Lakeland (LAKE) Q1 2027 Earnings Transcript

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DATE

Tuesday, June 9, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Chief Financial Officer — James Jenkins
• Chief Commercial Officer, Global Industrials — Calvin Sweeney
• Chief Revenue Officer — Barry Phillips
• Executive Vice President, EMEA Fire Sales — Kevin Rae
• Chief Financial Officer — J. Calven Swinea

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TAKEAWAYS

• Net Sales -- $47.4 million, up 1.4%, with fire services growing by 11% to $23.4 million and representing 49% of total revenue.
• Net Income -- $400 thousand, a turnaround from a $3.9 million net loss in the prior year period.
• Adjusted EBITDA (Ex-FX) -- $1.1 million, an increase of 79.6% versus $600 thousand, with related margin at 2.3% compared to 1.3% in the prior year.
• Adjusted Gross Margin -- 33.6%, down from 35.2% year over year, but a modest sequential improvement from 33.5% in the previous quarter.
• Operating Expenses -- $14.8 million, down $1.1 million year over year; the reduction resulted from restructuring and consolidation, but increased compared to the previous quarter due to seasonality.
• Cash and Cash Equivalents -- $17.4 million, up from $12.5 million at prior fiscal year-end.
• Inventory -- $77.7 million, down about $4.8 million, attributed to the sale of the HPFR and HiViz product lines.
• Divestiture Proceeds -- approximately $14 million cash proceeds from sale of HPFR and HiViz, producing a $6.5 million gain and simplifying the business portfolio.
• Net Cash From Operations -- $5.8 million, shifting from a $4.8 million use of cash in the prior year period, driven by divestiture and net proceeds accounting.
• Backlog -- Reached historic levels for turnout gear, driven by certification-related demand and new product launches; lead times for manufacturing currently extend to 8-12 weeks or longer as operations ramp up.
• Service Platform Revenue -- ISP and related fire services generate $4 million to $5 million per quarter globally, with U.S. representing slightly less than half; new sites are underway in Denver and expansions in Phoenix and Australia are planned.
• Unit Economics — ISP -- Each new ISP site targets at least $2 million annual revenue with upper double-digit EBITDA margins; buildout costs $350 thousand to $500 thousand depending on site specifics.
• Fire Services Certifications & Portfolio Expansion -- Achieved NFPA 1970:2025 certifications across multiple brands, resulting in increased demand for head-to-toe offerings and successful showcases at FDIC and Interschutz; new products include Pacific Structural Helmets and Jolly boots.
• UK National Fire Chiefs Council PPE Award -- Eagle notified of intended award under a 7-year, £220 million framework, expected to generate phased orders from 25 U.K. brigades and strengthen international positioning.
• Gross Margin Bridge -- Margin pressure attributed to mix (≈150bp), certification transition costs (≈80bp), release of previously capitalized freight costs (≈70bp), and Fresno ISP start-up costs (≈30bp); management asserts these are temporary and not structural.
• Trailing 12-Month Financials -- $193 million in revenue and $7.7 million adjusted EBITDA ex-FX, including full-year contributions of recent fire business acquisitions.
• Geographic Mix & Segment Shift -- Fire segment increased from 21% to 49% of total revenue over two years; notable fire services growth in Latin America, Mexico, and Viridian brand.
• Working Capital -- $92.4 million as of quarter end, with $23.8 million in revolver borrowings and $16.2 million additional credit available; the company is in covenant compliance.
• Strategic Focus -- Capital allocation prioritized toward greenfield ISP expansions and targeted inventory growth for fire materials, with M&A focused on small, strategic North American targets.

SUMMARY

Management reported a sharp improvement in profitability, highlighted by a swing from net loss to positive net income and a substantial rise in cash provided by operations, underpinned by successful divestitures and operating expense reductions. Fire services accounted for nearly half of total revenue, driven by new certifications, increased product demand, historic backlog levels, and expansion in international markets, including a major step forward with the U.K. National Fire Chiefs Council PPE framework. The recurring revenue service platform is scaling rapidly, with ISP site revenues approaching upper double-digit margins, and both U.S. and Australia seeing capacity expansion plans to meet ongoing demand. Margin compression was extensively detailed as temporary and linked to deliberate inventory builds, certification costs, and start-up investments, with management reiterating expectations for margin recovery as these factors normalize. The company closed the quarter with a leaner business profile, enhanced liquidity, and stated confidence in delivering high single digit revenue growth and positive operating cash flow for the year, with an emphasis on continued global fire portfolio expansion and service business momentum.

• Management specifically described their gross margin headwinds as "timing, certification transition, inventory positioning, capitalized freight release, and start up cost. Not by loss of pricing power or fundamental deterioration in the business model."
• Fire services backlog, primarily for turnout gear, was described as "historic," with order rates exceeding production ramp-up and average customer wait times now running 8-12 weeks.
• J. Calven Swinea stated that U.S. ISP business is currently "a little less than half" the global ISP services run rate, with organic expansion and greenfield builds preferred over M&A due to rapid payback.
• Capital expenditure for a new ISP site is typically $350 thousand to $500 thousand, and company strategy prioritizes expansion in both the U.S. and internationally where customer demand is strongest.
• Management confirmed ongoing transition to an asset-based lending (ABL) structure to bolster financial flexibility, while actively managing accounts receivable and payable for inventory support.

INDUSTRY GLOSSARY

• ISP (Independent Service Provider): Third-party or company-operated facility providing inspection, cleaning, repair, rental, and decontamination services for fire protective gear and equipment, distinct from product manufacturing.
• NFPA 1970:2025: The National Fire Protection Association's latest U.S. standard for protective ensembles used in firefighting and related emergency services, certifying compliance for turnout gear, helmets, gloves, boots, and hoods.
• HPFR and HiViz: High Performance Flame Resistant and High Visibility product lines formerly owned by Lakeland, now divested for portfolio simplification and liquidity improvement.

