Lakeland Industries, Inc. ($LAKE)

Good afternoon, and welcome to the Lakeland Fire & Safety Fiscal Fourth Quarter and Full Year 2026 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 revenue and cash flow from operations 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's expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties are more fully described in our SEC filings. Our actual results, performance or achievements may differ materially from those expressed or 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, organic revenue, organic gross margin and adjusted operating expenses. 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 and/or the supplemental slides filed with our earnings release. First detailing these 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 Meyer and Safety's 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.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss the results of our fiscal 20,264th quarter and full year ended January 31, 2026. The fiscal 2026 was a year of meaningful top line growth and important strategic progress for Lakeland. Kevin will walk through the financials in detail shortly, so I will provide you with a brief overview here. For the full year, net sales increased $25.4 million or 15.2% to $192.6 million, driven by continued strength in fire services. In the fourth quarter, net sales were $45.8 million, down $800,000 or 1.7% from the prior period. U.S. sales increased 35.1% for the full year to $81.6 million and increased 7.1% in the fourth quarter to $19.6 million. Europe also grew meaningful for the full year, increasing $12.1 million or 28.7% while fourth quarter year of sales were down $2.4 million due primarily to timing on LHD and jolly orders. On profitability, adjusted EBITDA, excluding FX, was $7.2 million for the full year and $1.3 million in the fourth quarter. Gross margin was 32.9% for the full year and 32.2% in the fourth quarter. Those results were below our expectations, and I want to be direct about why. We grew revenue at a strong rate, but we did not convert that growth into the earnings we expected. We view this as an execution issue, not a demand issue. The underlying demand environment across our core markets remains intact. We operated in a volatile cost environment during fiscal 2026, freight inflation, raw material pressure, tariffs and certification timing delays exposed weaknesses in our planning and pricing response that we are actively addressing. Against that backdrop, I want to note something important. The fourth quarter generated approximately $2 million of operating cash, delivering that level of cash on lower revenue than the third quarter reflects improved discipline across the organization. Stronger cost control and better day-to-day execution. We are seeing early signs and actions we have been taking are beginning to work. Subsequent to the fiscal year-end, we completed the divestiture of our HP and high dense product lines into national safety apparel, generating approximately $14 million of cash proceeds. This transaction simplifies the business and allows management to concentrate fully on our core bus services and industrial protective product lines where we see the greatest long-term opportunity. On the product side, we achieved a significant milestone with numerous NFPA 19702025 certifications across our brand portfolio. Products including late-structural turnout and proximity gear, Meridian Globes and fire particulate blockinhoods, Jolly boots and Pacific helmets are now fully satisfied, enabling customers to order from a complete head-to-toe NFPA certified range of products across Lakeland's brands. This certification was a meaningful commercial unlock and we look forward to showcasing our portfolio at FDIC 2026 next week. We strengthened the organization with several important appointments. Calven Swinea was named Chief Financial Officer in February 2026 and having served as interim CFO in December 2025. And Kevin Rae was recently -- just recently named Executive Vice President of EMEA Fire sales. You will be hearing more from both of them shortly. We also welcome [indiscernible] to our Board of Directors in early April. We previously served as CEO of NASDAQ-listed Transcat and his invaluable business and strategic M&A integration experience in the industrial market with a strong track of execution across both organic growth and acquisition-driven strategies will be a valuable addition to our governance. During the year, we completed the acquisitions of Arizona PPE and California PPE expanding our U.S. fire services distribution and rental capabilities with ISP locations in Arizona, California and soon Denver. California PP also opened a new state-of-the-art facility in Fresno, providing compliant decontamination inspection and repair services to California fire departments. These recurring revenue service businesses strengthen our fire platform and build long-term customer relationships. We also completed the $6.1 million sale and partial leaseback of the cater, Alabama warehouse property generating an approximately $4.3 million pretax gain and reducing our fixed cost exposure. And Lakeland was added to the Russell 3000 and Russell 2000 indices in June of last year, reflecting our growing market profile. Alongside these actions, we are working to further strengthen liquidity and flexibility through our pending ABL facility, which we expect to close soon, although there can be no assurance that the ABL facility will close on that time line or at all. The Bank of America covenant waiver has been secured, and we anticipate to be in covenant throughout fiscal '27. Taken together, these steps reflect a company that is not standing still, but that one is actively reshaping its operating model to support improved performance. From a macro standpoint, fiscal 2026 was affected by tariff uncertainty, freight inflation, raw material cost pressure and certification timing delays across both fire and industrial. Those factors pressured production efficiency, revenue timing and gross margin. We also saw a softer performance in select areas in the fourth quarter but do not view the issues in front of us as demonstration. We view them as timing, execution and cost challenges that are addressable and that is an important distinction. As we move into fiscal 2027, we are encouraged by the progress already underway and continue to make structural improvements that we believe will strengthen the business over the long term. We are tightening forecasting strengthening accountability and putting more structure around sales and production planning. As an example, inventory ended January at $82.5 million and is down meaningful from October as we meaningfully from October as we continue to better align supply with demand. We are entering fiscal 2027 with a simpler portfolio, improved internal discipline and a pipeline that continues to build. We are now tracking modestly ahead of budget entering fiscal 2027, and our forecast is clear: convert demand into more consistent, repeatable financial performance, improved forecasting better align sales and operations, increased utilization and drive stronger margins and cash flow. Based on the foundation we have built, we are comfortable providing goalposts for fiscal 2027 and a single -- a high single-digit revenue growth and a clear line of sight to positive cash flow from operations. Taken together, these steps reflect a company that is not standing still, but one that is actively reshaping its operating model to support improved performance. With that, I'd like to pass the call to our Chief Commercial Officer, Cameron Stokes, to provide an update on our industrial and chemical critical environment businesses.

