Good day, and welcome to the Lakeland Industries Fiscal 2024 Third Quarter Financial Results Conference Call. [Operator Instructions]. During today's call, we will make statements relating to our goals and objectives for future operations, financial and business trends, business prospects and management's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management's 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 adjusted EBITDA and adjusted EBITDA margin. 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' Executive Chairman, Jim Jenkins, Mr. Jenkins, the floor is yours.

Thank you, operator. Good morning, and thank you all for joining us for our third quarter fiscal 2024 earnings call. I would like to begin today's call by thanking and celebrating our Lakeland team members across the company with our commitment to delivering our strategic initiatives during the quarter. These efforts have helped drive revenue growth in key strategic markets, execute a continued shift in our revenue profile towards higher-value products and carry out our small, strategic and quick, or SSQ, acquisition strategy. As we enter the next chapter for Lakeland, I know I can speak for myself, our executive team and the Board when I say that we are excited about the company's future supported by the strength and depth of our organization and leadership teams. Before turning to our third quarter results, I'd like to provide a brief update on our ongoing CEO search. The Board is following a very thorough vetting and selection process and engaging executive recruiter has preliminarily identified a few candidates. We're eager to find the right leader, but we will be methodical and deliberate as we seek a candidate who will continue to drive our business strategy and culture. Lakeland has a solid foundation in place with an exciting runway for growth, and the Board and I look forward to sharing more with you as the search process evolves. Now shifting gears to the quarter. Our first third quarter results -- our fiscal third quarter results were very positive. And as we continue to see demand accelerate and growth within our key product lines and markets, Lakeland delivered net sales of $31.7 million, up 11.6% year-over-year. Notably, many of our high-value strategic product lines saw growth in the quarter, including fire service and industrial products categories. Our fire service business continues to expand,…

Thank you, Jim, and hello, everyone. Before I get started with my comments on the financials, I'd like to remind everyone listening that we have posted investor slides that align with the information I'll present on our website at www.lakeland.com. Lakeland delivered sales of $31.7 million in the third quarter ended October 31, 2023. Domestic sales were $15.1 million or 47.6% of total revenues and international sales were $16.6 million or 52.4% of total revenues. This compares with domestic sales of $14 million or 49.3% of the total and international sales of $14.4 million or 50.7% of the total in the third quarter of fiscal '23. As we noted in our earnings press release issued yesterday afternoon, we delivered strong year-over-year sales growth and continued strong profitability. In terms of product mix for the quarter, our fire service category continues to increase as a percentage of Lakeland sales and represented 18% of the total revenue for the quarter compared to 12.5% in the year ago period. Disposables continue to decrease as a percentage of Lakeland sales and represented 38% of total revenues compared to 50% in the year ago period. This reflects the efforts we've made to shift our product mix towards higher value, higher margin and less commoditized products, as we have discussed in prior calls, as well as continued weakness for this product line in Asia. For the fiscal year-to-date, our fire service business is 21.4% of sales and disposables are 39%. From a segment reporting standpoint, Lakeland saw strong sales growth in our U.S., European, Canadian and Latin American markets. This growth was partially offset by softer Asian sales, particularly in China, which is a continuation of what we've seen over the last few quarters. For the current quarter, sales in the U.S. were $15.1 million or…

[Operator Instructions] Your first question for today is coming from Gerry Sweeney with ROTH Capital.

Just a couple of quick questions. Obviously, fire service is doing quite well, and there's a lot of talk about getting into distributors. Just curious, is the fire -- are the fire gear products in all your distributors that you currently want to be in? Or is there an opportunity to get into more meaning? If you have some relationships with distributors, are they all in those distributors that you have relationships with, not new ones? I'm assuming sometimes it's easier to get into existing relationships expanding

I think it's a combination of -- yes, I do. I think it's a combination of both at this point, Gerry. And in particular, with our North American sales team, they have done a tremendous job of developing additional distribution arrangements. And we are -- we've recently hired somebody in the West Coast to help further expand those relationships. So we've seen what I would consider more than modest success in developing our current distribution network but also expanding it. And I give kudos to our North American sales team -- the fire sales team, in particular, for that. And then, of course, on the Eagle front, we've inherited a lot of relationships from them as they seek bidding opportunities throughout the world. And certainly, with Pacific Helmet, we'll see beneficiary of some very strong APAC distributor relationships that they have. And then you sort of do the cross-selling with that, and I get really excited about it because there's all kinds of opportunities that we might have had to partner with someone else to do that now we don't have to do that because we've got it -- we've got that service and product offering in-house.

Got it. I mean I don't want to put words in your mouth, but sort of what I'm looking at it is distribution growth has been great. It sounds like there's still opportunities there, but you take your fire turnout here, Eagle, Pacific Helmet, there's you can layer on additional cross-selling opportunities and maybe even get into additional distributors different regions of the world. So still some low-hanging fruit maybe on the distributor set?

Yes. Look, I remain -- yes, I think that's -- and you're not putting words in my mouth. I think that's right. And I think we feel we're in the early stages of growing out this opportunity. And given the certain competitive advantages we have, certainly on our sort of captive manufacturing, the additional product lines that we offer, yes, this is -- in a 9-inning game, I think we're at about second inning.

All right. That's very helpful. And then, obviously, maybe acquisitions, right? Totally Pacific Helmets absolutely makes sense. Are there other opportunities out there that you would be looking for that sort of add -- I don't know whether it's the fire gear or some other areas that just add this cross-selling opportunity?

