Q2 2027 Lakeland Industries Inc Earnings Call

September 9, 2026

Speaker #1: Good afternoon, and welcome to the Lakeland Fire and Safety fiscal second quarter 2027 financial results conference call. All lines have been placed on listen-only mode, and the floor will be open for your questions following the presentation.

Operator: Good afternoon, and welcome to the Lakeland Fire and Safety Fiscal Q2 2027 Financial Results Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. During today's call, we may make statements relating to our goals and objectives for future operations, including our goals for cash flow from operations and margin improvement 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 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.

Gerard Sweeney: Good afternoon, and welcome to the Lakeland Fire + Safety Fiscal Q2 2027 Financial Results Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. During today's call, we may make statements relating to our goals and objectives for future operations, including our goals for cash flow from operations and margin improvement 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 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.

Speaker #1: During today's call, we may make statements relating to our goals and objectives for future operations, including our goals for cash flow from operations and margin improvement 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.

Speaker #1: Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risk and uncertainties that are more fully described in our SEC filings.

Speaker #1: Our actual results performance or achievements may differ materially from those expressed in or implied by such forward-looking statements. We are going to take no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call.

Operator: 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 the US GAAP, including adjusted EBITDA, adjusted EBITDA excluding FX, adjusted EBITDA margin, adjusted EBITDA excluding FX margin, adjusted gross profit, adjusted gross margin, and adjusted operating expenses excluding FX. A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in the supplemental slides of today's presentation. A press release detailing these results was issued this afternoon and is available in the investor relations section of our company's website, ir.lakeland.com.

Speaker #1: 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, adjusted gross profit, adjusted gross margin, and adjusted operating expenses excluding FX.

Speaker #1: A reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in the supplemental slides of today's presentation.

Speaker #1: A fresh release detailing these retail results was issued this afternoon and is available in the investor relations section of our company's website ir dot lakeland dot com.

Speaker #1: At this time, I would like to introduce your hosts for this call: Lakeland Fire and Safety's President, Chief Executive Officer and Executive Chairman, Jim Jenkins; Chief Financial Officer, Calvin Sweeney; Chief Commercial Officer, Global Industrials, Cameron Stokes; Chief Revenue Officer, Barry Phillips; and Executive Vice President of EMEA Fire Sales, Kevin Ray.

Operator: At this time, I would like to introduce your host for this call, Lakeland Fire and Safety's President, Chief Executive Officer, and Executive Chairman, Jim Jenkins; Chief Financial Officer, Allen D. Sweeney; 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.

Operator: At this time, I would like to introduce your host for this call, Lakeland Fire + 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.

Speaker #1: Mr. Jenkins, the floor is yours.

Speaker #2: Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss the results of our fiscal 2027 second quarter ended July 31, 2026.

James M. Jenkins: Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss the results of our fiscal 2027 second quarter ended 31 July 2026. Our second quarter results reflect continued progress in the underlying business, with sequential improvement across revenue margin and profitability. Net sales were $50.1 million, down 4.5% year over year, but up 5.7% sequentially, supported by a 12% sequential increase in fire. Excluding $3.7 million of prior year revenue from the product lines we divested in March, net sales increased 2.8%. Gross margin was 37% compared with 35.9% a year ago and 31.4% in the first quarter. Adjusted EBITDA, excluding FX, more than doubled sequentially to $2.7 million. Rather than walk you through everything we announced during the quarter, I want to highlight important business updates that I believe matter most. First, tender wins.

Jim Jenkins: Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss the results of our fiscal 2027 second quarter ended 31 July 2026. Our second quarter results reflect continued progress in the underlying business, with sequential improvement across revenue margin and profitability. Net sales were $50.1 million, down 4.5% year over year, but up 5.7% sequentially, supported by a 12% sequential increase in fire. Excluding $3.7 million of prior year revenue from the product lines we divested in March, net sales increased 2.8%. Gross margin was 37% compared with 35.9% a year ago and 31.4% in the first quarter. Adjusted EBITDA, excluding FX, more than doubled sequentially to $2.7 million. Rather than walk you through everything we announced during the quarter, I want to highlight important business updates that I believe matter most. First, tender wins.

Speaker #2: Our second quarter results reflect continued progress in the underlying business, with sequential improvement across revenue, margin, and profitability. Net sales were $50.1 million, down 4.5% year over year, but up 5.7% sequentially, supported by a 12% sequential increase in fire.

Speaker #2: Excluding $3.7 million of prior year revenue from the product lines we divested in March, net sales increased 2.8%. Gross margin was 37%, compared with 35.9% a year ago and 31.4% in the first quarter.

Speaker #2: Adjusted EBITDA, excluding FX, more than doubled sequentially to $2.7 million. Rather than walk you through everything we announced during the quarter, I want to highlight important business updates that I believe matter most.

Speaker #2: First, tender wins. These are important because they are often recurring revenue opportunities for several years. We secured multiple tender and contract awards across nine countries globally, spanning fire, disaster response, law enforcement, industrial, and utility markets.

James M. Jenkins: These are important because they are often recurring revenue opportunities for several years. We secured multiple tender and contract awards across nine countries globally, spanning fire, disaster response, law enforcement, industrial, and utility markets. These included notification of an intended award across multiple product categories under the UK National Fire Chiefs Council, National Firefighter PPE Framework, a seven-year program with a total potential value of up to GBP 220 million across all awarded suppliers, as well as significant contract wins across Asia-Pacific and Latin America. We have significantly expanded our offering of certified products and manufacturing capacity across fire and critical environments, strengthening capacity, supply chain flexibility, and support for higher value growth opportunities, which enhances our margin profile for the long term. Certification and product development work continues across our product lines. Our higher growth recurring revenue fire services platform while repositioning the broader operating footprint.

Jim Jenkins: These are important because they are often recurring revenue opportunities for several years. We secured multiple tender and contract awards across nine countries globally, spanning fire, disaster response, law enforcement, industrial, and utility markets. These included notification of an intended award across multiple product categories under the UK National Fire Chiefs Council, National Firefighter PPE Framework, a seven-year program with a total potential value of up to GBP 220 million across all awarded suppliers, as well as significant contract wins across Asia-Pacific and Latin America. We have significantly expanded our offering of certified products and manufacturing capacity across fire and critical environments, strengthening capacity, supply chain flexibility, and support for higher value growth opportunities, which enhances our margin profile for the long term. Certification and product development work continues across our product lines. Our higher growth recurring revenue fire services platform while repositioning the broader operating footprint.

Speaker #2: These included notification of an intended award across multiple product categories under the UK National Fire Chiefs Council National Firefighter PPE Framework, a seven-year program with a total potential value of up to $220 million across all awarded suppliers, as well as significant contract wins across Asia Pacific and Latin America.

Speaker #2: We have significantly expanded our offering of certified products and manufacturing capacity across fire and critical environments. Strengthening capacity, supply chain flexibility, and support for higher-value growth opportunities which enhances our margin profile for the long term.

Speaker #2: Certification and product development work continues across our product lines. Our higher-growth recurring revenue fire services platform is repositioning the broader operating footprint. This includes our Denver ISP startup, planned to open this month. ISPs generate recurring revenue and support higher-margin revenue over time in our high-growth space.

James M. Jenkins: This includes our Denver ISP startup planned to open this month. ISPs generate recurring revenue and support higher margin revenue over time in our high-growth space. Our industrial businesses generated $24 million of revenue in the second quarter, down 10.8% on a reported basis. Excluding $3.7 million contribution from the divested product lines in the prior year quarter, industrial revenue increased approximately 3%. Growth was led by three product lines. Chemical protective grew 9%, and critical environment grew 28%. Critical environment is back on plan following the forecasting, demand planning, and capacity actions we put in place earlier in the year. Our primary manufacturing facilities remain at capacity, supported by improving demand and better order visibility. Our priorities for the balance of the year are channel execution, pricing discipline, inventory alignment, and converting the demand we are seeing into revenue and margin.

