Q2 2024 Lakeland Industries Inc Earnings Call
Got it. So in North America, it's close. I mean, that's still yet to come, which is a positive. As I mentioned in the call...
You know, another important part, you know, well, it's not, you know, quick, profiling, but the involvement of evils, designers, and the development of our next generation in FPA gear, that's North American gear. So we're, you know, going to have an entirely different perspective on our next-gen gear. All right, you know, that is a huge synergy for us. As far as before, I was just very interested in aerospace mission, and I have
for our Latin American team in country. So that was very well received. Got it. Final question, you know, acquisitions, you had the SSQ strategy, and you actually just touched upon it with the EVOL. You know, obviously you have a global distribution footprint. You know, I'm curious as to what that acquisition pipeline looks like, and I would suspect it's a little bit more maybe.
for our Latin American team in country. So that was very well received. I'm trying to find a question. You know, acquisition, they get the SSQ strategy. And you actually just touched upon it with the evil. You know, obviously you have a global distribution footprint. You know, curious as to what that acquisition pipeline looks like. And I would suspect that's a little bit more maybe gear or product driven over maybe the flaming shopel and all of these communities ??kele. I don't know if you have taken it or those things. If they're open. Your
Good day and welcome to the Lakeland Industries Fiscal 2024 Second Quarter Financial Results Conference Call.
All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation.
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.
geographic expansion? Could you touch upon that? You were correct that it is more product focus. We do have companies that are primary.
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.
Our primary interest might be geographic. We have a healthy pipeline, not to quantify, but there are plenty of opportunities out there in the equal size range. Particularly the fire market is such a stratified, fragmented market globally, that there are actually more manufacturers there, I think, in the equal size range than there are behemoths. Our estimation is that the largest player globally in the market only has a 10% market share, the next one after that's down to five. So that gives you some idea of how fragmented it is. So it is a market that is like repeating that the equal process. Roger, do you want to add to that?
interest might be geographic. We have a healthy pipeline, not to quantify it, but there are plenty of opportunities out there in the Eagle size range. Particularly the fire market is such a stratified, fragmented market globally that there are actually more manufacturers there in the Eagle size range than there are behemoths. Our estimation is that the largest player globally in the market only has a 10% market share. The next one after that is down to five. So that gives you some idea of how fragmented it is. So it is a market that is ripe for repeating that Eagle process. Roger, do you want to add to that? That is exactly right.
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 US 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 Chief Executive Officer Charlie Roberson. Mr. Roberson, the floor is yours.
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, Holland.
Like I mentioned in the call, we currently have no debt. We saw the contribution that Eagle made to and to help in the EBITDA. So that's also supportive of being able to build on that strategy. How much competitive advantage in maybe the fire and turnout gear? Obviously, I think you talked about the hood and gloves for Eagle, but if you start building out additional products, how much advantage does that give you versus some of that stratified or...
Good morning and thank you all for joining us for our second quarter fiscal 2024 earnings call. Please note that we also have an earnings presentation posted on our IR page of our website at www.lakeland.com.
Our second quarter results were very encouraging as we continued to see strong improvements in growth within our strategic product lines and markets.
Yeah, the China Fire Market. Good question, Jerry. One of the issues that the end users deal with is selection of the garment and what certification to go with. Currently, there's only two other, well, there are a number of people trying, but there's only two other companies that are actually offering European certified gear and North American certified gear globally.
Lakeland delivered net sales of $33.1 million, up 17.3% year over year.
Good question, Jerry. One of the issues that the end users deal with is selection of the garment and what certification to go with. Currently, there's only two other, well, there are a number of people trying, but there's only two other companies that are actually offering European certified gear and North American certified gear globally. Um.
This growth was driven both organically and by Eagle Technical Products, which contributed $3.4 million in revenue to our results this quarter.
Notably, our Fire Service Product category continued to see very significant growth, with sales up 202% compared to last year.
This growth highlights the significant momentum Lakeland is building in our strategic product lines. And our goal to increase penetration in high value markets is producing positive results.
Having that global reach and the ability to offer both product lines and explain the features and benefits of both is a tremendous service to the end users. There is confusion, you know, for instance in EMEA, there's a lot of use of NFPA gear, but CE is also coming in so it's mixed and people don't necessarily understand the trade-offs they are making. The differences in pricing of the gear is as much as 30 or 40 percent.
