Operator: Good afternoon and welcome to the Lakeland Fire + Safety Fiscal Second Quarter 2027 Financial Results Conference Call. [Operator Instructions]. During today's call, we may make statements relating to our goals and objectives for future operations, including our goals for cash flow from operations and margin improvement for fiscal year 2027, financial and business trends, business prospects, and management's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our SEC filings. Our actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. On this call, we will also discuss financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP, including adjusted EBITDA, adjusted EBITDA excluding FX, adjusted EBITDA margin, adjusted EBITDA excluding FX margin, adjusted gross profit, adjusted gross margin, and adjusted operating expenses excluding FX. A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in the supplemental slide of today's presentation. A press release detailing these retail -- results was issued 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 + Safety President, Chief Executive Officer and Executive Chairman, Jim Jenkins; Chief Financial Officer, Calven Swinea; Chief Commercial Officer, 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 2027 second quarter ended July 31, 2026. Our second quarter results reflect continued progress in the underlying business, with sequential improvement across revenue, margin, and profitability. Net sales were $50.1 million, down 4.5% year-over-year, but up 5.7% sequentially, supported by a 12% sequential increase in Fire. Excluding $3.7 million of prior year revenue from the product lines we divested in March, net sales increased 2.8%. Gross margin was 37% compared with 35.9% a year ago and 31.4% in the first quarter. And adjusted EBITDA excluding FX more than doubled sequentially to $2.7 million. Rather than walk you through everything we announced during the quarter, I want to highlight important business updates that I believe matter most. First, tender wins. These are important because they are often recurring revenue opportunities for several years. We secured multiple tender and contract awards across 9 countries globally, spanning Fire, disaster response, law enforcement, industrial and utility markets. These included notification of an intended award across multiple product categories under the U.K. National Fire Chiefs Council National Firefighter PPE Framework, a 7-year program with a total potential value of up to GBP 220 million across all awarded suppliers, as well as significant contract wins across Asia Pacific and Latin America. We have significantly expanded our offering of certified products and manufacturing capacity across Fire and Critical Environments, strengthening capacity, supply chain flexibility, and support for higher value growth opportunities, which enhances our margin profile for the long term. Certification and product development work continues across our product lines. Our higher growth recurring revenue Fire Services platform, while repositioning the broader operating footprint. This includes our Denver ISP startup planned to open this month. ISPs generate recurring revenue and support higher margin revenue over time in our high growth space. Our industrial businesses generated $24 million of revenue in the second quarter, down 10.8% on a reported basis. Excluding $3.7 million contribution from the divested product lines in the prior year quarter, industrial revenue increased approximately 3%. Growth was led by 3 product lines. Chemical protective grew 9% and critical environment grew 28%. Critical environment is back on plan following the forecasting, demand planning, and capacity actions we put in place earlier in the year. Our primary manufacturing facilities remain at capacity, supported by improving demand and better order visibility. Our priorities for the balance of the year are channel execution, pricing discipline, inventory alignment, and converting the demand we are seeing into revenue and margin. Fire revenue was $26.1 million in the second quarter, up 2% from $25.6 million a year ago, and up approximately 12% from $23.4 million in the first quarter. Fire represented 52% of net sales compared with 49% in the prior year quarter and the first quarter. Growth was broad-based. Helmets increased 41%, hoods increased 66%, and turnout gear increased 5.5%. Adjusting for the prior year tender and current year service acquisitions, comparable Fire revenue grew approximately 10%. Demand continues to strengthen as customers transition to the updated NFPA standards. Our certified head-to-toe portfolio, spanning helmets, turnout gear, boots and gloves, lets customers order a complete certified range from a single global provider. And we believe that breadth is a real competitive advantage. On the Fire Services side, revenue grew 78% year-over-year, with our independent service provider business contributing $3.5 million in the quarter, and we are accelerating investment in that platform. 3 items worth noting. The quarter absorbed approximately $600,000 of expedited freight tied to a strategic Fire inventory build and foreign exchange was a meaningful headwind with a significant impact of $1.3 million compared with $43,000 a year ago. Our finance team is taking a hard look at hedging strategies, where they are reasonably available and financially appropriate. During the quarter, the company also recorded a non-cash goodwill impairment charge of approximately $3.2 million related to LHD, attributed exclusively to the performance and revised outlook of LHD Germany. The impairment reflects the accounting valuation of goodwill at a specific point in time. It does not represent a cash outflow, affect the company's liquidity, or impact its ability to invest in strategic priorities. We have taken actions to address the performance of LHD Germany, including leadership and organizational changes, and are executing a broader repositioning of the business, focused on improving operating performance, cost structure, and long-term returns. LHD's operations in Australia and Hong Kong continue to perform well, and the impairment charge is not reflective of the performances of those businesses. Lastly, the resolution of the Monterrey lease matter resulted in a $1.9 million second quarter gain and the permanent elimination of approximately $400,000 in related quarterly cash usage, removing an ongoing obligation and supporting our broader effort to simplify the business, reduce complexity, and provide greater clarity into our underlying operating performance. Inventory ended the quarter at $74.9 million, down $2.8 million sequentially, and $15.3 million year-over-year. Inventory is starting to move, and we expect that trend to continue as sales increase in the coming quarters. With that, I'd like to pass the call to Calven to walk through the financial results.