Full Conference Call Transcript

Jim Jenkins; chief financial officer, Calvin Sweeney; chief commercial officer of Global Industrials, Cameron Stokes;, chief revenue officer, Barry Phillips, and executive vice president of EMEA, fire sales, Kevin Rae. Mr. Jenkins, the floor is yours.

James Jenkins: Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss the results of our fiscal 27 first quarter ended 04/30/2026. Our first quarter results reflect continued progress across several important areas of the business as we position Lakeland Fire and Safety for stronger performance through the balance of fiscal 27. Calvin will walk through the financials in detail shortly, so I will provide you with a brief overview here. Net sales for the quarter were $47.4 million an increase of $700 thousand or 1.4% compared to $46.7 million in the prior year period. Supported by 11% growth in fire services.

Net income was approximately $400 thousand or $0.04 per basic and diluted share, a meaningful improvement from a net loss of $3.9 million or $0.41 per basic and diluted share in the first quarter of fiscal 26. Adjusted EBITDA, excluding FX, improved to $1.1 million compared to $600 thousand in the prior year period, and adjusted gross margin improved modestly on a sequential basis to 33.6% compared to 33.5% in the fourth quarter of fiscal 26. We are actively managing several identifiable timing, mix, certification, transition, and operational execution factors with clear actions underway to improve conversion of visible revenue opportunities into stronger profitability as the year progresses. Calvin will provide additional detail on our margin bridge shortly.

Demand across our fire services platform remains encouraging. Our NFPA 1.97 thousand 2025 certified head to toe fire portfolio was showcased at both FDIC 26 and more recently at Interschutz, where customer engagement, tender activity, and sales opportunity were strong. We believe the breadth of our certified portfolio including turnout gear, boots, gloves, hoods, and helmets provides a meaningful competitive advantage as fire departments and distributors increasingly look for complete, reliable solutions from a global provider. Our service platform also continues to build momentum as an important recurring revenue customer retention opportunity. Through our independent service provider or ISP platform, we provide inspection, cleaning, repair, rental, and decontamination services for fire departments and other safety customers.

We are deepening customer relationships, creating additional touch points with fire departments, and building a recurring service model that can support higher quality revenue over time. We continue to believe service can become an increasingly important differentiator for Lakeland Fire and Safety, not only as a revenue contributor but as a way to strengthen retention, cross selling, and long term customer value. As part of the strategy, we expect to open another ISP location in Denver, Colorado. And we are expanding our Arizona PPE facility in Phoenix to support continued growth in The United States.

We have also added a CO2 decontamination machine in Fresno, California, to enhance our decontamination capabilities and broaden the services we can provide to fire departments and first responders. Unlike traditional wash only service models, CO2 cleaning allows us to offer a more advanced decontamination solution designed to help remove harmful contaminants from turnout gear and related PPE while supporting faster turnaround improved garment care, and broader customer service options. The addition of CO2 capability further differentiates our service platform, and strengthens our position as a full service fire safety partner.

In addition, we are actively pursuing small strategic M&A candidates in attractive and growing geographies within North America, where we believe we can expand our service footprint strengthen customer relationships, and build a more durable recurring revenue platform. In Europe, we continued to make meaningful progress repositioning LHD, including the relaunch of the LHC brand at Interschutz. We also appointed Sasha Mueller as LHD's director of sales. Sasha is a veteran fire and safety executive. We view the first and second quarters as transitional for LHD, as we onboard new, highly regarded sales talent. Right size the German operation, and continue driving operational improvements.

And while Middle East uncertainty has temporarily slowed project timing and frozen certain regional budgets, we remain focused on converting identified opportunities improving margins, and positioning LHD for stronger performance in the back half of fiscal 27. Kevin Rae will provide additional details on EMEA in a moment. Eagle also continues to be well-positioned following its recent notification of an intended award under the National Fire Chiefs Council National Fighter PPE framework in The United Kingdom. And Eagle gloves, hoods, and turnout gear continue to gain strength in The United States, Latin America, and Asia as part of our broader global fire portfolio.

More broadly, backlog across our US fire business including both Viridian and legacy Lakeland fire products, continues to grow, and we are seeing similar fire related opportunities develop across Latin America, Mexico, and Asia as the updated NFPA standards create additional customer interest in certified turnout gear, gloves, hoods, helmets, and boots. The breadth of this activity reinforces our confidence in the long term growth potential of our Global Fire platform. On the industrial side of the business, we are seeing signs of improvement in areas that had previously been affected by tariff uncertainty, and broader macroeconomic headwinds.

Our facilities in Vietnam and China, where we produce primarily industrial products, remain at capacity supported by improving demand and better order visibility. We are encouraged by this progress, remain disciplined in managing production, inventory and customer demand to ensure that improved volumes translate into stronger operating performance. Our disposable business also remains an important part of the portfolio. While demand has improved in certain industrial channels, we have not yet seen a meaningful recovery in The United States nor have we seen any meaningful uptick in oil and gas turnaround activity.

We believe that our US industrial business can gain traction in the latter half of the fiscal year 2027 and the oil and gas business remains a future opportunity as maintenance and turnaround schedules normalize. But we are taking a measured view until order patterns become more consistent. In the meantime, we are focused on channel execution, pricing discipline, inventory alignment and positioning The U. S. Disposal business to benefit when end market demand strengthens. Separately, we are beginning to see emerging demand for certain protective products tied to Ebola preparedness planning. And we recently received related orders from hospitals in Europe, Hong Kong, and Latin America.

While we view this as a positive indication of Lakeland's continued relevance in high risk protective applications, we are treating this as an incremental opportunity rather than a core forecast driver. During the quarter, we completed the divestiture of our high performance FR and high vis product lines, for approximately $14 million in cash proceeds. This transaction simplified the business, strengthened our balance sheet, improved liquidity, and allows us to concentrate resources more directly on our core fire services and industrial protective products businesses. The divestiture is consistent with our broader effort to reduce complexity improve focus and allocate capital toward areas where we believe Lakeland has the strongest long term growth and margin opportunities.

