LAKE - NASDAQ

Good day. And welcome to the Lakeland Fire and Safety Fiscal Second Quarter 2026 Financial Results Conference Call. All lines have been placed in a listen-only mode and the floor will be open for questions and comments following the presentation. During today's call, we may make statements relating to our goals and objectives for future operations, financial and business trends, business prospects, and management's expectations for future performance that constitute forward-looking statements under federal securities laws. Any such forward-looking statements reflect management expectations based upon currently available information and are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our SEC filings. Our actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call. On this call, we'll also discuss financial measures derived from our financial statements that are not determined in accordance with the US GAAP, including adjusted EBITDA, excluding FX, and adjusted EBITDA, excluding FX margin, organic sales, adjusted gross profit, adjusted organic gross margin, and adjusted operating expenses. A reconciliation of each of the non-GAAP measures discussed in this call to the most directly comparable GAAP measure is presented in our earnings release and/or the supplemental slides filed with our earnings release. 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. At this time, I'd like to introduce your host for this call, Lakeland Fire and Safety's president, chief executive officer, and executive chairman, Jim Jenkins, and chief financial officer and security secretary, Roger Shannon. Mister Jenkins, the floor is yours.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today to discuss the results of our fiscal 2026 second quarter ended 07/31/2025. We continue to build momentum in 2026 despite the challenging tariff environment, as we focused on recent acquisition synergies, increasing our market share within the fragmented $2 billion fire protection sector in the largest global markets, growing our global industrial products business. Roger will go over the financials in more detail shortly, so I'll provide you with a brief overview. We achieved record net sales of $52.5 million, representing a 36% year-over-year increase. Driven by a 113% increase in fire service products and the ongoing momentum from our recent acquisitions. In The US, our net sales increased 78% year-over-year to $22.1 million. And in Europe, our net sales increased 113% year-over-year to $15.1 million. We anticipate continued robust growth in our fire services, both organically and through acquisitions, as well as in our industrial segments in the months and years ahead. Adjusted EBITDA, excluding FX, was $5.1 million, an increase of $2.4 million or 89% compared with $2.7 million for the comparable year-ago period. Sequentially, our adjusted EBITDA increased $4.5 million or 740%. Adjusted gross profit as a percentage of net sales in the second quarter was 37.4% versus 41.1% in the comparable year-ago period but increased 220 basis points sequentially from 35.2% in the first quarter. Our adjusted gross margin percentage decreased in the second quarter for fiscal 2026 compared to the same period last year. Primarily due to lower acquired company gross margins, increased material costs, and tariffs. Partially offset by a reduction in profit and ending inventory. Margins in the acquired businesses were impacted by increased material costs, and amortization of the write-up in inventory as part of purchase accounting. A largely anticipated $3.1 million food order through Jolly Scarfe also contributed materially to the quarter, as part of our previously awarded four-year supply contract from the Italian Ministry of the Interior. Which provided 47,500 intervention boots for firefighters. Our manufacturing facility in Romania provides high production flexibility, and every detail of the boot was custom designed to fully meet the fire brigade's requirements. Additionally, we are diligently working to bring an NFPA certified Jolly Boot To The US markets. The world's largest market for fire turnout gear. While this launch has taken longer than originally anticipated due to certification backlogs, we expect to bring the boot to The US market in 2026. Jolly's strong brand has a well-established reputation for producing high-quality, innovative, professional footwear designs and manufacturing in the growing first responder safety market. Additionally, the recent announcement of our facility closures and the $6.1 million sale and partial leaseback of our Decatur facility further strengthens our balance sheet and supports our M&A activity. The sale was part of the company's previously disclosed financial and operational initiatives aimed at streamlining global operations and improving profitability. Lakeland has begun a search for a new upgraded warehouse, logistics, and lab facility in a more strategic location to replace the Decatur facility. Combined with our previously announced closures, which include the planned closures of our warehouse facility in Hull, England, and Meridian manufacturer facility in Whitman, Arkansas. These initiatives are expected to streamline global operations, improve profitability, and generate annual savings of approximately $1 million for the remainder of fiscal 2026. We have further identified and are executing initiatives expected to yield an additional $3 million in annualized savings. With the benefits anticipated to materialize in 2026. We believe these efforts will enable higher margins and build a more agile, and cost-effective Lakeland in the longer term. On the capital markets front, during the quarter ended 06/30/2025, we saw an increase in reported institutional holdings by 447,000 shares or 6.2% to 7,622,035 shares and the number of institutional holders rose from 90 to 94 from 82. Most notably, our recent inclusion on the Russell Broad market 3,000 index and 2,000 index due to our expanding market capitalization is a significant milestone resulting from our revenue and global momentum. The second quarter reflected the impact of tariff uncertainty and the associated mitigation strategies we have employed since the election. Our diversified manufacturing footprint enables us to adapt effectively to shifting trade dynamics and minimize potential disruptions. This flexibility enables us to maintain stability across our supply chain and production processes even in the face of uncertainty. Including in the Latin American industrial space, one of our high-margin geographies. Our focus remains on strengthening customer relationships, driving operational efficiency, and maintaining sound financial stewardship. Our positioning within two relatively recession-resistant sectors, industrial and fire, continues to provide us with a solid foundation. We are not entirely insulated from the uncertainty surrounding global tariff developments, but we are navigating this period with clear priorities, thoughtful planning, and strong confidence in our long-term outlook. Looking ahead into the remainder of fiscal 2026, we remain focused on growing revenue in our fire services and industrial verticals. Implementing operating and manufacturing efficiencies to achieve higher margins significantly reducing operating expenses. And continuing to navigate tariff uncertainties. We are also continuing to execute on our strategic acquisition strategy by integrating acquired companies and realizing cross-selling and operational synergies to accelerate growth while also pursuing opportunities in the fire suit rental, decontamination, and services business. Efforts to integrate and optimize our recent fire services product acquisitions are going well. We are particularly excited about our recent Meridian acquisition and are very pleased with the efforts of the Viridian and Lakeland sales and operations team to integrate the business and expand sales opportunities. To expand our firefighter protection offerings and further consolidate the fragmented fire market, we are continuing to pursue M&A opportunities within the fire suit rental decontamination, and services business. Particularly within The United States. Our acquisition pipeline remains strong, with this recurring revenue services channel, and we are actively engaged in several strategic discussions that align with our growth strategy. With expected activity in the second half of the year. We will utilize our strong balance sheet to support this acquisition strategy with a focus on efficiency, reducing costs, and financial and operational agility. With the four recently completed acquisitions, which added product line extensions either made of new products and expanded our global footprint, We are well-positioned to grow our global head-to-toe buyer portfolio and generate long-term value for our shareholders. With that, I'd like to pass the call to Roger, to cover our financial results and updated guidance outlook.