Thank you, Jim. Turning to industrial and chemical critical environment. For the fourth quarter, Chemical revenue increased $0.3 million to $5 million, demonstrating continued strength in that product line. Disposables revenue decreased $0.9 million and wovens revenue decreased $1 million in Q4, reflecting the macro headwinds Jim referenced, particularly softer performance in the North American industrial markets late in the quarter. For the full year, these 3 product lines combined represented approximately 49% of total revenue, with disposables at 27%, Chemical at 11% and wovens performing at 11%. On the strategic side, the divestiture of our high-performance FR and high BIS product lines meaningfully simplifies the industrial portfolio. These lines required significant management attention and resources that we are now redirecting towards higher-margin, faster-growing opportunities within chemical critical environment and core industrial protective apparel. The decision to divest was the right one, and it sharpens our focus on the product lines where we have a competitive differentiation and credible path to improve improving profitability. Within the business, we are seeing differentiated performance across our product line so far in fiscal 2027. Chemical critical environment is outperforming driven by continued demand from industrial and pharmaceutical end users, while wovens are tracking to plan with good visibility into pipeline. Disposables faced the most pressure during the year driven by tariff-related cost increases and softness in select North American markets, and we have defined specific recovery initiatives underway at the account level to address that gap. From a competitive standpoint, we are not seeing broad-based shifts across the market. The movement we are seeing remains limited and localized and competitors have generally not responded with meaningful price action to date. At the same time, fuel and logistics instability has become a more relevant variable across the market than tariff uncertainty. That backdrop reinforces our focus on tighter channel discipline better market segmentation and more targeted execution by product line and end market. Our strategy for growing these lines is straightforward. Continue to develop products and expand the range of certified high-performance offerings, disciplined strategic pricing to protect improve margins as cost pressure needs to reach a broader set of end users and reduced distributor concentration while optimizing operations to drive better utilization at our manufacturing facilities. I'd like to note that the industrial segment tends to see its highest seasonal activity in the spring when scheduled maintenance shutdowns at nuclear, coal, oil and gas and chemical facilities drive meaningful order actuary. We are entering that period now and our teams are positioned to execute on the incoming demand. Looking ahead into fiscal 2027, our industrial priorities are clear. We are tightening demand forecasting and improving the alignment between sales commitments and production planning. We're also actively pursuing pricing actions where cost increases warrant them. We are working to improve manufacturing utilization at our Mexico and Vietnam facilities as we consolidate our footprint and transition production from India into those sites. The tariff environment remains a factor but we are working through mitigation strategies and believe we can manage the impact without structural disruption at our cost base -- or to our cost base. Overall, the industrial and chemical business is stable and we are focusing on converting that stability into consistent improving profitability throughout fiscal 2027. I will now hand the call over to Chief Revenue Officer, Barry Phillips, to provide an update on our fire services business.

