lakeland's portfolio in the region moving forward. We have also recently aligned our Mexico sales operations under our LATAM management team, and we are optimistic about replicating their successes there. However, sales in Mexico were down 15% year-over-year as we enhance our sales team. We also observed a decrease in sales year-over-year in Asia. Nevertheless, we are excited about our new sales leadership in Asia and encouraged by the growth in China and other new Asian markets. Revenue from Europe, including Eagle, Jolly, and our recently acquired LHD business, surged by $10.8 million or 292% to $14.5 million. We identify promising sales opportunities in Europe and are committed to its growth trajectory. After a slowdown due to our LineDrive transition in the second quarter, our US revenue rebounded to $18.3 million or 36%, driven by ongoing expansion in our Lakeland Fire Services and disposable segments. Regarding product mix for the fourth quarter, our Fire Services business increased by $14.7 million or 226% compared to the same period last year, fueled by our recent acquisition of LHD and organic growth in the US as we start seeing benefits from our head-to-toe strategy. Our Industrial product lines grew by $700,000 or 3% during the same period, driven by disposables which saw a 12% uptick, accounting for 38% of quarterly revenue. Chemicals represented 10% of quarterly revenue, while the remaining industrial products, including FR/AR high performance and high visibility items, made up 15% of sales. Turning to our balance sheet, Lakeland ended the quarter with approximately $17.5 million in cash and equivalents and $16.4 million in long-term debt, compared to $15.8 million in cash and $31.1 million in long-term debt as of October 31, 2024. The cash decrease was mainly due to inventory buildup for anticipated growth in 2026, tariff mitigation efforts, and Jolly's backlog. On January 24, 2025, we closed a public offering of common stock, including the complete exercise of underwriters' options, garnering gross proceeds of around $46 million. We used the net proceeds to reduce the outstanding principal amounts under our loan agreement. By January 31, 2025, we had $13.2 million in borrowings outstanding under the revolving credit facility and an additional $26.8 million in available credit under the loan agreement. Net cash utilized in operating activities was $15.9 million for the year ending January 31, 2025, in contrast to net cash provided of $10.9 million for the prior year. The uptick was driven predominantly by a $14.2 million increase in net inventories, a $2.8 million rise in accounts receivable, and a $3.5 million drop in accrued expenses and other liabilities, countered by a $6 million increase in accounts payable. Capital expenditures totaled $1.9 million for the year ending January 31, 2025, primarily for manufacturing equipment. Although elevated cash usage during the quarter suggests robust demand from our customers, it reflects an increase in working capital of $18.4 million, primarily due to inventory buildup in anticipation of sales growth in the first half of FY 2026 and the clearance of approximately 85% of the multiyear backlog at LHD, which we expect to recover in the first half of fiscal 2026. At the end of Q4, inventory reached $82.7 million, up from $72.7 million at the end of Q3 in fiscal 2025, due to inventory preparations for projected sales growth in early fiscal 2026, a significant rise in accounts receivable owing to LHD's multi-year backlog catch-up, and delays in fulfilling a sizable boot order from Jolly along with tariff mitigation initiatives. By January 31, 2024, the inventory of acquired firms totaled $24.4 million. Year-over-year, we registered an organic inventory increase of $8 million compared to the quarter ending January 31, 2024. Organic finished goods amounted to $28.7 million in Q4 2025, reflecting a $3.5 million year-over-year rise and a $2.3 million quarterly increase. The organic raw materials in Q4 2025 were $28.5 million, up by $3.9 million year-over-year and $600,000 quarter-over-quarter. Now, regarding our fiscal 2026 guidance, based on our current order backlog and expectations, we anticipate FY 2026 revenue between $210 million to $220 million. This revenue outlook takes into account the recent acquisitions of Veridian, LHD, Jolly Scarpe, and Pacific Helmets. We expect FY 2026 adjusted EBITDA, excluding any significant adverse foreign exchange impacts, to range from $24 million to $29 million, also including the acquisitions of Veridian, LHD, Jolly Scarpe, and Pacific Helmets. With that overview, I'd like to pass the call back to Jim before we start taking questions.

