Good afternoon and welcome to the Lakeland Industries Incorporated second quarter fiscal year 2017 financial results conference call. All participants will be in listen-only mode. [Operator Instructions] Forward-looking statements involve risks, uncertainties and assumptions as described from time to time in press releases and Forms 8-K, registration statements, quarterly and annual reports and other reports and filings filed with the Securities and Exchange Commission or made by management. All statements other than statements of historical fact which address Lakeland’s expectations of sources or uses for capital or which express the company's expectation for the future with respect to financial performance or operating strategies can be identified as forward looking statements. As a result, there can be no assurance that Lakeland’s future results will not be materially different from those described here in as believed, projected, planned, intended, anticipated, estimated or expected or other words which reflect the current view of the company with respect to future events. We caution listeners that these forward looking statements speak only as of the date hereof. The company hereby expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in the company's expectations or any change in events, conditions or circumstances on which such statement is based. Please note this event is being recorded. I would now like to turn the conference over to Chris Ryan, Chief Executive Officer. Please go ahead.

Good afternoon to you all. And thank you for joining our fiscal 2017 second quarter financial results conference call. We're going to provide brief opening statements on the status of operations and on our financial results for the quarter. The call will then be opened up so that we may respond to your questions. Before we go any further, as you may know from our press release issued earlier today, and from our most recent quarterly calls, we present our financial results based on our continuing operations. That will be the case with today's conference call unless otherwise specified. The continuing operations financial results reflect our ongoing business following our exit from Brazil, which was effectuated in the third quarter of fiscal 2016 with additional issues addressed thereafter. Now I’d like to discuss our financial highlights, operating strategies and overall business with a view of our objectives as we move forward. Our performance in the second quarter of fiscal 2017 continued the momentum we began to experience in the first quarter of the year. Although there has been economic challenges and sluggishness in the industrial sectors around the world for over a year, particularly for the oil and gas markets, we have been successful in positioning Lakeland Industries for its next phase of growth. We have been implementing initiatives intended to drive market share gains and expand our vertical reach. In turn, given the leverage we have in our business, our goal is to improve both sales and profitability sequentially going forward. And here is the evidence of our progress during the first two quarters of the current fiscal year. Consolidated revenues of $22.3 million increased over 9% in the second quarter from $20.4 million in the first quarter of fiscal 2017. Net income increased to $1.4 million in the…

Thank you, Chris. The following addresses my review of the second quarter of fiscal year 2017 ended July 31, 2016. The fiscal 2016 financial results that I discuss on this conference call will be from continuing operations unless otherwise noted. The discontinued operations relate to the operating results in Brazil. Net sales from continuing were $22.3 million, which was down from $29.5 million for the prior year period, as compared with the first quarter of $20.4 million in sales, Q2 sales were up by over 9%. On a year-over-year basis, sales in the fiscal 2016 period benefited from emergency sales relating to the bird flu pandemic. Sales in the current fiscal year have been subject to softness in the global industrial sector, partially resulting from a continuing downturn in the oil and gas industry as well as currency headwinds in several of the foreign countries in which the company has operations. The gross margin was 38.6% this quarter compared to 40% in Q2 of FY’16 and 33.3% in the first quarter of FY’17. In addition to lower sales volume in the most recent periods which weighed down margins, last year's same period gross margin was favourably impacted by higher margin sales of products relating to use in dealing with the bird flu which we consider to be somewhat one-time in nature, thus making comparisons difficult. As compared to the first quarter of the current fiscal year, 16% or 5.3 percentage point improvement in gross profit as a percentage of sales in Q2 benefitted from higher revenue and included comp reductions relating to a reduction in force in the USA to move production to more cost effective facilities in Mexico and China which the company implemented last quarter. With the currency fluctuations the comparison of our first quarter to second quarter…

[Operator Instructions] The first question comes from Alex Fuhrman with Craig-Hallum Capital Group.

Great, thank you very much for taking my question. And certainly congratulations on a nice recovery here in the second quarter. I wanted to ask about gross margin here. I mean it was pretty significantly better than we were expecting in the second quarter. Is there anything in particular that was driving that? And then looking out into the back half of the year, if we were to see similar revenue levels in the $22 million to $23 million per quarter, what kind of a gross margin will we be looking at in the back half of the year? I mean is there any reason to think it could come close to where it was in Q2 or perhaps somewhere in between Q1 and Q2?