Thank you, Cameron. Now turning to fire services. Revenue for Q4 was $21.7 million, an increase of $0.5 million or approximately 2% compared to the prior year. For the full year, fire service revenue grew $30.6 million or 48.6% to $93.6 million. This is a significant milestone. Our Fire segment now represents approximately 49% of our total revenue, a significant transformation from where we stood just 2 years ago when it represented approximately 21%. I -- the full year growth was supported by contributions from Viridian, LHD, Jolly and Pacific Helmets as well as Arizona PPE and California PPE. These acquisitions have expanded our geographic reach, broadened our product offering and positioned us as the heat to provider in global fire protection. A platform we believe is unique in the market. Fire demand is increasing as certification cycles are completed and tender time lines are tracking on schedule across multiple regions. These have been timing delays rather than structured demand issues. Opportunities remain in the pipeline and have simply shifted later than expected. Our tender pipeline is active globally and we continue to see strong engagement from the fire departments and the procurement agencies across the regions we serve. We also saw meaningful international wins during the year, including significant emergency follow-on orders from the National Fire Department of Columbia and order from the Fire and Rescue Department of Malaysia and a fire equipment tender award from ANAC, Argentina's National Civil Aviation Administration. A particularly important milestone was receiving numerous NFPA 19702025 additional certifications across our portfolio, enabling customers to order a complete head to toe range across our brands for the first time. These certifications are a commercial unlock that we've been working toward and we look forward to showcasing the full portfolio at FDIC 2026. On decontamination and services, our ISP business is growing faster than initially projected and the greenfielding and ISP M&A pipeline remain robust. California PPE's new Fresno location opened in January 2026, and our Denver location is expected to open in the summer of 2026. -- this recurring revenue model builds long-term customer relationships, generates predictable cash flow and positions us well as the fire departments increasingly invest in gear maintenance and NFPA 1950 compliance. Fire service margins remain structurally sound as volume normalizes and tenders convert margins are expected to recover without requiring broad pricing actions. LHD Germany is stabilizing, and we expect a formal relaunch of the brand at Intercept's 2026 in June this summer and with leadership in Kevin Rae driving momentum across our EMEA brands. Looking ahead into fiscal 2027, we have the strongest backlog in Lakeland Fire's history. We expect continued success with our head-to-toe offering and anticipated tender wins in Europe and the U.S. Our new NFPA product portfolio rollouts are well underway, and we look forward to showcasing our entire lineup at FDIC next week. I'll now pass on the call to Executive Vice President of EMEA Fire, Kevin Rae for an EMEA update.

Thank you, Barry. Before I begin, I'd like to provide you with a bit of my background. I have over 20 years of leadership experience in personal protective equipment and fire safety across the U.K. and EMEA. I joined Lakeland upon our acquisition of Eagle Technical Products where I served as a Managing Director since 2013; and then Vice President of EMEA Fire and Global M&A integration from 2022. And so just recently, having remained Executive Vice President EMEA fire sales, helping to shape Lakeland's fire strategy across the region and integrate key acquisitions into a unified operating platform. Turning to EMEA. Europe revenue for the fourth quarter was $12.1 million, down $2.4 million versus the prior year period. This was driven primarily by the timing of LHD and Jolly orders as well as delayed government tenders and macroeconomic conditions across several markets. For the full year, Europe revenue grew $12.1 million or 28.7% to $54.2 million, a strong result that reflects the full year contribution of LHT and Joli. The Q4 softness that we have discussed is a timing story. It's not a structural one. The tender pipeline is intact and underlying demand dynamics across the region remain supportive. On LHD Germany, specifically, conditions in that market have been challenging and we've been direct about that. We are actively restructuring with us to reduce the overhead and to rightsize the cost base for the current conditions. Stabilization is underway, and we are planning a formal relaunch of the LHD brand at. This is the largest fire industry event in the world, and it's only held every 5 years. So this really is a significant commercial moment for us. Interset will serve as our EMEA platform launch for the combined Lakeland fine safety brand. We intend to demonstrate our integrated head offering to the European market at this event and show what our portfolio now looks like as an integrated head store offering. We view it as a pivotal opportunity for LHD Germany, in particular, as our European Fire brand broadly. Our LHD Hong Kong and LHD Australia businesses secured new contracts during the year that solidifies those operations and build a stronger foundation for future growth in the Asia Pacific region. Late-stage tenders across the region are up, and the quality of ear pipeline has improved meaningfully. Integration across the acquired EME businesses is beginning to unlock unlock access and scale that we could not operating this brand independently. We are now seeing we estimate to be over $5 million of incremental business opportunities flow directly through intercompany collaboration within the group. These are cross referrals, shared supply chain economics and joint initiatives. -- and that represents a growing of previously untapped sources of revenue. This dynamic is extending beyond the EMEA and beginning to manifest in Asia, Latin America and North America as well which speaks to the stability of the integrated platform. Our objectives from here is clear: to improve the convergence across our late-stage pipeline, to convert intercompany opportunities into tangible recurring revenue and to continue building a more balanced and predictable tender pipeline across the region. I'll now hand over call to Calven to review the financials.