We also strengthened our governance and executive team during the quarter. With the appointment of Lee Rudow to our Board of Directors, the appointment of Calvin Sweeney as Chief Financial Officer the appointment of Kevin Rae as executive vice president, EMEA fire sales. Lee previously served as chief executive officer of Nasdaq listed Transcat and his strategic and M&A integration experience in the industrial markets is a valuable addition to our board. As we look ahead, our priorities are clear. We are making meaningful progress in strengthening margin visibility accountability, and operating discipline across each business, product line, and region.

Our teams are focused on the key levers that drive performance, inventory management, cost control, price discipline, production efficiency, and improved sales conversion. As these actions continue to build momentum, we expect margins to improve over the course of fiscal year 27 supported by traction from tenders, new sales opportunities, and growing service revenue. We expect this momentum to begin showing through in the second quarter, although Q2 should be viewed as a stepping stone rather than the full measure of the improvement opportunity. As these actions continue to build, we expect revenue growth margin improvement and EBITDA expansion to become more visible in the back half of fiscal year 27.

Supported by inventory normalization, tender conversion, new sales opportunities, and growing service revenue. Based on our current demand trends, strength of our fire services platform, the continued development of our services business, the actions underway to improve margin and cash generation, we continue to expect high single digit revenue growth and positive cash flow from operations fiscal 27. With that, I would like to pass the call to our Chief Commercial Officer, Cameron Stokes, to provide an update on our industrial and chemical critical environment business.

Cameron Stokes: Thank you, Jim. Turning now to industrial and chemical critical environment. Our industrial business showed improved momentum across most regions in the first quarter, with The U.S. and Canada the only businesses not exceeding budget. Latin America at 119% to plan and Asia at 132% to plan delivered the strongest regional performances in Q1, attributable to disciplined commercial execution of Lakeland's safety story and tight alignment with our channel partners. The conflict in The Middle East has extended our lead times into Latin America, so we are focusing considerable efforts on mitigating any risk to our performance through tight alignment. Between our commercial and operations teams. Looking across product lines, chemical improved in most regions.

Critical environment remains a recovery priority we anticipate a very strong second quarter that gets us back on plan for the year. The key actions are better forecasting, demand planning, capacity resolution, and a stronger end user demand generation. Disposables performed well overall despite a significant US miss, with pricing and portfolio actions expected to support continued momentum. In Q2. Wovens remain on track from a demand standpoint, though the purchasing patterns of our largest Latin American customers have required some timing adjustments in our forecast. From an outlook standpoint, the US team is being reset around clearer expectations stronger channel engagement, improved portfolio positioning, and a better pipeline discipline.

We are building a stronger end user approach in The US engaging departments and end users directly to create pull through demand for our channel partners, improve specification influence, and helping our distributors to win more business with Lakeland. We have strong indications that Canada will rebound in the second quarter, including a strong performance in May and are confident Canada will achieve budget expectations for the year. Structural changes and new leadership in Mexico and Europe continue to show strong returns as pipelines are robust and performance is becoming more consistent and predictable. Overall, we are cautiously bullish on the outlook for industrials this year, with heightened attention on accelerating the turnaround in The United States.

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

Barry Phillips: Thank you, Cameron. Turning to the Fire Services. Revenue for the first quarter was $23.4 million an increase of $2.4 million or 11% compared to $21 million in the prior year period. Our 49% of total revenue reflecting the continued transformation of the business. The first quarter was a milestone period for our fire portfolio. We achieved NFPA 1.97 thousand certifications for Pacific helmets, Jolly boots, Veridian turnout gear, boots and gloves, and Lakeland turnout gear and gloves, giving customers the ability to order a complete head to toe certified range across our brands.

At both FDIC in The US and InterSchutz in Germany, we showcase the full head to toe product portfolio and our unified brand portfolio under the Lakeland Fire and Safety umbrella. Interschutz is the largest firefighting trade show in the world. Held only every 4 years in Hannover, Germany, and new product introductions included new Pacific Structural Firefighting Helmets, new Jolly structural boots, new Lakeland extraction gloves, and a new range of Lakeland and Meridian structural and wildland gear material, and reflective trim options to provide advanced performance and value. Sales activities accelerated through these certifications and with our attendance at both FDIC and Interschutz,.

And our market outreach, and we have now generated new product demand growth that has outpaced our prior manufacturing and stock capacity. As a result, our open order backlog has risen to historic levels. To meet that demand, manufacturing ramp up activities are underway at Lakeland, Veridian, Pacific, and Jolly. On the service side, we opened a greenfield ISP in Fresno, California. We are seeing U.S. Air Force decontamination services growth in Arizona PPE and California PPE has expanded capacity and facility upgrades to integrate our new CO2 decontamination capabilities.

Through our California ISP and our CO2 offering, introducing advanced decontamination performance combining wet wash and CO2 cycles to provide firefighters with the highest level of decontamination, at our Riverside, California facility. Looking ahead to the second quarter, new NFPA product demand has created an open order backlog we expect to meet our Q2 budget projections in key NFPA markets for firefighting gear produced to order. While stock products such as helmets, gloves, are moving out at a high double digit pace. Global tender opportunities are building, and the interest there reinforced our global Lakeland fire and safety head to toe product range and brand portfolio to the international market.

We are adding sales resources in North America and Europe to strengthen direct department interaction and our strategic distribution network development and we have strengthened our sales support and marketing teams to drive lead generation, follow-up, and reporting. Our operations team is building production capabilities to match demand, and decontamination service demand continues to grow in our US and Australian sites Our CO2 decontamination equipment has been installed in Riverside and is projected to be operational by the third quarter and we will have our new Colorado PPE site in development now in Denver. I will now pass the call on to executive vice president of EMEA Fire Sales, Kevin Rae for an EMEA update.