Thanks, Jim, and hello, everyone. I'll provide a quick overview of our fiscal 2026 second quarter financials before diving into the details. Revenue for the quarter grew $14 million year-over-year to a record $52.5 million, an increase of 36% compared to 2025. Consolidated gross margin decreased from 35.9% from 39.6% for 2025 while our adjusted gross margin decreased to 37.4% as compared to 41.4% in the year-ago period. Adjusted operating expense increased by $1.4 million from $13.2 million in Q2 of last year to $14.6 million in 2026 primarily due to inorganic growth. Net income was $800,000 or 8¢ per basic and diluted earnings per share in 2026 compared to a net loss of $1.4 million or $0.19 per basic and diluted earnings per share for 2025. Adjusted EBITDA, excluding FX, was $5.1 million for the quarter. An increase of $2.4 million or 90%. Compared with $2.7 million for 2025. Adjusted EBITDA excluding FX margin in 2026 was 9.6%. An increase of 270 basis points from 6.9% in 2025. And an increase of 830 basis points from 1.3% in 2026. Cash and cash equivalents were $17.7 million on 07/31/2025, compared to $17.5 million on 01/31/2025. On a consolidated basis, for 2026, domestic sales were $22.1 million representing 42% of total revenues. And international sales were $30.4 million, accounting for 58% of total revenues. As our recent Meridian acquisition contributed to increased US revenue. This compares with domestic sales of $12.4 million or 32% of the total and international sales of $26.1 million or 68% of the total in 2025. Looking at 2026, our quarterly revenue continued to grow both organically and through acquisitions. Sales from our recent acquisitions accounted for $9 million of the year-over-year revenue increase. While organic sales increased $5 million or 14% over the prior year. Sales of the fire services product line increased by $13.6 million year-over-year driven by $5.2 million in sales from Viridian, and a net increase in sales of $7.3 million from LHD and Jolly, as well as organic fire services growth of $1.2 million. Adjusted gross profit for 2026 was $19.6 million an increase of $3.8 million or 24% compared to $15.8 million for 2025 due primarily to higher organic and inorganic sales partially offset by lower gross margins. Adjusted gross profit as a percentage of net sales decreased to 37.4% for 2026 from 41.1% for 2025. But we did see a sequential increase of 220 basis points from 2026. Due primarily to an anticipated partial reversal of a purchase price variance expense recognized in the prior quarter. On an adjusted basis, operating expenses excluding foreign exchange were $14.6 million in the fiscal second quarter more accurately showcasing the decreases in both our organic and inorganic segments resulting from the new cost reduction initiatives. On a sequential basis, adjusted operating expenses decreased by $1.3 million or 8.1% due to focused cost control measures and the previously mentioned initiatives. Adjusted EBITDA excluding FX was $5.1 million for the fiscal second quarter an increase of $2.4 million or 90% compared to $2.7 million for 2025 and an increase of $4.5 million or 740% compared with $600,000 for 2026. This significant increase was the result of record revenue and OpEx improvements along with sequential margin improvement, which drove adjusted EBITDA excluding FX margin higher by 270 basis points to 9.6% in the most recent quarter and increased from 6.9% in 2025 and 1.3% in 2026. Adjusted EBITDA excluding FX margin in 2026 was 9.6, an increase of 270 basis points from 6.9%. Revenue for the trailing twelve months ended 07/31/2025 was $191.6 million. An increase of $53.9 million or 39% versus the Q2 fiscal 2025 trailing twelve-month revenue of $137.7 million. With our recent fire services acquisitions supporting Lakeland's continued revenue growth. Spreading twelve months adjusted EBITDA, excluding the impacts of FX. Was $16.5 million compared to $14.5 million for the prior quarter's trailing twelve months. The improvement was driven by higher revenue and expense reductions resulting from initiatives undertaken beginning midway through Q2. We expect this positive trend to continue into 2026. Considering that we completed four major acquisitions in the past twelve months, the full integration and implementation of which requires some time, we believe the resulting synergies and efficiencies will begin to translate into even stronger financial performance in the coming quarters. Adjusted gross margin percentage decreased in 2026 to 37.4% compared to 41.1% in the same period last year, due to lower acquired company gross margins. Increased material and supply chain costs, tariffs, and higher inventory reserves, partially offset by lower profit and ending inventory expenses versus the prior year. Margins in the acquired businesses were impacted by increased material costs and amortization of the write-up in inventory as part of purchase