Thank you, Kevin, and hello, everyone. I'll provide a brief overview of our fiscal '26 4th quarter financials before diving into the details. Net sales were $45.8 million for Q4 of fiscal 2016, a decrease of $0.8 million or 1.7% compared to $46.6 million for the fourth quarter of fiscal '25. Adjusted gross profit for the fourth quarter of fiscal '26 was $15.4 million, a decrease of $4.4 million or 22% compared to $19.8 million for the fourth quarter of fiscal '25. Adjusted gross margin was 33.5% in Q4 compared to 42.4% in the fourth quarter of fiscal '25. Adjusted operating expenses, excluding FX, were $14 million up from $13.7 million in the prior year. Net loss was $6.2 million or $0.61 per diluted share compared to a net loss of $18.4 million or $2.2 per diluted share in the fourth quarter of fiscal '25. Adjusted EBITDA, excluding FX, was approximately $1.3 million for the fourth quarter compared to $6.1 million for the fourth quarter of fiscal '25. Adjusted EBITDA, excluding FX margin was 2.9%. Turning to the full fiscal year. Net sales were $192.6 million for fiscal '26, an increase of $25.4 million or 15.2% compared to $167.2 million for fiscal '25. Adjusted gross profit was $66.4 million from fiscal '26, a decrease of $4.7 million or 6.6% and compared to revenue of $1.1 million for fiscal '20. Adjusted gross margin was 34.4% for the full year compared to 42.5% in fiscal '25. Adjusted operating expenses, excluding FX, increased 10.2% to $59.2 million for fiscal '26 from $53.7 million for fiscal '25. Adjusted EBITDA, excluding FX, was approximately $7.2 million for fiscal '26 compared to $17.4 million for fiscal '25 with an adjusted EBITDA, excluding FX margin of 3.7%. Net loss was $25.3 million or $2.63 per diluted share compared to $18.1 million or $2.43 per diluted share for fiscal '25. Looking at the fourth quarter in more detail. Geographically, U.S. revenue increased $1.3 million or 7.1% to $19.6 million for Q4. Europe revenue decreased $2.4 million to $12.1 million reflecting timing of orders from HT and Jolly. Asia revenue increased by $7 million or 19.4% to $4.3 million. Latin America revenue was $3.8 million, down modestly versus the prior year period. Adjusted EBITDA excluding FX for Q4 fiscal '26 was approximately $1.3 million compared to $6.1 million for the fourth quarter of fiscal '25. The decrease was primarily driven by the decline in gross margin related to the factors I just mentioned. Adjusted operating expenses, excluding FX, were $14 million in Q4 and and is planned sequentially across the prior 3 quarters, demonstrating that our expert system has held their business scale. The key driver of the year-over-year adjusted EBITDA decline was gross profit compression not expense growth. As gross margin recovers through utilization improvement, pricing discipline, mix management and supply chain optimization, EBITDA will follow with meaningful operating leverage. Adjusted gross margin decreased to 33.5% in the fourth quarter of fiscal '26 from 42.4% in the fourth quarter of fiscal '25, a decrease of approximately 890 basis points. The primary driver for product mix shift as fire services grow as a proportion of revenues at lower initial margins, manufacturing under utilization in Mexico and Vietnam; raw material cost pressure elevated inbound freight and duties and execution gaps in production plan. Partially offsetting these headwinds, Q4 showed sequential improvement in freight and duties versus Q3 and and a more favorable sales mix in the quarter. Adjusted EBITDA, excluding FX, decreased from approximately $6.1 million in the fourth quarter fiscal '25 to approximately $1.3 million in the fourth quarter of fiscal '26, a decrease of $4.8 million or 78%. Gross profit compression was the dominant driver. Operating expense changes were minimal year-over-year, confirming that expense discipline has held. The pant to EBITDA recovery was primarily through gross margin improvement, which we are addressing through unit improvement, pricing discipline, mix management and supply chain optimization. For the full year, adjusted gross margin was 34.4% compared to 42.5% for fiscal '25, a decrease of approximately 810 basis points. full year bridge reflects 3 primary themes. First is mix. Our fire acquisitions entered the portfolio at lower gross margin profile than our legacy industrial lines and Inspire grew to approximately 49% of revenues blended margin came under structural pressure. Second, cost heads. Raw materials, tariffs and related freight costs impacted the full year. Third, underutilization, the manufacturing capacity in Mexico and Vietnam size for higher volumes to fixed cost deleverage and appeared to below target output was significant. We are addressing all 3 through manufacturing footprint consolidation, supply chain restructuring and targeted pricing actions. Adjusted EBITDA, excluding FX, decreased from approximately $17.4 million in fiscal '25 to approximately $7.2 million in fiscal '26, a decrease of $10.2 million or 59%. The gross profit progression was the primary driver. Reviewing our revenue mix over the past 3 fiscal years, the transformation is clear on both a geographic and product basis. On the geographic side, Europe grew from approximately 13% of revenues in fiscal '24 or approximately 25% in fiscal '25 and approximately 28% of fiscal '26 result of our LHD and Jodi acquisitions, expanding our European fire platform. The U.S. has remained at approximately 42% in fiscal '26 reflecting the growth of Brazilian Arizona BP and California PPU, offsetting softness in industrial. This geographic diversification provides better exposure broader exposure for the global fire protection market. On the product side, fire went from approximately 21% of revenues in fiscal '24, approximately 38% in fiscal '25 to approximately 49% in fiscal '26. To us, this is the clearest illustration of our strategic pivot for the higher margin, higher growth global fire protection sector. Disposables moderated from approximately 40% to 27% is fire grid. The divestiture of acinar and Hides further simplified this picture heading into fiscal '27. As our acquired businesses integrate and fire gross margins recover towards the structural potential our growing fire concentration should become a meaningful margin tailwind. Now turning to the balance sheet. Lakeland ended the fiscal year with cash and cash equivalents of $12.5 million and working capital of approximately $96.5 million. This compares to $17.5 million in cash and working capital of approximately $101.6 million as of January 31, 2025. The hence decreased $5 million versus the prior year, reflecting $15.8 million of operating cash usage and $1.2 million of net investing outflows, offset by $12.5 million provided by financing activities. As of January 31, 2026, we had total borrowings of $32.3 million with $28.5 million outstanding under the revolving credit facility with an additional $11.5 million of available credit under the revolver. Net investing activities included $6.2 million for the Arizona PPE and California PPE acquisitions, offset by $5.7 million proceeds from the Takeda warehouse sale. We applied 100% of those net proceeds to repay our revolving credit facility. Importantly, Q4 generated approximately $1.8 million of operating cash demonstrating that our focus on cost discipline and working capital management is beginning to yield results. We are in advanced stages of negotiating an ABL facility, which we expect to close soon although they're giving no assurance that the AVO proposal will close on that time line are at all, Bank of America covenant waiver has been secured, and we anticipate to be covenant throughout fiscal '27. We expect the ABL facility to further strengthen our financial flexibility and support growth initiatives in fiscal '27. Sequent to year-end, the divestiture of the HVFR and high-base product lines generated approximately $14 million in additional cash proceeds that is not reflected in year-end cash balances, further reinforcing our liquidity position. At the end of Q4, inventory was $82.5 million, down approximately $5.4 million from $87.9 million at the end of Q3 fiscal '26 and essentially flat on a year-over-year basis despite revenue growing approximately 15%. Then year-over-year stability reflects meaningful progress on our supply/demand alignment initiatives. The quarter-over-quarter decline in inventory is low based, Organic finished goods were $36.3 million, down from $38.8 million in Q3. Organic raw materials were $30.9 million, down from $33 million in Q3. Reductions were also achieved across Meridian, LHT and Jolly as integration and plan process has improved. Our immediate priorities have been in the U.S., industrial, where we saw the greatest opportunity to align balances the demand and improved working capital efficiency. Inventory optimization is 1 of the key levers in our path to improved free cash flow generation as inventory levels normalize further, carrying cost decrease in working capital is released. This helps our business to become more efficient operationally, and we see opportunities to continue this trend to an inventory lower in fiscal '27 and a disciplined demand-driven matter. With that, I'd like to turn the call back over to Jim before we begin to take your questions.