J. Swinea: Thank you, Jim, and good afternoon, everyone. Net sales were $50.1 million, down 4.5% from $52.5 million a year ago, and up 5.7% sequentially from $47.4 million. Gross margin was 37% versus 35.9% a year ago, and 31.4% in the first quarter. Adjusted gross margin was 37.7%, up 410 basis points sequentially from 33.6%. Adjusted operating expenses excluding FX were $16.2 million versus $14.6 million. Net loss was $4.9 million or $0.50 per basic and diluted share, versus net income of $0.8 million, or $0.08 a year ago. The net loss for the quarter included the non-cash goodwill impairment charge of approximately $3.2 million related to LHD. Adjusted EBITDA excluding FX was $2.7 million versus $5.1 million a year ago, and $1.1 million in the first quarter for a margin of 5.4%. We ended the quarter with cash of $17.9 million, up from $12.5 million at year end. A few drivers behind those numbers. Gross profit was $18.5 million, down 1.5% from $18.8 million, with a year-over-year margin increase of 114 basis points on tariff refunds and a favorable Fire mix, partially offset by higher inbound freight. An important note on margins: excluding the net tariff benefit of $1.4 million, gross margin still showed a sequential improvement to 34%, up 280 basis points, demonstrating that margin improvement was structural and not solely attributable to the tariff refunds. Operating expenses were $20.6 million, up 7% from $19.3 million. Adjusted operating expenses excluding FX were $16.2 million, up 11.1%, reflecting roughly $0.5 million of Interschutz trade show cost, new service location startup cost, and a full quarter of service operating cost. On a trailing 12-month basis, revenue was approximately $191 million and adjusted EBITDA excluding FX approximately $5.4 million. Both still carry the weaker back half of fiscal 2026, so the sequential trend is the better read. Gross margin improved 114 basis points on tariff refunds and Fire mix, partially offset by higher inbound freight, including roughly $0.6 million of expedited freight for our Fire inventory build. The 410 basis point of sequential improvement is the clearest evidence yet that our margin recovery processes are working. On adjusted EBITDA excluding FX, the move from $5.1 million to $2.7 million was about $0.7 million from adjusted gross profit and $1.7 million from higher adjusted operating expenses. The prior year quarter also carried a $3.1 million tender and revenue from the divested product line. The divested business lines contributed $0.5 million in adjusted EBITDA excluding FX in the comparable year ago. Fire was approximately 52% of revenue this quarter, up from roughly 49% in both Q2 FY '26 and Q1 FY '27. That is the clearest picture of our shift toward global fire protection. Geographically, the mix reflects a more diversified footprint. As Fire margins recover toward their structural potential, that concentration should become a margin tailwind. On the balance sheet, we ended the quarter with cash of $17.9 million and working capital of approximately $90.8 million. Cash was up $5.4 million from year-end, and total debt declined to $28.7 million from $32.3 million at January 31, 2026. We had $24.9 million drawn on the revolving credit facility with $15.1 million availability, and we're in compliance with all covenants. Most importantly, we generated $5.4 million of operating cash flow in the first half of fiscal '27, a $15.1 million improvement year-over-year. Inventory ended at $74.9 million, down $2.8 million sequentially, $7.6 million from $82.5 million at the end of fiscal '26, and $15.3 million year-over-year. And we did that while taking in expedited finished goods and building raw materials for Fire. We expect the trend to continue as sales increase while building selectively in fire categories where availability is essential to capturing demand. With that, I'll turn it back to Jim.