accounting. Adjusted organic gross margin percentage decreased to 39.3% from 41% for 2026. Primarily due to increased sales in lower margin regions. Adjusted gross margins did increase sequentially by 220 basis points, as previously mentioned, from 2026 primarily to anticipated partial reversal of the purchase price variance expense recognized and as we discussed in the previous quarter, and a partial quarter of expense reductions from the previously discussed operational cost reductions. Adjusted EBITDA excluding FX for 2026, as mentioned, was $5.1 million an increase of $2.4 million compared with $2.7 million for 2025. The increase was driven by strong performances in North American sales, sales from acquired companies, notably Veridian, and lower profit in ending inventory expenses partially offset by increased material and supply chain costs and tariffs. We anticipate sequential growth in gross margin and adjusted EBITDA excluding FX. In the third quarter. Reviewing our performance for the second quarter, our most recent acquisition, Meridian, contributed $5.2 million in revenue during the quarter, and LHD added $5.4 million across all three subsidiaries Germany, Australia, and Hong Kong. We expect sales from all of our fire services subsidiaries to accelerate as we fulfill open orders, capitalize on cross-selling opportunities, and roll out Jolly and Pacific products to The US, the world's largest fire market. Looking at our organic business, our US revenue increased 78% to $22.1 million from $12.4 million driven by continued growth in our Lakeland fire services and industrial businesses. Our European revenue including Eagle, Jolly, and our recently acquired LHC business, grew 113% to $15.1 million. We continue to see very good sales opportunities in Europe and are committed to its growth trajectory. Our Latin American and Mexican operations experienced a $3.6 million decrease in sales from $9.1 million in the year-ago period to $5.4 million in the current quarter. Primarily due to ongoing delayed purchase decisions resulting from tariff uncertainty. In Asia, however, we saw sales increase 6% year-over-year from $3.5 million to $3.7 million in the current quarter. Regarding product mix, for fiscal year to date 2026, our fire services business grew to 47% of revenues versus 38% for fiscal year 2025. Driven by a full quarter of Meridian sales and organic gains in The US. For our industrials product lines, disposables accounted for 27% of the year-to-date revenue while chemicals accounted for 12%. The remainder of our industrial products, including FRAR high performance and high vis accounted for 14% of sales. Now turning to the balance sheet. Lakeland ended the quarter with cash and cash equivalents of approximately $17.7 million and long-term debt of $28.1 million. This compares to $17.5 million in cash and $16.4 million in long-term debt as of 01/31/2025. As of 01/31/2025, the long-term debt included borrowings of $24.9 million outstanding under the revolving credit facility of Bank of America with an additional $15.1 million of available credit under the loan agreement. We were in compliance with all credit facility covenants. Following the Q2 quarter end, we sold our Decatur Alabama property for $6.1 million less customary commissions and closing fees. And applied 100% of the proceeds to repay our revolving credit facility. Net cash used in operating activities was $9.7 million in the six months ended 07/31/2025. Compared to $4.1 million in the six months ended 07/31/2024. The increase was driven by an increase in inventory and AR and a net loss of $4.9 million. Capital expenditures totaled $2.1 million for the six months ended 07/31/2025. Primarily related to investments in our new SAP ERP system. We anticipate FY '26 capital expenditures to be $4 million. At the end of Q2, inventory was $90.2 million up from $85.8 million at the end of Q1 fiscal year 26. And $67.9 million in the same period last year. We have recently initiated a series of targeted actions to optimize inventory levels across specific categories. Our immediate priorities include US critical environment, Jolly, LHC Australia, and Viridian, where we see the greatest opportunity to align balances with demand and improve efficiency. Inventory of acquired companies totaled $15.4 million versus $6.4 million last year. $6.4 million of the acquired inventories increase came from the Meridian acquisition and LHC's inventory increased by $2.6 million versus last year. Year over year, we saw an increase in our organic inventory of $13.3 million versus the quarter ended July 31, 2024. Organic finished goods were $39.3 million in 2026, up $10.3 million year over year and up $2 million quarter over quarter. Organic raw materials were $33.4 million in 2026, up $2.4 million year over year and up $1.2 million quarter over quarter. With that overview, I would now like to turn the call back over to Jim before we begin taking questions.