Kevin Rae: Thank you, Barry. Turning to EMEA. Eagle, delivered double digit growth in the first quarter, expects opportunities to expand in the back half of FY 2027, following its recent notification on intended award under the National Fire Chiefs Council National Firefighter, PPE framework in The UK. This is a framework with a total potential value of £220 million over a 7-year term across all awarded suppliers. We expect this framework to present additional opportunities as it moves into implementation. In addition to The UK framework, and while not always reflected directly in EAGLES reported revenue, Eagles products continue to gain traction across the broader Lakeland Fire and Safety platform.

Eagle gloves are now seeing increased adoption in The United States while eagle turnout gear, gloves, and hoods continue to gain momentum in Latin America and Asia. Further supporting the growth of our global head-to-toe fire offering. Looking ahead to the second quarter, we expect continued momentum in LHD Australia, where decontamination services supported by added unbudgeted activity and stronger than expected customer demand, are expected to drive continued growth. With respect to LHC Germany, the second quarter should be viewed as a transitional period as we onboard new highly regarded sales talent right size the German operation, and continue driving operational improvements.

During the quarter, we completed the transition of LHT Germany's operations from Wesseling to a third party logistics model with Deckers Logistics. And we appointed a veteran fire and safety executive, Sasha Muller, as LHD director of sales. As we move production and logistics activity elsewhere within the platform and the German team becomes more focused on commercial growth, we expect margin improvement. So that benefit is likely another quarter or 2 away. While Middle East uncertainty has temporarily slowed project timing and frozen certain regional budgets we remain focused on converting identified opportunities improving margins, and positioning LHD for stronger performance in the back half of fiscal 27.

And while not reflected directly in EMEA sales, expected ramp up of Jolly NFPA certified boots sales in North and South America should support improved jolly performance as the year progresses and further strengthen our position as a global head-to-toe fire provider. I will now hand the call over to Calvin to review the financials.

J. Calven Swinea: Thank you, Kevin, and good afternoon, everyone. I will provide a brief overview of our fiscal 27 first quarter financial before diving into the details. Net sales were $47.4 million for the first quarter of fiscal 27, an increase of $700 thousand or 1.4% compared to $46.7 million in the first quarter of fiscal 2026. Adjusted gross margin was 33.6% compared to 35.2% in the prior year period and improved modestly on a sequential basis from 33.5% in the fourth quarter of fiscal 2026. Adjusted operating expenses excluding FX were $14.8 million down from $15.9 million in the prior year period.

Net income was approximately $400 thousand or $0.04 per basic and diluted share compared to a net loss of $3.9 million or $0.41 per basic and diluted share in the first quarter of fiscal 26. Adjusted EBITDA, excluding FX, was approximately $11 million for the quarter, compared to $600 thousand in the first quarter of fiscal 2026, with an adjusted EBITDA excluding FX margin of 2.3% compared to 1.3% in the prior year period. We ended the quarter with cash and cash equivalents of $17.4 million up from $12.5 million at the end of fiscal 26. Turning to a few additional highlights for the quarter.

On the top line, sales revenue of $47.4 million increased 4.4% year over year with fire services growing 11% year over year basis driven by Latin America, Mexico, and Viridian. First quarter revenue came in as expected despite lower performance in North America, primarily due to the sale of inventory and intellectual property of our HPFR and HiViz product line at the end of March. Adjusted gross profit was $15.9 million and adjusted gross margin was 33.6% compared to $16.5 million and 35.2%, respectively, in the prior year period. Lower inbound freight and duties were more than offset by sales mix and product cost, in the broader macroeconomic environment continue to weigh on margin improvement.

Adjusted operating expenses were $14.8 million down $1.1 million from $15.9 million in the prior year period. Operating expenses increased compared to the fourth quarter mainly due to seasonality, while our cost reduction initiatives reduced operating expenses by $1.1 million year over year. Adjusted EBITDA excluding FX was $1.1 million up 79.6% from $600 thousand in the prior year period with an adjusted EBITDA excluding FX margin of 2.3% compared to 1.3% in the prior year period. Our year over year operating expense reduction more than offset lower gross margins, and we expect profitability to improve as margins recover and operating expenses remain stable.

Moving to our discussion of revenue and adjusted EBITDA excluding FX on a trailing 12 month basis. Our trailing 12 month revenue of $193 million reflects the meaningful top line growth in the business that has delivered over the past year, including the full contribution of our fire acquisitions. On a trailing 12 month basis, adjusted EBITDA excluding FX of $7.7 million reflects the margin pressure we experienced during the year, which we are actively working to recover. As quarterly margins improve through the balance of fiscal 27, we expect the trailing 12 month trend to follow with meaningful operating leverage as gross margin recovers.

Moving to Slide 11, I will walk through our gross margin and adjusted EBITDA bridges versus the prior year first quarter. As I noted, adjusted gross margin was 33.6% in the first quarter compared to 35.2% a year ago. While improving sequentially from 33.5% in the fourth quarter of fiscal 26. First quarter gross margin was below our expectations, but the drivers were clearly identifiable and not structural. The quarter was impacted by approximately 33 basis points of items that were primarily timing related transitional, or tied to deliberate investment decisions designed to support future growth. The largest impact was product mix, which represented approximately 150 basis points of margin pressure.

A meaningful portion of that was tied to the acceleration of finished goods inventory for new NFPA-certified products. Particularly at Jolly as we prepare to support US fire market launch. We made the decision to build inventory ahead of revenue conversion because product availability is essential to capturing demand. It creates a short term headwind, but also positions us to serve customers, support distributors, and convert sales as certified product becomes available. We also incurred approximately 80 basis points of pressure from additional NFPA certification costs and transition costs associated with prior certified products.