Yes. I mean we see opportunities in industrials and in fire. Fire is where we sort of found the low-hanging fruit. We'd love to round -- we want to round out our fire offering with other possible products. So I'm certainly interested in that. And in terms of the pipeline, I mean, for anybody's benefit on the call, my background is I really have been moving on a strategic plan for Transcat in the M&A circles where we have pretty much done what we're trying to do at Lakeland, right? And as I look at the 2 companies, there's lots of similarities there about opportunities that we can move the needle without betting the farm, right? Pacific was an $8.5 million deal, we're going to get it right. I know we're going to get it right. But if we only get it a little right, we're going to be fine. In fact, we're going to be better than fine.

Got it. Yes, certainly -- sorry, go ahead.

Yes, go ahead.

I was going to say, Transcat, you absolutely expanded the addressable market, right, through the asset management side. So that's sort of what I'm seeing here.

Exactly.

Yes. Got it. Maybe just a couple of quick questions on disposables. Where does this go in terms of percentage of revenue? I imagine there's always some component of sales for disposables but some needs. And I'm just curious if it's less important that there's less differentiation, et cetera, but I'm wondering where that goes longer term? And then maybe just talk about where inventory -- maybe a right inventory level should be in terms of dollars on a -- maybe a constant basis, I know it's going to change over time, but I think

So in the interest of not making myself a fool, I'm going to have Roger answer that one.

Yes, I would just point out that under Jim's and the Board's leadership, we have spent a lot of time and effort over the course of the summer and the fall. And of course, I joined in February 1 of this year kind of looking at our strategy, strategic direction, how we compete and where we think we have competitive advantages. Of course, we have talked about the benefits that in-house manufacturing brings. We don't want to give the message at all that we're minimizing disposables. Disposables, even though it's down to 38% or so of the total revenue, that's because other revenue is growing in addition to, of course, the weakness in China that we've seen. But as we think about disposables, we don't want to give the message or the perspective, the disposables are not strategic. Now there are some places where it does not make sense to compete in disposables where we don't think we have competitive advantage and we don't want to race to the bottom on pricing there. But as we think about what is strategic and how best to where we have advantages, there are disposable products that we're very excited about and we're going to continue to leverage. And a couple of things specifically that come to mind, and we talked about this a bit last quarter is the clean room applications. Clean rooms, it's not just your basic run the mill, low level disposable item, we see opportunities in semiconductor EV, continued in health care and the Lakeland brand and the product there is very good. The other, we alluded to this a bit in our prepared remarks is our larger distributor direct-to-customer container program. And we saw a tick in that. This quarter, again, our large customer sales force is doing a great job. And what that enables us to do is kind of strategically use certain disposable products to fill out a container that we ship directly to the customer. It's better margin and cost profile for us because we're not handling it and it results in more sales because they can go to one place, one stop and kind of get the full range of needs that fill out the container the goods shipped to them. So while we see the most growth -- the most accelerated growth and growth percentages in fire and especially from an M&A perspective in fire service and also in industrial, the disposables as it relates to things like critical environment, clean room and direct-to-customer container programs is considered highly strategic for us.

Got it. Understood.

And I didn't mean --

Disposable go all the way, but I -- that's a great overview.

And I'd just add, it's kind of hard -- gotten the question, it's hard to say what you think the percentage is going to be It gets down to what the -- when you see China recovery on one hand and on the other hand, what the acquisitions look like because the acquisitions are going to be typically in the fire or the higher value industrial. So that revenue channel would just expect it to grow faster.

Understood. Yes. And I'm sorry, I didn't mean to imply that it was going to absolutely go away, but what -- I understand what you're saying. There's certainly --

No, no, we didn't take it that way. It's just you opportunity to kind of make it clear how we think about disposables.

And in a lot of ways, it's math, right? A lot of ways, it's math, Gerry, right? I mean as we continue to grow the higher value and we continue -- and we move -- continue -- we don't abandon in any way, safe perform the disposable market, but it's just as a percentage of our portfolio, we just sort of naturally get a little bit smaller, which I don't think

What -- and this -- little housekeeping more for modeling, but where do you want to get inventory levels down? I think all things being equal, right. You're going to grow -- you're continuing to grow, et cetera. But just curious as to what level

Gerry, I'll take that one as well. And again, it's -- what way we'll need to kind of keep in mind is the caveat is that we are starting to do the purchase accounting on Pacific. We will bringing that in. So that will affect the inventory balance. Like -- kind of like Eagle, like our fire products, these are made to order. So there's not going to be significant, if any, finished goods that come along with Pacific. But of course, they have the raw materials and the work in process. That said, we have been very pleased at how we were able to reduce the -- call it, the -- what I've roughly circled up is the $58 million of inventory down to the $54 million level. As I think about that baseline, we would like to get another $2 million to $4 million out of that. It's like

So you're pretty close, yes.

Yes. So now we still have -- it's a call we still have weekly. We have targets and programs underway, and it's still very much a high priority. And you can see the cash flow that's resulted in during the quarter.

Got it. I appreciate. A –Jim Jenkins: And I’ll just add on that just briefly, and that’s really a testament to Roger and his team, our COO, Helena and her team, they really have worked together on – and our sales team on forecasting and driving down that inventory number. And it’s become a significant priority for us. And under Roger’s leadership, we’re starting to see some real encouraging results.

We have reached the end of the question-and-answer session. And I will now turn the call over to Jim for closing remarks.

Thank you, operator. Thank you all for joining us on today's call. We appreciate your continued interest in Lakeland. The global growth opportunities for our business are robust, and we look forward to building on the strong momentum Lakeland has built and sharing our successes with you in fiscal 2024. Have a great day.

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