Thank you, Roger. In conclusion, we continue to demonstrate strong net sales growth, including a 14% increase in organic growth reflecting the strength of our underlying business. This growth is further supported by a 113% year-over-year increase in our prior services, as well as strong regional performance in The US and Europe. Of 78% and 113%, respectively. Our near-term strategy is focused on expanding top-line revenue in our fire services industrial verticals, while driving operating and manufacturing efficiencies to deliver higher margins all against the backdrop of ongoing tariff uncertainties. Looking long term, our strategy remains to grow both our fire services and industrial PPE verticals through our strategically located company-owned capital light model. By maintaining a focus on operating and manufacturing efficiencies, we believe we are positioned to grow faster than the markets we serve. Our acquisition pipeline also remains robust. With active discussions underway in line with our overall growth strategy. We expect continued top-line revenue growth in our fire services and industrial verticals combined with operating and manufacturing efficiencies, However, given the ongoing uncertainty with the global tariff environment, we are adjusting our fiscal year 2026 outlook for adjusted EBITDA excluding FX to the $20 million to $24 million range and expect fiscal year 2026 revenue to be near the lower end of the $210 to $220 million range. Looking further ahead, we believe our cost discipline acquisition strategy and operational improvements will position the company for accelerated growth over the next three to four years. As we look forward as we look towards the future, we are confident that our continued focus on cost discipline, targeted acquisitions and operational enhancements will serve as key growth drivers over the next three to four years. As we scale, we anticipate steady expansion in EBITDA margins moving into the mid to high teens range over the next three to five years, driven by improved efficiencies, a stronger product mix, and disciplined pricing execution across the platform. We look forward to sharing upcoming milestones in the weeks and months ahead as well at the Lake Street ninth annual best ideas growth big nine conference this Thursday in New York City and the DA Davidson twenty-fourth annual diversified industrials and services conference next week in Nashville, Tennessee. With that, we will now open the call for questions. Operator?