I believe the gross profit – the big improvement over the previous quarter, again we had the reduction in force in Q1 which we absorbed significant severance in that quarter. This quarter I think is normalized. We are working on our comps on a global basis, big reduction – big effort for reduction in costs. So I don't see the margin changing significantly going forward. We do think that the sales are somewhat normalized as well unless we see a change in the indicators that Chris discussed in oil and gas sector.

And the currency.

Yes, and the currency headwind.

Yes, currency. From July 31, 2015 to this July 31, 2016 which these numbers reflect were still down, I mean they were down the year before, they’re down again this year. I mean to give you an example, we operate in Kazakhstan, that currency was down 88% this year.

Well, that is quite a headwind.

So we think we're at the nadir here on the revenue side because oil and gas as we think we've hit bottom. The currencies are weak because we report in dollars and as you can see 47% of our sales are overseas. The only currency that’s stayed even with the dollar this year was the Canadian dollar. Every other currency in the world was down against the dollar, and some by 16%, 17%, it's huge. So I think we're at the nadir, the currency, unless our dear Federal Reserve raises interest rates. And I think we certainly are at the bottom of the oil and gas curve here. So industry is soft, not only is the high dollar hurting our reported earnings in dollars, because we report in dollars. But it's also hurting heavy industry. The large companies like Boeing, Caterpillar, Deere are having a hard time selling their product overseas. And the overseas competitors are selling lots of products in here because their currencies are so cheap. So as I said – I think we've hit the bottom of both the oil and gas – both the heavy industry and the currency headwind. So we’re really at bottom here. So I can only see revenues going up sequentially and I'm pretty sure we can hold the gross margins.

That's terrific. And then thinking about just capital allocation and the recent share repurchase authorization, is there any particular strategy for that or are you planning on doing that over a particular time horizon or looking to be opportunistic based on where your stock is? And just curious what you -- how you would feel about share repurchases here at around $10 a share?

Well, I tend to look at it as share repurchasing in the book value area such that there is – we will always buy it at book or below, and that also is anti-dilutive move on repurchasing. But that's pretty much how we look at it. We’d stay opportunistic.

The next question comes from Jeffrey Briggs with Singular Research.

Hi. Great to see margins coming up this quarter, so that's really a good thing. I know I'm heeding your advice and taking the quarter-on-quarter comparison, compared to year over year because a lot of things, the currency and also the bird flu type jump in sales. So two quick questions. One of them is without getting into a ton of detail on it, is there a ballpark number just for what the bump in sales was for Q2 2015 with the bird flu type sales?

Yeah, it would be extreme ballpark. We have an idea when our product sells into an event such as that, based on the products that are ordering but we can't know with any finality due to the nature of our sales model. We sell through distributors and we don't sell directly to [users] [ph]. So it’s difficult to put an absolute number on this type of event, such as the bird flu. I mean certainly it was upwards of $3 million in that quarter.

No, that's helpful, and I'm not going to publish the number or anything. I'm just trying to get sort of a general handle on that. I know you guys really can't know for sure, so.

[Indiscernible].

That's helpful for a general ballpark type level. And then a second question is more general in regards to sort of end use sectors you guys are in and sort of where you see organic growth coming from going forward. So I know oil and gas, like if you guys mentioned, is down globally and that hopefully we’re close to the bottom of that. I'm just trying to look at some of the other major sectors you’re planning and kind of look at where some of sort of what’s growing globally. And one thing that comes to mind, when you look at your product lineup and you mentioned earlier in the call, some of the arc protection type clothing and I know the primary issue that's mostly probably related to power lines and electrical, if you look at sort of utilities globally, telecom and wireless tower space, is something that's probably one of the bigger growth markets around the globe. Is that something that any of your products go into and then is there any sectors you see that are sort of the prime spot for growth for you guys in the next couple of years?

Well, we're making a real commitment to the utilities. As the arc flash, the fire protective rainwear and winter-wear that the utilities buy for the people who work outside on the line, we're making a real effort to go after that industry. We hired a pretty experienced salesman to go after the utilities themselves. He's got experience with the utilities. So we're making a real commitment to push that product line. The other product line that seems to be doing quite well these days is our fire turnout gear which is what generally municipal firemen response to residential or commercial fires. We're also pushing a new product in disposables and next quarter we'll give you more on that. I mean so basically we're looking at new products, taking business from other people but primarily new products, and when oil and gas come back and when the currencies come back, hopefully that will be a real tailwind in a couple of quarters. But we're not going to sit back and wait for them to come back. I mean currencies may never come back. We're going to start introducing new products and we've got a target of a 40% gross margin minimum for new products and that's where we want to be. We want to get to a 40% gross margin and we want to get over $100 million in sales next year, not FY’17 but FY’18 and considerably over $100 million.