In terms of profitability, our second quarter gross margin remains strong at 42.9%.
And importantly, our adjusted EBITDA grew by over 50% to $4.2 million in the quarter.
Our EGLE technical products acquisition, which makes European Standard Fire Services gear, produced 900,000 of EBITDA in the quarter, helping elevate Lakeland's consolidated, adjusted EBITDA margin to 12.6% this quarter compared to 9% in the prior year. With regard to our key geographic markets, we saw similar demand trends to the first fiscal quarter, with strength in the U.S., Europe , and Latin America. The U.S. benefited from continued strength in the oil and gas sector as refinery turnarounds continued well into Q2. Sales of turnout gear into the U.S. market were particularly strong, as mentioned earlier, mostly due to the lead time advantage that we have over our competitors as a result of our proactive raw materials planning and manufacturing efficiency improvements. Our European sales strength continued as in Q1, meeting its performance targets and on the strength of the EGLE acquisition.
You know, so for the savings in CE, what are you giving up? You know, it's a tremendous amount of credibility within individual markets and the ability to supply from a global manufacturing base makes us cost competitive. There are a lot of advantages.
A number of people that are trying to do it, the problem is they don't have the global footprint that Lakeland has to support it. We already have that. So the products are what we're looking for. Yeah, what I would add to that, you know, and this, I think this is probably intuitive as well, we talked about, Charlie talked about getting additional distribution channels due to our lead times. You know, having that full suite of products, you know, both NFPA and CE, and then being able to be head to toe just kind of strengthens that position with distributors. And we've also...
you know, seen and we expect to continue to see advantages in RFPs because these smaller to medium-sized customers certainly would favor someone who's able to deliver the full ensemble. Gotcha. Super helpful. I appreciate it. I'll jump back to you. Thanks. Thanks, guys. Thanks, Jerry. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.
Latin America also experienced strong fire service sales as a result of a large order delivered during the quarter. Despite those markets, strengthened those markets, our Asian markets have been weaker than expected, primarily driven by continued weakness in China. China's economy struggled throughout our fiscal second quarter as exports were at multi-year lows and unemployment increased.
China's distribution channels for PPE remain in an overstock position. As China works through its overstock of disposables, we are focusing on new end uses to grow sales.
Your next question for today is coming from George Milas at MKH Management.
biopharma, semiconductors, and batteries are among our targeted applications.
Good morning, Charlie and Roger. Congratulations. Looks like a great quarter. Either one time or courtesy related and we are, you know, obviously like any company would taking measures to manage the courtesy risk.
As I already mentioned…
EGLE contributed very positively to our results during the quarter.
Our integration efforts continue to generate significant cross-organizational synergies.
But we do believe we have operating leverage. We think our platform is currently scaled well to be able to manage this growth. So it was very nice to see that. And the other thing that I would add is we're going to continue to put it even sharper focus on op-x, not-x reduction. And as I'm sure you've heard Charlie and me say before, we're very intently focused on free cash flow. And we're looking to make improvements in that across the company. And we'll continue to focus on those items and hopefully drive additional efficiencies. Okay, great. That's good to hear. And maybe can you tell us a little something on-
and we expect the EGLE platform to continue to enhance our adjusted EBITDA performance going forward.
Eagle's fire glove and particle blocking hood are progressing through the certification process.
And we will soon be including EGLE's designers in the development of our next generation NFPA turnout gear.
Additionally, samples of EGLE products have been produced in Lakeland facilities and are being used to certify those facilities to make some of EGLE's products.
shifting gears to our capacity expansion initiatives.
As we have previously communicated,
We currently have an expansion project underway in Monterrey, Mexico.
The issues with the monetary planks, I don't know how much you can say, but I don't know from you sort of explain a little bit what happened and where you are, where you stand and what are the options that you consider.
Due to damage experienced during the second quarter at our newly leased Monterey site, we are currently evaluating our leasehold improvement build-out schedule, which may impact our go live production timing. This evaluation is still underway. However, and importantly, we do not anticipate an adverse impact to our financial results in operations or our ability to meet our forecasts.
George, we're very early in this process. As we said, there's not much that we can add because quite frankly, we're still investigating and we're still weren't able to Birko.
You have a lot of questions ourselves that we're still looking to answer.