James Jenkins: Thank you, Calven. The second quarter reflected continued progress against our plan. Net sales increased 5.7% sequentially to $50.1 million. Gross margin improved to 37% from 35.9% a year ago and from 31.4% in the first quarter. And adjusted gross margin expanded 410 basis points sequentially to 37.7%. Adjusted EBITDA, excluding FX, more than doubled sequentially to $2.7 million. And we generated $5.4 million of operating cash flow in the first half, a $15.1 million year-over-year improvement. Heading to the third quarter, our outlook is optimistic. We generated approximately $47 million of revenue in last year's third quarter at a gross margin well below where we are operating today and a cash operating loss. So the comparison ahead of us is a materially better one. 2 things to be clear about in the near term. We do expect the timing of certain fire orders to shift into the fourth quarter, and we expect some near-term impact from repositioning parts of the portfolio and reallocating capital toward our higher growth opportunities. We believe those actions strengthen the business. Looking ahead, 4 themes frame our outlook: a higher mix of turnout gear at higher volumes and higher margin; industrial improvement in building North America and Asia, with the third quarter shaping up materially better year-over-year; another quarter of sequential margin improvement; continued simplification and repositioning the business geographically for higher revenue, our independent service provider platform, United States, Canada, and Mexico. We remain focused on generating positive cash flow from operations in fiscal 2027 and driving sustainable margin and EBITDA improvement. We want to thank all our customers, partners, and team members worldwide for their continued trust and commitment, and especially 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: [Operator Instructions] Our first question comes from the line of Mark Smith with Lake Street Capital.
Mark Smith: I wanted to dig into the gross margins just a little bit more. Great jump up to 37%. Looks like helped a little bit by tariff refund. I'm just curious, any additional insight you can give us into the underlying gross margin run rate here as we look at second half, especially as you said it looks good versus the comparables from second half last year.
Operator: I apologize. It seems as if we may have some technical difficulties. Please stand by. All right, gentlemen, you may proceed.
James Jenkins: Sorry, we got disconnected, Mark, just as you were asking us a question about margins. Hello?
Mark Smith: Jim, can you guys hear me now?
James Jenkins: Yes, we can.
Mark Smith: Perfect. I just wanted to ask about gross profit margin a little bit. Good improvement sequentially and year-over-year, but just curious if you can give us more insight into second half of this year and, excluding the tariff refund, what the underlying gross margin run rate looks like here in second half.
J. Swinea: Sure, Mark. Yes, so the tariff refund, not expecting a significant impact to second half of the year. I think we were going to see, though, the build off of where we were kind of in the normalized, if you want to call it, a normalized run rate, which was in the mid-30s. I think we'll see continued improvement with the growth on the Fire and the improvement in turnout gear. All those are higher margins, so we'll see strengthening in the second half of the year, kind of continuing the trend from Q1 to Q2, and a little bit of improvement in Q3 and Q4.
Mark Smith: Perfect. And then you bring up Fire Services, still a small piece of the business. I think you guys said about $3.5 million. But curious, kind of, what kind of trends that business is having as we think about revenue and margin, and even any insight into, kind of, your capital outlay for building out some of these new locations like Denver.
James Jenkins: Yes. So building out a location, a greenfield, is roughly about $350,000 to $500,000 of capital. So that, from a return on investment, for my money, I like that model. The trend in the industry is quite positive. I've got Barry on the line here who drives our Fire growth here and particularly is very -- is a lot closer to this than I am in the U.S., and I might defer to Barry to respond to some of these questions as well. Barry?
Barry Phillips: Absolutely. We have -- with Denver just starting to open up this month, just got our validation. The short side of that cost basis for the $350,000 to $500,000 is a size that's worked out well for us in opening up the Fresno earlier in the year and then Denver now. Looking at the greenfield opportunities is where we're going to focus on some of those expanded sites where we're being called in by departments in the regions that we're spotting based on the size of departments and the demand in the areas.