Thank you. We'll now be conducting a question and answer session. You may press 2 if you like to remove your question from the queue. One moment please while we pull up for questions. Our first question is coming from Mike Shlisky from DA Davidson. Your line is now live.

Hi. Good afternoon. Thanks for taking my questions. Hey, Mike. I just want to start just by discussing the full-year guidance and what the back half implied numbers are. It's looking like and I you know, we'll get the exact we can dig deep to the exact numbers later, but roughly $8 million a quarter in EBITDA. To round out the, you know, $20 to $24 million for the year. I'm kinda curious. And that does suggest a pretty good margin improvement between the second quarter and the third and fourth year. Is that the right runway to like look at beyond 2025 into '27? And there's a sense as to whether any large lumps year over year in the fiscal 2027 outlook.

Hey, Mike. It's Roger. And I I I don't believe that's gonna be the right run rates like we discussed in our comments. We do, you know, very much believe that the you know, the modestly lower, EBITDA that we're seeing in the year that resulted in us kind of resetting the EBITDA to the 2024 range was a result of what we're seeing in LATAM and Mexico. You know, we talked about very nice strong growth in The US. Resumption in growth, really. And most areas around the world. And even that comes during a period where we're seeing fire services, large tenders, and RFP in both The US and Europe come out, roll out at a slower pace than expected due to know, different types of physical policy in Europe as well as just kind of some waiting in The US. So, you know, even with that, we were pleased with with US performance. But if you look at you know, what we had in Latam with almost $4 million kinda down year over year. That that region specifically has kinda taken a larger share of of the impact, and we don't expect that to be the run rate going forward. In fact, we you know, from what we're seeing on the ground, in both The US and fire services and in Europe, we expect that RFP activity to pick up And and we expect LATAM to to pick up in the back half of the year, just unfortunately not in a pace that would make up the year to date. Decrease.

Okay. Got it. And the the organic growth of 14%, seems very strong as well. In trying to untangle the the full year outlook and the kind of the longer-term trends, what's your expectation for full-year organic growth and kind of the broader into fiscal 2027, the approximate organic growth that you might be expecting.