Jim Jenkins: This includes our Denver ISP startup planned to open this month. ISPs generate recurring revenue and support higher margin revenue over time in our high-growth space. Our industrial businesses generated $24 million of revenue in the second quarter, down 10.8% on a reported basis. Excluding $3.7 million contribution from the divested product lines in the prior year quarter, industrial revenue increased approximately 3%. Growth was led by three product lines. Chemical protective grew 9%, and critical environment grew 28%. Critical environment is back on plan following the forecasting, demand planning, and capacity actions we put in place earlier in the year. Our primary manufacturing facilities remain at capacity, supported by improving demand and better order visibility. Our priorities for the balance of the year are channel execution, pricing discipline, inventory alignment, and converting the demand we are seeing into revenue and margin.

Speaker #2: Our industrial businesses generate $24 million of revenue in the second quarter, down 10.8% on a reported basis, excluding 3.7 million contribution from the divested product lines in the prior year quarter industrial revenue increased approximately 3%.

Speaker #2: Gross growth was led by three product lines: chemical protective group nine and critical environment group 28%, critical environment is back on plan following the forecasting demand planning and capacity actions we put in place earlier in the year.

Speaker #2: Our primary manufacturing facilities remain at capacity, supported by improving demand and better order visibility. Our priorities for the balance of the year are channel execution, pricing discipline, inventory alignment, and converting the demand we are seeing into revenue and margin.

Speaker #2: Fire revenue was 26.1 million in the second quarter, up 2% from 25.6 million a year ago, and up approximately 12% from 23.4 million in the first quarter.

James M. Jenkins: Fire revenue was $26.1 million in the second quarter, up 2% from $25.6 million a year ago and up approximately 12% from $23.4 million in the first quarter. Fire represented 52% of net sales compared with 49% in the prior year quarter and the first quarter. Growth was broad-based. Helmets increased 41%, hoods increased 66%, and turnout gear increased 5.5%. Adjusting for the prior year tender and current year service acquisitions, comparable fire revenue grew approximately 10%. Demand continues to strengthen as customers transition to the updated NFPA standards. Our certified head-to-toe portfolio, spanning helmets, turnout gear, boots, and gloves, lets customers order a complete certified range from a single global provider, and we believe that breadth is a real competitive advantage.

Jim Jenkins: Fire revenue was $26.1 million in the second quarter, up 2% from $25.6 million a year ago and up approximately 12% from $23.4 million in the first quarter. Fire represented 52% of net sales compared with 49% in the prior year quarter and the first quarter. Growth was broad-based. Helmets increased 41%, hoods increased 66%, and turnout gear increased 5.5%. Adjusting for the prior year tender and current year service acquisitions, comparable fire revenue grew approximately 10%. Demand continues to strengthen as customers transition to the updated NFPA standards. Our certified head-to-toe portfolio, spanning helmets, turnout gear, boots, and gloves, lets customers order a complete certified range from a single global provider, and we believe that breadth is a real competitive advantage.

Speaker #2: Fire represented 52% of net sales, compared with 49% in the prior year quarter and the first quarter. Growth was broad-based, helmets increased 41%, hoods increased 66%, and turnout gear increased 5.5%.

Speaker #2: Adjusting for the prior year tender and current year service acquisitions comparable fire revenue grew approximately 10%. Demand continues to strengthen as customers transition to the updated NFPA standards.

Speaker #2: Our certified head-to-toe portfolio spanning helmets, turnout gear, boots and gloves, lets customers order a complete certified range from a single global provider and we believe that breadth is a real competitive advantage.

Speaker #2: On the fire services side, revenue grew 78% year over year, with our independent service provider business contributing 3.5 million in the quarter, and we are accelerating investment in that platform.

James M. Jenkins: On the fire services side, revenue grew 78% year-over-year, with our independent service provider business contributing $3.5 million in the quarter, and we are accelerating investment in that platform. Three items worth noting. The quarter absorbed approximately $600,000 of expedited freight tied to a strategic fire inventory build, and foreign exchange was a meaningful headwind with a significant impact of $1.3 million, compared with $43,000 a year ago. Our finance team is taking a hard look at hedging strategies where they are reasonably available and financially appropriate. During the quarter, the company also recorded a non-cash goodwill impairment charge of approximately $3.2 million related to LHD, attributed exclusively to the performance and revised outlook of LHD Group Deutschland GmbH.

Jim Jenkins: On the fire services side, revenue grew 78% year-over-year, with our independent service provider business contributing $3.5 million in the quarter, and we are accelerating investment in that platform. Three items worth noting. The quarter absorbed approximately $600,000 of expedited freight tied to a strategic fire inventory build, and foreign exchange was a meaningful headwind with a significant impact of $1.3 million, compared with $43,000 a year ago. Our finance team is taking a hard look at hedging strategies where they are reasonably available and financially appropriate. During the quarter, the company also recorded a non-cash goodwill impairment charge of approximately $3.2 million related to LHD, attributed exclusively to the performance and revised outlook of LHD Group Deutschland GmbH.

Speaker #2: Three items worth noting: The quarter absorbed approximately $600,000 of expedited freight tied to a strategic fire inventory build, and foreign exchange was a meaningful headwind, with a significant impact of $1.3 million compared with $43,000 a year ago.

Speaker #2: Our finance team is taking a hard look at hedging strategies where they are reasonably available and financially appropriate. During the quarter, the company also recorded a non-cash goodwill impairment charge of approximately $3.2 million related to LHT, attributed exclusively to the performance and revised outlook of LHT Germany.

Speaker #2: The impairment reflects the accounting valuation of goodwill at a specific point in time, and does not represent a cash outflow effect the company's liquidity or impact its ability to invest in strategic priorities.

James M. Jenkins: The impairment reflects the accounting valuation of goodwill at a specific point in time and does not represent a cash outflow, affect the company's liquidity, or impact its ability to invest in strategic priorities. We have taken actions to address the performance of LHD Group Deutschland GmbH, including leadership and organizational changes, and are executing a broader repositioning of the business focused on improving operating performance, cost structure, and long-term returns. LHD's operations in Australia and Hong Kong continue to perform well, and the impairment charge is not reflective of the performances of those businesses. Lastly, the resolution of the Monterrey lease matter resulted in a $1.9 million Q2 gain and the permanent elimination of approximately $400,000 in related quarterly cash usage, removing an ongoing obligation and supporting our broader effort to simplify the business, reduce complexity, and provide greater clarity into our underlying operating performance.

Jim Jenkins: The impairment reflects the accounting valuation of goodwill at a specific point in time and does not represent a cash outflow, affect the company's liquidity, or impact its ability to invest in strategic priorities. We have taken actions to address the performance of LHD Group Deutschland GmbH, including leadership and organizational changes, and are executing a broader repositioning of the business focused on improving operating performance, cost structure, and long-term returns. LHD's operations in Australia and Hong Kong continue to perform well, and the impairment charge is not reflective of the performances of those businesses. Lastly, the resolution of the Monterrey lease matter resulted in a $1.9 million Q2 gain and the permanent elimination of approximately $400,000 in related quarterly cash usage, removing an ongoing obligation and supporting our broader effort to simplify the business, reduce complexity, and provide greater clarity into our underlying operating performance.

Speaker #2: We have taken actions to address the performance of LHT Germany, including leadership and organizational changes, and are executing a broader repositioning of the business focused on improving operating performance, cost structure, and long-term returns.

Speaker #2: LHT's operations in Australia and Hong Kong continue to perform well, and the impairment charge is not reflective of the performances of those businesses. Lastly, the resolution of the Monterey Lease matter resulted in a $1.9 million second quarter gain and the permanent elimination of approximately $400,000 in related quarterly cash usage, removing an ongoing obligation in supporting our broader effort to simplify the business, reduce complexity, and provide greater clarity into our underlying operating performance.

Speaker #2: Inventory end of the quarter at $74.9 million down 2.8 million sequentially and 15.3 million year over year. Inventory is starting to move and we expect that trend to continue as sales increase in the coming quarters.