Thank you, Calven. Fiscal 2026 was a year of significant transformation. We grew revenue 15.2% to $192.6 million, driven by a 48.6% growth in Fire Services. Built a head-to-toe global fire protection platform through multiple strategic acquisitions and made meaningful progress simplifying and strengthened the business, even as we navigated a challenging cost and operating environment. We are entering fiscal 2027 with key financial metrics showing sequential improvement over Q4 2026. The fourth quarter demonstrated that our operational discipline is improving. We generated positive operating cash flow, held expenses essentially flat and delivered adjusted EBITDA despite lower revenue versus Q3. These are early but tangible signs of the operational improvements we've been working toward. As we enter fiscal 2027, our priorities are clear. We will continue executing margin recovery actions across logistics, operations and pricing, including manufacturing footprint consolidation, continued efforts at cost containment across logistics and operations, including in the face of the Iran conflict and its potential impact on freight and supply chain costs, tightening forecasting accountability and implementing a stronger structure around sales and production planning, revised ERP rollout plan with our new implementation partner targeting the second half of fiscal 2027, actively drive green fielding and M&A pipeline within our ISP space. We opened our Fresno facility in January of this year in Denver, is expected to open in summer 2026, as Barry mentioned. Capitalize on the fire tender pipeline, including expected tender wins in Europe, and showcase our full NFPA certified portfolio at FDIC 2026, leverage our balance sheet to execute on our acquisition strategy, focused on fire turnout gear, decontamination, rental and services. Today, as we are now almost through fiscal first quarter 2027, I'm very optimistic about our business trajectory given the recent customer wins around the globe. The enhanced product development and differentiation with our new FireFlex Elite-L100 structural firefighting boot, and recently achieved full headed total range of NFPA 1970:2025 certified product offerings across our brand portfolio. Customer interest and demand is strong. Operationally, we are correctly positioned. The core team is in place, and we are ready to capitalize on an amazing opportunity that's on the horizon for Lakeland. Based on these factors, we believe fiscal 2027 will see high single-digit revenue growth and a clear line of sight to positive cash flow from operations. 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 all of us. With that, I will now open the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of Gerry Sweeney with ROTH Capital Partners LLC.

