Good day, and welcome to the Lakeland Industries Fiscal 2024 First Quarter Financial Results Conference Call. [Operator Instructions] During today's call, we may make statements relating to our goals and objectives for future operations, financial and business trends, business prospects and management's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our SEC filings. Our actual results, performance or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. During today's call, we will discuss financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP, including EBITDA and adjusted EBITDA. A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in our earnings release. At this time, I would like to introduce you to your host for this call, Lakeland Industries' Chief Executive Officer, Charlie Roberson. Mr. Roberson, the floor is yours.

Thank you, Jenny. Good morning and thank you all for joining. I'd like to begin by pointing out that in addition to the press release yesterday, we also posted a Q1 investor deck on the Investors section of our website. And while we will not speak directly to it on this call, we do invite you to access it and follow along. We're pleased with our fiscal first quarter results as Lakeland delivered net sales of $28.7 million, up 5.2% year-over-year. While our net sales for the quarter included $2 million for our acquisition of Eagle Technical Products this past December, Lakeland also delivered organic growth in targeted geographic markets and product lines. Of note, our fire and flame resistant/arc-resistant performance product categories saw significant year-over-year growth of 103% and 55%, respectively. In terms of profitability, our first quarter gross margin of 43.4% was above our long-term target of 40% and as Roger will cover in more detail, benefited from multiple dedicated actions from our team members. In regard to our geographic markets, the North American industrial demand continues to hold strong and is performing in line with our expectations. Oil and gas turnaround activity, which was significantly curtailed during COVID, is returning at a measured pace over a prolonged period, partially due to ongoing labor availability constraints. We anticipate labor constraints continuing throughout the remainder of the year and are expecting an extended strong fall turnaround season. Going forward, we will continue to monitor global oil market developments such as the recent production cuts announced by OPEC+ and I would characterize our outlook for the year as cautiously optimistic given the shifting macroeconomic backdrop. While our North American markets are performing in line with our targets, our Asian markets have been weaker than expected, driven almost entirely by China.…

Thanks, Charlie and good morning, everyone. Lakeland delivered sales of $28.7 million in the first quarter. Domestic sales were $12.3 million or 43% of total revenues and international sales were $16.4 million or 57% of total revenues. This compares with domestic sales of $11.2 million or 41% of the total and international sales of $16.1 million or 59% of the total in the first quarter of fiscal 2023. In terms of product mix for the quarter, disposables continued to decrease as a percentage of Lakeland sales and represented 43% of total revenues compared to 53% in the year-ago quarter. This again reflects the efforts we've made to shift our product mix toward higher value, higher margin and less commoditized nondisposable products as we've discussed in prior calls. Additionally, as we noted in our earnings press release issued yesterday afternoon, we saw strong growth within our fire product category, with sales up 103% year-over-year. From a geographic standpoint, Lakeland saw strong sales growth in our U.S., Canada and European markets. However, this growth was partially offset by soft Asian sales, particularly in China and India. Gross profit as a percentage of net sales was 43.4% for fiscal 2024 first quarter as compared to 40.5% a year ago. As Charlie already highlighted, the strong improvement in our gross margin performance was driven by deliberate sales focus on higher-value products as well as improved finished goods material costs and lower manufacturing expenses. Compared to the prior quarter, our gross margin percentage increased 6 percentage points, up from 37.4% due to an improved product mix, the absence of excess freight expense write-offs that we had in Q4, profit in Q1 ending inventory and a positive Q1 inventory reserve adjustment. Lakeland reported operating profit of $1.9 million in Q1 2024 as compared to $1.4 million…

Thank you very much. [Operator Instructions] Your first question is coming from Alex Fuhrman of Craig-Hallum Capital Group.

And congratulations on a really nice quarter. Would love to talk about gross margin and what we could expect to see for the rest of this year and heading into next year. It seems like you very quickly hit your longer-term profitability target. Was there a mix shift involved in getting there? So quickly, would love to just hear your broad thoughts on what we could expect to see over the next few quarters and years.

This is Roger. Thank you for the question and thank you for the comments. We were obviously pleased with the quarter. We did see a very nice increase over Q4 as well as year-over-year. The bulk of that increase was driven by product mix, obviously, with a slight increase in revenue driving gross profit. But the mix driving gross margin, as we talked about, the focus on the higher-value strategic product line within fire and FR/AR. The other thing as you'll probably remember, compared to last quarter, particularly, we had about a 200 basis point decrease or write-off in excess freight cost in Q4, and we did a comprehensive inventory costing analysis, cost roll in Q4, can clean that up from some of the higher freight costs during the COVID period. The other thing that I mentioned in my prepared remarks, we did have a slight adjustment into positive from profit and ending inventory in inventory reserves. Of course, we'll have those every quarter. They could go either way. But this quarter, they were positive. So longer term, over the course of the remainder of the year, we certainly are not guiding to count on those quarterly adjustments in ending inventory like we just said, but that -- we are on track for that 40%-plus gross margin that we've indicated.

Alex, this is Charlie. Also like to point out the investor deck we did for Q1 actually does contain a bridge showing the margin improvement quarter-to-quarter.

Okay. That's really helpful. And then you mentioned in your remarks and in release last night that you're seeing a lot of good response to the higher-value products that you've been focusing more on. Obviously, that -- it sounds like that's having a positive impact on gross margin as well. Can you give us a sense of how much of your business today is what you would call those higher-value products and where you see that going over the next few years?

Yes. Alex, we're already seeing a shift to that -- it's -- we look at that in more general terms. Within our product categories, we have sales even of the same product that may -- in one case, may be strategic or higher value where another is not. We tried -- we're trying to get that message across in the press release. We talked about how we define high value. It's an end user definition, and it really goes to the amount of effort and consultation that they put into the purchasing decision. Now having said that, disposables with the exception of cleanroom, is -- we just generally consider entirely commodity or not high value. And we've seen a year-over-year shift...

Full year.

Full year shift in our disposables, a decline of 6% that has moved largely into the fire and the FR/AR wovens categories, okay? So as we move forward in future years, I expect to see that trend continue, maybe not at a 6% a year pace. But as we keep going, I think that eventually we will see our strategic items grow to where they're a 60-plus percent maybe even as high as 65% of our total revenue.

And Alex, I'll again encourage you and the listeners to kind of refer to a couple of slides we have in the Q1 investor presentation that we posted. You'd see -- if you look at -- as Charlie referred to, if you look at the full year 2023 or the year that we just finished, revenue, you've got 49% of that was from disposables for Q1 of 2024 that was 43%. So as Charlie mentioned, it's a $6 million decrease compared to the full year of last year. The chemical remains kind of consistent at around 20%. And where we did see the pickup was in the FR/AR, and particularly the fire. So Eagle of course, contributed having the first full quarter of performance or results from Eagle. But also, as we mentioned in our prepared remarks, we're seeing organic growth in fire.

Yes. And Alex, the other part of that question is in the higher-value products is where we have value for product development. We've got things that are in the -- there that represent an opportunity to grow those markets as well as to take market share from our competitors.

Well, we don't appear to have any further questions in the queue. I'm now going to hand back over to the management team for any closing remarks.

Thank you, Jenny. Thank you all for joining us on today's call. We look forward to building on our momentum and sharing our successes with you this year. Thank you and have a good day.

Thank you, everybody. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.