Jim Jenkins, CEO

Thank you, Roger. I'll conclude by saying that we continue to demonstrate strong net sales growth driven by a 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 while 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 million to $220 million, and adjusted EBITDA excluding FX of $24 million 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 write-off at Bodytrak. We invested in Bodytrak in early calendar 2021 when we were awash 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 Bodytrak. This could include patent infringement enforcement or 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 Eagle had very few fixed assets utilizing a subcontractor manufacturing model. There was also a certain lumpiness associated with Eagle's primary tender business. In fiscal year 2024, Eagle exceeded our forecast for it but missed an aggressive earn-out target. That earn-out of $3.5 million was then added to an already significant goodwill number. Eagle 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 where they were not otherwise selling, LATAM and Asia specifically, the lumpiness associated with Eagle's tender business will ease. With respect to both Eagle and Pacific Helmets, some of the impairment related to certain intercompany sales has 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 the 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 it 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 Helmets for the US markets and 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 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 will now start the question-and-answer session. Our first question comes from Mike Shlisky with D.A. Davidson. Please go ahead with your question.

Mike Shlisky, Analyst

Good afternoon. Thank you for taking my question. I apologize for any background noise that may affect how well you can hear me. I want to begin by asking about the guidance you released. Can you tell me what date or time of day that guidance was issued? Also, considering recent events a few hours ago, do you think the outlook might change due to anticipated costs in the first quarter or two? Are you leaning towards the higher end of the guidance because of that, or could you share your insights on the key factors regarding tariffs that are relevant now?

Jim Jenkins, CEO

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

Mike Shlisky, Analyst

Can I ask another question?

Roger Shannon, CFO

I agree with that. It's difficult to predict minute-to-minute changes, but when we first considered our guidance, we took into account a combination of our mitigation steps, optimism that calmer minds would prevail, and the potential to pass along the increased costs to our customers. If higher tariffs are implemented, you could expect higher revenue but possibly lower margins, which makes it challenging to model various outcomes. For now, we are confident in the guidance range we provided and will keep everyone updated quarterly throughout the year.

Mike Shlisky, Analyst

Okay. That's fair. I wanted to follow up on your earlier comments about Bodytrak. I am relatively new here, so do you plan to revamp it or continue as is? Or is this intended to be a profitable conclusion for that business?

Jim Jenkins, CEO

We believe we can leverage the company's assets, which include multiple patents, to generate revenue through various channels. It's essential to evaluate for potential patent infringements, as this could be a monetization opportunity. However, a more straightforward approach to monetization would be selling the product differently. Bodytrak's sales model required customers to pay a high upfront fee, which was challenging given the balance sheet constraints. Therefore, Roger and I plan to adopt a more strategic rollout in regions where the product has received a positive response. We intend to utilize our financial strength and established relationships with channel partners and end users. I've already discussed this with my LATAM team, and they are enthusiastic about integrating this asset into our offerings.

Roger Shannon, CFO

I would just add that Bodytrak was gaining customers right up until their last day of business. As a company grows, cash flow becomes a concern, and due to the reasons Jim mentioned, we were not willing to invest more cash into their model. The most recent investments we made were secured convertible loans, which allowed us to leverage that asset. Now that we own the intellectual property and inventory, we can move forward.

Mike Shlisky, Analyst

Got it. Very helpful. I will pass it along. Thank you so much.

Jim Jenkins, CEO

Sure. Thank you. Safe travels.

Gerry Sweeney, Analyst

Good afternoon.

Jim Jenkins, CEO

Good afternoon, Gerry.

Gerry Sweeney, Analyst

How you guys doing?

Jim Jenkins, CEO

Fantastic.

Gerry Sweeney, Analyst

Tariffs are definitely a key concern for everyone. We've already had some questions about this, and you've addressed them. As you consider strategies to mitigate the impact, what are some of the significant challenges you're encountering? It seems like you operate with a more asset-light manufacturing model, focusing heavily on sales. How difficult would it be to relocate some of your manufacturing processes, particularly for disposable goods, to the US?