James M. Jenkins: Inventory ended the quarter at $74.9 million, down $2.8 million sequentially and $15.3 million year-over-year. Inventory is starting to move, and we expect that trend to continue as sales increase in the coming quarters. With that, I'd like to pass the call to Calvin to walk through the financial results.

Jim Jenkins: Inventory ended the quarter at $74.9 million, down $2.8 million sequentially and $15.3 million year-over-year. Inventory is starting to move, and we expect that trend to continue as sales increase in the coming quarters. With that, I'd like to pass the call to Calven to walk through the financial results.

Speaker #2: With that, I'd like to pass the call to Calvin to walk through the financial results.

Speaker #3: Thank you, Jim. And good afternoon, everyone. Net sales were $50.1 million down 4.5% from $52.5 million a year ago and up 5.7% sequentially from $47.4 million gross margin was $37% versus $35.9% a year ago and $31.4% in the first quarter.

Allen D. Sweeney: Thank you, Jim, and good afternoon, everyone. Net sales were $50.1 million, down 4.5% from $52.5 million a year ago, and up 5.7% sequentially from $47.4 million. Gross margin was 37% versus 35.9% a year ago, and 31.4% in Q1. Adjusted gross margin was 37.7%, up 410 basis points sequentially from 33.6%. Adjusted operating expenses, excluding FX, were $16.2 million, versus $14.6 million. Net loss was $4.9 million, or $0.50 per basic and diluted share, versus net income of $0.8 million, or $0.08 a year ago. The net loss for the quarter included the non-cash goodwill impairment charge of approximately $3.2 million related to LHD. Adjusted EBITDA excluding FX was $2.7 million, versus $5.1 million a year ago and $1.1 million in Q1 for a margin of 5.4%. We ended the quarter with cash of $17.9 million, up from $12.5 million at year-end.

Calven Swinea: Thank you, Jim, and good afternoon, everyone. Net sales were $50.1 million, down 4.5% from $52.5 million a year ago, and up 5.7% sequentially from $47.4 million. Gross margin was 37% versus 35.9% a year ago, and 31.4% in Q1. Adjusted gross margin was 37.7%, up 410 basis points sequentially from 33.6%. Adjusted operating expenses, excluding FX, were $16.2 million, versus $14.6 million. Net loss was $4.9 million, or $0.50 per basic and diluted share, versus net income of $0.8 million, or $0.08 a year ago. The net loss for the quarter included the non-cash goodwill impairment charge of approximately $3.2 million related to LHD. Adjusted EBITDA excluding FX was $2.7 million, versus $5.1 million a year ago and $1.1 million in Q1 for a margin of 5.4%. We ended the quarter with cash of $17.9 million, up from $12.5 million at year-end.

Speaker #3: Adjusted gross margin was 37.7%, up 410 basis points sequentially from 33.6%. Adjusted operating expenses, excluding FX, were $16.2 million versus $14.6 million. Net loss was $4.9 million, or $0.50 per basic and diluted share, versus net income of $0.8 million, or $0.08 a year ago.

Speaker #3: The net loss for the quarter included the non-cash goodwill impairment charge of approximately $3.2 million related to LHT. Adjusted EBITDA, excluding FX, was $2.7 million versus $5.1 million a year ago and $1.1 million in the first quarter, for a margin of 5.4%.

Speaker #3: We ended the quarter with cash of $17.9 million, up from $12.5 million at year-end. A few drivers behind those numbers: Gross profit was $18.5 million, down 1.5% from $18.8 million, with a year-over-year margin increase of 114 basis points.

Allen D. Sweeney: A few drivers behind those numbers. Gross profit was $18.5 million, down 1.5% from $18.8 million, with a year-over-year margin increase of 114 basis points on tariff refunds and a favorable fire mix, partially offset by higher inbound freight. An important note on margins. Excluding the net tariff benefit of $1.4 million, gross margin still showed a sequential improvement to 34%, up 280 basis points, demonstrating that margin improvement was structural and not solely attributable to the tariff refund. Operating expenses were $20.6 million, up 7% from $19.3 million. Adjusted operating expenses excluding FX were $16.2 million, up 11.1%, reflecting roughly $0.5 million of Interschutz trade show cost, new service location startup cost, and a full quarter of service operating cost. On a trailing 12-month basis, revenue was approximately $191 million, and adjusted EBITDA, excluding FX, approximately $5.4 million.

Calven Swinea: A few drivers behind those numbers. Gross profit was $18.5 million, down 1.5% from $18.8 million, with a year-over-year margin increase of 114 basis points on tariff refunds and a favorable fire mix, partially offset by higher inbound freight. An important note on margins. Excluding the net tariff benefit of $1.4 million, gross margin still showed a sequential improvement to 34%, up 280 basis points, demonstrating that margin improvement was structural and not solely attributable to the tariff refund. Operating expenses were $20.6 million, up 7% from $19.3 million. Adjusted operating expenses excluding FX were $16.2 million, up 11.1%, reflecting roughly $0.5 million of Interschutz trade show cost, new service location startup cost, and a full quarter of service operating cost. On a trailing 12-month basis, revenue was approximately $191 million, and adjusted EBITDA, excluding FX, approximately $5.4 million.

Speaker #3: On tariff refunds and a favorable fire mix, partially offset by higher inbound freight. An important note on margins: excluding the net tariff benefit of $1.4 million, gross margin still showed a sequentially improvement to 34% up $280 basis points.

Speaker #3: Demonstrating that margin improvement was structural and not solely attributable to the tariff refund. Operating expenses were $20.6 million up 7% from $19.3 million adjusted operating expenses excluding FX were $16.2 million up 11.1% reflecting roughly 0.5 million of inner shoots trade show cost.

Speaker #3: New service location startup cost and a full quarter of service operating cost. On our training 12-month basis, revenue was approximately $191 million and adjusted EBITDA excluding FX approximately $5.4 million both still carry the weaker back half of fiscal 2026 so the sequential twin trend is the better read.

Allen D. Sweeney: Both still carry the weaker back half of fiscal 2026, so the sequential trend is the better read. Gross margin improved 114 basis points on tariff refunds and fire mix, partially offset by higher inbound freight, including roughly $0.6 million of expedited freight for our fire inventory build. The 410 basis point of sequential improvement is the clearest evidence yet that our margin recovery processes are working. On adjusted EBITDA excluding FX, the move from $5.1 million to $2.7 million was about $0.7 million from adjusted gross profit and $1.7 million from higher adjusted operating expenses. The prior year quarter also carried a $3.1 million tender and revenue from the divested product lines. The divested business lines contributed $0.5 million of adjusted EBITDA excluding FX in the comparable year ago. Fire was approximately 52% of revenue this quarter, up from roughly 49% in both Q2 FY26 and Q1 FY27.

Calven Swinea: Both still carry the weaker back half of fiscal 2026, so the sequential trend is the better read. Gross margin improved 114 basis points on tariff refunds and fire mix, partially offset by higher inbound freight, including roughly $0.6 million of expedited freight for our fire inventory build. The 410 basis point of sequential improvement is the clearest evidence yet that our margin recovery processes are working. On adjusted EBITDA excluding FX, the move from $5.1 million to $2.7 million was about $0.7 million from adjusted gross profit and $1.7 million from higher adjusted operating expenses. The prior year quarter also carried a $3.1 million tender and revenue from the divested product lines. The divested business lines contributed $0.5 million of adjusted EBITDA excluding FX in the comparable year ago. Fire was approximately 52% of revenue this quarter, up from roughly 49% in both Q2 FY26 and Q1 FY27.

Speaker #3: Gross margin improved 114 basis points on tariff refunds and fire mix partially offset by higher inbound freight including roughly 0.6 million of expedited freight for our fire inventory build.

Speaker #3: The 410 basis points of sequential improvement is the clearest evidence yet that our margin recovery processes are working. On adjusted EBITDA excluding FX, the move from $5.1 million to $2.7 million was about $0.7 million from adjusted gross profit and $1.7 million from higher adjusted operating expenses.

Speaker #3: The prior quarter also carried a $3.1 million tender and revenue from the divested product line. The divested business lines contributed $0.5 million of adjusted EBITDA, excluding FX, in the comparable year ago period.