You know, I think that I think those percentages are still, you know, pretty consistent with kinda mid-teens. In the organic growth. Again, think they're depending on the timing of I'll let Jim chime in this. But but depending on the timing of when we see those fire services RFPs in certain large orders that we believe are kind of backlogged and expect to hit, you know, that that could increase in this year. We're just not

Yeah. I mean, Mike, there's there's a there's some lumpiness. Obviously, I think I've said this before on the fire. There's there's lumpiness in that revenue. So you could get some quarters where you do see, you know, mid-teens you know, organic growth. Followed by a, you know, a lower number. I I'm still staying with the high single digit, low double-digit organic growth. That's where that's our that's what we're modeling. That's what we're striving towards. And some some quarters, you get much greater than that, and then some quarters, get a little less than that, all based on timing of these tenders.

Okay. Got it. And then just one last one. You just you mentioned those in your comments there. The the M&A outlook and the M&A plan. Just I guess, can you update us on the targets that you're looking at in rentals or termination? Do you have any deals that might be more imminent than others? Or it's still very much in the early stages for most of the things that you're working with?

We're in the throes of I mean, I think we've said in the press release, and I think in the script, we we're we're in the throes of, you know, several conversations that are beyond conversations at this point. And that we'd expect, you know, a couple of these to close. You know, one or two of them to close in the, you know, the coming months. You know, as I said, the the model for this is you know, they're they're service related. It's, it's decontamination. There's a add on of rental There's there's potential add ons for repairs. And, you know, we would as I said, those are those are gonna be smaller deals than the deals we've been doing historically. But from a strategic perspective, very important to us. So you know, we as I said, I think the longer-term goal was to make sure we've got most of The United States covered. You know, with the with within the regions that we serve. And you then take a look at, perhaps greenfielding in other areas within, within the world. So you know, I I think that, when we say the the rope the the acquisition pipeline is robust, it's also imminent.

Okay. I greatly appreciate the comments. I'll pass it along. Thank you.

Thank you. Next question is coming from Mark Smith from Lake Street Capital. Your line is now live.

Hi, Mark. Hi, guys. Hey, I wanted to dig into gross profit margin a little bit more here just as we think about the second half. What's kind of implied for tariffs and any kind of shift in timing, you know, for Q3 versus Q4 would be great.

Yeah. We the the tariffs that's a great question. Great point. I appreciate you bringing that up, dude. The impact of the tariffs during the quarter was during this past quarter was about you know, 1.2 margin points. And you know, a large portion of that's due to the fact that you know, the the tariff numbers themselves jumped around a lot. Between different countries, especially ones we manufacture. And the timing of when we were able to implement price increases versus when the tariffs begin to impact us. So, you know, there certainly was a gap between the impact of the tariffs in the quarter and when the price increases started to take effect. And what we have seen in, like, pick July, the most recent month, or even in August, really, as we look at that, that is starting to balance out more. So so the benefit of the price increases is really kinda catching up more to the to the impact of the tariffs. The second thing that we saw in this quarter you know, if you remember, we had a, a a pretty large negative impact from the the the widely discussed purchase price variance that we hope and not talk about as much this quarter because it we did have a a pretty good reversal in that you know, from Q1 that kinda got us back into, you know, the higher thirties, but we do improvement in gross margin over the coming quarters. And I don't I I I've not sure I would see it you know, at at a 40 level again for the full year, but I think certainly getting closer to that in in the back end of the year.

Okay. And while we're on that, just as we look at the inventories, you know, they were up. It sounds like a fair amount of this is kind of pre-stocking stuff or tariffs. You know, how how comfortable are you with your inventory levels today?

Look. We're we we we consider them high. Okay? I mean, I'll be I'll be frank with you. I I I want to drive that we are gonna optimize our inventory and we're gonna drive them down over the course of the next six months. That is now we've got real line of sight on opportunities in both high performance and the turnaround business, which I think we've talked about earlier about some buildup associated with that. You know, we've identified LHD in in in Australia. They've got a buildup of inventory similarly in the in the high-performance area. As well that we would expect to, to move downward. And then Jolly's got, you know, additional buildup in some boots that they have in stock. That will be, you know, doing some promotions, introducing some new you know, new boots into new customers, in Jolly to help drive that activity. But, yeah, we're we're I I want I want that that inventory turn into cash as quickly as I possibly can, and and there's a there's a sense of urgency here to be doing