Wanted to start with the fireside. I think given some of the prepared comments, the comment was the largest pipeline in history. And I want to see -- some of this was definitely pushed out from 2025 due to government shutdown NFPA standards, et cetera. So I think we sort of anticipated a building pipeline. But the question is, how do we unlock this and maybe some more detail on the size of the pipeline and sort of how does it flow through for this year?

Yes. So I think I'm going to have Barry who's been working closely on that respond to that and then I'll chime in.

Yes, the comment was with largest open orders for Lakeland Fire in the company's history. So our open book of orders coming through scheduled forward production and obviously sale and invoice. That's the largest. The pipeline is the clearest view that we've been able to develop as we've been working through integrating our CRM software and program sales force globally and our sales operations team structuring it for a full view across the business. We now actually have over $130 million in open pipeline that's visible to us, over $22 million of that in higher probabilities over half. And we've got that view. We're working diligently with our teams to keep active. These are -- what we're seeing now is the opening of the spigot, so to speak, with the certifications coming through. Departments have been waiting for that certification approval and then they start to look and bring things through. The FDIC is the key component that's next week, where most of the NFPA push is through the North and South America. And then we'll be rolling things out with the rest of the world on the big show in June.

On that -- did you say FDIC, which is next week, is that -- after that show, would you get orders at that show? Is that the type of opportunity that...

Generally, it's not an order writing show, but it's a very visible show -- it's Fire Department Instructors Conference, it's the longest standing fire show in North America. And one of the globe's largest one other than INTERSCHUTZ, which is once in every 5 years and more global. Departments will come and in a sense kick the tires and some of them have already started to have input in for a field trial -- user trial, those sorts of things take place. Sometimes you'll get orders for the commodity items, whether it's helmets, boots, but if it's a larger department conversion, it's going to generally have some sort of a tender relationship or RFQ that will come into play or a wear trial.

Got it. That's helpful. And then switching gears slightly to the clean, the PPE opportunity. Obviously, expanded in California. Arizona sounds like it's going well. You're going into Denver. How big is that business in terms of revenue today and how quickly can you grow that? Or do you have sort of a target that you want to grow to over the next couple of years?

Yes. So Gerry, I'll answer that. The goal is to get in the services space up to $30 million by fiscal 2028. We are ramping up that rapidly, and I would be very disappointed if it wasn't much sooner than that at this point. I think when we acquired Cal PP and Arizona PP, Calven correct me if I'm wrong, maybe $4.8 million, $4.7 million, I think, in annualized revenue. They have significantly ramped that up. They are winning customers. They're doing it the right way. And the reason we're opening in Denver is -- I think I told you before that we're not going to just open it and hope they come. We have active customers who have said, "We need you to do this for us, and we needed to do it quickly." So when we opened Denver, we would expect several fire brigades to be providing services for the moment we open that up. Fresno, we've seen similar -- what happened with Fresno is that we had so much activity at our Riverside facility. It was busting at the scenes. And so having Fresno and Central California allowed us to shift some of those opportunities to Fresno, while we were continuing to grow our opportunities in Southern California. While Fresno is working on that offload of capacity, they are also finding additional opportunities within Central California, adding to the Fresno mix. Arizona PPE, we're having a dialogue as a team now about expanding that footprint or increasing its warehouse capacity because they're sort of bursting at the scenes right now. So it's -- we're -- as opposed to last year, Gerry, where we were pulling stuff in from quarters on the fire front, now we're trying to figure out how to make sure we can service it properly. Barry talks about the order -- the outstanding order flow that we have, we're driving -- that's driving us to do things. We have our North American manufacturing leader camped out right now at Veridian because Veridian was so slow last year, we had some personnel issues where we had to move on some selling folks we've since added capacity to that plant and individuals to that plant so that we can fulfill order flow for the first and second quarter, we've got visibility into order flow now into the second quarter and parts of the third quarter now. So the idea here is we went from 3.5 weeks' worth of work at a place like Veridian to 8.5 or 9, and that has obviously created challenges for us because we've got to make sure the customer gets that delivery in a timely way. That's how we differentiate. So in some of these ways, some of this stuff happened very quickly and we don't anticipate that momentum moving in the other direction. We think it's going to be -- and that's why we feel so optimistic because for the first time, we have a production problem, not a sales problem.

On your guidance, you said high single digits. And I think on the chemical movement side of the commentary is sort of like it's stable. Is that high single-digit guidance a function of the visibility you're seeing on the fire side today?