Speaker #3: Fire was approximately 52% of revenue this quarter, up from roughly 49% in both Q2 FY26 and Q1 FY27. That is the clearest picture of our shift toward global fire protection.

Allen D. Sweeney: That is the clearest picture of our shift toward global fire protection. Geographically, the mix reflects a more diversified footprint. As fire margins recover toward their structural potential, that concentration should become a margin tailwind. On the balance sheet, we ended the quarter with cash of $17.9 million and a working capital of approximately $90.8 million. Cash was up $5.4 million from year-end, and total debt declined to $28.7 million from $32.3 million at 31 January 2026. We had $24.9 million drawn on the revolving credit facility with $15.1 million availability, and we are in compliance with all covenants. Most importantly, we generated $5.4 million of operating cash flow in the H1 of fiscal 2027, a $15.1 million improvement year over year. Inventory ended at $74.9 million, down $2.8 million sequentially, $7.6 million from $82.5 million at the end of fiscal 2026, and $15.3 million year over year.

Calven Swinea: That is the clearest picture of our shift toward global fire protection. Geographically, the mix reflects a more diversified footprint. As fire margins recover toward their structural potential, that concentration should become a margin tailwind. On the balance sheet, we ended the quarter with cash of $17.9 million and a working capital of approximately $90.8 million. Cash was up $5.4 million from year-end, and total debt declined to $28.7 million from $32.3 million at 31 January 2026. We had $24.9 million drawn on the revolving credit facility with $15.1 million availability, and we are in compliance with all covenants. Most importantly, we generated $5.4 million of operating cash flow in the H1 of fiscal 2027, a $15.1 million improvement year over year. Inventory ended at $74.9 million, down $2.8 million sequentially, $7.6 million from $82.5 million at the end of fiscal 2026, and $15.3 million year over year.

Speaker #3: Geographically, the mix reflects a more diversified footprint. As fire margins recovered toward their structural potential, that concentration should become a margin tailwind. On the balance sheet, we ended the quarter with cash of $17.9 million and working capital of approximately $90.8 million.

Speaker #3: Cash was up $5.4 million from year-end, and total debt declined to $28.7 million from $32.3 million at January 31, 2026. We had $24.9 million drawn on our revolving credit facility with $15.1 million of availability, and we were in compliance with all covenants.

Speaker #3: Most importantly, we generated $5.4 million of operating cash flow in the first half of fiscal '27, a $15.1 million improvement year over year. Inventory ended at $74.9 million, down $2.8 million sequentially, $7.6 million from $82.5 million at the end of fiscal '26, and $15.3 million year over year.

Speaker #3: And we did that while taking in expedited finished goods and building raw materials for fire. We expect the trend to continue as sales increase while building selectively in fire categories where availability is essential to capturing demand.

Allen D. Sweeney: We did that while taking in expedited finished goods and building raw materials for fire. We expect the trend to continue as sales increase while building selectively in fire categories where availability is essential to capturing demand. With that, I will turn it back to Jim.

Calven Swinea: We did that while taking in expedited finished goods and building raw materials for fire. We expect the trend to continue as sales increase while building selectively in fire categories where availability is essential to capturing demand. With that, I will turn it back to Jim.

Speaker #3: With that, I'll turn it back to Jim.

Speaker #2: Thank you, Calvin. The second quarter reflected continued progress against our plan. Net sales increased 5.7% sequentially to $50.1 million. Gross margin improved to 37% from 30.5% a year ago and from 31.4% in the first quarter.

James M. Jenkins: Thank you, Calvin. The Q2 reflected continued progress against our plan. Net sales increased 5.7% sequentially to $50.1 million. Gross margin improved to 37% from 35.9% a year ago and from 31.4% in the Q1. Adjusted gross margin expanded 410 basis points sequentially to 37.7%. Adjusted EBITDA, excluding FX, more than doubled sequentially to $2.7 million. We generated $5.4 million of operating cash flow in the H1, a $15.1 million year-over-year improvement. Heading to the Q3, our outlook is optimistic. We generated approximately $47 million of revenue in last year's Q3 at a gross margin well below where we are operating today and a cash operating loss. The comparison ahead of us is a materially better one. Two things to be clear about in the near term.

Jim Jenkins: Thank you, Calven. The Q2 reflected continued progress against our plan. Net sales increased 5.7% sequentially to $50.1 million. Gross margin improved to 37% from 35.9% a year ago and from 31.4% in the Q1. Adjusted gross margin expanded 410 basis points sequentially to 37.7%. Adjusted EBITDA, excluding FX, more than doubled sequentially to $2.7 million. We generated $5.4 million of operating cash flow in the H1, a $15.1 million year-over-year improvement. Heading to the Q3, our outlook is optimistic. We generated approximately $47 million of revenue in last year's Q3 at a gross margin well below where we are operating today and a cash operating loss. The comparison ahead of us is a materially better one. Two things to be clear about in the near term.

Speaker #2: Adjusted gross margin expanded 410 basis points sequentially to 37.7%. Adjusted EBITDA, excluding FX, more than doubled sequentially to $2.7 million. And we generated $5.4 million of operating cash flow in the first half.

Speaker #2: A $15.1 million year-over-year improvement. Heading into the third quarter, our outlook is optimistic. We generated approximately $47 million of revenue in last year's third quarter, at a gross margin well below where we are operating today, and a cash operating loss. So, the comparison ahead of us is a materially better one.

Speaker #2: Two things to be clear about in the near term: we do expect the timing of certain fire orders to shift into the fourth quarter, and we expect some near-term impact from repositioning parts of the portfolio and reallocating capital toward our higher growth opportunities.

James M. Jenkins: We do expect the timing of certain fire orders to shift into the Q4, and we expect some near-term impact from repositioning parts of the portfolio and reallocating capital toward our higher growth opportunities. We believe those actions strengthen the business. Looking ahead, four themes frame our outlook. A higher mix of turnout gear at higher volumes and higher margin. Industrial improvement in building North America and Asia, with the Q3 shaping up materially better year-over-year. Another quarter of sequential margin improvement. Continued simplification and repositioning the business geographically toward higher revenue. Our independent service provider platform, United States, Canada, and Mexico. We remain focused on generating positive cash flow from operations in fiscal 2027 and driving sustainable margin and EBITDA improvement.

Jim Jenkins: We do expect the timing of certain fire orders to shift into the Q4, and we expect some near-term impact from repositioning parts of the portfolio and reallocating capital toward our higher growth opportunities. We believe those actions strengthen the business. Looking ahead, four themes frame our outlook. A higher mix of turnout gear at higher volumes and higher margin. Industrial improvement in building North America and Asia, with the Q3 shaping up materially better year-over-year. Another quarter of sequential margin improvement. Continued simplification and repositioning the business geographically toward higher revenue. Our independent service provider platform, United States, Canada, and Mexico. We remain focused on generating positive cash flow from operations in fiscal 2027 and driving sustainable margin and EBITDA improvement.

Speaker #2: We believe those actions strengthen the business. Looking ahead, four themes frame our outlook: a higher mix of turnout gear, higher volumes, and higher margin.

Speaker #2: Industrial improvement in building North America and Asia with a third quarter shaping up materially better year over year. Another quarter of sequential margin improvement.

Speaker #2: Continued simplification and repositioning the business geographically toward higher revenue. Our independent service provider platform, United States, Canada, and Mexico. We remain focused on generating positive cash flow from operations in fiscal 2027 and driving sustainable margin and EBITDA improvement.

Speaker #2: We want to thank all our customers, partners, and team members worldwide for their continued trust and commitment and especially those first responders around the world who risked their lives every single day to protect us all.

James M. Jenkins: We want to thank all our customers, partners, and team members worldwide for their continued trust and commitment, and especially those first responders around the world who risk their lives every single day to protect us all. With that, we will now open the call for questions. Operator?

Jim Jenkins: We want to thank all our customers, partners, and team members worldwide for their continued trust and commitment, and especially those first responders around the world who risk their lives every single day to protect us all. With that, we will now open the call for questions. Operator?