And just give you some indication that the the activity on high performance has started or it's still you know, it has just begun in the quarter, but you know, certainly a a significant amount of stocking for that HP program in The US we've talked about. But just for some context, for for Q2, our high-performance business was up 64% year over year, almost a billion dollars. And then even over quarter one, it was up 39%. Over quarter one. So we're seeing some acceleration in that You know, our disposable business was overall was up 12% year over year. Of course, fire, we talked about chemicals up 7% year over year. It really is that wovens in in LATAM, and I think there is also inventory associated with that. That you know, that will will and needs to move. But there's you know, I really, make make most no mistake about it. We're not happy with the level of where inventory is. We're certainly, you know, certainly taking action to make sure that we balance production versus, you know, just producing, on open order type items and things that are must stock or that are you know, under a container program, etcetera. So know, we had taken some actions in anticipation of of the tariffs. I think we're you know, let's say, well stocked in critical environment. We're gonna be doing some things to to work that down, and that's problem I. At this point, But but, certainly, you know, we're we're gonna work to get those inventory levels. You know, probably back at least back into the 80 millions.

Okay. And if I squeeze in one more here, just have you seen any change yet in in combined in in Latin America, or is it still kind of skittish there today?

We're, we are starting to see some movement in Latin America. We, you know, we we had some delay in shipments, particularly in the fire space that we're gonna see in the second half of the year that we're we're we're very comfortable with because, obviously, we've got line of sight of that. You know, Latin America has got a very close relationship with end users, and, they have they're in a place where we're striving to be, particularly on the industrial side, in North America where they've got strong relationships with end users. So they've also got some visibility on the industrial side. So, you know, Roger made the point know, we're gonna see some substantial recovery, but not enough to get where we needed to we needed them to be you know, earlier in the year. So we're not gonna make up for all the lost, you know, value that we had, that we anticipated in the in the year, but we're gonna see a substantial catch up in the in the second half. And you know, we're we're we are now sort of twice a week checking in with with LATAM and where they are. And getting very comfortable with where they're driving this.

Excellent. Thank you, guys.

Thank you. As a reminder, star one to be placed Our next question is coming from Gerry Sweeney from ROTH Capital Partners. Your line is now live.

Good afternoon. Good evening. Hey. Jim. How are guys doing?

Fantastic.

I wanted one more question on on tariffs. Maybe from a different angle. I'm just curious. Obviously, you kinda outlined the impact on margins, etcetera. But I'm wondering about maybe just more normalization maybe from two perspectives. One, your client perspective. Are they getting more comfortable with what's going on in sales picking up? Obviously, we see some decent organic sales, etcetera. But even secondarily, internally, right, you're a global company. You are a small cap, micro cap. Are you getting used to some of this variations and variability in tariffs and just getting our arms around that manpower which, you know, potentially could take away from sales optimization of and just running the everyday business.

You know, Jerry, the the that that's an interesting question. I I think the answer is we are getting used to the the the uncertain environment. You know, and we are, know, we are we are certainly coping with it, I think, a you know, in a much better way than maybe we were even, you know, ninety days ago. Mhmm. You know, operations operations has a lot of initiatives that they're working on from our Lean Six Sigma initiatives that we're working through, to, you know, shipping costs, warehousing consolidations. You know, those things serve the benefit you know, the bottom line. And they may not be an immediate quick fix fix, although some of them can be. As we witnessed sort of in the in the equipment consolidation. In Arkansas, and the hall closure, I I you know, those are things that we're that longer term, we'll continue to be focused on. And yeah. I mean, that the reality is once the tariffs are finalized, either the supreme court says one thing or the other, you know, it will be a one-time reality that we all from a competitive landscape, will deal with for that that annual period, and then we'll get through it. Yep. And it'll be a different world. So I I see see a light at the end of the tunnel here. I really do. I'm very optimistic with how we're we're handling it. And you're right. We are we are trying to you know, it it is we get we get what punch We think a punch is coming with a right hand and it comes from a left hand. So we do have to Yep. Adjust. But I'm I'm really pleased with how we're adjusting. Now if I can just get the end user customer to stop saying, well, let's wait until next month to see what the tariff looks like, That that's gonna help a lot.