These costs are part of moving through the certification transition and preparing the updated market product offering for market, and they do not represent a permanent change in the economics of the business. Approximately 70 basis points of pressure came from the release of previously capitalized freight cost as inventory was reduced. While this affected gross margin in the quarter, it was tied to a positive balance sheet action, reducing inventory and improving working capital discipline. Finally, our Fresno, California ISP startup costs represented approximately 30 basis points of margin pressure. These costs relate to the continued build out of our ISP platform and should be viewed as investment in a growth initiative not ongoing margin erosion.

Looking ahead, we are focused on sustaining and expanding our margin progress through the rest of the fiscal year. As production volumes improve, certification related transactions costs moderate and recent tender wins and sales opportunities convert to revenue we expect adjusted gross margin to continue to expand through the year. To support that, we strategically increased inventory in key fire categories, including jolly boots, Pacific helmets, and Viridian gloves, and an expedited freight as we move product faster to support customer demand and market launches. Those freight costs were released through margins as related sales were realized, and we expect any near term impact to be temporary rather than a prolonged headwind. The key point is straightforward.

First quarter margin pressure was driven by timing, certification transition, inventory positioning, capitalized freight release, and start up cost. Not by loss of pricing power or fundamental deterioration in the business model. As these items normalize and revenue conversion improves, we expect margin performance to improve through fiscal 27. Adjusted EBITDA excluding FX improved to approximately $1.1 million from $600 thousand in the prior year period primarily driven by operating expense reductions which more than offset lower gross margin. That brought our adjusted EBITDA excluding FX margins to 2.3%, up from 1.3% a year ago. Slide 12 shows our revenue mix for the first quarter of fiscal 2027 alongside fiscal 2025 and fiscal 2026.

And the transformation of the business is clear on both a product and geographic basis. On the product side, Fire represented approximately 49% of revenues in the first quarter, continuing the strategic pivot we have made over the past several years from approximately 21% of revenues in fiscal 2024 to approximately 38% in fiscal 2025 to approximately 49% in fiscal 26. This is the clearest illustration of our shift toward the higher growth global fire protection sector in the recent sale of HPFR and HiViz further simplifies this picture. Geographically, our mix reflects a more diversified global footprint across The US, Europe, Latin America, Asia. Providing broader exposure to the global fire protection market.

As our acquired businesses integrate and fire gross margin recover toward their structural potential, our growing fire concentration is becoming a meaningful margin tailwind. Now turning to the balance sheet and cash flow. Lakeland ended the first quarter with cash and cash equivalents of $17.4 million and working capital of approximately $92.4 million. Cash increased $4.9 million versus the end of fiscal 26. As of 04/30/2026, we had borrowings of $23.8 million outstanding under our revolving credit facility with an additional $16.2 million of available credit under the loan agreement. The company was in compliance with all of its debt covenants as of quarter end.

Net cash provided by operating activities was $5.8 million in the quarter a significant improvement from the use of cash of $4.8 million in the prior year period. The significant change was due to the HPFR and HiViz sale and the accounting for the $11.4 million in net proceeds in related gain of $6.5 million. During the quarter, we had $14 million in credit line borrowings offset by $19.1 million in payments on our debt facility. We continue to work toward an asset based lending structure that we believe will further strengthen our liquidity position and provide greater flexibility as we execute our operating improvement plan. Looking now toward inventory.

At the end of the first quarter, inventory was $77.7 million down approximately $4.8 million from $82.5 million at the end of fiscal 26 mainly due to the sale of HPFR and HiViz. We would expect the pace of inventory reduction to moderate in the coming quarters as sales increase and as we strategically build inventory in select fire categories to support demand. Inventory optimization remains 1 of the key levers in our path to improve free cash flow generation and we will continue to manage it in a disciplined demand driven manner. With that, I would like to turn the call back over to Jim before we begin taking questions.

James Jenkins: Thank you, Calvin. The first quarter reflected continued progress against our plan. Net sales grew 1.4% to $47.4 million driven by 11% growth in fire services. Adjusted EBITDA, excluding FX, improved to $1.1 million from $600 thousand a year ago, and adjusted gross margin improved modestly on a sequential basis to 33.6% to 33.5% in the fourth quarter of fiscal 26. Our NFPA 1.97 thousand-2025 certified head to toe fire portfolio was showcased at both FDIC 2026 and Interschutz, where customer engagement, tender activity, and sales opportunities were strong. While the first quarter reflected a number of transitional operating items, we do not view the underlying drivers as structural. Importantly, this is not a demand story.

Demand across our fire services platform, our service business, and key industrial channels remains healthy. And our focus is on converting that demand cleanly into revenue, margin, and delivery performance. As we move through the balance of fiscal 27, our priorities are clear. Convert recent tender wins and sales opportunities across fire services, improve operational execution, and drive sequential margin improvement. Improve margin visibility, accountability, operating discipline by business, product line, region, inventory management, cost control, pricing discipline, production efficiency, and improved sales conversion remaining central to our plan.

Continue building our service platform as an important recurring revenue and customer retention, deepening customer relationships, creating additional touch points with fire departments, and strengthening retention, cross selling, and long term customer value. Over time, we believe service can become an increasingly important differentiator and a higher quality, more recurring source of revenue for the business.

Advance our balance sheet flexibility, including our work toward an asset based lending structure to support our operating improvement plan, Based on current demand trends, the strength of our fire services platform, the continued development of our services business, and the actions underway to improve margin and cash generation, we continue to expect high single digit revenue growth and positive cash flow from operations in fiscal 27. And we expect margins to improve over the course of the year as we gain traction from tenders, new sales opportunities and stronger service revenue.

We are grateful to our customers, distribution partners, and team members worldwide for their continued trust and commitment and especially to those first responders around the world who risk their lives every single day to protect us all. With that, we will now open the call for questions. Operator?