Speaker #2: With that, we will now open the call for questions. Operator?

Speaker #1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.

Speaker #1: A confirmation tone will indicate your line is in the question queue. You may press star two (*) to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Speaker #1: One moment, please, while we pull four questions. Our first question comes from the line of Mark Smith with Lakes Street Capital. Please proceed with your question.

Speaker #4: Hi, guys. I wanted to dig into the gross margins just a little bit more. You know, great jump up to 37%.

Mark Smith: Hi, guys. I wanted to dig into the gross margins just a little bit more. Great jump up to 37%, looks like helped a little bit by tariff refund. I am just curious, any additional insight you can give us into the underlying gross margin run rate here as we look at H2, especially as you said, it looks good versus the comparables from H2 last year.

Speaker #4: You know, it looks like it helped a little bit by tariff refund. I'm just curious, any additional insight you can give us into kind of the underlying gross margin run rate here as we look at second half, especially as you said, you know, it looks good versus the comparables from second half last year.

Speaker #1: Oh, I apologize. It seems as if we may have some technical difficulties. Please stand by. All right, and gentlemen, you may proceed.

Operator: Oh, I apologize. It seems as we may have some technical difficulties. Please stand by.

Operator: Oh, I apologize. It seems as we may have some technical difficulties. Please stand by. All right, and gentlemen, you may proceed.

Allen D. Sweeney: All right, and gentlemen, you may proceed.

Speaker #2: Hi, sorry, we got disconnected, Mark, just as you were asking us a question about margins. Hello? Hello?

James M. Jenkins: Hi. Sorry, we got disconnected, Mark, just as you were asking us a question about margins. Hello? Hello?

Jim Jenkins: Hi. Sorry, we got disconnected, Mark, just as you were asking us a question about margins. Hello? Hello?

Speaker #5: Hey, Jim, can you guys hear me now?

Mark Smith: Hey, Jim, can you guys hear me now?

Speaker #2: Yeah, we can.

James M. Jenkins: Yeah.

Jim Jenkins: Yeah.

Allen D. Sweeney: Yeah, we can.

Calven Swinea: Yeah, we can.

Speaker #5: Perfect. Hey, I just wanted to ask about gross profit margin a little bit. You know, good improvement sequentially and year over year, but just curious if you can give us more insight into the second half of this year and, you know, excluding the tariff refund, kind of what the underlying gross margin run rate looks like here in the second half.

Mark Smith: Perfect. Hey, I just wanted to ask about gross profit margin a little bit. Good improvement sequentially and year-over-year, but just curious if you can give us more insight into H2 of this year and, excluding the tariff refund, what the underlying gross margin run rate looks like here in H2.

Speaker #3: Sure, Mark. Yeah. So the tariff refund—we're not expecting a significant impact in the second half of the year. I think we're going to see, though, the build-off of where we were, kind of in the normal—if you want to call it a normalized—run rate, which was in the mid-30s. I think we'll see continued improvement with the growth on fire and improvement in turnout gear.

Allen D. Sweeney: Sure, Mark. Yeah. The tariff refund, not expecting a significant impact in H2 of the year. I think we're going to see, though, the build off of where we were kind of in the, if you want to call it, a normalized run rate, which was in the mid-30s. I think we'll see continued improvement with the growth on the fire and the improvement in turnout gear. All those are higher margins, so we'll see strengthening in H2 of the year, kind of continuing the trend from Q1 to Q2, and a little bit of improvement in Q3 and Q4.

Calven Swinea: Sure, Mark. Yeah. The tariff refund, not expecting a significant impact in H2 of the year. I think we're going to see, though, the build off of where we were kind of in the, if you want to call it, a normalized run rate, which was in the mid-30s. I think we'll see continued improvement with the growth on the fire and the improvement in turnout gear. All those are higher margins, so we'll see strengthening in H2 of the year, kind of continuing the trend from Q1 to Q2, and a little bit of improvement in Q3 and Q4.

Speaker #3: All of those are higher margins, so we'll see strengthening in the second half of the year, kind of continuing the trend from Q1 to Q2 and a little bit of improvement in Q3 and Q4.

Speaker #5: Perfect. And then, you know, you bring up fire services. You know, still a small piece of the business. I think you guys said about $3.5 million.

Mark Smith: Perfect. You bring up fire services. Still a small piece of the business. I think you guys said about USD 3.5 million. But curious what kind of trends that business is having as we think about revenue and margin and even any insight into your capital outlay for building out some of these new locations like Denver.

Speaker #5: You have a curious kind of, what, you know, what kind of trends that business is having as we think about, you know, revenue and margin and even any insight into kind of your capital outlay for, you know, building out some of these new locations like Denver.

Speaker #2: Yeah. So building out a location, a greenfield, is roughly about $350,000 to $500,000 of capital. So that's, you know, from a return on investment for my money, I like that model.

James M. Jenkins: Yeah. Building out a location, a greenfield, is roughly about USD 350 to 500 of capital. So that, from a return on investment, for my money, I like that model. The trend in the industry is quite positive. I've got Barry on the line here, who drives our fire growth here, and particularly is a lot closer to this than I am in the US. I might defer to Barry to respond to some of these questions as well. Barry?

Jim Jenkins: Yeah. Building out a location, a greenfield, is roughly about USD 350 to 500 of capital. So that, from a return on investment, for my money, I like that model. The trend in the industry is quite positive. I've got Barry on the line here, who drives our fire growth here, and particularly is a lot closer to this than I am in the US. I might defer to Barry to respond to some of these questions as well. Barry?

Speaker #2: You know, the trend in the industry is quite positive. I've got Barry on the line here who drives our fire growth here and particularly is very there's a lot closer to this than I am in the US, and I might defer to Barry to respond to some of these questions as well.

Speaker #2: Barry?

Speaker #3: No, absolutely. We have, with Denver, just started to open up this month—just got our validation. The short side of that cost base is, for the $350 to $500, it's a sign that's worked out well for us in opening up the Fresno earlier in the year, and then Denver now.

Barry Phillips: Well, so we have, with Denver, just starting to open up this month. Just got our validation. The short side of that cost basis for the 350 to 5 is a sign that's worked out well for us in opening up the Fresno earlier in the year and then Denver now. Again, greenfield opportunities is where we're going to focus on some of those expanded sites, where we're being called in by departments in the regions, that we're spotting based on the size of departments and the demand in the areas.

Speaker #3: Looking at the greenfield opportunities, we're going to focus on some of those expanded sites where we're being called in by departments in the regions that we're spotting, based on the size of the departments and the demand in those areas.

Speaker #5: Okay, and maybe if I can squeeze in one more question here. You guys talked a bit about simplifying the business and just kind of looking through areas that really maybe aren't producing acceptable returns.

Mark Smith: Okay. Maybe if I squeeze in one more question here. You guys talked a bit about kind of simplifying the business and just kind of looking through areas that really maybe aren't producing acceptable returns. Can you just elaborate any more on what kind of portfolio actions you're maybe looking at today?

Speaker #5: Can you elaborate any more on what kind of portfolio actions you’re maybe looking at today?

Speaker #2: Yeah. We're looking at geographies where we're, you know, where we can consolidate warehousing and, you know, other sort of synergies in markets. You know, we've got a European fire presence and a European industrial presence.

James M. Jenkins: Yeah. We're looking at geographies where we can consolidate warehousing and other sort of synergies in markets. We've got a European fire presence and a European industrial presence, and likely consolidating some of that, I think, would be a healthy exercise. We're kind of looking hard into how that might play out. We're doing similar exercise. We're taking a look at some of our manufacturing footprint and where we should be and where it doesn't make a lot of sense for us to be, and whether we'd be drawing away from capacity from some of the folks that are at capacity at this point. So we're still running that out, but I would expect some meaningful changes in the next 6 months that inure to the bottom line beneficially, I think, into fiscal 2028.