Yes. It's a combination of that. And what we're also seeing on the -- look, the industrial segment, I'll just give you an example in the United States. I get something called Cleveland Research. I get that from our partners at Line Drive. In Cleveland Research is sort of a survey of industrial channel partners -- large industrial channel partners and regionals and they're sort of taken where they think the market is going to be. We have always been about Cameron's philosophy. It's always been about trying to steal market share, which is really important in a business that is mature as the industrial business. But I will say that with the Cleveland research report historically as the saying to me was a 0.5% growth in the market in the industrial market in North America, and maybe 1%, maybe 0.8%. Well, now it's 5%. The forecast is 5%. So when you're racing and being the most nimble in a market, and you've now got the team in tow in your sales field that we didn't have historically and regional leaders that we didn't have historically that moments a lot of optimism on our front on the industrial space as well. And obviously, that -- you couple that with what we see in fire, both U.S. and globally. I mean, Kevin Rae got his team in play in a lot of different opportunities that we would expect -- I mean we would expect to hear soon on several opportunities in Europe, where I think we've got such close visibility to it, I'd be really shocked if we didn't win them. I look at places like the U.K., Great Britain, I would be -- I think we're in really good shape there.

One more quick question, I apologize. Margin, can you do a quick margin bridge. So it's around 32%. You were at 41% a year ago. So but if you have volume, you have like cost around logistics, input costs and then pricing. Can you just bucket those 3 out real quick as to like how much of the downturn in margins each one that's played?

Gerry, the bulk of it is mix. If the sales mix followed by -- you've got kind of the freight -- your other -- your freight duties and materials costs gets you the rest of the way. But the majority of it was the mix.

So if you say mix, would that mean if like fire volumes improve, that we should see an improvement in -- or saying the pricing of the gear was -- the margins in the gear allowing at up the price.

It's really -- it's -- in terms of the fire services, your higher margin as the turnout gear and then you've got lower margin on...

We're currently in certification right now. We're working on getting certification from UL to be able to manufacture Veridian product in Mexico. I've talked about this for quite a while. UL has been backed up doing certifications for fire. That backup, I think, has subsided. So I would expect to hear from them sometime in the summer. And then I can start manufacturing Veridian product in Mexico, and that is -- the Latin American market for Veridian is really the fastest growing. I can also -- I'm also looking for a certification for Lakeland product at Veridian so that were needed. I can win where departments require made in U.S. now manufacturing -- soon to be manufacturing LHD in China, and I'm currently manufacturing Eagle in China, where we can, where we don't have issues with proximity to some regions in Europe where Kevin will still use third-party contractors. So yes, we're -- we would expect those margins to improve. And as we garner critical mass, in the services business, while those services business don't necessarily have great gross margin, their EBITDA margins are significant. And that's why I have an urgent need to continue to drive growth in those businesses.

Got it. I'll jump back into queue. I apologize for quite a few questions, but thank you.

Our next question comes from the line of Mike Shlisky with D.A. Davidson.

It was a little hard to tell about how you feel a quarter-to-quarter about the organic growth rate throughout the year. Do you think it might set off the year slower than high-single digit rate and end up at a higher rate or it could be a somewhat smooth year organically throughout the 4 quarters?

I think historically, we started off a little slow in the beginning -- in the first quarter of the year, and you'll see improvement as we move throughout the year, especially now since we're looking at -- picking up the certifications, we're thinking at the certifications and see the demand increase, and that did not happen. That happened mid -- mid-first quarter. So it's going to take a little bit of time to those orders to come through.

Got it. Got it. On the ISP growth, it was interesting to see that you're opening in Denver, maybe sense as to maybe what was the start to finish? When did you first hear you should be opening in Denver? And what is the time frame from when that point was to when you're actually opened or about to be opening? And are there any opportunities in other states or states beyond Denver once that's open and around this year.

Yes. So Barry, you're at the heart of the Denver opportunity right now. Why don't you answer that one?

So the Denver opportunity came to light just a few months ago. We've been -- our team and the leaders of our ISPs, Mike Glaze is very well connected and known across the country. He used to be with CAL FIRE. He ran their PPE program for many years before retiring and opening up California PPE. So we're well connected. We know who's doing what and where. We were aware of an opportunity because a major competitor pulled out of the region. We know some of the technology providers because we have partnerships with them for the cleaning gear that drives our high efficacy ratings. And we found departments in that area that we're looking for us and actually spoke to Mike, in particular, about coming in and taking care of their products for them. So we've acted quickly. We've hired the leader for that site. She comes with strong background and experience in the industry, and we're in process of getting things up and running. Our Fresno site, for example, as a footprint, we use that as a template to build out our sort of cookie-cutter franchise type of thought on it is how to quickly ramp up. We did that in about 1.5 months. The longest lead item is what the first is securing the site and then after that, it's getting UL certification. The other part is just we know what to do, where to set it up, how to set it up, how to set the flow in the process and what sort of resources we need to fulfill it.

And Mike, and the other part of the -- half of the question.

Go ahead, Jim.