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star keys. 1 moment, please, while we poll for questions. Our first question comes from the line of Gerard Sweeney with Roth Capital Partners. Please proceed with your question.

Gerard Sweeney: Good evening, Jim and Calvin and team. Thanks for taking my for taking my call.

James Jenkins: Hey, Gerry.

Gerard Sweeney: Obviously, it sounds like the fire business is starting to take off, more tenders. And you discussed the backlog, I think, really expanding. Where is that backlog today versus maybe months ago? And how do we look at that transitioning into revenue over the course of the rest of this year? And does it continue to expand? So other words, are there even more opportunities in growth out there?

James Jenkins: Yeah. So, Barry, a couple things have changed over the course of the last 6 months. Obviously, the first being the certification process. That had delayed some decision. Had delayed some tenders. And so, you know, we had reverted, as I think we had explained earlier, to selling sort of a lower volume revenue volume lower margin products. Those products are now being enhanced by obviously, the turnout gear, which is sort of the gem of the offering and the in the fire portfolio. And I think we are seeing, you know, clear visibility to that.

I think I would like to have Barry Phillips sort of chime in to what he is seeing because and he is seeing a lot more of that out on the field. And he and I are talking daily about how that is growing. And the challenges now are not so much on the sales pulling in sales front, but more on making sure that Helena and her team on the ops side, you know, can produce the product for the sales that we are generating.

Barry Phillips: Yeah. Thanks, James. Hi, Gerry. The backlog is tied primarily to turnout gear. Typically, in the 8 to 12 week lead time manufacturing lead time frame, which we are pushing out a little bit on that. Because of capacity. We are building that up and ramping up in both Mexico and The US, so Veridian and Lakeland. And then the bit of the pipeline on even the commodity products, like helmets and boots, we could not ship from production until we received certification, which was the middle of Mark, and then bulk ship a lot of that stuff over here. So we are starting to flow that product into the field, and that is ramping up very quickly.

So and the order pace is staying a little bit ahead of the ramp up but our operations team is doing a great job to catch up.

Gerard Sweeney: Is this order pattern is this I do not want to call it the new normal because I know the NFPA standard sort of held things off. But how do we think about this order pattern versus, like, historical normal levels? Are we outpacing it? Is there some long runway to this? Will it take several years to sort of work through this? Or what is the thinking on this front?

James Jenkins: Well, you know, I think to start, if you if you by way of example, you look at The UK tender, that is a 7-year program. At $220 million of value that has just kicked off. You know, I think Kevin's on the call. Kevin, maybe you could talk a little bit about how that works. And, you know, it does not happen overnight, But I think that process has just started for us, and we are 1 of only a handful of winners are going to be able to participate in that process over the next 7 years.

Kevin Rae: Yeah. Sure, Jim. Yeah. it is a framework which has taken 2 years to prepare for. In terms of trialing against 10 different companies. And isolated down to a framework of about 4 in most categories. So we are in the mix now, and there are 25 brigades throughout The UK who will order at different time intervals in the next 7 years. And there will be replacements, replenishment. So it is an ongoing building picture. We are very pleased to be successful in getting the categories of hoods gloves, boots, the main 1, which is structural fire kit. that is a good position. it is also a good testimonial for other markets. Throughout the world. Got it.

Gerard Sweeney: No. that is helpful. So that is what I figured it is an extended opportunity across the board. Switching gears to I think the ISP or the cleaning service. Obviously, that is sounds as though it is going very well. You are looking to grow organically. Could you give maybe a little bit of detail on how fast that business is growing and if you are comfortable enough, you know, what portion of or how much revenue is it generating over a quarterly basis? And what we should think about that on a growth fronts. Because I believe it is hyper fragmented and still early in the its development.

James Jenkins: It is, Barry. We are we are that is an area that we are urgently moving on it is a growth market. it is a growing addressable market. My view is it is growing faster than, you know, than the certainly than the fire product market. And you know, as a reflection, I think, of the concerns that you know, politicians and firefighters have about keeping firefighters safe after they have been on a call and keeping them out of harm's way. So you know, we have got a great leader, you know, we actually-- that was a talent acquisition in the context of purchasing California PPE and Arizona PPE. In Mike Glaze.

And Mike has significant contacts really throughout the country, in The US. And, you know, he continues to drive that network And, you know, we would expect regionally to be, you know, covering most of really the West Coast and probably the Mountain West And, you know, really within a fairly significant radius of those regions, you know, as we move. And we do not have to do it through M&A. I think if you look at what we have done you know, after the acquisition of California PPE and Arizona PPE, we are building out-- we built out we built out the Fresno location. We are building out a location. We are increasing the capacity in the Arizona location.

So the growth is coming, and it is coming because I think we have identified a level of service that I think a lot of fire departments are not used to. So we continue to drive that. I think the model you know, if you talk to Barry and Helena, they will tell you that we wanna have a uniform franchise in that regard. So if you walk into Fresno or if you walk into anywhere else in the country where you might have a location, they all look the same. And that is what is not the case right now in that marketplace. So you do mention it is fragmented.

You know, from a revenue perspective, I guess I would ask Calvin to chime in. On the revenue front. I know it has been growing significantly. We have been investing in those businesses. I think the EBITDA margins are significant for us. And I think it is, for us,, if I could get that to a $50 million $60 million critical mass in revenue, the EBITDA margins are pretty significant and I think really drive a different sort of view of our company and its value.

J. Calven Swinea: Barry, this is Calvin. it is it is it is running in the 4 to 5 million per quarter range right now.

Gerard Sweeney: Got it.