The next question comes from Doug Ruth with Lenox Financial Services.

Hi, I also want to congratulate on the tremendous improvement sequentially. Do you have an estimate as far as how much higher the revenue might have been without the currency fluctuations?

Well we took a $0.3 million charge in the quarter for currency fluctuations.

We do cover a lot of the ambush by these currencies -- by hedging, and we probably take about 90% out of the risk category by hedging everything. But there's a lot of currencies you just can't hedge and you can't hedge the Russian ruble that went down 8% this year, the Kazakhstani tenge, the Brazilian real, or the Argentine peso, there's a lot of these currencies you can’t hedge. I mean we actually are able to hedge the Chinese currency via Chinese bank. So we do avoid a lot of it but that doesn't -- I know what you're saying, I know we haven't calculated it and we really should sit down and calculate it. Because you see the foreign revenues going up despite the fact that the currencies go down. When you're reporting – reporting your sales in dollars you're reporting your earnings in dollars and as your earnings in those countries are just being pulled down arbitrarily by currency moves but what I'll do, Doug, we’ll calculate that next quarter for you. And we will try to go back two quarters.

That would be very helpful. I also want to congratulate you. How were you able to increase the margins in disposables even though the sales went down, which was expected based on not having the bird flu and other events?

Well it's product mix and basically keeping prices going up. Holding prices where they are high, not giving it away and the product mix has a lot to do with the two.

That was a tremendous achievement. Can you tell us, have you bought back any stock so far?

No, we haven't because we're waiting for the Chinese – our Chinese subsidiary to send back a dividend of about $1 million which is required by our bank to start the repurchase program. So when that happens we'll be in a position to repurchase.

You also made tremendous progress on the inventory. We have a lower inventory in the second quarter versus the first quarter, and then sequential -- or year over year a very large decrease. Do you have an inventory goal for the year?

We don’t have an inventory goal per se. I believe that we're working to have the correct core products on hand that we need with a lesser stock on hand, we're evaluating all of our minimum stock levels and working to reduce SKUs as we move through these quarters and I think it's just an overall planning effort as management to focus on owning the inventory and moving off the shelves anything that we don't sell everyday.

Would you expect the sequential decrease in the inventory in the third quarter versus the second quarter?

I don't know if I can predict that. I don’t predict it increasing. I believe we're getting to a point where we're fairly right sized. Again the nature of this business, if we work too hard and get too bare boned, then when there is an event we don't have the product to respond to it. So it’s a very delicate balance for us to coordinate what stock we’ve got to have on hand and how much of it, keeping it in the pipeline at all times.

Of course we trust you to figure out what you need. I was just asking a question.

I mean we’re in the process of winnowing old product lines that – and once we winnow them, in other words, we just stop selling them because they don't make any sense, then we run them down that, that will take inventory down. So that is a process that takes 9 to 18 months.

What about -- could you maybe give us a little color, and you had talked previously that you had hoped for like Australia, the United Kingdom and India, could you maybe offer any color as far as what's happening in those markets?

Australia is doing quite well. Wesfarmers, which is the largest distributor in Australia, kicked Kimberly Clark out of their catalogue and listed up as number one with eight or ten pages and Dupont is number two, and that’s it. So we're number one in Australia with our product lines now. It’s not a huge market but it's a market that we're doing about 1 million in, that has the potential to be a $5 million to $6 million market. Because it's very similar to Australia, it's a national resources country. The populations are about the same, Anglo-Saxon law, very very similar countries. So there's $4 million, $5 million of future promise in Australia.

Now similar to Canada, perhaps?

Right. Similar to Canada who is doing very well. Europe is slow, they are not growing. There is just basically hiring more salesmen in countries where we do not have representations. We hope to hire one in Germany which is probably 40% of the EEC market for our product. So it’s really -- there is no growth, it is just taking market share away from other people. Russia really I think is nadir which is part of Europe. Their currency only went down by 8% this year. So I think they are bottom too. And of course that’s oil and gas. If oil and gas recovers, Russia recovers. Lot less of a hit than our competitors in Russia and Kazakhstan.