Yes, I was going to say we've got several other opportunities that we're looking at from a greenfield perspective that we're doing some market research on. Mike is checking out some opportunities in the Southeast. He's got a few meetings next -- actually, he's leading FDIC for a meeting in the Southeast to look at opportunity there. Obviously, we want to be in the Midwest. We -- what I would envision over the course of the next year would be probably another 3 to 5 add-ons in a perfect world for be it a green field. So we have another 3 to 5 between greenfield and acquired companies. And as I said, these acquisitions are much lower cost, much higher rate of return from -- just from a pure synergy perspective because they kind of drive themselves and they can scale quite nicely and Mike knows how to scale them and knows how to identify the people within a region to help drive that growth. And he's already got sort of a business plan on that front to help drive that. So I would envision 3 to 5 additional ones beyond Denver in North America. Kevin Rae has reached out to me. He wants 1 in Germany. I think it would make sense for us to do that. I think 3 to 5 in North America is probably for the next 12 months what I'd be focusing on them.

Great. And maybe 1 last quick one for me. Kevin, welcome. I see you got a head of EMEA Fire. What's the structure of the sales organization globally? Is it someone that's going to be head of North America so that it's going to be hiring. I want to get a sense of the leadership structure.

We have a North sales -- yes, we have a North America sales here. We had that already. He reports into Barry. Everybody reports other than Kevin, everyone reports up through Barry, Barry is ultimately responsible for our global strategy. He and Kevin work together on the European side. I brought Kevin on board formally because, frankly, defacto, he's been a member of the management team for at least the last year, where he was helping integrate the Jolly and LHD brands.

Our next question comes from the line of Mark Smith with Lake Street Capital Markets.

You got Alex Sturnieks on the line for Mark Smith today. First one for me. Gross margins have been under pressure all year. Walking into fiscal year '27, what are the biggest drivers of margin improvement there? And what's the sequencing kind of look like? What gets better first versus what takes longer to come through?

I think it's really going to be the sales mix trying to drive that. And what we see is with the increased demand on the fire side, especially in the higher value products. we'll see that starting really in -- we start to see that in maybe late Q1, but most likely Q2 is really, really, really start to see improvement.

And you add that to some of the synergies we're driving with manufacturing place for people like Eagle -- products like Eagle, for products like LHD in China as opposed to utilizing third-party manufacturers and the move of Veridian's fire manufacturing for Latin America into Mexico, and we think that, along with the selling more turnout year on the fire front really adds to the margin.

Okay. That's helpful. And then last 1 for me. The high performance in hybrid sales at about $40 million. It sounds like the balance sheet is the priority there for those proceeds. But -- is any of that set aside for bolt-on deals? Or any additional color on M&A would be great.

Balance sheet.

Yes. The M&A opportunities will have. One of the reasons why we're looking at an ABL because we're in good shape either way. But one of the reasons we're looking at the ABL, we like a little more availability to do some of these smaller acquisitions. But whether we don't go that route or others, I mean it's -- we'll find a way to do it. And as I said, and not expensive deals.

Our next question comes from the line of Matthew Galinko with Maxim Group.

I think you mentioned $5 million in intercompany sales activity. I'm wondering how you expect that to evolve now that you have and kind of what do you expect from it in the next fiscal year?

We expect it to grow significantly. We've got we've got an NFPA boot now for Jolly that we are going to -- we just got certified, so we'll be rolling that out. And boots and gloves and helmets and hoods, it's very nice to say their in-stock products that we need to have. The reception of the helmets right now is significant and has exceeded our expectations in the U.S. markets. So that is something that we think will continue to grow. The boots, I think, were very well received in the wear trials. So we'll see some pickup from that. And Kevin has only recently started to drive the sales teams within the Eagle -- not so much of the Eagle I think he's been doing it with Eagle, but more with LHD and with Jolly, sort of the cross-selling of the brands within the other markets. And Jolly has been very well received in the Latin American market. And now that we have an NFPA boot where Latin America does like have the choice of NFPA offering, we would envision an ability to be able to sell into that market as well. Do I have a dollar amount on that? I don't. But I would expect it to be -- we would be -- it's going to be really, from my perspective, very easy to be able to drive some of the growth in brands within a market like the U.S. that until these certifications are standardized and finalized, we were not able to sell.

I think it's fair to say across the globe that the brand is getting brand recognition. Lakeland Fire Safety in the last 12, 18 months is becoming a much higher profile brand, is gaining credibility across all the categories that we supply in. So we're seeing more inquiries of a higher quality because of that.

And to add to that, these brands that were regional manufacturers the work for distribution globally with limited sales resources, now have the full Lakeland sales team around the globe representing them. So they're getting in front of -- it's getting the sub-brands under the umbrella brand into end users and to key channel partners if they didn't have the opportunity in the past, and that's where it's growing.

Thank you. And we have reached the end of our question-and-answer session. And therefore, I would like to turn the call back over to Mr. Jenkins for his closing remarks.

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 lives and safety. Lakeland continues to be well positioned for long-term growth, and look forward to sharing our continued progress on the next call. We will also be attending FDIC 2026 in Indianapolis from April 20th to 25th. So please stop by and say hello through there. 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.

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