Jim Jenkins: Yeah. We're looking at geographies where we can consolidate warehousing and other sort of synergies in markets. We've got a European fire presence and a European industrial presence, and likely consolidating some of that, I think, would be a healthy exercise. We're kind of looking hard into how that might play out. We're doing similar exercise. We're taking a look at some of our manufacturing footprint and where we should be and where it doesn't make a lot of sense for us to be, and whether we'd be drawing away from capacity from some of the folks that are at capacity at this point. So we're still running that out, but I would expect some meaningful changes in the next 6 months that inure to the bottom line beneficially, I think, into fiscal 2028.

Speaker #2: And likely consolidating some of that, I think, would be a healthy exercise. We're kind of looking hard into how that might play out. We're doing similar exercise.

Speaker #2: We're taking a look at some of our manufacturing footprint and, you know, where we should be and where it doesn't make a lot of sense for us to be, and whether it be, you know, we'd be drawing away from capacity from some of the folks that are at capacity at this point.

Speaker #2: So we're still running that out, but I would expect some meaningful changes in the next six newer to the bottom line beneficially. I think into physical '28.

Speaker #5: Perfect. Thank you, guys.

Mark Smith: Perfect. Thank you, guys.

Speaker #3: Thanks, Mark.

Operator: Thanks, Mark. Thank you. Our next question comes from the line of Michael Shlisky with D.A. Davidson. Please proceed with your question.

Operator: Thanks, Mark. Thank you. Our next question comes from the line of Mike Shlisky with D.A. Davidson. Please proceed with your question.

Speaker #1: Thank you. Our next question comes from the line of Mike Schlitzky with D.A. Davidson. Please proceed with your question.

Michael Shlisky: Yes. Hi, good afternoon. Thanks for taking my questions. A lot of moving parts in what grew and what shrunk in the fire business and what changed in fire. But when I back everything out, are you suggesting that the organic growth or some kind of consistent year-over-year measure of growth was 10% in the quarter here? I just want to make sure that I'm thinking about this correctly, that you really are, when all is said and done with some of the one-time items and large contracts, you do see a kind of high single digit or even 10% growth rate in that business in the near to medium term.

Mike Shlisky: Yes. Hi, good afternoon. Thanks for taking my questions. A lot of moving parts in what grew and what shrunk in the fire business and what changed in fire. But when I back everything out, are you suggesting that the organic growth or some kind of consistent year-over-year measure of growth was 10% in the quarter here? I just want to make sure that I'm thinking about this correctly, that you really are, when all is said and done with some of the one-time items and large contracts, you do see a kind of high single digit or even 10% growth rate in that business in the near to medium term.

Speaker #4: Yes. Hi, good afternoon. Thanks for taking my questions. A lot of moving parts in what I'm through and what's shrunk in the fire business and what changed in fire.

Speaker #4: But when I back everything out, did you suggest that organic growth or what kind of consistent year-over-year measure of growth was 10% in the quarter here?

Speaker #4: I just want to make sure that I'm thinking about this correctly—that you really are, when all is said and done with some of the one-time items and large contracts, you do see, you know, kind of a healthy digit or even 10% growth rate in that business in the, you know, year to medium term.

Speaker #3: Yes, Mike. That's what we're seeing is the high single low double-digit growth in the fire space. With the organically.

Allen D. Sweeney: Yes, Mike, that is what we are seeing is the high single, low double-digit growth in the fire space organically.

Calven Swinea: Yes, Mike, that is what we are seeing is the high single, low double-digit growth in the fire space organically.

Speaker #4: And that is what you saw in the quarter once you strip out a couple of the larger stuff and.

Michael Shlisky: That is what you saw in the quarter, once you strip out a couple of the larger stuff.

Mike Shlisky: That is what you saw in the quarter, once you strip out a couple of the larger stuff and-

Speaker #2: Yeah, I mean, when you think about it, there's a tender that we had last year for the Italian government that was $3.1 or $2 million.

James M. Jenkins: Yeah, when you

Jim Jenkins: Yeah, when you

James M. Jenkins: When you think about it, there is a tender that we had last year for the Italian government that was $3.1 or $2 million. Now look, tenders come and go, and those are good things. But you do not necessarily bank on those. So if you back that out and you back out $3.7 million of HPFR, you are staring at $46-ish million. And we did $50.1 million.

Michael Shlisky: acquisitions

Mike Shlisky: acquisitions

Jim Jenkins: When you think about it, there is a tender that we had last year for the Italian government that was $3.1 or $2 million. Now look, tenders come and go, and those are good things. But you do not necessarily bank on those. So if you back that out and you back out $3.7 million of HPFR, you are staring at $46-ish million. And we did $50.1 million.

Speaker #2: Now, look, tenders come and go, and those are good things. But you don't necessarily bank on those. So if you back that out and you back out $3.7 million of HPFR, you know, you're staring at $46-ish million, and we did $50.1 million.

Speaker #5: Yeah.

Speaker #4: Okay. And when you think about speaking of tenders, when you think about what was announced in the UK and Hong Kong and Thailand and elsewhere throughout the last couple of months, you know, that adds up to could be well over a year, a year and a half of top line just from those contracts alone.

Michael Shlisky: Okay. When you think about, speaking of tenders, when you think about what was announced in the UK and Hong Kong and Thailand and elsewhere throughout the last couple of months, that adds up to could be well over a year, a year and a half of top line just from those contracts alone, if I am reading it correctly. Can you maybe comment on the timing of when these will flow to the bottom line, if it is going to be seven years or less for most of it?

Mike Shlisky: Okay. When you think about, speaking of tenders, when you think about what was announced in the UK and Hong Kong and Thailand and elsewhere throughout the last couple of months, that adds up to could be well over a year, a year and a half of top line just from those contracts alone, if I am reading it correctly. Can you maybe comment on the timing of when these will flow to the bottom line, if it is going to be seven years or less for most of it?

Speaker #4: If I'm reading this correctly, can you maybe comment on the timing of when these will flow to the bottom line? Is it going to be seven years or less for most of it?

James M. Jenkins: Well, yeah. I think as we described in the press release on the UK tender, and I have Kevin Rae on the phone here to talk about that a little bit, but we were sort of one of a couple of winners in that, and now the process begins where we are competing with three or four others for opportunities within the UK, but they are all starting to commence on that front. Kevin, I do not know if you want to talk a little bit about that, but before you do, some of these others, some come quicker, some take a little bit longer depending upon the region. We would expect to continue to drive additional tender wins into this quarter that will be reflective both. Part of them will be reflected in this quarter, and part of them will be reflected in future quarters.

Jim Jenkins: Well, yeah. I think as we described in the press release on the UK tender, and I have Kevin Rae on the phone here to talk about that a little bit, but we were sort of one of a couple of winners in that, and now the process begins where we are competing with three or four others for opportunities within the UK, but they are all starting to commence on that front. Kevin, I do not know if you want to talk a little bit about that, but before you do, some of these others, some come quicker, some take a little bit longer depending upon the region. We would expect to continue to drive additional tender wins into this quarter that will be reflective both. Part of them will be reflected in this quarter, and part of them will be reflected in future quarters.

Speaker #2: Well, yeah. I mean, you've got the I think as we described in the press release on the UK tender, and I have Kevin Ray on the phone here, to talk about that a little bit.

Speaker #2: But, you know, we were sort of one of a couple of winners in that. And now the process begins where we are competing with three or four others for opportunities within the UK, but they're all starting to commence on that front.

Speaker #2: Kevin, I don't know if you want to talk a little bit about that. But before you do, some of these others come quicker; some take a little bit longer, depending upon the region.

Speaker #2: And, you know, we would expect to continue to drive additional tender wins into this quarter that will be reflective—both, part of them will be reflected in this quarter and part of them will be reflected in future quarters.

Speaker #2: It's just a function of how each of those tenders operates. But Kevin, I don't know if you want to talk a little bit about I mean, that $220 million pound opportunity obviously is not $220 million pounds, but it is a significant longer-term opportunity.

James M. Jenkins: It is just a function of how each of those tenders operates. But Kevin, I do not know if you want to talk a little about, that GBP 220 million opportunity obviously is not GBP 220 million, but it is a significant longer-term opportunity.