James Jenkins: Still we are still-- Fresno is starting up. And then the new 1 in Denver. Coming along. Got it. And according to that, we have all set that. Let's not let's not forget I am sorry, Gerry. Let's not forget Australia and Hong Kong. Hong Kong is just is the Energizer bunny. They just keep moving and they do well. Australia has seen a major uptick because the service level has been so good. And, unfortunately, I guess fortunately for us, but unfortunately for Australia, there has been a very significant uptick in wildfire. So wildfire season has kicked off there, has generated, you know, significant amounts of issues for the firefighters who need to get their gear cleaned.

And, of course, we have some other departments who had just decided that they want more cleanings, more frequent cleanings, better cleanings. And so as know, I think we sort of articulated in the press release and in the in our discussion today that, you know, that was sort of an unexpected, unbudgeted surprise for us, to the good.

Gerard Sweeney: Got you. Okay. I will jump back in queue. I appreciate it. Thank you.

Operator: Thank you. Our next question comes from the line of Mike Shlisky with D.A. Davidson. Please proceed with your question.

Mike Shlisky: Hi. Thanks for taking my questions. I wanted to start from the OpEx line first. I guess there is 2 questions. I mean, you know, first, you were down year over year, which was impressive. Just remind us what exactly was going on with bringing the year over year OpEx run rate down. And then secondly, as we go through the year, you know, the first fiscal quarter has a couple big trade shows like FDIC in it. Does OpEx actually go down further from February to April on a run rate basis?

J. Calven Swinea: I will give that to you, Calvin. Thank you. Yeah. Mike, The restructuring efforts and cost control that we put in beginning at the end of at the end of Q3 and Q4 last year. That was our goal was to drive down 1.1 million. Again, that was over for restructuring and a lot of regions and consolidation in some areas. So that is that is that is where the savings came from. You are right. We have got Q1 and Q2 are going to include some trade show expense that starts to decline in the second half of the year.

Mike Shlisky: Great. Thanks for that. And then maybe I maybe I missed this, but from a pricing perspective, given the high price of oil and the high price of fuel, have you been able to properly price for you know, some of the more very recent inflation and getting things shipped globally.

James Jenkins: We have done a we have done a really good job of managing our freight expense I think I will tip a cap to Helena and her team on that front. You know, we have we have actually driven our freight cost down over the course of the last couple of months, if I am correct.

J. Calven Swinea: Is that right, Calvin? Yes.

Mike Shlisky: Great. Great. Maybe 1 last 1 for me is on the inventory. And working capital. Situation. You know, if you back into it, you may have to see sales be up, like, double digits or almost double digits. For the rest of the year to kinda meet Jim, your comments on the high single digit growth. And I am curious, Calvin, how you maintain a reasonable working capital level given a company that could be in double digit growth mode for a couple of quarters to come here. And possibly even the first part of 2028.

Just give us a little bit as to how you are able to make that happen and have the availability of products to people when they when they when they need them.

J. Calven Swinea: Yeah. that is-- that is the key. that is for us, and in the capable hands of our ops team. it is it is about in it is, 1, getting the proper visibility to the opportunities and making sure that we are we make the initial investment in raw materials. Of course, then we will have the conversion, but that is that is really going to be to maintain the inventory the appropriate inventory levels for kind of our standard the normal moving product.

And then we are gonna have to make a little bit of investment or and we are making an investment in the fire materials beginning now, as a matter of fact, as we see the increase in increased demand. So we are gonna have to fund that through careful management of accounts payable and management of our accounts receivable. And then, of course, we are looking at the ABL, which will give us some flexibility as we work through that.

Mike Shlisky: Got it. Got it. Thank you. I will pass it along. Appreciate it.

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

Mark Smith: Hi, guys. I wanted to dig in a little bit more on the IS ISP business here. You broke out, I think, Calvin, you said $4 million to $4.5 million per quarter roughly today. I assume that is globally. Can you give us insight into what The US business is doing there? And then maybe speak to kind of the organic fire services growth domestically in The US and kinda how that trended during the quarter?

J. Calven Swinea: Yeah. Mark, that is it is a little less than a little less than half of that right now. You have got you have got the 2 the 2 primary sites that we acquired and then the expansion into Fresno And then you have got of course, we will have the Colorado, which will we are in the process of standing up now. that is you know, I think we are going to see continued growth 1, just through the just through the greenfields and just through the expansion. You know, these they are not growing. They are not done growing the ones that we have acquired.

We are looking at an expansion of the Phoenix side. it is just not big enough to handle the business that they have got currently. And having to kinda move some of that some of that business has to get moved over to California. But we are looking to make sure that we can handle that. We will start that Yeah. We are looking at that expansion now.

James Jenkins: Mark, we are also looking to expand Go ahead.

Mark Smith: Barry.

Operator: Go ahead.

James Jenkins: No. Go ahead. Go ahead. I was gonna suggest I was also gonna say that we are also looking to expand in Australia. We are we are outgrowing the facilities that we have in Brisbane and in and in Sydney. So that we are looking our ops team is taking a hard look at expansion there as well because demand is now hitting us a little bit where we-- you know, we wanna be able to respond to that.

Mark Smith: Okay. And in the ISP business, just as we look at it and maybe globally, I am curious if you can give us more info on kind of unit economics per location, you know, the maybe revenue per site, contribution margin, you know, ROIC that you are seeing on these businesses as you invest in them?

J. Calven Swinea: Mark, I think you can see that they are they are gonna do-- they are going to do at least, you know, a visiblesize is going to do at least at least $2 million and then you are looking at upper double digit, a little bit higher EBITDA contribution.

Mark Smith: Okay.

J. Calven Swinea: And by the way, that is not half of that. that is grow-- that is where we expect to see them, but the growth rate on those are, you know, we are not capped at $2 million.

James Jenkins: You know, we have been-- you know, what we saw at Riverside when we purchased California PPE was he was blowing through that number far beyond that number, and we had we had to that is why we had to open up the Fresno site, 1 to provide opportunities within Central California, but also to free up additional space and needs and demand, activity in the Southern California market where he resided. So, I mean, the good news is you are not capping out of those. We are we are seeing them hit that $2 million mark, and then we are making decisions about expanding the businesses there or looking for other locations within close proximity.