Got it. I apologize. I'm not sure if this was asked. Talked about RFPs coming out and they were a little bit slower than you probably anticipated. Maybe a little bit more color on what you're seeing and just a little bit more confidence in in terms of how that's going to develop. Not sure if they've been issued in your applying form or or what have you.

Well, we're in the throes of several of them. At this point. And, you know, as I've said before, these things sort of ebbs ebb and flow. And we're seeing real activity, but that activity will likely hit end of this fiscal year early into next year. Okay. The good news is that we've got, you know, lots of inventory to roll out to, to entice folks to to purchase. And, you know, we've acquired what I would call sort of products that don't necessarily need to wait on an RFP. A helmet, a glove, a hood. Right? Those are not a boot. You know, those are things Yep. Firefighters, you know, just like my wife, they lose gloves. You know, and, you get they gotta go buy more. So it it's, you know, it's it's not it's and so those are things that you know, my senior sales leadership is driving and driving their team to do. You know, when we we've we've tried things like tariff-free sales. We've and and and we're seeing some we're seeing some movement with So yeah, I I you know, as though and then as as we start getting those consistent sales with some of those products, and you know, you get a you get a tender that hits. We have one in The UK. We think we've got real positive signs on where we're gonna be with that just because we've had prior relationships there. We've got a few in Europe, several in Asia, and in, the APAC region. And and more in, in all the other regions that, you know, we reside with that portfolio. We're gonna see know, some some pops as a result of that. I would expect those into next year. The other thing is that as we continue to grow the service business, this this recurring revenue model that I think we all love, you know, we'll we'll see that in the coming months, you know, hopefully in North America. You know, as an add on to what we're doing in Australia and Hong Kong. You know. And obviously, goal for me is to have you know, a significant amount of that services driven decontamination revenue recurring for us driving other opportunities.

Got it. No. That's helpful. And listen. I I mean, I I'd certainly appreciate you know, tariffs We come into the office every day, we see different headlines. So I I I get being in the trenches could be challenging. So we definitely appreciate that. Maybe a question for Roger. OpEx expense, I think you highlighted $1 million worth of savings, but targeting $3 million I think, in the second half of this fiscal year. As much as you can say, what are some of those what is the $3 million, and sort of what is the timeline? They gonna come sort of towards the end of the year or sometime in the, you fiscal three q and then some more fiscal four q?

You know what? I think it's gonna be probably consistent over the rest of the year because, you know, the way you think about it is we we really started this initiative about halfway through the current quarter. I think we made pretty tremendous progress over over, say, June and and all of July And then there are other things, you know, for example, like the, whole warehouse lease that really didn't even have an impact in Q2 that will start over the rest of the year. So, you know, I I would expect to see it pretty consistently over the rest of the year. So, you know, we had we said we had targeted four. We hope it will actually be more than that. We've got got, you know, one one one point one million of it in the barn so far, and then you know, just gotta keep on executing. But we you know, and to that point, we really haven't stopped either. It's we've identified some big rocks and and but we're still chipping away and working on some things.

Mean, we're we're working on on some consolidation of warehousing in parts in you know, different parts of the world that my ops team has been been looking at. You know, we're looking at even local shipping you know, sort of consolidating that into one into one shipper. Those things you know, that's that's saving money, $50 in this area and a $100 in this area and all of a sudden it adds up.

Yep. I get it. Okay. I appreciate that. Alright. I'll jump back in so I appreciate it, guys.

Thank you. Thanks, Jerry.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you, operator. And and thank you all for joining us for today's call. And thank you to our customers and distributor partners worldwide for trusting us with your lives and safety. Lakeland continues to be well-positioned for long-term growth. If we are unable to answer any of your questions today, please reach out to our our IR firm M