We believe our expectations going forward are not at risk. As it relates to our strategic priorities for the remainder of the fiscal year,
that we're still looking to answer.
You know, suffice it, I think the best thing I can say about it is while we are delayed and we're on pause, we don't see, you know, an impact to, you know, future earnings or our operations or our ability to meet our forecast. That was our first concern and we're, you know, we believe that we have that handled. You know, there was a startup time associated with that business anyway, so, you know, it's not an immediate impact to.
We remain committed to driving revenue growth in key strategic markets.
while executing.
a shift in our sales resources for its higher value products.
Our shorter lead times are resulting in market gains in our fire service and woven products and we are utilizing
our core strength in disposables and chemical garments, combined with our manufacturing flexibility.
our projections, but right now unfortunately we just, we're waiting on some engineering reports and once we have those we'll know more. But at this point there's not much else we can share.
projections, but right now, unfortunately, we just, you know, we're waiting on some engineering reports and once we have those, we'll know more. But at this point, there's not much else we can share. Very well. Thank you.
to attract new end users to our container program and higher value strategic products.
The fact that we can supply a full range of safety and PPE products from a single manufacturing facility is attractive to our large customers.
Thank you, George. We have reached the end of the question and answer session and I will now turn the call over to Charlie for closing remarks.
Thank you, George. We have reached the end of the question and answer session and I will now turn the call over to Charlie for closing remarks. Thank you, Holly.
We are leveraging our core products to help our customers build containers more easily.
which increases the frequency with which they can order high value products by container.
This improves customers' planning and reduces their freight and inventory costs.
Moving forward, our leadership team is committed to identifying and maintaining a robust acquisition pipeline with opportunities that enhance Lakeland's strategic product portfolio and expand our geographic reach.
Our M&A efforts.
are focused on finding opportunities like EGLE that meet our SSQ
Small, strategic, and quick.
acquisition strategy by identifying targets that are similar in size, highly strategic, and accreted to our bottom line in a short period of time.
I'll now pass the call to Roger to provide an overview of our financial results.
Roger.
Thanks, Charlie, and good morning, everyone.
Lakeland delivered sales of $33.1 million in the second quarter in the July 31st, 2023.
Domestic sales were $15.2 million, or 46% of total revenues. And international sales were $17.9 million, or 54% of total revenues.
This compares with domestic sales of $11.9 million or 42% of the total and international sales of $16.3 million or 58% of the total in the second quarter of fiscal 2023. As we noted in our earnings press release issued yesterday afternoon.
We continue to see very strong growth within our fire service product category, with sales up 202% year over year. In terms of product mix for the quarter, fire service increased to 27% of sales for the quarter, up from 11% in the same quarter of last fiscal year. As a reminder, our fire service product category was up 101% last quarter. Disposables continue to decrease as a percentage of Lakeland sales and represented 38% of total revenues compared to 45% in the year ago period.
This reflects the efforts we've made to shift our product mix toward higher value, higher margin, and less commoditized products as we've discussed in prior calls. From a statement reporting standpoint, Lakeland saw strong sales growth in our US, European, and Latin American markets.
This growth was partially offset by softer Asian sales, particularly in China.
which is a continuation of what we saw last quarter. Gross profit as a percentage of net sales was 42.9% for the physical 2020 for a second quarter as compared with 41.3% a year ago.
As Charlie already highlighted, our gross margin improvement has been driven primarily by a deliberate sales focus on strategic products.
Supported by manufacturing efficiencies that have resulted in reduced lead times as well as decreases in transportation cost.
Lakeland reported operating profit of $3.7 million in Q224 as compared to $1.8 million in the second quarter of last year.
As a result, operating margins were 11.3% in the second quarter, up from 6.4% in the second quarter of last year.
Our operating profit benefited from improved gross margins resulting from our product mix shift.
and operating leverage resulting from higher revenue as previously discussed.
This was partially offset by an increase of approximately $600,000 in operating expenses compared to last year.
The increase in op-ax is attributable to currency fluctuations.
one-time expenses related to severance and startup cost.
increased depreciation and amortization and OPEX related to the EGLE acquisition, and year-over-year labor costs increase.