And then what about India? We hear great things about how that country seems to be growing –

The currency there only depreciated 3.5%. But yes, we're profitable in India now, we're growing. We used to have no salesman, now we have four salesmen who we just hired. I mean we just filled this out. So India is going to be starting up from probably almost a half million in sales and move forward. So there is another country that's a good potential to be $4 million to $5 million in sales in a couple years. And if that seems small for India, but they don't believe in safety too much. You know, things change over time.

And what about Mexico? How is that country doing?

Mexico again is depressed by oil and gas. It's a big oil and gas economy, we're trying to -- PEMEX is not buying much, I can tell you. But what we're trying to do is we double our efforts and get into the automotive industry down there, because that is just booming. They are building five new plants down there every year, year over year. So we're just redirecting our sales efforts in Mexico. So when you look around the world, oil and gas has really probably dropped $5 million, $6 million of our revenues from three years ago. It's a big deal. And when it comes back hopefully that all comes back. So there will be a lot of headwinds as things improve in the oil gas industry. Three or four years you have an emergency event.

You've done a wonderful job based on not -- having a decline in the oil and gas revenue. I'm not complaining, I think you are putting your energy into the things that are working.

Well, as I said last time around I think it was an answer to your question, Doug, is that we will improve sequentially quarter by quarter by quarter as we move along. And I just don't see any other things that could happen to us other than this big industrial downturn in oil and gas and the currencies, I mean the only thing that could happen is if they go up.

Yes, something that’s low should go higher.

Right. Without those sequentially we will do better and better each quarter on the top line and the bottom line.

What about that bank line of credit? That has to be renewed at some point. Is there any news on that?

It matures in June of 2017, Doug and of course we're talking to the bankers now and seeing what opportunities might be there. We haven't made any decision on any level to make our moves there but obviously we will have to either renegotiate the existing facility or move to another bank at that time. We're not going to make a move before that because there is an early extinguishment penalty and we might pick up a couple of points if we did. If we did make a change, but then you’ve got the legal and bank fees to go along with it. So we believe it would be a wash. We're very confident in the facility right now, there's no rush.

And they're comfortable with us, they would renew the facility they had indicated.

With the improved results, it should be fairly straightforward to renew that line.

Yeah, we’re both very comfortable.

And then are you able to quantify at all how much of an increase you've experienced with that safety and reflective apparel? Are you able to put that out, or do you prefer not to say that?

I just don't know it. I could think about it and come back to people if that’s necessary. I would just have to go to my salespeople to break it out.

Well it's a really nice improvement from the first quarter and thank you for all your hard work and I look forward to the next report.

[Operator Instructions] The next question comes from Shun Haget, a private investor.

Hello, thanks for taking my question. Can you give shareholders an idea of what you will be doing with the proceeds that your operations will be generating over the next couple quarters? You have about, what is it, $8 million of cash on the balance sheet. Will you continue to pay down your revolver? Obviously you have the shareholder buyback program, but that will be done opportunistically. Is there CapEx projects on the horizon, maybe tuck-in acquisitions? Can you give me some idea of what you're going to be doing with that cash?

I think the only planned CapEx project at this point is we're still working with an ERP implementation. I think that in terms of acquisition we don't have any target at this time. We are just trying to strengthen the balance sheet, and we don't want to over-extend management because an ERP implementation as everybody knows is a large undertaking and we don't want to stress management to a level that they can’t handle that as well as the day to day. I do think that as a company we're able to focus much better on the projects that help us, on the things that improve our bottom line. Now that we have discontinued the operations in Brazil and there is a way from that, I think management is very much working together to move forward. But as far as CapEx, that's the only one that we have planned.

That’s reducing debt, repurchase the stock.

How much would be left on the CapEx program the ERP system, can you give me an idea of that?

We're looking at a two to three year project over that period of time. We don't think significantly in excess of $1 million.

That sounds good. So you will just be focusing on building your war chest and paying down your revolver?

That's correct. End of Q&A

This concludes our question and answer session. I would like to turn the conference back over to Chris Ryan for any closing remarks.

Well, we appreciate your participation on Lakeland's fiscal 2017 second quarter financial results conference call. As we are committed to delivering value for our shareholders we believe this is the best achieved for Lakeland Industries through continued implementation of strategies for effectively managing its balance sheet, controlling expenses and capitalizing on long term global growth initiatives. We are very encouraged by our own growth prospects as we are well positioned to grow organically through our overall market expansion as well as capturing the market share. Thank you again and good bye.

The conference has now included. Thank you for attending today's presentation. You may now disconnect.