Mark Smith: Okay. And maybe if I squeeze in one more question here, just, you guys talked a bit about kind of simplifying the business and just kind of looking through areas that really maybe aren't producing acceptable returns. Can you just elaborate any more on what kind of portfolio actions you're maybe looking at today?
James Jenkins: Yes. We're looking at geographies where we can consolidate warehousing and other sort of synergies in markets. We've got a European fire presence and a European industrial presence and likely consolidating some of that, I think, would be a healthy exercise. We're kind of looking hard into how that might play out. We're doing similar exercise. We're taking a look at some of our manufacturing footprint and where we should be and where it doesn't make a lot of sense for us to be, and whether we'd be drawing away from capacity from some of the folks that are at capacity at this point. So we're still running that out, but I would expect some meaningful changes in the next 6 months that inure to the bottom line beneficially, I think, into fiscal '28.
Operator: Our next question comes from the line of Michael Shlisky with D. A. Davidson.
Michael Shlisky: A lot of moving parts in what grew and what shrunk in the Fire business and what changed in Fire. But when I back everything out, did you -- are you suggesting that the organic growth or some kind of consistent year-over-year measure of growth was 10% in the quarter here? I just want to make sure that, that's -- that I am thinking about this correctly, that you really are, when all is said and done with some of the one-time items and large contracts, you do see a kind of high single digit or even 10% growth rate in that business in the near to medium term?
J. Swinea: Yes, Mike. That's what we are seeing is the high single, low double-digit growth in the fire space organically.
Michael Shlisky: And that is what you saw in the quarter once you strip out a couple of the larger stuff and...
James Jenkins: Yes. I mean, when you think about it, there's a tender that we had last year for the Italian government that was $3.1 million or $3.2 million. Now look, tenders come and go, and those are good things, but you don't necessarily bank on those. So if you back that out and you back out $3.7 million of HPFR, you're staring at $46-ish million. And we did $50.1 million.
Michael Shlisky: Okay. And when you think about, speaking of tenders, when you think about what was announced in the U.K. and Hong Kong and Thailand and elsewhere throughout the last couple of months, that adds up to -- could be well over 1 year, 1.5 years of top line just from those contracts alone, if I'm reading it correctly. So can you maybe comment on the timing of when these will flow to the bottom line, if it's going to be 7 years or less for most of it? How does that play out?
James Jenkins: Well, yes. I mean, you've got the -- I think we as we described in the press release on the U.K. tender, and I have Kevin Rae on the phone here to talk about that a little bit. But we were sort of one of a couple of winners in that. And now the process begins where we are competing with 3 or 4 others for opportunities within the U.K., but they're all starting to commence on that front. Kevin, I don't know if you want to talk a little bit about that, but before you do, some of these others, some come quicker. Some take a little bit longer depending upon the region. And we would expect to continue to drive additional tender wins into this quarter that will be reflective both -- part of them will be reflected in this quarter and part of them will be reflected in future quarters. It's just a function of how each of those tenders operates. But Kevin, I don't know if you want to talk a little bit about -- I mean, that GBP 220 million opportunity obviously is not GBP 220 million, but it is a significant longer term opportunity.
Kevin Rae: Yes. Thanks, Jim. Yes, it's a 7-year scheme, which basically, we qualified for now on multiple sectors, but we only qualified for the gloves, the turnout gear, the boots. And that means that we can actually really use the benefit of the work we've done over the last 2 years in new product development. We're very well positioned. There are 25 brigades in the U.K. and they go at different times when they need new contracts, but there will be a considerable amount coming up in the next 12 to 18 months. So we've got an exhibition and a big meeting next week. And we've got a pretty solid picture of how that looks and some really strong prospects.
Michael Shlisky: Okay, okay. Maybe one last one for me. I just wanted to get a sense of the cadence in the third and fourth quarters here. Your comments, Jim, on the fire orders being made in the fourth quarter, but some of the areas still being pretty strong. Does this suggest that we'll be seeing sequential growth from 2Q into 3Q and then 3Q into 4Q? Is that the right way to look at it? And is that a good platform for 2028?
James Jenkins: Yes, that's correct. That's correct. Yes, that is what we're seeing based on our pipeline and order flow, yes.