Jim Jenkins: It is just a function of how each of those tenders operates. But Kevin, I do not know if you want to talk a little about, that GBP 220 million opportunity obviously is not GBP 220 million, but it is a significant longer-term opportunity.

Speaker #3: Yeah, thanks, Jim. Yeah, it's a seven-year scheme, which basically we've qualified for now in multiple sectors. So that means we're qualified for the gloves, the turnout gear, the boots, and that means we can actually really use the benefit of the work we've done over the last two years in new product development.

Kevin Rae: Yeah. Thanks, Jim. Yeah, it is a seven-year scheme, which basically we have qualified for now on multiple sectors. So that means we qualify for the gloves, the turnout gear, the boots, and that means that we can actually really use the benefit of the work we have done over the last two years in new product development. We are very well positioned. There are 25 brigades in the UK, and they go at different times when they need new contracts, but there will be a considerable amount coming up in the next 12 to 18 months. So we have got an exhibition and a big meeting this next week, and we have got a pretty solid picture of how that looks and some really strong prospects.

Speaker #3: We're very well positioned. There are 25 brigades in the UK, and they go at different times when they need new contracts. But there will be a considerable amount coming up in the next 12 to 18 months.

Speaker #3: So, we've got an exhibition and a big meeting next week. We've got a pretty solid picture of how that looks and some really strong prospects.

Speaker #4: Okay. Okay. And maybe one last one from here. I just wanted to get a sense of the cadence in the third and fourth quarters here.

Michael Shlisky: Okay. Maybe one last one from me. I just wanted to get a sense as to the cadence in the Q3 and Q4 here. Your comments, Jim, on the fire orders being made in the Q4, but some of the areas still being pretty strong, does this suggest that we will be seeing sequential growth from Q2 into Q3 and then Q3 into Q4? Is that the right way to look at it?

Mike Shlisky: Okay. Maybe one last one from me. I just wanted to get a sense as to the cadence in the Q3 and Q4 here. Your comments, Jim, on the fire orders being made in the Q4, but some of the areas still being pretty strong, does this suggest that we will be seeing sequential growth from Q2 into Q3 and then Q3 into Q4? Is that the right way to look at it?

Speaker #4: Your comments, Jim, on the fire orders being made the fourth quarter, but some of the areas still being pretty strong. Does this suggest that we'll be seeing sequential growth from Q2 into Q3 and then Q3 into Q4?

Speaker #4: Is that the right way to look at it? Is that a good platform for 2028? Okay.

James M. Jenkins: Yes. Yep, that is correct.

Jim Jenkins: Yes. Yep, that is correct.

Michael Shlisky: Is that a good platform for 2028?

Mike Shlisky: Is that a good platform for 2028?

Speaker #2: Yep, that is. That is what we're seeing based on our pipeline and order flow, yes.

James M. Jenkins: Yep.

Jim Jenkins: Yep.

Michael Shlisky: Okay.

Mike Shlisky: Okay.

James M. Jenkins: That is what we are seeing based on our pipeline and order flow, yes.

Jim Jenkins: That is what we are seeing based on our pipeline and order flow, yes.

Speaker #4: Okay, appreciate that color. I'll leave it there. Thank you.

Michael Shlisky: Okay. Appreciate that color. I will leave it there. Thank you.

Mike Shlisky: Okay. Appreciate that color. I will leave it there. Thank you.

Speaker #1: Thank you. Our next question comes from the line of Jerry Sweeney with Ros Capital Partners. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Gerard Sweeney with Roth Capital Partners. Please proceed with your question.

Operator: Thank you. Our next question comes from the line of Gerry Sweeney with Roth Capital Partners. Please proceed with your question.

Speaker #5: And good afternoon, Jim and Calvin. Thanks for taking my call.

Gerard Sweeney: Hey, good afternoon, Jim and Calvin. Thanks for taking my call.

Gerard Sweeney: Hey, good afternoon, Jim and Calven. Thanks for taking my call.

Speaker #2: Hi, Jerry.

James M. Jenkins: Hi, Jerry.

Jim Jenkins: Hi, Gerry.

Speaker #5: I just wanted to talk about OPEX, or operating expenses. I mean, revenue looks solid, improvements in gross margins are heading in the right direction, but obviously, I think there were maybe some one-time items in our shorts on the OPEX line—some expedited freight, some ISP build-out.

Gerard Sweeney: Just wanted to talk about OpEx or operating expenses. Revenue looks solid improvement, gross margins heading in the right direction, but obviously, I think there were maybe some one-time items, Interschutz on the OpEx line, some expedited freight, some ISP build-out. Can you frame that out a little bit to what should SG&A or operating expense be running at, and what is truly one time and what is maybe needs to be leveraged through some revenue expansion, like the ISP stuff?

Speaker #5: You know, can you frame that out a little bit? What should SG&A or operating expenses be running at, and what is truly one-time and what maybe needs to be leveraged through some revenue expansion—i.e., like the ISP stuff?

Speaker #2: Yeah. I mean, I'll let you answer that.

James M. Jenkins: Yeah, I will let you answer that.

Jim Jenkins: Yeah, I will let you answer that.

Speaker #3: Yeah, I think exactly on the ISPs, that will be leveraged through revenue going forward. There will be a little bit of a build probably in the third quarter, but we'll see the ISPs take off, especially the new ones that have come online.

Allen D. Sweeney: Yeah, I think, Jerry, exactly on the ISP, that will be leveraged through revenue going forward. There will be still a little bit of a build probably in Q3, but we will see the ISPs take off, especially the new ones that have come online. Interschutz is once every five years, so we will not see that for a while. Then, of course, that was the German fire show. Then the expedited freight, we needed to move some product to be in the right places internally, to support fire growth, and we have done that, and I think we are now positioned, but you are not going to see that. Of course, it will be supported by revenue going forward, but if we do any type of expedited freight, it will be directly attached to a PO, and we would have revenue support.

Calven Swinea: Yeah, I think, Gerry, exactly on the ISP, that will be leveraged through revenue going forward. There will be still a little bit of a build probably in Q3, but we will see the ISPs take off, especially the new ones that have come online. Interschutz is once every five years, so we will not see that for a while. Then, of course, that was the German fire show. Then the expedited freight, we needed to move some product to be in the right places internally, to support fire growth, and we have done that, and I think we are now positioned, but you are not going to see that. Of course, it will be supported by revenue going forward, but if we do any type of expedited freight, it will be directly attached to a PO, and we would have revenue support.

Speaker #3: Inner shoots is a once every five years so that we will see that for a while and then, of course, that was the German fire show.

Speaker #3: And then the expedited freight—we needed to move some product to be in the right places internally to support fire growth, and we've done that.

Speaker #3: And I think we're now in a position where you're not going to see that. Of course, it'll be supported by revenue going forward, but if we do any type of expedited freight, it'll be directly attached to a PO and we'd have revenue support.

Speaker #3: But in general, no, that will go; that will go away looking down the road.

Allen D. Sweeney: But in general, no, that will go away looking down the road.

Calven Swinea: But in general, no, that will go away looking down the road.

Speaker #2: But I will say the OPEX line for us is something that we are keenly aware of. I need to get it I need to get that into the mid to high 20s as opposed to the 30 where it is now, 32.

James M. Jenkins: But I will say the OpEx line for us is something that we are keenly aware of. I need to get that into the mid to high 20s as opposed to the 30 where it is now, 32, I think this quarter. That has got to come down. The FX stuff is stuff that we have to find a way. As the dollar weakens, that is not a good thing for us, and so we are going to be looking at some hedging strategies on that as well.

Jim Jenkins: But I will say the OpEx line for us is something that we are keenly aware of. I need to get that into the mid to high 20s as opposed to the 30 where it is now, 32, I think this quarter. That has got to come down. The FX stuff is stuff that we have to find a way. As the dollar weakens, that is not a good thing for us, and so we are going to be looking at some hedging strategies on that as well.