Jim Jenkins, CEO

Yeah. So...

Gerry Sweeney, Analyst

Go ahead, and then I'll ask another question as a follow-up.

Jim Jenkins, CEO

We are exploring a couple of ways to address this. I had a discussion with my COO earlier today to ensure we are aligned on this matter. We previously had a significant disposable operation in Mexico, but a few years ago, we strategically shifted to producing fire turnout gear primarily in Mexico. I believe this decision was made by the former management team, and it was a wise choice.

Gerry Sweeney, Analyst

Yeah.

Jim Jenkins, CEO

We have trained personnel for disposables. With our Veridian capacity, we can manage a 10% tariff. However, if tariffs for Vietnam increase beyond that, we would consider retraining our team in Mexico to take advantage of tariff-free provisions under the USMCA.

Gerry Sweeney, Analyst

Actually, it’s not too bad?

Jim Jenkins, CEO

They would be compliant with USMCA regulations regarding the use of PPE, which would enable us to sell that without incurring a tariff.

Gerry Sweeney, Analyst

Got it.

Jim Jenkins, CEO

So, yes.

Gerry Sweeney, Analyst

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. So...

Jim Jenkins, CEO

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.

Gerry Sweeney, Analyst

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

Jim Jenkins, CEO

Yes, we have already made progress at LHD. We will explore other alternatives, including considering opportunities with Pacific. As we seek further improvements, the owner of Veridian believes there are options to consolidate as well. The long-term strategy includes potentially consolidating Veridian's operations into a single location in Iowa. However, due to the current tariff situation, we haven't expedited that process. We will hold off until we gain more clarity on the matter.

Gerry Sweeney, Analyst

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

Jim Jenkins, CEO

€3 million?

Roger Shannon, CFO

Yes, €3 million.

Gerry Sweeney, Analyst

€3 million. Got it. And that's just a push, correct?

Jim Jenkins, CEO

Yes, timing.

Roger Shannon, CFO

Yes, it's built and ready to ship, and the latest update is that the customer is currently conducting inspections and sign-off. It's been frustrating that it has been delayed once already. We had expected it to happen in the fourth quarter with a high level of certainty, but that did not occur. However, it is scheduled for the first half of this year.

Gerry Sweeney, Analyst

Got it. So, it's already manufactured. The whole €3 million potential should have been the expectation for the fourth quarter.

Jim Jenkins, CEO

Correct. We would have met guidance with that.

Roger Shannon, CFO

Yeah.

Gerry Sweeney, Analyst

Got it. Okay. I'll jump back in line. Thanks, guys.

Jim Jenkins, CEO

Sure.

Mark Smith, Analyst

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, CEO

Not that I'm aware of. No.

Roger Shannon, CFO

No.

Jim Jenkins, CEO

That's the big one.

Roger Shannon, CFO

As we noted in the prepared remarks, LHD excelled at catching up on what was an average backlog of two and a half years. Some orders were overdue by four years, and we decided to fulfill those because we believe the Lakeland and LHD names are important, and those customers deserve to receive their equipment. We have made significant progress in completing 85% of this backlog. We have also achieved operational efficiencies and improvements, and activities in Australia and Hong Kong are running smoothly. We are very pleased with that acquisition.

Mark Smith, Analyst

Okay. The next question is about gross profit margins, excluding any changes from tariffs. Considering the strong organic margins along with acquisitions, if we were to evaluate the current steady state, what are your thoughts on where gross profit margins might move?

Roger Shannon, CFO

We are very focused on our previously discussed aspirational targets of mid- to high-teens in adjusted EBITDA margin. I understand why you're asking about this. We were pleased with our organic gross margins being close to 50%. Our challenge lies in implementing operational improvements at Pacific and Veridian, where we're currently seeing gross margins in the low-30s. Jolly's gross margins were significantly impacted in Q4 due to shipping delays. We are conducting Lean Six Sigma initiatives on the factory shop floor there. Overall, I believe this is just the first step, and I would like to see acquisition gross margins reach the mid-30s and then start increasing towards the 30s. Meanwhile, we expect to start seeing efficiencies from our ERP project, and both Veridian and Eagle, as well as LHD, are operating very leanly, which results in quite positive EBITDA margins compared to their gross margins.