Mark Smith: What is the I do not know if you guys have talked about it, but kind of approximate build out cost. if we looked at it then for as you kinda build that out organically, you know, what is the cash cost on building out a new location?

J. Calven Swinea: Mark, it is $350 thousand to $500 thousand. We are seeing we are seeing it closer to the $350 thousand. I am just giving kind of a wide range to cover. All potentials.

Mark Smith: Okay. Perfect. And last 1 for me. Just as we think about capital allocation, with the cash that you brought in from the divestiture this quarter and kind of expectations on free cash flow this year. what is kind of the ranking or hierarchy as we look at capital allocation from debt pay down, you know, potentially at some point bringing a dividend back, ISP expansion, etcetera? Where are you looking at putting the cash to work?

James Jenkins: Yeah. I think I will start-- yeah. Calvin, I guess I will start. Look. I think on the capital allocation front, you know, there is a we have a we have operating needs right now just in terms of making sure we have got enough inventory to drive the growth we have in the fire production. As well as industrials in part other parts of the world you know, we mentioned that US was a little sluggish. Other parts of the world are not. And we have got you know, we wanna make sure we are driving capacity and efficiencies at our plants at Vietnam and China.

And then on the on the you know, additional capital allocation for my money, these greenfields, you know, are a lot more attractive to me than necessarily than the m and a, focus because the return on the investment is fairly significant and fairly early. And so I, you know, I can invest $350 thousand to $500 thousand. In a business that, you know, that I know I can get to $2 million in a 12-month period. You know, I have got I mean, the return on my investment is pretty swift. Okay.

Mark Smith: What about that, Calvin?.

Operator: Go ahead.

J. Calven Swinea: No. that is that is exactly that is exactly it. it is it is it is that it is the focus that Jim just mentioned. Okay. And then debt repayment and others kind of falling under that and if Oh, yeah. Follow-up on that kind of status on where we are on transition to, you know, a new ABL.

James Jenkins: Right.

J. Calven Swinea: Yes. We are we are well on our way with the ABL. We have got we have got options. We try to find the best-priced deal for us right now. You know? And, you know, we are well under our you know, we are well within covenant with our current bank. So we are not gonna rush into it. We are gonna be smart about it and try to pick the best deal we can.

Mark Smith: Perfect. Thank you.

Operator: Thank you. Our next question comes from the line of Matthew Galinko with Maxim Group. Please proceed with your question.

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

James Jenkins: Yeah, Matt. So, you know, it is it is it is--, it is an ISP, and the and the first word is independent. And we wanna be very careful about how we manage those businesses. Right now, stand alone, those businesses do incredibly well. You know, we think, you know, could we provide our product for rental opportunity? Could we provide our products if you know, opportunistically, you know, if fire department were to come and say, you know, we are not happy with the with what we are currently utilizing, yeah, we would we would probably look at that.

But you know, we are going to we are gonna clean We are gonna be sort of agnostic when it comes to what we wanna clean. We are not gonna be critical of anybody's gear. That gear is utilized to protect firefighters, and they have made a decision to be protected by that gear. So we wanna be very careful about any kind of cross selling that we are doing here that would, you know, harm what I view to be our need to stay independent because these businesses will grow without the cross selling component, and that cross selling component will be an extra added benefit but I still wanna be cautious about that.

I would less I guess I would like to have Barry chime in on that because I think he is got some insight on this as well.

Barry Phillips: Yes. So it very much is an independent component of the business. There are opportunities that become available just because if you are doing it you know, you are servicing a fire department well, You become part of the fire department to some extent. And you gain some insight on when there is opportunities and they are looking for something else. But that is not to be run through the ISP it is just to make another connection with somebody else to provide the support that could be from the rest of our organization on the selling side The service piece needs to be respectful and supported as such.

But then there is other aspects of service that you get involved in or can get involved in. Are New South Wales ISP-- you know, LHD, and I am Australia has become such a tight partner with the fire service there that they are now decontaminating a broader range of equipment and supporting them in other ways and starting to do some things where we have been working with our software and asset tracking and things like that as well. So there is a broader range of service that you can provide, some added hand-in-glove with whether it is cleaning equipment and support, but still at the same time remaining as a service provider and a consultant of support.

Analyst: Got it. that is helpful. And then maybe just how should we think about the attach rate to the CO2 cleaning or sort of having both methods as part of the decontamination process? Do you kind of expect local governments to push for that or, you do you think that will be a, kind of the predominant decision or too early to tell?

James Jenkins: it is it is I think, Matt, we are starting to see you know, it is interesting. A year ago, I would have told you too early to tell. And in fact, there was considerable debate, I think, among the fire world about the benefits. But I think the benefits have been made pretty clear You know, the I think the NFPA standard and, Barry, you can correct me if I am wrong here, is 50% efficacy. You throw in CO2 you know, in the mix with you know, a wet wash and then a CO2, you are potentially talking about very close to almost a 100% efficacy.

So for the fire chief to make a decision about protecting his people, or his or her people, you know, I think it is a pretty easy decision. it is maybe a little extra cost. But it is, you know,, sleeping better at night.

Barry Phillips: Yeah. that is to support that. that is correct, Jim. It is 50% efficacy standard, the baseline, the minimum to be recognized as a certified ISP. And the fact that CO2 and certain levels of wet wash with the right machines and detergent can get to very high levels, but they do they are different in what their good at. So it is the combination of the 2 that gets the range of materials out depending on what type of environment you have been exposed to. where 1, if it is a lithium ion battery fire and what contaminants come from that, you are gonna look more towards CO2.

For others, the solvents and oils and greases and smoke wet wash, it will be better. But the combination of the 2 is what is what provides the strongest efficacy performance.

Analyst: All right. Thank you.

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

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

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

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