Speaker #2: I think this quarter, that's got to come down. And then, you know, the FX stuff is stuff that we're going to have to we have to find a way you know, that has become as the dollar weakens, that is not a good thing for us.

Speaker #2: And so we're going to be looking at some hedging strategies on that as well.

Speaker #5: Is that I mean, is that hedgeable? I mean, that's not Argentina, correct? That's.

Gerard Sweeney: Is that hedge-able? That is not Argentina, correct?

Speaker #2: Well, a lot of it's Argentina, but it's Europe. It's other I mean, the renminbi is actually stronger than it's been in 15 years. So all those things are sort of impacting how we play.

James M. Jenkins: Well, a lot of it is Argentina, but it is Europe. The renminbi is actually stronger than it has been in 15 years. So all those things are sort of impacting how we play. The other thing we are doing in Latin America is we are moving inventory as quickly as we can, because as the peso declines, that impacts our FX hit. So Argentina is rapidly moving on inventory, and that will, I think, help alleviate an area where we cannot hedge.

Jim Jenkins: Well, a lot of it is Argentina, but it is Europe. The renminbi is actually stronger than it has been in 15 years. So all those things are sort of impacting how we play. The other thing we are doing in Latin America is we are moving inventory as quickly as we can, because as the peso declines, that impacts our FX hit. So Argentina is rapidly moving on inventory, and that will, I think, help alleviate an area where we cannot hedge.

Speaker #2: The other thing we're doing in Latin America is we're moving inventory as quickly as we can, because as the peso declines, that impacts our FX hit.

Speaker #2: So, Argentina is rapidly moving on inventory, and that will, I think, help alleviate an area where we can't hedge.

Speaker #5: Right. Gotcha.

Gerard Sweeney: Right. Got you.

Speaker #2: And Jerry, we also have a million-dollar bond that we'll probably this time next year come to fruition that gets released that will actually help us in Argentina next year.

James M. Jenkins: Jerry, we also have a million-dollar bond that will probably this time next year, come to fruition, that gets released, that will actually help us in Argentina next year. It is what we are working on.

Jim Jenkins: Gerry, we also have a million-dollar bond that will probably this time next year, come to fruition, that gets released, that will actually help us in Argentina next year. It is what we are working on.

Speaker #2: So but we're working on it.

Speaker #5: Got it. ISP, obviously, is a really good business—nice returns, etc. I think you said $3.5 million, probably across the portfolio. I'm curious if you are adding Denver, and I think you added expansion in another location—California or Arizona, I forget.

Gerard Sweeney: Got it. ISP, obviously really good business, nice returns, et cetera. I think you said $3.5 million probably across the portfolio. Curious, you are adding Denver, and I think you added expansion in another location, California or Arizona, I forget, I apologize. What is the capacity of that business on a revenue front? I am not sure if that is readily available, but I am just curious as to as it stands today.

Speaker #5: I apologize. But what is the capacity of that business on a revenue front? I'm not sure if that's readily available, but I'm just curious as to as it stands today, you know.

James M. Jenkins: Well-

Jim Jenkins: Well-

Speaker #2: Well, quantitatively, qualitatively, yeah.

Gerard Sweeney: Qualitatively. Yeah. Sorry.

Speaker #5: Sorry.

Speaker #2: If they're in a if they're in a market that's growing and most virtually every one of these are, you get to capacity at between probably two and a half to three and a half million it depends upon the size of the facility.

James M. Jenkins: If they are in a market that is growing, and most virtually every one of these are, you get to capacity at between probably 2.5 million to 3.5 million. It depends upon the size of the facility. That is not limiting to us because we will build out the facility or find an additional facility. One of the things we did in Riverside was we ended up expanding in Riverside so that we could have the rental capacity there. Then we also built into Fresno because Riverside was servicing that market. Fresno picked up a lot of that additional demand as well. We will probably daisy chain our way up into Northern California because Fresno is starting to service opportunities in the north that we probably need additional location on that front as well.

Jim Jenkins: If they are in a market that is growing, and most virtually every one of these are, you get to capacity at between probably 2.5 million to 3.5 million. It depends upon the size of the facility. That is not limiting to us because we will build out the facility or find an additional facility. One of the things we did in Riverside was we ended up expanding in Riverside so that we could have the rental capacity there. Then we also built into Fresno because Riverside was servicing that market. Fresno picked up a lot of that additional demand as well. We will probably daisy chain our way up into Northern California because Fresno is starting to service opportunities in the north that we probably need additional location on that front as well.

Speaker #2: But that doesn't that's not limiting to us because we'll just build a we'll build out the facility or find in a additional facility. One of the things we did in Riverside was we ended up expanding in Riverside so that we could have the rental capacity there.

Speaker #2: And then we also built into Fresno because Riverside was servicing that market. And so Fresno picked up a lot of that additional demand as well.

Speaker #2: And we'll probably daisy-chain our way up to Northern California, because Fresno is starting to service opportunities in the north that we probably need an additional location on that front as well.

Speaker #2: I would expect, as I said, we've got opportunities in the Midwest. We've got some opportunities in Texas. We've got some opportunities on the East Coast.

James M. Jenkins: I would expect, as I said, we've got opportunities in the Midwest. We've got some opportunities in Texas. We've got some opportunities on the East Coast, all of which may be either built or bought, probably more likely to build.

Jim Jenkins: I would expect, as I said, we've got opportunities in the Midwest. We've got some opportunities in Texas. We've got some opportunities on the East Coast, all of which may be either built or bought, probably more likely to build.

Speaker #2: All of which may be either built or bought, probably more likely to build.

Speaker #5: Gotcha. But if I look at three and a half million—I mean, just with your footprint today, could you be doing five or six million of revenue per quarter?

Gerard Sweeney: Got you. But if I look, you have 3.5 million. Just with your footprint today, could you be doing 5 or 6 million

James M. Jenkins: Yes

Jim Jenkins: Yes

Gerard Sweeney: of revenue per quarter, just roughly?

Speaker #5: It's just roughly.

James M. Jenkins: We could. We could be with the growth that we've got planned, absolutely.

Jim Jenkins: We could. We could be with the growth that we've got planned, absolutely.

Speaker #2: We could. We could be with the growth that we've got planned, absolutely.

Speaker #5: And then you're looking at newer locations, geographically outside of where you're at already.

Gerard Sweeney: And then you are looking at newer locations geographically outside of what you are at already.

James M. Jenkins: That is correct.

Jim Jenkins: That is correct.

Speaker #2: That's correct.

Speaker #5: Got it. Got it. Okay. Got it. All right. Great. Thanks, guys. I appreciate the clarification.

Gerard Sweeney: Got it. Okay. Got it. All right. Great. Thanks, guys. I appreciate the clarity.

James M. Jenkins: Thanks, Jerry.

Jim Jenkins: Thanks, Gerry.

Speaker #3: Thank you. Thanks, Jerry.

Allen D. Sweeney: Thanks, Jerry.

Calven Swinea: Thanks, Gerry.

Speaker #1: Thank you. And as a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the queue. And it looks like we have reached the end of the question and answer session.

Operator: Thank you. As a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the queue. It looks like we have reached the end of the question and answer session, therefore I'd like to turn the call back over to Jim Jenkins for closing remarks.

Speaker #1: And therefore, I'd like to turn the call back over to Jim Jenkins for closing remarks.

Speaker #2: 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 safety.

James M. Jenkins: 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 safety. Lakeland continues to be well-positioned for long-term growth, and we look forward to sharing our continued progress on the next call. If we were unable to answer any of your questions today, please reach out to our IR firm, MZ Group, and we would be more than happy to assist.

Jim Jenkins: 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 safety. Lakeland continues to be well-positioned for long-term growth, and we look forward to sharing our continued progress on the next call. If we were unable to answer any of your questions today, please reach out to our IR firm, MZ Group, and we would be more than happy to assist.

Speaker #2: Lakeland continues to be well positioned for long-term growth. And we look forward to sharing our continued progress on the next call. If we were unable to answer any of your questions today, please reach out to our IR firm, MZ Group, and we would be more than happy to assist.

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