Currency fluctuations primarily related to the Chinese Yuan and Argentinian peso totaled approximately $600,000. One-time expenses related to severance and startup costs were approximately $500,000. And increased DNA and OpEx related to EGLE totaled approximately $300,000. These increases were partially offset by a reduction of $700,000 in the earn-out consideration accrual related to the EGLE acquisition, which was recorded as a reduction in operating expenses. Lakeland delivered net income of $2.5 million, or $0.33 per basic share and $0.32 per diluted share during the quarter.
This compares to a net loss of $900,000 or 11 cents for basic and diluted share in the prior year period. Adjusted EVA die was $4.2 million in Q2-24 compared to $2.5 million in Q2-23.
Lakeland delivered operating cash flow during the quarter of approximately $200,000. Our robust balance sheet provides us with significant flexibility as we continue to explore acquisition opportunities.
organic growth investments in returning capital to our shareholders. Lakeland ended the quarter with cash and cash equivalents of approximately $24.3 million.
Compared to our FY23 year-ended cash balance of $24.6 million.
The company continued to have no debt at the end of the quarter and has up to $25 million available from bank credit facilities. Capital expenditures for the three months ended July 31, 2023 were $400,000.
For the full fiscal year, we now expect capital expenditures to be approximately $2 million.
down from our previous estimate of $3 billion.
as we replace existing equipment in the normal course of operations and pause the Monterey expansion to assess the damage to our leased building as Charlie previously discussed.
We expect to fund capital expenditures from our cash flow from operations.
Inventories declined slightly quarter over quarter from $57.9 million to $57.4 million at the end of the second quarter of fiscal 2024. Raw materials inventory increased by $90,000.
while finished goods inventories decreased by approximately $360,000.
The increase in raw material inventory is driven by growth in our higher value strategic products.
as we continue to strategically position ourselves to take market share from competitors.
More specifically, much of our success in these end markets can be attributed to having more favorable lead times versus our competition, and having raw materials on hand is key to this strategy. While the overall decrease in inventory during the quarter was minimal, we remain committed to accelerating the reduction of our finished goods inventory this year.
previously communicated. We are aggressively pursuing additional sales channels, marketing programs, and price deviations on excess inventory to drive these reductions. We expect these efforts to accelerate in the second half of this fiscal year. With that overview, I'd now like to turn the call back over to the operator to open up for questions.
Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Your first question for today is coming from Jerry Sweeney at Ross Capital. Good morning, Roger and Charlie. Thanks for taking my call. Please, Jerry. I want to start high value products and even a little bit on the fire product movement. But to start off, obviously you're getting some great momentum there. Can you give a little bit more explanation? Because this obviously talked about lead times and raw materials and that giving advantage. But what can you do to keep this momentum going or even accelerate it to some degree in terms of maybe sales resources or things along those lines? Or are we looking at a steady state?
and you're in good shape from the momentum standpoint. Well, let me start by saying this market differs from our core markets in disposable and chemical in that it's got its own distribution channels. And a number of those distributors are exclusive to a specific manufacturer of turnout gear. And this is true not just in North America, but globally as well.
And what has happened is our operations people, planning and sales have done a very good job.
And what has happened is our operations people, planning, and sales have done a very good job over the last three quarters.
Our operations people, planning, and sales have done a very good job over the last three quarters.
managing raw materials availability. That's kind of the long pole in the tent for lead time in the market. As a matter of fact, they've done an excellent job. Our lead times continue to be below our competition, even though their lead times are coming down. And as a result of that, competitors' lead times have been extended now for over a year in some cases.
a number of large distributors that were
or taking a Lakeland product now. That's one of the nice things about lead time reduction is it becomes a weapon. As long as you have a product that is a quality product, which we had before, they just wouldn't break the relationship even if it was a great product. Now they have reason to do that, and we have our foot in the door. As far as maintaining the lead time, I've never seen the lead times that we have in that market right now delivered by anybody.
I know that our operations planning and sales people are committed to regular cross-functional meetings to continue to replicate the planning that they've done in that market. And the sales team is continuing to pursue additional opportunities that are out there.
I think that the main avenue for growth, we maintain what we've got, we will continue to see growth in the U.S. but expanding this and replicating it with EGLE internationally, we will continue to see growth in the U.S.
I think that the main avenue for growth, we maintain what we've got, we will continue to see growth in the U.S., but expanding this and replicating it with EGLE internationally will be a very interesting thing.