Mark Smith, Analyst

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 could 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, CEO

We've encountered some variability in our fire business, particularly with tenders worldwide that we're aiming to participate in. Given the number of brands we represent, we are confident that our win rate will improve. However, as noted previously, we are experiencing some irregularities similar to what we faced about six to nine months ago with Jolly. Until we achieve a critical mass in the next year that leads to revenue growth starting with a two, we won't rely on specific orders, like the Jolly boot order date, impacting our overall performance. That reflects our current outlook.

Roger Shannon, CFO

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

Matthew Galinko, Analyst

Hey, good afternoon, guys. Thanks for taking my questions. Maybe post clearing the backlog in LHD in Europe, I guess, 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, CFO

When considering LHD, we have operations in Germany, Australia, and Hong Kong, with services included in both Australia and Hong Kong. After clearing the backlog, we expect to operate within the €8 million range for this year as we secure new tenders and awards. There are some promising proposals that we haven't accounted for yet, but we're optimistic about our chances. We've conveyed some budget expectations, and we're preparing to bid on these upcoming opportunities, and our team feels confident about them. As we've stated before, we would be disappointed if we only doubled our revenue in Germany from LHD. However, we recognize that this won't happen immediately; we're not projecting rapid growth in the first year. Essentially, we're focusing on overcoming backlog issues and enhancing our operational efficiency. We anticipate this year will be relatively flat in terms of projections, but there is definitely room for growth.

Matthew Galinko, Analyst

Got it. Thank you. And I guess my follow-up is, thematically, it seems obviously a lot of focus on tariffs and operations, but maybe if you could touch a little bit on growth initiatives as you see it. Is M&A still up in play this year? Is the services business still in play this year? Kind of what are you thinking about and factor driving?

Jim Jenkins, CEO

On the organic front, we have the right team in place, and we've been working together for about seven or eight months. This year, I believe we're starting to make significant progress. I'm very optimistic about our efforts. Looking at our industrial team in Europe, it's been a disappointing market for us for many years, but we now have strong leadership and focus there. On the M&A side, the acquisitions we've made and the cross-selling efforts led by my Chief Revenue Officer, Barry Phillips, are quite impressive. I attended FDIC, which is the largest fire trade show in North America, and Barry knows everyone there, including many firefighters. I'm truly energized by what he and Cameron are doing with our teams. We’ve added a lot of middle management and sales staff, which further motivates me. Regarding M&A, Roger and I have several initiatives in mind, and our pipeline remains significant and healthy. However, I believe the deals we pursue will be smaller over the next 12 to 18 months, focusing on the decontamination and service businesses. We expect to look at two or three of those, as these companies usually generate $3 million to $5 million in revenue. There’s a great opportunity to scale them in markets where we already have customers. We see these as excellent chances to create recurring revenue with high margins and loyal customers.

Matthew Galinko, Analyst

Great. Thank you. And maybe if I could sneak one last one in there. Sounds like LineDrive is doing well now. Are we kind of moving at full speed on that front, or is there still work to be done?

Jim Jenkins, CEO

No, we're in a really good place with LineDrive. They're actively engaging with major companies like Fastenal, Valens, and Grangers. I spoke with a colleague there late last week about developing a tariff strategy, and he was quite helpful. As we gain more clarity and hopefully see these 10% tariffs as the extent of our challenges, his support has been invaluable. Our teams have been collaborating closely, and our optimism is definitely increasing with each day we work with LineDrive.

Matthew Galinko, Analyst

Great. Thank you.

Roger Shannon, CFO

Thank you.

Operator, Operator

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, CEO

Thank you all for joining. Thank you, operator. 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 our 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 deliver 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. Thank you.

Operator, Operator

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