Operator: Our next question comes from the line of Gerard Sweeney with ROTH Capital Partners.
Gerard Sweeney: Just wanted to talk about OpEx or operating expenses. I mean, revenue looks solid improvement, gross margins heading in the right direction. But obviously, I think there were some -- maybe some one-time items, Interschutz on the OpEx line. Some expedited freight, some ISP build out. Can you frame that out a little bit to what should SG&A or operating expense be running at? And what is truly one time and what is -- maybe needs to be leveraged through some revenue expansion, i.e., like the ISP stuff?
James Jenkins: Yes. I mean, I'll let you answer that.
J. Swinea: Yes, I think -- and Gerry, exactly on ISPs that will be leveraged through revenue going forward. There'll be a little bit -- still a little bit of a build probably in the third quarter, but we'll see the ISPs take off, especially the new ones that have come online. Interschutz is once every 5 years. So that's -- we won't see that for a while. And of course, that was the German fire show. And then the expedited freight, we needed to move some product to be in the right places internally to support Fire growth, and we've done that. And I think we're now positioned, but you're not going to see that. Of course, it'd be supported by revenue going forward, but it would be -- if we do any type of expedited freight, it'll be directly attached to a PO and we'd have revenue support. But in general, no. That will go away, looking down the road.
James Jenkins: But I will say the OpEx line for us is something that we are keenly aware of. I need to get it -- I need to get that into the mid to high 20s as opposed to the 30% where it is now, 32%, I think, this quarter. That's got to come down. And then the FX stuff is stuff that we're going to have to -- we have to find a way. That has become -- as the dollar weakens, that is not a good thing for us. And so we're going to be looking at some hedging strategies on that as well.
Gerard Sweeney: Is that -- I mean, is that hedgeable? I mean, that's not Argentina, correct?
James Jenkins: Well, a lot of it's Argentina, but it's Europe. It's other -- I mean, the RMB is actually stronger than it's been in 15 years. So all those things are sort of impacting how we play. The other thing we're doing in Latin America is we're moving inventory as quickly as we can because as the peso declines, that impacts our FX hit. So Argentina is rapidly moving on inventory, and that will, I think, help alleviate an area where we can't hedge. And Gerry, we also have a $1 million bond that will probably, this time next year, come to fruition that gets released that will actually help us in Argentina next year. So -- but it's what we're working on.
Gerard Sweeney: Got it. ISP, obviously, really good business. Nice returns, et cetera. I think you said $3.5 million probably across the portfolio. Curious if you -- and you're adding Denver, and I think you added expansion in another location, California, Arizona, I forget, I apologize. But what is the capacity of that business on a revenue front? I'm not sure if that's readily available, but I'm just curious as to -- as it stands today quantitatively, qualitatively. Yes. Sorry.
James Jenkins: If they're in a market that's growing, and most virtually every one of these are, you get to capacity at between probably $2.5 million to $3.5 million. It depends upon the size of the facility. But that's not limiting to us because we'll just build out the facility or find an additional facility. One of the things we did in Riverside was we ended up expanding in Riverside so that we could have the rental capacity there. And then we also built into Fresno because Riverside was servicing that market. And so Fresno picked up a lot of that additional demand as well. And we'll probably daisy chain our way up to the Northern California because Fresno is starting to service opportunities in the North that we probably need additional location on that front as well. I would expect, as I said, we've got opportunities in the Midwest, we've got some opportunities in Texas, we've got some opportunities on the East Coast, all of which may be either built or bought, probably more likely to build.
Gerard Sweeney: Got you. But if I look, you have $3.5 million, I mean, just with your footprint today, could you be doing $5 million or $6 million of revenue per quarter? Just roughly?
James Jenkins: We could. We could be with the growth that we got planned. Absolutely.
Gerard Sweeney: And then you're looking in newer locations geographically outside of what you're already...
James Jenkins: That's correct.
Operator: [Operator Instructions] And it looks like we have reached the end of the question-and-answer session. And therefore, I'd like to turn the call back over to Jim Jenkins for 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, and we would be more than happy to assist.
Operator: Thank you. This concludes today's conference. And you may disconnect your lines at this time. We thank you for your participation.
